Dollar General Continues to Deliver a Strong Value Story

Dollar General (NYSE:DG) delivered a strong fourth-quarter earnings report. The report also closed out the company’s 2019 fiscal year. By every measure that is important to investors, the company delivered good news. Quarterly earnings were better than expected. Quarterly revenue was a slight beat, but a beat nonetheless. Same-store sales, often seen as a key growth metric were also up.

And when investors looked at the year-over-year outlook, the results were similar. Both earnings and revenue showed significant growth.

In any other time, the company’s stock would be soaring on this news. But these are not ordinary times. And DG stock is down as are virtually all stocks as investors feel their way through the unprecedented measures being taken as our country attempts to contain the spread of the Covid-19 virus.

However, the stock is down less than the broader market. And this suggests that while investors are undoubtedly selling all equities. They are still looking for value. And the value proposition for Dollar General remains strong.

Dollar General is building a larger footprint

This is part of a larger success story that has been building (literally) for the better part of a year. In December, I wrote about the expansion of Dollar General stores and what that expansion meant for the broader economy. Dollar General stores can now be found in 45 states. The earnings report shows that any concerns of building too far, too fast are quieting down. In fact, Dollar General’s continued strength shows that the company continues to connect with its core customer.

Dollar stores have been a staple of the American economy since the Industrial Revolution. They have consistently been a place where lower-income individuals can buy merchandise at discounted prices. However, as the economy raced to new highs, fueled by e-commerce, the concept of a dollar store was starting to feel outdated.

Through it all, Dollar General has remained a constant. The store has increased same-store sales every year for the last 30 years. One reason is that it is embracing the consumer that may not be able, nor want to participate in the digital economy. Because of its low prices, Dollar General does fill a need among the unbanked.

New initiatives are keeping stores fresh

And Dollar General is not only building new stores, they are introducing new initiatives such as DG Fresh. This addresses a central complaint that dollar stores often lack fresh ingredients and therefore perpetuate poor eating habit among a part of the population that can ill afford it. With DG Fresh, the company has the ability to ship fresh and frozen produce directly to its stores.

And with an initiative like a Fast Track, self-checkout in some stores, they are appealing to a reality that many customers have become accustomed at larger chain stores.

Investors were looking at the company’s forward guidance

Of course, the elephant in the room for Dollar General was how the Covid-19 virus was going to impact its fiscal 2020 results. To that end, the company said that, at this time, it does not expect the supply chain disruptions it has experienced thus far in 2020 to have a material impact on its fiscal 2020 financial results. However, the company also said it continues to monitor the situation, and notes that it had already begun to reduce its exposure to Chinese imports as a result of the tariff conflict between the United States and China. Dollar General’s current forecasts are for slower sales growth and same-store sales growth in 2020.

When the dust settles, Dollar General will be leading the market back

Right now, it’s understandable if you want to stay out of the market. But there will be a time for investors to jump back in. And when they do, Dollar General looks well-positioned to be a company leading the way back. Same-store growth in addition to increasing revenue from new stores should spur the company’s profits.

And, Dollar General just increased its dividend for the fourth consecutive year. So even if the market takes a while to find its footing, investors can get a nice dividend for their investment.

With the recent downturn in the market, analysts’ price targets give Dollar General an upside of over 11%. Value will be the name of the game when the market tries to find its footing. Dollar General is a stock to buy for that value.