I am not sure how many of my readers ever set their foot in a Dollar Store in America, but there are more Dollar Stores in the US than Starbucks, Walmart, and McDonald's combined. Dollar General is the leading Dollar Store brand in the US with almost 20,000 locations across 47 states in the US.
The origin of Dollar General was reminisced by Cal Turner Jr. ,who was CEO of Dollar General from 1965 to 2003, in his book “My Father's Business: The Small-Town Values That Built Dollar General into a Billion-Dollar Company”:
J.L. Turner and Son, as it was called then (James Luther Turner was my grandfather), had 36 retail stores, generally partnerships with local merchants, in small Kentucky and Tennessee towns. The business, headquartered in Scottsville, Kentucky, was grossing about $2 million annually, and my dad was always looking for ways to grow. He was a keen observer of both his customers and the competition, and he became intrigued by the “Dollar Days” sales put on by the big department stores in Nashville and Louisville. Once a month, they would take out huge full-color newspaper ads and sell merchandise with $1 as the single price point. My dad knew what those ads cost, and he understood that if they were spending that kind of money, they were selling a lot of goods. Customers obviously loved that $1 price point. Somehow, it made real value seem even more obvious.
“Why couldn’t we simplify all of our operations,” he thought, “by opening a store with only one price—a dollar?” Every day would be Dollar Day. In that flash of insight, he saw any number of benefits. Customers could keep track of what they were spending more easily, and checkout would be simplified.
While Dollar Stores have become quite prevalent in the US, the original idea of a Dollar Store has become somewhat obsolete. Dollar General stopped selling items only for a dollar decades ago; its closest competitor Dollar Tree held onto the original Dollar Store philosophy for far longer before giving up just a couple of years ago. Therefore, today the Dollar Stores mostly evoke a sense of “value” even though they have moved away from the original idea of Dollar Stores.
After Turner family successfully ran the Dollar General business from 1955 to 2003, David Perdue was the first outside CEO and led the company for four years before KKR acquired Dollar General in 2007. When Dollar General first came to IPO in 1968, one share of Dollar General was worth $16.5 which would be $6,555 in 2007, implying ~16.6% CAGR over 39 years.
KKR’s buyout of Dollar General was incredibly well-timed. During the Global Financial Crisis while S&P 500 Index went down by 38% in 2008, Dollar Tree was the best stock in the S&P 500 Index with +64% gain in the year. As the recession forced many people to trade down, Dollar Stores proved to be quite countercyclical.
KKR bought Dollar General for $7.2 Bn, but put down only $2.8 Bn equity and the rest was financed via debt. When Dollar General became public again in 2009, its Enterprise Value was ~$12 Bn and the equity was worth ~$8 Bn. Dollar General was a home run for KKR.
Dollar General handily beat the S&P 500 index even after it recently experienced its largest ever drawdown since becoming public again. The question is, of course, whether the current drawdown is a great opportunity for investors.
Section 1 Dollar General’s Business: I start the business overview with three key questions: a) who shops at Dollar General, b) why do they shop there?, and c) what do they buy in these stores? Then I discuss the unit economics of a Dollar General store.
Section 2 Competitive Dynamics and Near-term Challenges: In this section, I explored the rivalry between Dollar General, Family Dollar, and Walmart and some other near-term challenges that have been plaguing Dollar General.
Section 3 Long-term Debates: Beyond the near-term challenges, I mentioned some longer term concerns and what I think about them.
Section 4 Capital Allocation and Management Incentives: I explained on this section why I am a fan of neither Dollar General’s capital allocation nor their management incentives.
Section 5 Model Assumptions and Valuation: Model/implied expectations are analyzed here.
Section 6 Final Words: Concluding remarks on Dollar General, and disclosure/discussion of my overall portfolio.
Dollar General has been struggling with budget-stretched Americans switching to less profitable consumables and unwilling to spend on non-essential items such as home goods and apparel. "Our customer continues to be very value-driven," CFO Kelly Dilts said on a post-earnings call.
In an effort to cater to customers who want a more upscale shopping experience, Dollar General is opening retail locations that operate under a different brand. These stores are called pOpshelf, and they're meant to appeal to wealthier and more suburban customers.
In 2007, private equity firm Kohlberg Kravis Roberts & Co.(KKR) acquired Dollar General in a leveraged buyout transaction for approximately $6.9 billion. During this period, the company faced significant financial challenges due to a heavy debt burden, declining sales, and increasing competition in the retail sector.
Over the decade studied, dollar stores were the quickest-growing food retail channel in rural regions, increasing their share of household food purchases by 102.9 percent during that time, according to the study. This trend applied in particularly large numbers to communities in the rural South, the researchers found.
It has not been a great year for Dollar General. The chain was lambasted in an episode of "Last Week Tonight" where John Oliver highlighted the many problems in its stores which include significant labor issues. The HBO show, cast a harsh light on how poorly staffed the chain's nearly 19,000 stores are.
Current and former employees who spoke to Insider say clutter at Dollar General stores has gotten worse over the last few years. They've said staffing issues, including cut hours and poor wages, are at least partially to blame because employees must choose between helping customers and stocking shelves.
Dollar General Corporation is an American chain of discount stores headquartered in Goodlettsville, Tennessee. As of January 8, 2024, Dollar General operated 19,643 stores in the continental United States and Mexico.
One key approach is bulk buying from suppliers. By purchasing millions of units to distribute across their numerous locations, they can acquire products at a lower cost, similar to the savings Costco offers its customers through bulk purchases. Another method dollar stores use is sourcing liquidated items.
No Walmart does not own Dollar General. They are both two separate and independent retail companies. Both trade their stock publicly. Walmart has the ticker symbol WMT.
Largest shareholders include Vanguard Group Inc, Capital International Investors, Price T Rowe Associates Inc /md/, BlackRock Inc., Capital World Investors, State Street Corp, VTSMX - Vanguard Total Stock Market Index Fund Investor Shares, ABALX - AMERICAN BALANCED FUND Class A, VFINX - Vanguard 500 Index Fund Investor ...
Their poor labor practices, lax security, and sloppy safety protocols harm workers. They single out towns and cities with high concentrations of low- and fixed-income residents, particularly Black and Brown residents. They exacerbate traffic.
The persistence of labor violations at dollar stores indicates that though minimum wage increases across the country have made low-wage jobs better by many measures, some of America's 15 million retail jobs are still dangerous for workers.
Aisles at many Dollar General stores have been clogged with everything from dog food to school supplies over the last few years. Employees have told Insider that one cause for the mess is that Dollar General hasn't allocated enough worker hours to maintaining them.
The company's sales surged early in the COVID-19 pandemic, but have mostly plateaued since. It seems as though Dollar General's management expected sales to continue to surge, which resulted in the company holding too much inventory. Those overstocked shelves have led to lower profits.
Aisles at many Dollar General stores have been clogged with everything from dog food to school supplies over the last few years. Employees have told Insider that one cause for the mess is that Dollar General hasn't allocated enough worker hours to maintaining them.
Dollar General has a total shareholder equity of $7.0B and total debt of $7.0B, which brings its debt-to-equity ratio to 99.9%. Its total assets and total liabilities are $31.0B and $24.0B respectively. Dollar General's EBIT is $2.3B making its interest coverage ratio 7.1.
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Introduction: My name is Sen. Ignacio Ratke, I am a adventurous, zealous, outstanding, agreeable, precious, excited, gifted person who loves writing and wants to share my knowledge and understanding with you.
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