Shares of discount retailer Dollar General (NYSE: DG ) are up 5% for the year as it rides the recession wave higher. The Company operates over 18,300 discount stores in 47 US states. It primarily sells consumer staples consisting of consumables, seasonal items, household products and apparel in this revenue stream. Despite the name, it’s not a $1 item store like Dollar Tree (NASDAQ: DLTR ). In fact, most items are well over a dollar, but still discounted compared to major grocers and retailers like Kroger’s (NYSE: KR ), Target (NYSE: TGT ) and Walmart (NYSE: WMT ). Dollar General saw core customers buy more consumer staples versus discretionary items, highlighted by a rise in home goods sales and a decline in apparel. He also saw a trend of higher income households also shopping at the stores. Unlike big-box retailers, it considers itself a small-box discount retailer. Its stores average between 7,400 and 8,500 square feet per location, with nearly 75% of its stores located in cities with a population of less than 20,000. While it carries some major brands, it has a thriving private label that saw increased penetration in the quarter. They are carving out their place as the big fish in small ponds across the country.
Riding the wave of recession
On August 25, 2022, Dollar General released its second quarter 2022 financial results for the quarter ended July 2022. The company reported earnings per share (EPS) of $2.98 excluding non-recurring items versus analyst consensus estimates for profit $2.94, winner $0.04. Revenue rose 9% year over year (YoY) to $9.43 billion, beating analysts’ consensus estimates of $9.40 billion. The Company reported same-store sales growth of 4.6% and increased its share repurchase program. Year-to-date, cash flow from operations was $948 million. Dollar Store CEO Todd Vasos commented, “The quarter was highlighted by same-store sales growth of 4.6%, a slight increase in customer traffic, accelerating market share of FMCG sales and double-digit EPS growth”.
Two digit orientation
Dollar General issued fiscal 2022 full-year guidance for EPS to rise 11% to 12%, or $11.39, to $11.59 versus $11.57 consensus analyst estimates. Full-year revenue is expected to rise 11% to $38 million versus $37.71 billion in line with analysts’ consensus estimates and from an initial forecast of 10% to 10.5% growth. Same-store sales are expected to rise between 4% and 4.5%, up from 3% to 3.5% initially. It also expects to buy back $2.75 billion in stock, down from an initial estimate of $1.4 billion to $1.5 billion. Supply chain constraints and licensing delays force the Company to reduce total property projects to 2,930 from 2,980. This includes 1,010 to 1,060 new store openings and 1,795 renovations and 125 store locations.
Here’s what the chart says
Using the rifle charts on the weekly and daily time frames provides an accurate picture of the price action in the DG stock. The uptrend on the weekly rifle chart is lingering for a possible reversal as the weekly 5-period moving average (MA) is down at $246.67 to the 15-period MA at $244.34. The 50-period weekly MA is at $227.83. Shares tumbled after dropping $253.58 Fibonacci level (fib).. The weekly speculator triggered a bearish mini-reverse puppy testing the 80-zone overbought level. The weekly low market structure (MSL) the buy trigger is at $230.80. The daily rifle chart is attempting a breakout as the 5-period MA at $244.59 is rising through the 15-period MA at $244.04. The daily stochastic has formed a mini-puppy through the 40 zone. The 50-period MA daily resistance is at $248.25 and the 200-period MA daily support is at $229.37 just below the daily lower Bollinger Bands (BBs). to $229.84. Attractive pullback levels are at $239.32 fib, $233.97, $225.42 fib, $222.53, $218.40 and $216.06 fib.
Big fish in small ponds
As mentioned earlier, Dollar General is not a $1 store. It has successfully transitioned into a small-box retailer with a growing grocery business it calls DG Fresh. It’s literally trying to emulate the big retailers, but in a smaller format, with a loyalty program and a powerful mobile app. To avoid a David vs. Goliath situation, the Company has strategically placed 75% of its stores in cities with an average population of less than 20,000. It has carved a niche in small locations where big retailers wouldn’t even consider it.