Dollar General (DG 0.27%) has seen its stock take a nosedive, plummeting around 71% since it peaked in late 2022. Despite battling some challenges, the company is still on a growth trajectory, and its turnaround strategies seem to show promise. Perhaps Wall Street’s current gloom matches its earlier excessive optimism.
This might just be the moment to consider taking a chance on Dollar General’s stock.
### Understanding Dollar General
Dollar General is a unique player in the retail space. It offers a diverse range of everyday products at prices that are easy on the wallet, targeting consumers who aren’t as well-off financially. Its true strength, however, lies in its store locations.
The company strategically places its outlets in rural areas, where there’s less competition from giants like Walmart and Target. Thanks to its smaller store format, Dollar General can thrive without needing large populations nearby. This convenience appeals to customers who want to make quick purchases without long trips. Presently, Dollar General runs over 20,500 stores across the U.S. and Mexico.
There’s an interesting dynamic at work here. While the retailer’s core focus is on essentials like toiletries, it also stocks higher-margin items such as clothes and home goods. In recent years, it tried to push these higher-margin non-essentials more aggressively, but they didn’t sell as well as the basics. Therefore, Dollar General has refocused on what moves off the shelves, even though it’s a hit to margins. Catering to customer demand isn’t a bad move, even if it does sting the bottom line a bit.
### What’s Happening with Dollar General’s Stock?
A few years back, Wall Street couldn’t get enough of dollar stores, sending these discount players’ stocks soaring. A big reason for this was affluent shoppers beginning to opt for bargains, but this wasn’t a long-term boost since they aren’t the primary market. When this dynamic shifted, discounts didn’t hold up as well. Competitor Dollar Tree (DLTR -0.41%) experienced a similar stock decline industry-wide.
But let’s look at the interesting picture today. Dollar General’s shares have dipped back to their 2018 levels. At the close of 2018, the company had about 15,470 stores. Now, boasting over 20,500 locations, it’s expanded by a substantial 33% since then. Dollar General continues to grow and open new stores.
Nonetheless, fiscal 2023 closed on a weak note, with net sales contracting by 3.4% in the fourth quarter, and same-store sales barely inching up by 0.7%. For the fiscal year 2023, sales rose by 2.2%, but same-store sales climbed just 0.2%. However, fiscal 2024 shows promise, with same-store sales remaining in the positive and new locations fueling net sales growth into the mid-single digits.
Overall, Dollar General’s return to basics seems to have steadied its footing. Considering the stock’s downturn, it might hold appeal for contrarian investors again. The crux is that this ever-expanding company is appreciably larger than when its stock last hovered at today’s levels. If this is truly the turnaround point, its increased size could significantly improve financial results. The early signs indicate this shift might be on the horizon.
### High Risk and High Reward
In reality, Dollar General may not suit most investors. This still-growing retailer has quite a few complexities, coupled with underwhelming financial performance. However, if you lean towards contrarian investing and have a long-term view, Dollar General appears to be rejuvenating its operations. Considering the expansion within its store network, this could rapidly translate into markedly better financial outcomes.
