In a market pummeled by the novel coronavirus, anything that’s working looks golden. Dollar General (NYSE:DG) stock is working.
The low-price retailer, based outside of Nashville, is due to report earnings May 28, before the market opens. Analysts are expecting earnings of $1.70 per share. They are hoping for earnings of $1.81, on $7.4 billion of revenue.
You’ll pay a filet mignon price for that hamburger. DG stock opened May 26 at a price over $180. That’s a market capitalization of $45 billion, on 2019 revenue of $28 billion.
Over the last year the shares are up 45% while the average S&P 500 stock is up 4%. Even at the bottom of the pandemic, in late March, shares were only down 12%. They have surged since.
The DG Stock Story
Placer.ai, which measures retail traffic, says Dollar General has stayed strong throughout the pandemic. Visits to the stores were up over 31% year-over-year in March, and up 19% in April. Dollar General did especially well against rival Dollar Tree (NASDAQ:DLTR). Customer loyalty is 34% higher.
The reason for this, as I’ve written many times in the past, is that each Dollar General is unique. While the company began as a “dollar store,” focused on cheap merchandise for low-income people, it has evolved. In towns too small to support a Walmart (NYSE:WMT), Dollar General sells beer, wine and fresh produce. In contrast Dollar General’s Family Dollar units are all stocked by the same company, a unit of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B).
As wealthy consumers have been hunkering down, Dollar General has gotten their loyalty.
Dollar General Still Faces Controversy
That doesn’t mean the folks who run Dollar General are saints. While the company has sent out press releases about giving workers small bonus checks, complaints against its business practices are rising.
Workers complained about the conditions long before the pandemic hit. They say the stores are understaffed, that the company has done little to protect them.
But they’re not being heard. Even executives who complain are fired.
For reporters, Dollar General was a target-rich environment for muckrakers under former CEO David Perdue, now a U.S. senator from Georgia. Dollar General is still the kind of place that will charge an employee with felony shoplifting for helping a friend.
Analysts love Dollar General’s penny-pinching ways. Three-quarters of the company’s stores are in towns with fewer than 20,000 people. In major metros its stores are in “food deserts,” where people without cars can’t afford to go anywhere else.
Dollar General, then, takes advantage of poverty on both sides of the register. On the supply side, it gets workers who have few options. On the demand side, many customers have no other choice.
Dollar stores generally do well in hard economic times. DG stock did great through the 2009 recession. Hard economic times that will follow this pandemic are the perfect set-up for it.
The Bottom Line
After years of explaining DG stock to InvestorPlace readers, I finally bought some shares for my retirement account in March. I paid about $140 per share, banked $18 in dividends, and the value of my holdings are up over 25%.
I personally believe Dollar General can afford to treat employees better. It’s more a general store than a dollar store, which is the image it projects. I have many friends and relatives who love their local Dollar General, none of whom are anywhere near the poverty line.
The only risk I can see to the stock is a political one. But even in that environment, I think Dollar General has the brains, and the cash, to get through it.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in DG.
