The U.S. seems destined to lapse into a recession, with unemployment possibly headed as high as 25%, experts warn. Even in a recession – or a depression – people are going to need basic staples, and that’s where Dollar General (NYSE:DG) is flourishing right now. Dollar General stock has added more than 15% so far this year.
Surprised? You shouldn’t be.
But when you look at the stock’s performance, Dollar General doesn’t take a back seat to anyone right now.
Dollar General has more than 16,300 stores scattered across 45 states – in fact, the company says about 75% of the U.S. population is located within 5 miles of their closest Dollar General store.
And with all 50 states reopening at least partially this week, DG will see plenty of traffic as cash-strapped shoppers seek bargains at their local discount stores.
Dollar General Stock at a Glance
Dollar General stock has been a winner so far this year. The stock is up 16% year-to-date, hitting all-time highs above $180 per share.
More notably, DG stock is one of the best-performing retail stocks during the novel coronavirus pandemic, outperforming the retail sector by a wide margin. The SPDR S&P Retail ETF (NYSEARCA:XRT) is down nearly 20% year-to-date.
Another popular fund, the VanEck Vectors Retail ETF (NYSEARCA:RTH) has managed only a 1% increase so far this year, and that’s despite having DG stock as one of its top holdings.
In its most recent fiscal year ending Jan. 31, DG reported net income of $1.7 billion and an operating profit of $2.3 billion. Sales of $27.7 billion showed a strong increase of 3.9% in same-store growth on a year-over-year basis.
The company is also doing well in growing earnings per share, which rose to $6.64 in its 2019 fiscal year, compared to $5.97 in the previous fiscal year.
DG is expected to report fiscal 2020 first-quarter earnings on May 28. Analysts are expecting EPS of $1.70 per share, and it will be interesting if the company can keep its streak of earnings surprises even in a quarter in which the company has been ravaged by the Covid-19 pandemic. If DG’s numbers are solid, then that will bode well for the rest of the year.
Navigating Through the Pandemic
Dollar General already saw a wave of new shoppers in the first four months of the year, and that was before the unemployment rate really skyrocketed. DG says it hired more than 43,000 new employees between March 15 and April 30 across the country by the end of April to meet the growing demand.
And while the company expects the 2020 fiscal year to have overall gains of 7.5% to 8%, it also raised the possibility that the outbreak could have “a significant impact” on the business.
CEO Todd Vasos expressed confidence, however, that Dollar General will continue to thrive.
“Our value-and-convenience proposition continues to resonate with both new and existing customers, and our unique real estate footprint remains a competitive advantage. As we enter 2020 from a position of strength, we will continue to keep our core customer at the center of all we do while remaining steadfast in our efforts to deliver long-term shareholder value.”
He’s probably right. In the Great Recession of 2008-09, existing dollar store customers tended to visit often and buy more, while new customers “traded down into the value space,” according to Joseph Feldman, an analyst at Telsey Advisory Group. “Dollar stores generally do well in times of stress.”
The Bottom Line on Dollar General Stock
Dollar General is in a good spot here. Conveniently located near a huge majority of the U.S. population at the beginning of a recession, DG’s offerings of basic staples, cleaning supplies, clothing and paper products will be in demand.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.