Dollar General’s New CEO Will Have Big Shoes to Fill

Dollar General (NYSE:DG) stock is in a holding pattern as it awaits the announcement of a new CEO.

Dollar General (DG) store front with yellow store sign, midday
Source: Jonathan Weiss / Shutterstock.com

Todd Vasos, who has run the retailer since 2015, seems ready to move on. His employment contract expires next month. He’s one of the best executives you’ve never heard of.

A nationwide search for a successor was launched in February, but an insider hire is also possible. Vasos was chief operating officer when tapped from a field of 300.

The new guy has a tough act to follow. I called DG stock overpriced in March. I’ll admit, this was a mistake. It now trades nearly $20 per share higher. It opened May 25 at $198/share. That’s a market capitalization of $47 billion on fiscal 2021 sales of $33.7 billion. That’s high for a retailer. The dividend currently yields under 1%.

Vasos’s Legacy

Vasos has transformed the company. Its reputation is that of the ultimate “dollar store,” filled with cheap merchandise, suitable only for people earning low income. Activists in rural communities say it destroys their towns. Activists in urban communities call it part of the food desert problem.

The critics don’t know Vasos’s Dollar General. Many of his stores now sell fresh fruit and vegetables. Additionally, Dollar General has launched a second chain called DGX, targeting higher-income consumers. And it’s moving into the suburbs.

The format is popular. Nearly half of the new stores opening in 2021 will be Dollar Generals, or owned by rival DollarTree (NASDAQ:DLTR). Dollar General alone plans 1,000 new outlets, with nearly three opening every day this year.

The Dollar Store Curse

The “dollar store” reputation is a curse that has hurt Dollar General stock.

But it doesn’t describe today’s Dollar General. Today’s company is more a general store than a dollar store. It’s increasingly selling convenience, not just low prices.

Maybe the bearish should walk into one.

The stimulus checks caused some to downgrade the “dollar stores.” The reduced stimulus has caused some to downgrade it further. Even Bank of America (NYSE:BAC) has joined the bear camp.

They’re doing it just as the company raises its dividend by 17%. The fact is, Vasos’s Dollar General has delivered stellar returns for conservative investors. The stock has more than doubled on his watch. Furthermore, the dividend has risen from 25 cents per share to its new level of 42 cents. In 2021, Dollar General brought nearly 8% of its revenue to the net income line. That’s extraordinary for a retailer.

Results are why investors have been reluctant to follow analysts out of the stock. Yes, shares are down on the year, but only about 5%. Investors are holding their breath for first-quarter earnings, due May 27. A fat profit of $2.12 per share is expected on revenue of $8.13 billion. Some analysts are telling their best customers to expect $2.33 per share of earnings. Based on last year, the company’s price-to-earnings ratio is 19.3.

The Bottom Line on DG Stock

The next CEO has an opportunity to raise Dollar General’s stock price by just advertising what Vasos has done. They can double down on his strategy. Maybe they can even change the name.

Dollar General isn’t a dollar store. Or it’s not just a dollar store. It’s a general store — a convenience store. Anyone can go there for bits and bobs. It’s a faster, nimbler Walmart (NYSE:WMT).

Of 15 analysts following Dollar General, only one is now saying sell. Their average price target is 15% above its current price. I think that target is achievable, assuming the market and economy continue to perform.

I’m hoping the quarter is a big miss. If it is, I’m jumping in.

On the date of publication, Dana Blankenhorn held a LONG position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial 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 


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