Dollar General (NYSE:DG) is the best-run retailer in America. Yeah, I said it. Whether that’s enough to stick with DG stock, though, remains to be seen.
The reason is Todd Vasos, CEO since 2015. His employment contract expires in June. While there has been no decision made, the company has contacted headhunters and will compare their candidates to its own executives.
It has done this before. Vasos was chosen from a pool of 300 candidates.
Vasos may be the best executive you’ve never heard of. If he’s leaving, it’s on a high, even though DG stock opened for trade today at just over $180 and falling. That’s a market cap of $47 billion on expected fiscal 2021 sales of $33 billion. The 36 cent per share dividend now yields less than 1%.
The merchandise is cheap. The stock is not.
Todd Vasos and DG Stock
Vasos became CEO after Dollar General lost its effort to take out rival Family Dollar, which went to Dollartree (NASDAQ:DLTR).
I toured both stores back then, along with a Walmart (NYSE:WMT) Neighborhood Market. I was struck by their differences. Family Dollars were cleaner and more uniform than Dollar Generals. At Dollar General merchandise was piled up higgledy-piggledy, as my late mom would say. But if the customers wanted something special, like pork rinds, there were pork rinds at Dollar General.
Vasos has cleaned the aisles and the stores are now more diverse. Where customers will pay for fresh produce, there is fresh produce. Where states let it sell liquor, there’s liquor. In many small towns, the local Dollar General is a mini-Walmart, delivering Walmart pricing in places too small to support a Walmart.
Dollar General isn’t generally a fast-growing company. Sales in fiscal 2020 were just 36% higher than in 2016. But it’s consistently profitable, with net margins over 6%. At Walmart, it’s 2.4%.
New stores still aren’t always received with open arms. Some urban counties have passed moratoriums on dollar stores, which they say create food desserts. Some rural areas protest the appearance of a “big box” in small towns, but today there are over 17,000 stores and 75% of Americans live within five miles of a Dollar General.
In December, Vasos said the company would open 1,050 stores this year, remodel 1,750 and relocate 100. Expanding beyond its rural and low-income base, the company is launching DGX stores in some urban areas, smaller but with fresh produce and larger health sections.
Tough Act to Follow
Expect more of the same if chief operating officer Jeff Owens, who has been in place for 18 months, succeeds Vasos. That the company is also looking outside, however, suggests that complacency is not in the forecast.
That’s vital for shareholders to hear given the current DG stock price. It’s high because during the pandemic year-over-year sales have grown at a 23% rate, and net income at 70%.
Dollar General was never a digital leader, but it has added contactless pick-up. It’s also adding more non-consumable, high-margin goods. Half the stores are still waiting for upgrades, and a rising minimum wage would go straight into many customers’ pockets.
The Bottom Line
This is my first time looking at Dollar General where I rate it a “hold” rather than a “buy.”
The current stock price is inflated by the pandemic. Vasos’ contract creates uncertainty in the outlook. There are going to be more opportunities as stimulus comes in.
I wouldn’t rush to the exits. You can lighten up and take profits, but this is a well-run company, one still capable of growth. And if Vasos is heading out the door, please, give him a hand. He deserves it.
At the time of publication, Dana Blankenhorn owned no shares, directly or indirectly, in companies mentioned in this story.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
