Halls of Shrewd'm / US Policy❤
No. of Recommendations: 30
Dollar General reported fourth-quarter earnings of $1.83 a share, and revenue of $9.86 billion. Consensus was $1.73 a share on revenue of $9.77 billion, so both were beaten a little - perhaps nothing remarkable, but with poorer Dollar Tree results yesterday, some investors may be upbeat (mistakenly or not) about Dollar General's competitive/managerial advantage over Dollar Tree, or at least starting to recognise that DG (PE 19 post this morning's gain) was a little better from a valuation perspective compared to DLTR (PE 24).
Congratulations to mungofitch for having a good instinct for DG (relative to DLTR) over the second half of 2023 as a good investment opportunity (starting in mid June 2023 but persistently through the rest of 2023 during the quote lows) following the largest quote falls in early June.
I do not know any investor (I don't mean just personally, but also observing at a distance) also who has done well over time by trading (trading 'in and out' of positions in single stock) according to news releases. When information is publicly available, the quote reacts not only (1) immediately as the news is available, but worse (2) it tends to reacts in an exaggerated manner.
Indeed news can effect the estimate of intrinsic value 10 years into the future, and your calculation for the long-term investment return really may have changed quite a lot after the news. But rarely have the long term prospects changed. This was the a key insight from Ben Graham. He put considerable attention to observing that the earnings would move up and down three of four times over, say, 10 years, with only a gradual upwards trend. Each - rather steep - earnings swing was transient, and hardly related to the slight upwards trend. Most importantly, the quotation would follow these transient earnings changes almost 1 for 1 - he would graph the EPS and the quote and show that they followed each other closely, the quote treating each EPS change as a permanent change.
Today the market is a little more efficient than back then - yet it still treat recent conditions as rather too permanent. If you want to be a good investor today, I believe it is useful to think longer-term than the bulk of the market and recognise news releases as one data point in a change of many future news releases (further data points, both positive and negative) and do not treat the latest news release with more prominence than the enormous chain of all news that is going to be observed in the next 10 years or so.
- Manlobbi
No. of Recommendations: 10
Thank you, Manlobbi. Sound advice and valuable wisdom as always.
I noticed Chris Bloomstran has really increased his DG position to #2 in his Semper Augustus portfolio per his most recent letter (from over 1% to now 10%) and he also mentioned his belief in DG on the recent Value After Hours podcast earlier this week. He has owned and followed them closely for years and glad he also has strong optimism in management and execution of their vision going forward. He mentions them on p.20 of his 2023 client letter.
https://www.semperaugustus.com/clientletter
No. of Recommendations: 5
or at least starting to recognise that DG (PE 19 post this morning's gain) was a little better from a valuation perspective compared to DLTR (PE 24).I prefer to look at the earnings guidance for the next year. DG has guided to EPS of $6.80 to $7.55 for year ending Jan 25. That works out to fwd PE of 21 at the mid point of the EPS guidance.
For 2024, Ulta (ULTA) expects a profit of $26.20 to $27 per share on sales of $11.7B to $11.8B. The Street is expecting a higher profit of $27.03 on $11.7B in sales.
Comparable sales are expected to increase 4% to 5% versus comparable sales of 5.7% in 2023. The operating margin is expected to contract to 14% - 14.3% from 15% in 2023. https://seekingalpha.com/news/4079722-ulta-shares-...Stock has fallen by about 7% and is now trading at just below 20 fwd PE at mid-point of guidance.
The beauty segment of retail esp. Ulta has much higher growth, margins, ROE/ROTC than dollar stores / DG. With Ulta sporting a forward PE valuation slightly below DG, maybe Ulta is the better buy.
What do you think?
p.s. Sorry to post about Ulta on DG board, but Ulta does not have an active board.
No. of Recommendations: 1
I agree that there is not much to compare with dollar stores, but you piqued my interest anyways, and I posted a reply and a couple of questions here on the ULTA board:
https://www.shrewdm.com/MB?pid=682835462dtb
No. of Recommendations: 6
Cross post from Falling Knives on a thread about DLTR:
Possible that both DLTR and DG are heading toward a better future.
DLTR is pulling back from a business that was harming them - the acquisition of Family Dollar. Closing stores there is a good thing for their business, improving their economics quickly. It's an improvement from where they were and probably a good thing that improves their long term prospects. But the valuations for DLTR doesn't suggest its a great deal, although better than it was before their earnings report drop.
DG earnings report was the mixed bag they have been reporting lately. Sales look okay and growth possible, but signaling operating margin pressure looking forward. But an interesting thing that wasn't factored in is the DLTR is also pulling back on Family Dollar and shutting some stores. I think FD competes more with Dollar General than the Dollar Tree brand. Could be wrong about that, but they are both focused more on smaller suburban and rural areas than DLTR seems to be. So DLTR's pull back on Family Dollar brand is good for them but maybe also good for DG by reducing competitive pressure. That might be a marginal benefit compared to everything else they are trying to do, so not something to bank on. But this move by DLTR feels like a move that improves the competitive economics for both companies.
None of this overcomes the risk from things like recession, or prolonged or increasing interest rates. But I am happy continuing to hold the DG that I do. Their valuation is reasonable, they pay a dividend, continue to show growth, and now just need to reduce the drivers of lower margin.
No. of Recommendations: 7
I noticed Chris Bloomstran has really increased his DG position to #2 in his Semper Augustus portfolio per his most recent letter (from over 1% to now 10%) and he also mentioned his belief in DG on the recent Value After Hours podcast earlier this week. He has owned and followed them closely for years and glad he also has strong optimism in management and execution of their vision going forward. He mentions them on p.20 of his 2023 client letter.
I am having trouble convincing myself to reinvest in this company, and so I was hoping for a little more on Bloomstram's reasons for optimism. He basically says the company 'overearned' during COVID, but that last year's 30% drop in earnings was "mostly temporary", and he figures that what he calls 'normalized' earnings are less than 2023 but much less of a drop than 30%. EPS in 2022 was $10.68, and in 2023 was $7.55 (down 29.3%), so let's say for the sake of the argument that earnings might rebound 2/3 of the way to $10.68. That would put them at $8.59, probably not before 2025, since the company has said they expect 2024 earnings of $6.80 to $7.55. (By 2024 earnings, I mean this year, which they call 2025 because the year begins on Feb 1st. We are already in fiscal year 2025 for DG).
That doesn't seem crazy: they may be able to stem the theft problem with less self-checkout, and it should help that their competitor is closing a lot of Family Dollar stores.
If they can get back to $8.59 per share, hat would mean that today's $150.78 closing price represents just under 18x 2025 earnings.
I don't find that quite attractive enough to reinvest here. I bought some around $110 and sold it all around $130 to buy something I liked better (Carmax), at about the same current multiple. Both should rebound after what was a bad year for both, but I like the long-term propects of Carmax better. They have less than 4% of the used car market, with lots of room for growth, whereas DG already dominates in their niche (along with Dollar Tree). Both are limited to the US, but I think Carmax could expand into other countries whereas I doubt DG could. DG may be able to correct some of theft problem, but they are going against a headwind of more social acceptance of theft and less strenuous application of the law, something Carmax does not really have to worry about. DG has to worry about online sales (Amazon etc.) that are increasing in all income groups, and as they exapnd into consumables, they will be taking on the big grocers too, who typically have better prices.
And more generally, they are not the low-cost provider, the way successful companies like Amazon or Costco or Walmart are. It is important to have a company that can purchase and resell used vehicles at a fair price, but it is less clear that there is a long-term need for dollar stores - they seem more like a vestige of the past than a company with a bright future.
I would be interested again if the price fell back to $100-110 or so, but I like it more as a short-term trade than a long-term investment which I could buy and forget.
DTB
No. of Recommendations: 1
EPS in 2022 was $10.68, and in 2023 was $7.55 (down 29.3%), so let's say for the sake of the argument that earnings might rebound 2/3 of the way to $10.68. That would put them at $8.59, probably not before 2025,
Whoops, that would be a 1/3 rebound. A 2/3 rebound would take earnings to $9.64, putting them at 16x 2025 earnings, not 18x. Not so bad, but still not enough to convince me. Sorry for the error.
No. of Recommendations: 7
I noticed Chris Bloomstran has really increased his DG position to #2 in his Semper Augustus portfolio per his most recent letter (from over 1% to now 10%)
the above quote from Q1 results
.
Looks like Dolly is helping boost DG these days
https://www.businesswire.com/news/home/20240709045...Maybe Chis Bloomstran had an inside view
..
ciao
