Halls of Shrewd'm / US Policy❤
No. of Recommendations: 4
I'm not convinced that the company will be able to recover its profit margins. They've been trying to cut costs for a while, but their margins keep going down, just like Manlobbi said. Check out the trend the last 6 quarters - so far a perfect straight line downwards.
If they were ignoring the problem, it would be one thing, but they've been working on it. The problem is that they seem powerless to fix it. They can't raise prices much because inflation is making sales drop, and they don't want to sell even less. They can't cut costs much either, because it could lead to more theft, and they're even talking about hiring more people, which will make the margins fall even further.
Margins could get so low that they won't make any money, and then they'll have to raise prices just to stay afloat. But that could make their sales drop for a while.
I'm not sure if Walmart is the only big competitor. There are other companies that are also trying to compete with them, especially Aldi, which is growing really fast here.
No. of Recommendations: 2
So 9 years ago the stock price was virtually the same, actually far higher considering inflation. And you probably have at least twice as many stores as 9 years ago.
No. of Recommendations: 7
^^So 9 years ago the stock price was virtually the same, actually far higher considering inflation. And you probably have at least twice as many stores as 9 years ago.^^
That makes it a better investment starting today than starting back then. Also if the value (and forward expected return) back then was reasonable, then what you are writing here implies that it is very good value today.
I like that you are enthusiastic by cheering their expanding sales, but the problem though is that margins have declined under their full knowledge of the various problems causing the margin decline, but unable to reach to it. It was a not a case of deliberate temporary margin compression but something that might be beyond Dollar General's control.
I'm not so against the possibility that it is a great investment from today's price.
However margins could fall from the present 3.5% net margin to 0% with only a small increase in expenses owing to the fixed costs. They don't own their buildings so have to pay rent, plus they have significant corporate debt.
Market cap - $18B
Enterprise Value - 35B
Net debt - $17B
Their debt is as large as their market cap. For now that is okay, but cash flow can go to zero pretty quickly.
Just blindly assuming that they will return to past margins - when they have been trying to do this over many quarters unsuccessfully - should be assumed cautiously. Or if you think they can raise margins, you have to be also able to explain why they have been falling the last 6 quarters and what they are doing differently in the next quarters (compared to the last few) that will change that.
No. of Recommendations: 4
That margins have lessened is obvious and that HVAC units haven't had maintenance (as per management presentations) suggests real pressure. One of the things repeatedly referenced by the slew of Facebook posts as to our DG store in our lake community is the employee complaints that no matter what or when that staff won't be added. Employees state they are overwhelmed and can't keep up. The store has long periods of being closed, mostly delayed openings.
The probability of a recovery of margins, while left-brained analysis can snatch endless info, will be a right brained victory for someone...it will be a success story investment or wise avoidance entirely. But data lovers/extractors may or may not be the ones to make the correct call.
