• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Dollar General Is Just Not a Good Bargain, Right Now

DG's management doesn't seem to believe in the company's ability to adapt and overcome, so why should we?
By STEPHEN GUILFOYLE
Dec 04, 2018 | 10:53 AM EST
Stocks quotes in this article: DG

Hmmm

Dollar General (DG) reported the firm's third-quarter results this morning. Not very well received would be a polite way to put it. I must say, that as a trader/investor who either actually trades the names I write about, or at least considers doing so, that this name perplexes.

Do I buy this name on this discount? I'll know the answer to that question by the time we get to the bottom of this piece. There have been many great generals in history. From mid-2017 through this past Autumn, Dollar General acted like Napoleon Bonaparte leading the Grand Armee of 685,000 troops into Russia in June of 1812. This morning, the stock acts more like that same army returning in December of that year with an estimated 22,000 effectives still under command.

The Digits

The firm reported adjusted Q3 EPS of $1.31. The adjustment was a $0.05 charge related to hurricanes that hit the southeastern Untied Sates during the quarter. This result beats expectations of $1.26. Revenue was also strong, both beating expectations as well as sporting 8.8% y/y growth. Same-store sales? Those were positive as well, at 2.8% growth versus a consensus view of 2.4%. Gross profits were lower, but so were expenses, resulting in operating profits that increased 5.9%. On the surface, the execution -- if not stellar -- seems efficient. So, what's the problem?

Dollar General guided full-year results lower. That's the problem. Basically, the firm flat out told us that it expects to have a lousy fourth quarter as it took full-year 2018 EPS guidance from a range of $5.95 to $6.15 down to $5.85 to $6.05. Consensus analyst opinion has been for something in the $6.11 area. DG also took its own revenue forecast down to the very low end of the previous target range of 9% to 9.3% growth.

Reasons

This firm appears to be placing blame for its  expected shortfall on the trade condition with China, despite the fact that Dollar General only imports a rough 5% of the merchandise on its shelves. The fact is that many middle managers who sell to the firm have supply lines that run through China. This makes those supply lines vulnerable. I would venture that factors such as rising fuel prices and truck driver shortages are impacting expenses, except that the firm had already stated that expenses were under control, and fuel prices have simply collapsed. An economy that shows signs of softening should offer strength to discount retailers. No sign from management that they feel this overt negative could be a positive for them.

The Bottom Line

It seems to me that despite the discount in this name today, management is not confident. Frankly, I thank them for their honesty, but I cannot invest where I feel that management does not believe in their own ability to adapt and overcome. I certainly will not, in a public forum, lead my readers in a direction that I will not travel with them. If we invest and win, then we're champs. If we lose, management themselves told us so. I have enough on my plate without adding a name where management cannot make me believe. My vote is nay. Even at a discount.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Guilfoyle had no positions in any of the securities mentioned.

TAGS: Investing | Stocks

More from Stocks

When it Comes Time to Sell, Will You Act or Will You Freeze?

James "Rev Shark" DePorre
Jan 16, 2021 10:00 AM EST

Why don't more people embrace the ease and power of selling stocks? Why do they freeze and do nothing as losses build?

Hungry Traders and Stock Opportunities Aren't Likely to Go Away Soon

James "Rev Shark" DePorre
Jan 15, 2021 4:40 PM EST

It doesn't take much time for stocks with strong momentum to reset and continue on their way.

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

United Parcel Service Is Testing Key Support

Bruce Kamich
Jan 15, 2021 2:30 PM EST

A look at the charts of UPS.

A Buy and Hold Play With Hennessy Capital V

Timothy Collins
Jan 15, 2021 2:24 PM EST

HCICU hit the public markets today.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    When it's time to sell, will you act or freeze?
  • 08:35 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/13/2021

    Lower highs... SPX (Long-Term View) The 1/8/2...
  • 08:07 AM EST GARY BERMAN

    Tuesday Morning Fibocall for 1/12/2021

    Watch if the recent trend of lower highs continues...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login