Dollar General Corp. (DG) by Nathan Haselhorst, Abe Khorshid, and James Charehsazan Recommendation: Buy
Who is Dollar General? ? ? • Dollar General is a leading discount retailer that specializes in consumable basic merchandise including health and beauty aids, packaged food products, cleaning supplies, housewares, stationery, and seasonal goods. • They operate over 4, 100 stores located in 24 states, primarily in the midwestern and southeastern United States, serving mainly low, middle and fixed income families. • The majority of products are priced at $10 or less, with nearly 50% of the products priced at $1 or less. The most expensive items are generally priced at $35.
Who is Dollar General? ? ? • Merchandise offered includes first-run merchandise as well as manufacturers' overruns and closeouts.
Company History • 1955 - First Dollar General store opens in Springfield, Kentucky with no item over $1. • 1968 - Dollar General becomes a public company. • 1976 - Dollar General exceeds annual sales of $100 million for the first time. • 1977 - Acquired United Dollar Stores and doubled its number of distribution centers. • 1979 - Dollar General now operated 700 stores in 22 states. • 1983 - Acquired 280 stores from P. N. Hirsh. • 1985 - Acquired 206 stores from Eagle Family Discount Stores.
Company History • 1987 - Launched its GED/Learn To Read program in which it connected customers to reading centers. • 1993 - Dollar General exceeds sales of $1 billion. • 1996 - Dollar General exceeds $2 billion in annual sales while surpassing 3, 000 store mark and employees total more than 25, 000. • 1997 - Open 468 new stores in that year alone. • Today - Part of the Fortune 500 with over 4, 100 stores and with sales in excess of $3. 5 billion
Store Info • Store size ranges from 5, 000 to 10, 000 square feet with an average size of 8, 000 • Focus in markets with population of less than 25, 000 and with a median income of less than $35, 000 • In 1999, started to double the number of stores by 2004 from 3, 600 to 7, 200 • At the same time, they are relocating older stores into bigger buildings with more visibility • All of Dollar General’s stores are company owned and it also has its own distribution system. They have eight distribution warehouses in Missouri, Kentucky, Oklahoma, Mississippi, Georgia, Florida, and Virginia
Why Dollar General? ? • Dollar General focuses on consumable goods that a person needs to buy continuously. An example of this is laundry detergent, toiletries, and food products • Because of these items, Dollar General is not prone to trend changes on the sales of its products. These are products that everyone needs. • Also because items offered and its prices, Dollar General would be better able to weather any bad economic times as well as prosper in good economic times.
Why Dollar General? ? (cont. ) • Dollar General focuses most of its stores in places where other large chains would otherwise ignore. This give Dollar General a large advantage in these markets. • Because of low to no debt, Dollar General is less likely to be affected by fluctuations in interest rates.
Comparison with Competitors DG 5 yr EPS grth Net Margin ROE ROA LT Debt/Cap Div. grth Next 5 yr. EPS grth FDO WMT Industry 27% 5. 7% 25. 8% 15% 0% 26% 23. 1% 17% 5% 22. 1% 12. 8% 0% 11% 23. 1% 14% 3% 23. 7% 8. 9% 43% 19% 14. 9% 7. 9% 2. 5% 12% 18% 19. 6%
Covering Brokers • Strong Buy • Moderate Buy • Hold 6 10 2 • Average Consensus 1. 72 • Covered by Merrill Lynch, Morgan Stanley Dean Witter, Prudential, Paine Webber, etc.
5 Year Stock Performance
Moderate Growth of 23. 1% 2000 2001 2002 2003 2004 2005 2006 Net Income $269, 586, 000 $331, 860, 366 $408, 520, 110 $502, 888, 256 $619, 055, 443 $762, 057, 250 $938, 092, 475 Current P/E of 26, price of $92. 30 EPS 1. 02 1. 26 1. 55 1. 90 2. 34 2. 88 3. 55
Conservative Growth of 18% 2000 2001 2002 2003 2004 2005 2006 Net Income $256, 462, 749 $299, 086, 044 $352, 921, 532 $416, 447, 407 $491, 407, 941 $579, 861, 370 $684, 236, 417 Current P/E of 26, price of $68. 11 EPS 0. 97 1. 14 1. 35 1. 59 1. 88 2. 22 2. 62
Strong Growth of 27% 2000 2001 2002 2003 2004 2005 2006 Net Income $293, 601, 025 $372, 873, 302 $473, 549, 094 $601, 407, 349 $763, 787, 334 $970, 009, 914 $1, 231, 912, 591 Current P/E of 26, price of $121. 87 EPS 1. 11 1. 41 1. 79 2. 28 2. 89 3. 67 4. 66
Recommendation • • Types of goods it sells brings continuous business Focused stores in markets larger companies ignore Doubling number of stores by 2004 Because of low prices and products it sells, will be able to prosper in bull or bear economy • EPS growth is expected to be stronger than the industry and the S&P 500 • Low debt means less sensitivity to interest rate fluctuations • Purchase 1200 shares of Dollar General(DG) at the market
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