Dollar General Corp (NYSE: DG)

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Summary

Dollar General Corporation (NYSE: DG) has been delivering value to shoppers for over 75 years. Dollar General offers food, snacks, health and beauty aids, cleaning supplies, basic apparel, housewares and seasonal items at low everyday prices in convenient neighborhood locations.

Dollar General sells products from America’s most-trusted brands such as Clorox, Energizer, Procter & Gamble, Hanes, Coca-Cola, Mars, Unilever, Nestle, Kimberly-Clark, Kellogg’s, General Mills, and PepsiCo.

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Business Model

The business model are provides a broad base of customers with their basic everyday and household needs, supplemented with a variety of general merchandise items, at everyday low prices in conveniently located, small-box stores.

The typical Dollar General store is operated by a store manager, one or more assistant store managers, and three or more sales associates. The stores generally features a low-cost, no frills building with limited maintenance capital and low operating costs.

Approximately 70% of the stores are located in towns of 20,000 or fewer people. The store growth over the past three years is summarized in the following table:

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Convenience

Dollar General Corporation (NYSE: DG) has ability to deliver competitive prices in convenient locations. The easy “in and out” shopping format create a shopping experience that distinguishes from other discount retailers (convenience, drug and grocery retailers).

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Merchandise

Consumables is the largest merchandise category and has become a larger percentage of total sales.

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Consumables include paper and cleaning products (such as paper towels, bath tissue, paper dinnerware, trash and storage bags, laundry and other home cleaning supplies); packaged food (such as cereals, canned soups and vegetables, condiments, spices, sugar and flour); perishables (such as milk, eggs, bread, frozen meals, beer and wine); snacks (such as candy, cookies, crackers, salty snacks and carbonated beverages); health and beauty (such as over-the-counter medicines and personal care products, such as soap, body wash, shampoo, dental hygiene and foot care products); pet (such as pet supplies and pet food); and tobacco products.

The percentage of net sales of each of our four categories of merchandise for the fiscal years indicated below was as follows:

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Trademarks

Dollar General®, Dollar General Market®, Clover Valley®, DG®, DG Deals®, Forever Pals®, I*Magine®, OT Sport®, Smart & Simple®, trueliving®, Sweet Smiles®, Open Trails®, Bobbie Brooks®, Comfort Bay®, Holiday Style®, Swiggles®, More Deals For Your Dollar. Every Day!®, The Fast Way To Save®, Save Time. Save Money. Every Day!®

Locations

DG stores are located in rural, suburban and urban communities. Dollar General operated 13,320 stores in 43 states (February 3, 2017)

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Numbers

Revenue growth, Operating Income growth and consistent increase in Earnings Per Share.

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Two important data: Strong Free Cash Flow (Operacting Activites – Total Capital Expenditures) and Same-store sales growth.

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Finally, a completely resilient Balance Sheet.

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Risks

DG competes with discount stores and with many other retailers, including mass merchandise, warehouse club, grocery, drug, convenience, variety and other specialty stores. The competitors include Family Dollar, Dollar Tree, Fred’s, 99 Cents Only and various local, independent operators, as well as Walmart, Target, Kroger, Aldi, Walgreens, CVS, and Rite Aid, among others.

Even though only 5% of Dollar General’s sales come from the Supplemental Nutrition Assistance Program. Many of Dollar General’s customers receive some form of government aid, and future changes to government programs could disproportionately affect Dollar General’s customers. See below the growth in the number of beneficiaries of the program.

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Finally, wage pressure, changes in consumer confidence and spending could bring about volatility in sales growth and affect Dollar General.

Conclusion

Dollar stores convenience comes in two primary forms. The first is proximity to consumers; some customers want to consume items immediately, making convenient store locations highly desired. The second form of convenience is the dollar-store price architecture; customers living paycheck to paycheck can buy smaller pack sizes at lower absolute prices (but higher per-unit prices), allowing them to maximize their dollar and buy more items.

Small stores are typically located closer to consumers and offer convenience and easy checkout experiences, a combination that other large-box store merchants can’t easily replicate.

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This article is owned by the Termos Reais and does not constitute investment advice. Termos Reais is not responsible for any decisions, damages or other losses resulting from or related to the use of information, data, analyzes or opinions and their respective use. Although the data in this article is collected from trusted sources, accuracy and completeness can not be guaranteed. Termos Reais does not give investment advice or act as an investment advisor. All data, information and opinions are subject to change without notice.

© 2017 Termos Reais. All rights reserved. Reproduction by any means is prohibited.

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