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Msg  32 of 35  at  8/27/2021 1:04:29 AM  by

jerrykrause


It Doesn't Pay to Bet Against Dollar General; Investors should overlook the retailer's unflattering near-term numbers and focus instead on its promising healthcare strategy

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It Doesn't Pay to Bet Against Dollar General; Investors should overlook the retailer's unflattering near-term numbers and focus instead on its promising healthcare strategy

 Lee, Jinjoo. Wall Street Journal (Online); New York, N.Y.
 
 

Dollar General has been stretching the definition of a dollar store for some time. Its latest healthcare initiative may be worth investors' money.

The retailer in July hired a chief medical officer, a newly created position, but offered scant details on its new healthcare strategy. The company offered some hints on its earnings call Thursday morning. Chief Executive Officer Todd Vasos, who himself had a long career managing drugstores before Dollar General, said the company is eyeing services that rural America doesn't have access to —such as eye care, telemedicine and prescription delivery to stores.

Though roughly 20% of Americans live in rural areas, less than 11% of physicians practice in those areas, according to Georgetown University's Health Policy Institute. Rural residents also spend more on average on healthcare expenditures because they tend to be less insured. Additionally, they are more likely to engage in riskier health behaviors such as smoking and not exercising, according to the institute.

Given Dollar General's already-high presence in rural America, moves that could drive even more customers to its stores will be key to keep up its strong growth. The company has already been introducing produce and discretionary items to its stores, for example.

Last year, it even rolled out a new store concept —Popshelf—aimed at wealthier shoppers in suburbs. Wherever it operates near competitors, Dollar General excels at whisking customers away. Analysis from Jefferies—based on foot traffic data—showed Dollar General taking share from its competitor Family Dollar in recent years.

Of course, the initiative will take some time to shape up and bear fruit. Top of investors' minds on Thursday were Dollar General's most recent numbers: The company reported that its total sales were pretty much flat in its quarter ended July 30 compared with a year earlier. That was mostly expected given that the retailer saw sales grow 24% in the same quarter last year.

Freight costs and higher labor expenses ate into Dollar General's margins; net income was 19% lower compared with a year earlier. Still, the company was confident enough about its own outlook to upgrade its guidance for the full year. It now expects net sales to grow 0.5% to 1.5%; it previously expected a decline or a 1% improvement.

Despite the upbeat guidance, Dollar General's shares were down around 4% midday Thursday.

At 22 times forward-12-month earnings, Dollar General shares aren't cheap compared with its five-year average of 19 times. But few retailers have come close to matching Dollar General's savvy in knowing exactly how to invest to squeeze out the best returns. Its five-year average return on invested capital of 15.4% is more than triple that of Dollar Tree and is higher than even that of retail darling Target.

While the Covid-19 pandemic's effect on consumer health and spending is still uncertain, investors in Dollar General can rest safe knowing that their dollars are in good hands.

 


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