If you have ever driven across the United States there is one well-known retail store in almost every town across the country large or small and that’s Dollar General Corporation (NYSE: DG). The company operates over 17,000 stores across 46 states, offering a wide range of merchandise at affordable prices. Dollar General’s stated mission is to provide convenience and value to its customers by offering a selection of everyday essentials and household products.
The company caters to a value-conscious customer, and with inflation still trending right at the 4% level, business would appear to be able to maintain some strength, as the company looks to expand into urban areas and underserved communities.
While all company metrics certainly seemed in good shape at the start of the year, they are decidedly not now, and there could be some worse storm clouds on the horizon. With a recent major upheaval at the top of the organization and the potential for the current ongoing inflation to remain in place, it may be time to look for greener pastures.
Here are 6 top reasons to avoid Dollar General today.
The Chief Executive Officer (CEO) was asked to resign recently
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The former CEO Jeff Owen was asked to resign earlier this month after less than a year in the position, and former CEO Todd Vasos returned to the C suite. Mr. Vasos was initially in the CEO role from June 2015 to November 2022 before moving to an advisory role and then retiring. Wall Street is not a fan of disarray at the top and will be watching closely. That noted, analysts cheered the return of Mr. Vasos.
Dollar General has posted dreadful results
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The company has missed Wall Street profit projections in four of the five past quarters and shares have fallen nearly 60% this year. While removing the former CEO is a start for the company, the reality is that getting back into the form that made the stock a gem for growth investors may take months or even years.
Lots of competition that may continue to grow
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While Dollar General is the only game in town in many smaller communities, competing in the larger markets is not a simple task. With discount retailers like The TJX Companies, Inc. (NYSE: TJX) and Ross Stores, Inc. (NASDAQ: ROST) expanding their presence, and grocery stores adding more and more products in addition to food and beverages, taking market share in bigger communities will remain extremely difficult.
Labor issues have been a problem in the past
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According to a report from the Associated Press, back in the summer, a National Labor Relations Board judge said that Dollar General violated federal labor law and “clearly intended to interfere” with worker rights in efforts to quell unionization at a Connecticut store.
According to the labor board decision, violations from the Dolgen Corp., which operates Dollar General stores, included wrongfully terminating an employee and making an implied threat to close the location in Barkhamsted. In addition, the company also sent corporate officials to the store and other locations across Connecticut in response to a 2021 union drive.
Store safety has been a concern in the past
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The company has faced penalties over the years for store safety issues that included federal citations for electrical hazards and wiring issues, and reported concerns over fire exits that were obstructed.
While Dollar General stumbles the other dollar stores have shined
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After years of crushing the competition, fiscal second-quarter comparisons fell during the period while Dollar Tree and Family Dollar had second-quarter comps that came in at 7.8% for Dollar Tree and 5.8% at Family Dollar stores. Losing the battle against direct competition is a grim statistic for the company.
Lastly
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The price-to-earnings multiple has tumbled down to 10 from 25, as the stock was crushed this year. Many value investors would likely sniff around the stock at current levels, but many across Wall Street are calling it the ultimate value trap.
While the stock bounced when the CEO returned, that bounce may be short-lived as estimates have been lowered, comps are still expected to be flat to negative for the current quarter and inflation continues to batter the company’s core customer. It makes sense to avoid the shares now.
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