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Leading variety retailer Dollar General (DG) posted robust second quarter results a month ago, reporting $9.4 billion in revenues, up 9% year-over-year, compared to $8.6 billion a year ago, observes Todd Shaver, editor of Bull Market Report.

Despite the challenging macro environment, Dollar General continued to deliver with its superior execution. The company posted a profit of $680 million, or $2.98 per share, against a profit of $640 million, or $2.69, a beat on the top and bottom lines.

Dollar General saw an increase in same-store sales at 4.6% year-over-year, and growth in customer traffic coming in better than expected by most analysts. The retailer even witnessed an increase in the average transaction amount, making it an outlier during a period of inflation and rate hikes that have hit most retailers.

The company is still faced with tough year-over-year comparisons, owing to artificially heightened COVID-19 sales, which makes this second quarter result all the more worthy of praise.

Dollar General credits this robust performance to its various strategic initiatives over the past few years, resulting in a unique value and convenience proposition that continues to yield results for the company.

While its aggressive footprint expansion strategy has aided with consistent top-line growth, it has shown signs of weakness during the quarter, particularly in its apparel and seasonal products portfolio. Fortunately, given its diverse range of offerings, slowdowns in these areas were offset by strength in consumables, along with margin improvements at 32.3%, as against 31.6% a year ago.

A low valuation of just 1.6 times sales, along with $350 million in stock repurchases during the quarter, and $2 billion in fresh buyback authorizations have lent the stock plenty of cushioning, apart from its $330 million in cash, $15 billion in debt, and $2.5 billion in cash flow.

This is no small company as it sits with a market cap of $54 billion and over 18,000 stores. This is a good one to own when times get tougher out there. People flock to the stores, looking to save money on household goods and food. Our target price is $281 per share.

About the Author

Todd Shaver became editor-in-chief following a distinguished tenure in the money management business with both Morgan Stanley and Salomon Smith Barney. In the 1980's, he ran his own real estate company, The Dulles Group, which specialized in finding large tracts of raw land for investors and developers.

In the 1990's, Mr. Shaver was the host of a successful local radio show, The Bull Market Report, on business radio in Washington, DC, giving a live show each morning during rush hour. He was a regular guest on Business News Network radio, where he applied his knowledge of the markets to finding quality growth stocks. Mr. Shaver has been managing money for over three decades now.

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