Dollar General Corporation (DG:US) announced its third-quarter earnings report a couple of weeks back and reported an EPS of $1.26 against expectations of $1.19, while revenue also beat estimates reaching $9.69 billion for the quarter.
While the earnings looked impressive, the company is facing multiple challenges. As far as the topline is concerned, the company's sales are slowing down. This is partly due to the rising inflation and due to changing customer behavior. The company plans to address this by focusing on its existing stores and slowing down new store openings. It also plans to reduce the number of items it sells by removing the underperforming ones. This should also help the company better manage its inventory.
The other big headache for DG is the increasing scrutiny of its working conditions. The company has accumulated over $21 million worth of fines from OSHA with the shareholders having already voted for an independent audit into working conditions.
DG stock is down about 49% YTD and this is adding further pressure on the current management. A lot of politicians have shown interest in the company but they eventually bail out. Congressman Daniel Goldman is the perfect example of this. He bought $15,000 - $50,000 worth of stock in January, only to sell a few weeks later at a 6% loss.
One month later, he took another position in the stock, buying $50,000 to $100,000 worth of stock. It only took him 3 months to bail out of this position, selling at a 22% loss. In hindsight, both these decisions have made sense as the stock is down another 26% since he last sold.
Representative Michael McCaul, who likes to take positions in companies over time, also bailed out over a year ago, selling $200,000 to $500,000 worth of DG stock at $242.6. As things stand, it looks clear that McCaul sold near all-time highs.
Dollar General is currently being run by CEO Todd Vasos. He was the company’s CEO from June 2015 to Nov 2022. He retired earlier this year but returned to lead the company as the CEO in October.
He has a tough path ahead and if this quarterly report is anything to go by, it seems the company is finally focused on improving its business. From the way the politicians are trading, it looks like there aren’t any takers for the stock. However, it will be worth keeping an eye on as the share price will bounce back well before the positives start appearing on the company’s bottom line. For now, it seems many are happy watching from the sidelines.