From “Back To The Basics” (December 2023):

“Dollar General has clearly struggled in recent quarters. That would not have been a major concern for me if those pressures were solely macro related (that’s life when you own a business). What was difficult to say, particularly given outsized results at Walmart and Family Dollar, was the source and magnitude of the headwinds. As I wrote in June, I believed that Jeff Owen (who became CEO in late 2022) had work in front of him to prove that he was the right person for the job. In October, the board concluded that he wasn’t, with Todd Vasos returning effective immediately. In my view, the Q3 call did a good job of showing why this change was needed. My read is that Vasos has a good grasp on what ails Dollar General, both externally (macroeconomic / competitive) and internally… That was an important step back in the right direction… With some assurances on the issues that DG must navigate, which I believe will prove fixable, along with further clarity on the macro and competitive situation, my conclusion is that ~$127 per share is an attractive price. For that reason, I have decided to add to my DG position.”

DG’s Q4 FY23 results and FY24 guidance were another step in the right direction: while we’re a long way off from historic levels of profitability, with FY24e operating margins ~300 basis points below the FY15 – FY19 average, the competitive concerns that I’ve previously discussed are being addressed. (And, as I’ll discuss today, Dollar Tree management is responding decisively to Family Dollar’s ongoing struggles, as I suspected they would).