


Dollar General profited on small town, big profits, but has hit challenging times.
For years now the hard discount ‘dollar’ stores have been able to do little wrong across the American continent and Dollar General
Its strategy of trading from the small and often less affluent towns that Walmart
Now the U.S. retail colossus has responded swiftly and ruthlessly in a bid to reverse its flagging fortunes and the market has responded positively...for now.
Dollar General shares soared over 9% Friday as investors and analysts reacted with enthusiasm to the second coming of former CEO Todd Vasos, who is replacing Jeff Owen less than a year into his tenure amid weakening traffic and margin pressure.
Yet despite that stock surge, Tennessee-based Dollar General remains encumbered by its focus on rural America, where hard-up families are struggling to make ends meet and switching to lower cost items with poorer margins.
As a result, Dollar General had missed profit estimates in all of the past four quarters, struggling to put the brakes on not just margin squeeze but store traffic declines, inventory shrink and intensifying competition.
Vasos, previously at the helm of Dollar General from June 2015 to November 2022, will likely make his initial focus all about improving in-stock levels, tightening up store operations and getting a handle on inventory shrink and labor costs.
Indeed Vasos' appointment is more than anything about a safe pair of hands, restoring stability and confidence in a company whose stock has lost over half its value in the year to date.
Its focus on remote, low-income towns without a Walmart was previously a strength and had helped the chain to nearly $38 billion in annual sales last year — more than doubling its income in just a decade — as its market valuation approached $60 billion earlier this year, making it one of the country's most valuable retailers.
Dollar Tree is among rivals squeezing Dollar General's sales and margins.
But rural America's travails have become Dollar General's struggles. Its boast that 80% of its 19,000-plus stores are located in towns with populations of less than 20,000 is in danger of becoming a millstone.
High food prices have hit higher margin, discretionary items and so, while food sales rose 6% during the second quarter, homewares and apparel sales fell 7.7% and 7.1% respectively.
Expansion into new store formats and a diversion into healthcare have driven up operating costs without a commensurate boost in sales and margins, while Walmart and Dollar Tree
The company has revised annual sales and profit estimates downwards and Vasos "is acutely aware of the challenges facing our business and the industry more broadly" Dollar General said of his appointment, which became effective immediately.
They will be hoping for more than a one day stock boost. During his previous stint, the company's annual revenue rose more than 80% and about 7,000 more stores were added to its national portfolio.
"The move is a clear acknowledgment of rising investor concerns about the company's future related to a clouded business strategy, choppy execution, consistent earnings misses, and a decline in the share price since Owen took over," Telsey Advisory Group analyst Joe Feldman said in a note.