FIVE

Dollar General Raises Guidance Despite Tariff Uncertainty

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Image: Dollar General’s shares have been under pressure the past few years. By Brian Nelson, CFA On June 3, Dollar General (DG) reported better than expected first quarter results, with both revenue and GAAP earnings per share exceeding the consensus forecast. Net sales advanced 5.3%, to $10.4 billion, while same-store sales growth came in at 2.4%, reflecting a 2.7% increase in average transaction and a 0.3% decline in customer traffic. Operating profit increased 5.5%, while diluted earnings per share increased 7.9%, to $1.78. Cash flow from operations increased 27.6%, to $847.2 million. Management had the following to say about the quarter: We are pleased with our start to the year, including strong same-store sales and EPS results. Our efforts to … Read more

Walmart’s Free Cash Flow Remains Robust, Buys Vizio to Boost Advertising Business

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Image: Walmart’s free cash flow generation during fiscal 2024 was superb and comfortably covers its cash dividends paid. By Brian Nelson, CFA On February 20, Walmart (WMT) reported excellent fourth quarter fiscal 2024 results, raised its dividend, and announced that it would acquire Vizio (VZIO) in a $2.3 billion all-cash deal. Walmart continues to be well-positioned in the current retailing environment after the step-change in prices over the past 12-18 months due to heightened levels of inflation, as consumers trade down to lower-priced value items. Shares of Walmart advanced followed the release of its report, and while they are trading above our fair value estimate at the time of this writing, we see upside to the high end of our … Read more

There Will Be Volatility

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By Brian Nelson, CFA Last year, 2022, was a big test for equity investors, and the downside volatility that we witnessed during the year wasn’t comfortable, to say the least. Following the COVID-19 crash and rebound during 2020, and then the market surge in 2021, it wouldn’t be a stretch to say many investors’ heads are probably still spinning from all the volatility witnessed to start this decade. That said, part of what we’ve been warning about the past few years with respect to the equity market, especially in Value Trap, is that the proliferation of price-agnostic trading (e.g. quant, machine/algorithmic trading, etc.) will only lead to more and more market volatility, so while we were somewhat surprised by last … Read more

Theft Becoming a Huge Problem for Retailers

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Image Source: Ben Schuman Theft has always been a problem for retailers, but it has never been as big of a problem as it has been in recent quarters. Emboldened by the lack of police response and employees sometimes getting fired for confronting shoplifters, retail organized crime is on the rise. We’re not talking theft in the millions, or billions, but likely in the tens of billions per year or more across the U.S. Some attribute the rise of organized retail crime to the pandemic, which paved the way for shoplifters to post their loot online in order to make a quick buck. Some retailers are especially feeling the pinch, and recent commentary reveals just how bad retail theft (shrink) … Read more

Walmart’s ‘Great Value’ Brand and Position Across Retail Never Stronger

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  Image: Walmart’s shares have gotten back on track.  By Brian Nelson, CFA  Grocer Aldi may have been the greatest beneficiary of the past 12-18 months due to consumers trading down from lofty grocery prices, but Walmart (WMT) has kept pace, in our view, as Target (TGT) struggles from a public relations nightmare and membership warehouses like Costco (COST) feel the need to cut down on membership card sharing as comparable store sales weaken. We think Walmart’s ‘Great Value’ brand and position across bargain retail has never been stronger, and its share price reflects a company that is at a sweet spot of consumer demand as rivals continue to struggle. The high end of our fair value estimate range of … Read more

Walmart Warns: “Prices Are Still High and There Is Considerable Pressure on the Consumer”

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  Image Source: Mike Mozart By Brian Nelson, CFA As we wrote in “The Fed ‘Can’t Stop, Won’t Stop” in early January, the trade-down trends that we’re seeing in big box retail and with groceries, more generally, are interesting. Inflation started to accelerate with food-at-home prices moving aggressively higher in early 2022, and consumers have been trading down to better value. It probably wasn’t until egg prices soared, however — driven in part by a shortage of egg laying chickens (not just inflationary pressures) – that tipped everyday consumers to budget more cautiously, and the largest big box retailer in Walmart (WMT) is seeing this impact first-hand. Here’s what’s happening on the ground, per Walmart’s CEO Doug McMillon on the … Read more

The Fed ‘Can’t Stop, Won’t Stop’ Until Labor Market Feels More Pain

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  Image: Prices for private label brands at Aldi are considerably lower than those of branded products. The consumer staples sector, however, remains fully-priced with a 21+ forward earnings multiple, and many constituents hold large net debt positions. We believe the sticking point for the Fed is not groceries or gasoline prices, but rather the labor markets, which remain very strong, despite layoffs. Image Source: Valuentum By Brian Nelson, CFA We’ve yet to see the worst of job cuts, in our view. The rapid shift in the global economy mid-2022 was profound, as many companies were still building in anticipation of increased demand during the first half of the year to the point where demand growth started to dry up, … Read more

Apple iPhone Supply Disruptions Not Likely to Hurt Markets with Overall Holiday Sales Reportedly Strong

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Image: Holiday sales are expected to expand ~2.5% in 2022 over very strong growth in 2021 and 2020. Image Source: Adobe By Brian Nelson, CFA Tesla (TSLA) CEO Elon Musk and Apple (AAPL) CEO Tim Cook seemingly have worked out a plan for Apple to keep advertising on the Twitter platform after what looked to be a temporary pause by the iPhone maker. Though the news is immaterial to our thesis on Apple in any respect, it was good to see the two tech giants work whatever differences they had out. Certainly, a fallout between Musk and Cook would not be a good thing for the tech sector and innovation, more broadly, as the two wield large influences across Silicon … Read more

Dollar General Resets Expectations; We’re Watching Free Cash Flows Closely

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Image Source: Valuentum By Brian Nelson, CFA On December 1, Dollar General Corp (DG) reported mixed third-quarter fiscal 2022 results where revenue came in slightly better than expectations on the back of same-store sales expansion of 6.8%, while GAAP earnings per share came up a bit short relative to the consensus estimate. Dollar General remains a “position” in the simulated Best Ideas Newsletter portfolio, and our fair value estimate stands at $250 per share. Many consumers are looking for ways to stretch their budgets in the current inflationary economic environment. That means cutting back on some discretionary items, but also looking for key deals across the retail landscape. Dollar General operates within a niche in the industry similar to the … Read more

Target’s Holiday Outlook Sends Mixed Messages; Big Sales Data Week Ahead

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Image Source: Valuentum “Nearly all of the slowdown was driven by our discretionary categories, Apparel, Home and Hardlines, as our guests became increasingly cautious in their spending in those categories at both Target and throughout the industry more broadly. So far in the month of November, trends have been largely consistent with what we were seeing at the end of October, in terms of our comp trends, the mix of sales between frequency and discretionary businesses and the focus on promotions by our guests.” – Target’s 3Q Conference Call By Brian Nelson, CFA After Walmart (WMT) reported its third-quarter earnings November 15, “Walmart Is Back on Track; Markets Looking Healthier,” we thought things were looking a bit better across the … Read more