Luxury retailers see their business flag in slumping economies, but discounters thrive in them. Consider Dollar General (NYSE: DG), which is a bigger company than you probably suspect.
With a market capitalization recently north of $18 billion, it sports more than 11,000 stores in 40 states. (That’s more locations than any other retailer in America.)
Dollar General isn’t sitting still, either. It’s planning to open 650 new stores this year and notes that it has created close to 30,000 new jobs in the U.S. since 2007. In its last quarterly report, it posted revenue growth of 5.1 percent over year-ago levels at stores open more than a year, and overall revenue growth of 11.3 percent (incorporating new-store sales). Net profit came in 15 percent higher.
One of the company’s growth drivers is the introduction of tobacco in its stores, as many people who come in for cigarettes often leave with other items. Cigarettes are a low-margin item, but a higher volume of higher average ticket values is a solid business booster.
The company is also improving its performance via brand-name items. It has been paying down debt in recent years while seeing profit margins grow. It does have competition, but it’s faring well against it.
With a recent price-to-earnings ratio of 19 and a forward-looking one of 17, Dollar General’s stock doesn’t seem too richly valued.
Ask the Fool
Q: Is it OK to just read a company’s filings, without reading the footnotes too? – T.P., Wilkes-Barre, Pa.
A: If you skip the footnotes, you might miss some red flags (or green ones). At footnoted.com, Michelle Leder and her team offer a fascinating education on footnotes.
Last year they gave their “Worst Footnote of 2012” award to General Electric, for disclosing in its footnotes that a retiring executive was going to collect $89,000 per month for 10 years. (That totals more than $1 million annually.) Runners-up included Dell, which gave an executive $1.9 million in relocation benefits – to move just 200 miles. (The guy left the job not too long after.)
You’ll also find less amusing but also useful details in footnotes, such as the specific interest rates that a company is paying on its debt. You might not worry so much about a 3 percent obligation, versus an 8 percent one. Give footnoted.com a visit!
My dumbest investment
Back in 2003, I tried a Jones soda at a gas station. I really liked it, and being a new investor, I thought I’d see if Jones Soda was publicly traded. It was. I watched it for a week, and based entirely on the taste of Fufu Berry soda, bought 2,000 shares at about 90 cents apiece. Some two years later, my $1,800 had grown to $64,000! I actually subscribed to PassageMaker magazine and was going to name my yacht “The Joneses.” I started buying $8 cigars at a smoke shop, thinking I could afford them.
The stock changed directions, though, and I rode it all the way down to $1.20 before selling. I turned in my genius card, put my magazines in the garage and spent the next several months kicking myself. I’ve learned that the stock market is a wealth-building system that rewards hard work, patience and diligence, but it will also kick your butt when you try to sneak a free ride. After a decade of reflection, Jones was the most educational trade I’ve ever made. – J.S., Weaverville, N.C.
The Fool responds: Amen.