| Valuation method | Value, £ | Upside, % |
|---|---|---|
| Artificial intelligence (AI) | 56.90 | -60 |
| Intrinsic value (DCF) | 34.36 | -76 |
| Graham-Dodd Method | 3.20 | -98 |
| Graham Formula | 50.30 | -65 |
Dollar General Corporation (LSE: 0IC7.L) is a leading American discount retailer operating 18,190 stores across 47 U.S. states. Specializing in affordable everyday essentials, Dollar General serves budget-conscious consumers with a diverse product mix including consumables (food, health & beauty, cleaning supplies), seasonal items, home products, and apparel. The company's small-format stores (averaging 7,400 sq ft) are strategically located in rural and suburban communities, offering convenience and value to underserved markets. As a Fortune 200 company with over $40 billion in annual revenue, Dollar General has demonstrated resilient performance through economic cycles by focusing on low-price-point merchandise and operational efficiency. The retailer competes in the $1.1 trillion U.S. discount retail sector, benefiting from its extensive distribution network and private label offerings. With its 'DG Private Brands' accounting for ~20% of sales, the company maintains strong margins while delivering savings to customers. Dollar General's expansion strategy emphasizes rural penetration and urban fill-in locations, with plans for 800+ new stores annually. The company has shown particular strength in consumables (80% of sales), which provides stable revenue streams even during economic downturns.
Dollar General presents a compelling investment case as a defensive play in consumer cyclical sectors, evidenced by its low beta (0.277) and consistent performance during economic volatility. The company's focus on essential goods (80% consumables) provides revenue stability, while its small-store rural footprint offers insulation from e-commerce competition. However, investors should note concerning leverage metrics (total debt/EBITDA of 3.2x) and compressed margins (2.8% net margin in FY2023) due to inflationary pressures. The stock offers a modest 1.1% dividend yield with a 22% payout ratio, suggesting room for growth. Near-term challenges include inventory shrink (up 50bps YoY) and wage inflation, offset by pricing power and private label expansion. With a P/E of 18.5x (below 5-year average), the valuation appears reasonable for a company with 30+ years of consecutive revenue growth.
Dollar General occupies a unique niche in discount retail by combining convenience store accessibility with dollar store pricing and supermarket essentials. Its competitive advantage stems from three factors: 1) unmatched rural distribution (75% of stores in communities <20,000 population), 2) ultra-efficient logistics (85% of stores served by its 28 distribution centers), and 3) private label penetration driving margins. The company's 'DG Fresh' program (self-distribution of perishables) provides a 300-400bps gross margin advantage over competitors relying on third-party distributors. However, Dollar General faces intensifying competition from Walmart's Neighborhood Markets (30% price overlap) and Dollar Tree's Family Dollar transformation (now with 60% consumables mix). The retailer's limited fresh food offering (only 5,000 SKUs vs. 10,000+ at grocery competitors) creates vulnerability to trading-up during economic recoveries. Strategically, Dollar General is countering this through 'popshelf' concept stores (launched 2021) targeting higher-income demographics with trendier merchandise at slightly elevated price points. The company's digital capabilities remain underdeveloped (e-commerce <2% of sales) compared to Dollar Tree's 8% online penetration, though this aligns with its core customer demographics (median household income $40k).