Dollar General Corp.’s stock DG, +0.40%
rose 1.9% early Thursday, after the discount retailer beat third-quarter earnings estimates and backed its guidance, even as its CEO said it was not happy with its performance. The company posted net income of $276.2 million, or $1.26 a share, for the third quarter, down from $526.2 million, or $2.33 a share, in the year-earlier period. Sales rose 2.4% to $9.694 billion from $9.465 billion a year ago. The FactSet consensus was for EPS of $1.20 and sales of $9.644 billion. Same-store sales fell 1.3%, while FactSet was expecting a 2.1% decline. “While we are not satisfied with our financial results for the third quarter, including a significant headwind from inventory shrink, we are pleased with the momentum in some of the underlying sales trends, including positive customer traffic, as well as market share gains in both dollars and units,” CEO Todd Vasos said in a statement. Vasos returned to the role of CEO in October, after serving in the position from June 2015 to November 2022. Vasos said the company has completed a review of all aspects of the business and identified key areas for improvement both in the near and longer term. For fiscal 2024, it is planning about 2,385 real estate projects, including 800 new stores, 1,500 remodels, and 85 relocations. “This is a modest slow down compared to the number of projects in recent years, which we believe is prudent in this environment,” he said. Dollar General backed its full-year guidance, for a sales increase of 1.5% to 2.5%, and for EPS of $7.10 to $7.60. The company expects same-store sales to be down 1% to flat. The stock is down 45.6% in the year to date, while the S&P 500 SPX, -0.39%
has gained 19%.
No-frills discounter Aldi is the latest grocer to shake up the industry with big moves.
The German retailer announced this week that it plans to acquire about 400 Winn-Dixie and Harveys Supermarket locations across the Southern U.S. As part of the deal, it would take over operations of the stores, which are in Florida, Alabama, Georgia, Louisiana and Mississippi, and put at least some of them under the Aldi name.
The deal is expected to close in the first half of next year.
Aldi is already expanding aggressively across the country. It has more than 2,300 stores across 38 states. Separate from the acquisition, it is on track to open 120 new stores by year-end.
Like Trader Joe’s and fellow Germany-based rival Lidl, Aldi relies heavily on its own brands. About 90% of products it carries are Aldi’s private label, which allows it greater scale and lower costs in areas like marketing and the supply chain. Aldi also gets creative to keep costs low, including byreducing the size of a pasta sauce lid and other packaging and using electronic shelf labels that save on labor and materials.
As inflation cools, that could present a new challenge for Aldi — if shoppers revert to old habits like shopping at neighborhood grocery stores that may have higher prices, or opt for a favorite name-brand cereal or more variety. It’s also had to race to keep up with competitors’ online options, prompting Aldi to expand curbside pickup to more stores.
The privately held retailer did not share financial details of the acquisition. But the deal has big implications for publicly traded competitors including Walmart and Kroger, as well as regional grocers.
CNBC spoke to Jason Hart, the CEO of Aldi U.S., about why the company is doing the deal and how it sees Aldi fitting into a fast-changing grocery landscape. His comments were edited for brevity and clarity.
Why was Aldi interested in acquiring Winn-Dixie and Harveys Supermarket? Why acquire rather than build your own hundreds of stores in similar locations?
This acquisition provides us speed to market with quality retail locations, great people and a solid core business in a region of the country, the Southeast, where we’ve already had and experienced significant growth and success, but we also see much more opportunity and there’s much more consumer demand to meet.
Doing this [expanding] on our own organically, that has been our plan, and that has been our trajectory over a number of years, and in the Southeast as well. …. This acquisition really gives us the opportunity to accelerate all of those plans.
Jason Hart, Aldi U.S. CEO
ALDI Creative Quarter Studio/ Katrina Wittkamp
What should shoppers expect to see at those stores on the other side of the acquisition?
We’re currently evaluating which locations we’ll convert to the Aldi format to better support the communities that we’ve now got the opportunity to serve more closely. We’re going to convert a significant amount to the Aldi format after the transaction is closed and over the course of several years.
For those stores we do not convert, our intention is that a meaningful amount of those will continue to operate as Winn-Dixie and [Harveys] Supermarket stores.
In stores that you choose not to convert with the acquisition, will people start to see some of those Aldi products on Winn-Dixie shelves?
We can certainly see and imagine some future synergies and learnings from each other, whether that’s consumer insights, product ideas, merchandising ideas, but at this point, we just don’t have any definitive plans to announce.
We carry a limited number of SKUs [stock keeping units, the term used to describe each type of product carried by a retailer] first and foremost — a couple of thousand SKUs in our stores versus our competition that may have many times that — that drives higher volume per SKU, driving scale that provides efficiency both in our business and for our suppliers.
The dozens of brands and sizes and small variants of the same product — the result of that [in rival stores] is tens of thousands of products that isn’t necessarily the result of customer demand. It’s more so the brand’s demand for shelf space within those stores. And the result actually can frustrate customers by overcomplicating the shopping experience. At Aldi, we simplify that shopping experience for the customer, offering great quality and great prices.
Why do you think we’re seeing so many big moves in the grocery industry right now?
The way that consumers are shopping is changing quite dramatically. And also the drive to value. And obviously, there are alternative retail formats that are growing quicker than the traditional formats. We’re very proud to be one of those alternative formats that’s really disrupting the industry.
Consumers seem to be willing to try other ways to fill their grocery list, whether that’s through e-commerce, whether that’s through trying out discounters like Aldi, [and] trying out different products like private label.
When consumers are seeing these changes, and seeing other retailers and other products meet their needs, they change their shopping habits.
What are the trends with online and in-store sales now as the pandemic is more in the rearview mirror?
We’re now seeing equal growth in both our bricks-and-mortar sales and in our e-commerce sales. I would anticipate if I was to look at the crystal ball of the future, it’s going to go back to e-commerce growing slightly more than what bricks and mortar is both in the market and for Aldi.
What the heck really did happen on Friday, when the Dow jumped 700 points on a strong jobs reading ? Why such a viscerally positive reaction to an employment number that was hotter than expected? Was it because wages didn’t spike? Was it all that perfect — a Goldilocks report? Here’s my take on Friday’s rally. Going into the debt ceiling crisis, there was a belief that House Speaker Kevin McCarthy couldn’t control his own Republican party. Senate Majority Leader Charles Schumer wasn’t much better off with the Democrats. Both had lost control of their parties to the extremists. That meant the United States would default on its debt. It seemed pretty logical. I truly believe the extremists never believed a default would mean more than a few weeks of setbacks and more brinkmanship. Who can blame them? President Joe Biden lamely floated that he could invoke the 14th Amendment to avoid this and any future debt limit fights; the amendment includes a clause that some legal scholars say overrides the statutory borrowing limit set by Congress. No matter what, it was pretty clear that chaos was our destiny. But when McCarthy and Biden agreed to temporarily suspend the debt ceiling and cap some federal spending in order to prevent a default, we got a deal that was even less contentious than the 2011 bargain . (The coming together brought to mind the legendary coalition of President Ronald Reagan and House Speaker Tip O’Neil in the 1980s, memorialized in Chris Matthews’ “Tip and the Gipper: When Politics Worked.”) It was the compromise debt limit deal — not the employment number — that caused the market to rally. Sure, the jobs report showed wage inflation was cooling, which is good news in the Federal Reserve’s fight against inflation. But the job creation in May and the revisions were insanely strong. What matters most is that Fed Chair Jerome Powell, who is far more powerful than the independents on the Fed’s board who have such a hard time keeping their mouths shut, is reasonable. He seems to understand that it’s time to wait a bit on any more rate hikes. Not because he thinks things are cooler, but because he actually doesn’t even know. We have a young workforce coming into the market akin to when I got out of school in 1977 — nary a job to be had anywhere. This is potentially a monumental moment. The new debt limit legislation sets the date for resuming federal student loan repayments, which have been on hold since March 2020. We have the end of Supplemental Nutrition Assistance Program (SNAP) benefits and other pandemic breaks. Why not wait two months to see if unemployment naturally goes up and wages come down? To sum things up: We came into Friday shocked that there was a shocker of a deal and a not-red-hot employment number (at least one that didn’t send rates higher). This is what triggered the long-awaited buying of stocks outside of the Magnificent Seven that have led the market all year: Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Tesla (TSLA), Meta Platforms (META), Apple (AAPL), and Nvidia , which briefly joined the $1 trillion valuation club. We each have our own way of monitoring these things. I used Club name Caterpillar (CAT) as my judge. On Thursday afternoon, CEO Jim Umpleby went into the lion’s den of Sanford Bernstein and told a tale about de-cyclization. Shares of the heavy equipment maker had a tiny snap back. One day later and armed with the budget deal and the employment number, CAT shot up seventeen points — an unheard-of short squeeze. This took the stock back to when it reported a good number that was converted into a bad number by bearish analysts still unwilling to admit that the company had changed its bi-polar ways. Of course, the bears would say that it only went up because of one more silly stimulus by China, this time to adjust rents. I say Caterpillar went up because it was overly shorted, like so much of the market, including retail, health care, financials, other industrials including the commodities (the oils!). We even saw the imperfect chipmakers and heavily challenged enterprise software stocks come alive. The shorts were correct to press their bets if there was no debt deal and we got an employment number that was a steamer. But they were wrong on both counts. This plus a rare wave of new money coming in and massive buybacks by companies capable of plundering after their reports, caused the broadening that had been bemoaned as non-existent as recently as the day before. You could argue it was a short squeeze of monumental proportions. A short squeeze happens when short sellers having to buy stocks to cover their short positions, pushing prices higher. But every time there has been a broadening since FANG, it’s always been called a short squeeze. That’s just how things work, although it’s never been acknowledged by anybody. Which brings us up to date for Monday. We have a blackout of the Fed speakers. We have no real macroeconomic data. We have no landmines of earnings. And no Fed meeting until mid-June. A true interregnum. We are going to have to take more things off the table if we get a rally into an overbought setting. Yes, we have some real stinkers — Disney (DIS), Foot Locker (FL), Emerson Electric (EMR), Estee Lauder (EL) — and we can battle them. But the important thing is that we have so many winners that we have to ring the register on some stocks if all goes our way. Of course I obsess on the losers. I didn’t think that Fabrizio Freda at Estee Lauder and Mary Dillon at Foot Locker could both blow it that badly. I had reason to dislike the Emerson team, but it still gave me more than I can handle. I have no idea how Disney’s stock could be this weak in a long-on-money-short-on-time moment. I am furious at myself for not seeing around any of these corners. But I am not going to throw good money after bad and I see no good on these names — yet. This leaves us with the big question: Which winners to trim? As long as we are not subsidizing losers, we aren’t breaking protocol. But we have two tasks. One is to come up with a new name that hasn’t moved that we actually like. And two is to trim into strength as we get overbought. I want both resolved by our next Club meeting on June 14. That’s what I am working on right now. Do we need so much Salesforce (CRM), even as it reported a good quarter all things considering? Do we even need Advanced Micro Devices (AMD) when it has nothing to rival Nvidia? I just don’t know. I want the market to tell me what to do. I think it will. Where does this leave us? In a sanguine week that will allow us to see if the short squeeze continues. If it does and continues to broaden, we can both peel some winners. See which caterpillars can develop into, well, Caterpillars. Maybe add Take-Two (TTWO), which gave us a two-year outlook, possibly aided by a new Grand Theft Auto game and better Nvidia cards. Just one of many ideas. But one Jeff Marks and I are trying to get our arms around. Some who read might ask: “Shouldn’t there be more of a thesis behind a bullish move?” I say no, no more than you needed in 2011, when the debt ceiling deal led to a fantastic rally because Armageddon was avoided. We cannot sit back and relax. But what we can do is accept that it is a better moment than we thought not that long ago. There are cracks. The Dollar General (DG) call was a compendium of weakness for the lower middle class and the Macy’s (M) call was a confusion of negativity. But who is to say that these companies just don’t have the “it” of Five Below (FIVE) or Lululemon (LULU). We are close enough to the infrastructure money wave to handle another rate hike if we need it. But Powell recognizes the futility of another rate hike right now because it lowers mortgage rates, making his job even harder. What we can do is watch and wait as battlegrounds get resolved — like CAT did on Friday. We can anticipate better things from a Johnson & Johnson (JNJ) — especially with a 3M (MMM) deal — and from GE Healthcare (GEHC). We can lick our Estee and Foot Locker wounds. And we can be glad that we got through the debt deal and wax in the wave of new money that will at last be coming in. No, we can’t be complacent. Too many needs for the shorts to save themselves. They have been run over in so many places that they have to make a comeback somewhere. Their number didn’t get so strong before the debt ceiling deal that they can’t all cover at once. Nevertheless, we have enough money to put to work if we want to in a new name that hasn’t moved and has a special situation thesis. But I do not want to be so relieved as to think there is no woods, just that we are out of it for now. Personally, the last few weeks have been hard ones, ameliorated by members who have made money with the club. Some mistakenly believe that we missed this entirely rally. It galls me because I gave up being a hedge fund manager years ago and I know the truth: This may be the best we’ve ever been, and this time it is for you, not the entitled class. I thank you all for letting us have the floor to help and not be tools of the traders who have infiltrated our ranks. So let’s take and make some gains and be ready for the next storm after the calm, wherever it might be coming from. Rest up. We have gotten past the systemic chaos into business as usual, where we can glow in a world where stock picking matters. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
US President Joe Biden, accompanied by Speaker of the House Kevin McCarthy, Republican of California, arrives for the annual Friends of Ireland luncheon on St. Patrick’s Day at the US Capitol in Washington, DC, on March 17, 2023.
Saul Loeb | AFP | Getty Images
What the heck really did happen on Friday, when the Dow jumped 700 points on a strong jobs reading? Why such a viscerally positive reaction to an employment number that was hotter than expected? Was it because wages didn’t spike? Was it all that perfect — a Goldilocks report?
Here’s my take on Friday’s rally. Going into the debt ceiling crisis, there was a belief that House Speaker Kevin McCarthy couldn’t control his own Republican party. Senate Majority Leader Charles Schumer wasn’t much better off with the Democrats. Both had lost control of their parties to the extremists. That meant the United States would default on its debt. It seemed pretty logical.
I truly believe the extremists never believed a default would mean more than a few weeks of setbacks and more brinkmanship. Who can blame them? President Joe Biden lamely floated that he could invoke the 14th Amendment to avoid this and any future debt limit fights; the amendment includes a clause that some legal scholars say overrides the statutory borrowing limit set by Congress.
No matter what, it was pretty clear that chaos was our destiny. But when McCarthy and Biden agreed to temporarily suspend the debt ceiling and cap some federal spending in order to prevent a default, we got a deal that was even less contentious than the 2011 bargain. (The coming together brought to mind the legendary coalition of President Ronald Reagan and House Speaker Tip O’Neil in the 1980s, memorialized in Chris Matthews’ “Tip and the Gipper: When Politics Worked.”)
Here are the biggest calls on Wall Street on Friday: Barclays names Dick’s a top pick Barclays named the sporting goods store a top pick and says it sees accelerating growth. “We view 2022 as the new solid foundation from which DKS can now reaccelerate • its growth algorithm through: 1) sustainable positive comp growth driving market share gains, 2) gross and operating margin expansion as it exits a period of supply chain disruption.” HBSC upgrades AT & T to buy from hold HSBC said in its upgrade of the stock after its earnings report that investors should buy the dip. “But a slowdown in market momentum has been widely flagged (by all operators) for months, and AT & T’ s absolute growth in mobile subs remained solid.” Read more about this call here . Bank of America reiterates Alphabet as buy Bank of America says it’s bullish heading into Alphabet earnings next week. “We think 1Q could show cost improvement upside, while in-line search results could be a modest positive for market share concerns (we think street will see better evidence of cost cutting and margin improvement by 2Q).” JPMorgan reiterates Amazon as a best idea JPMorgan says it’s bullish heading into the e-commerce giant’s earnings report next week. “We’re modeling continued e-comm share gains in 2023 as AMZN & other retailers gain share in key under-penetrated categories such as grocery, CPG, apparel & accessories, & furniture/appliances/equipment.” Morgan Stanley reiterates Blackstone as overweight Morgan Stanley says the alternative investment management company is “resilient.” “We believe BX is best positioned to navigate the backdrop, capitalize on dislocation with $190b dry powder & propel earnings power.” Argus upgrades Dollar General to buy from hold Argus said in its upgrade of the dollar store company that it’s “rare retailer.” “We are raising our rating on Dollar General Corp . to BUY from HOLD and setting a one-year price target of $250. DG is a rare retailer that is growing square footage and posting positive comparable sales. Our five-year growth rate is 11%.” UBS initiates Bill.com as buy UBS said in its initiation of the software billing company that shares are attractive at current levels. “Since we’re a bit more constructive than the Street and negativity already seems embedded in BILL shares (amongst worst performing software stocks YTD), we view risk/reward as biased upward at these levels.” Piper Sandler downgrades Big Lots to underweight from neutral Piper said in its downgrade of Big Lots that it sees demand slowing. “Big ticket discretionary demand appears to be deteriorating (despite easier y/y compares), and we are worried about companies with break-even EBITDA (or worse).” Morgan Stanley downgrades Seagate to equal weight from overweight Morgan Stanley said in its downgrade of Seagate that it sees a recovery pushout for the hard disc data drive company. “As a result, we believe path to outperformance has also been pushed out, with risk more elevated near term.” Wells Fargo names Starbucks a top pick into earnings Wells says Starbucks is a “best idea” heading into earnings on May 2 and the “China inflection adds upside.” “Shares are -2% post-Q1 & we see improving Q2 risk/reward behind ongoing domestic strength (positive Q2 traffic; Ex 29), a likely China inflection (vs. a very low Q2 bar) & anticipated upside to the FY23 outlook.” Cantor Fitzgerald initiates CVS as buy Cantor said in its initiation of the stock that it’s underappreciated. “We are initiating coverage of CVS Health with an Overweight rating and 12-month price target of $87; Investors are underestimating the power of the flywheel CVS is piecing together, in our opinion.” Cantor Fitzgerald initiates UnitedHealth as buy Cantor said in its initiation of the healthcare company that it sees near-term earnings upside. ” United is ahead of the market in using commercial product innovation to solve for the problem of employers wanting to hold price trends, while providers are looking for a three-year step-up from historical averages.” Benchmark initiates Sea Limited as buy Benchmark initiated the Singapore-based internet tech company with a buy and says it sees rapid growth ahead. “We believe that SE should remain a key beneficiary of Southeast Asia’s fast growing digital economy in years to come.” Benchmark initiates Grab Holdings as buy Benchmark said in its initiation of the Asian internet company that it’s a “significant market consolidator” “As part of our industry launch of Southeast Asia Ecommerce, we are initiating coverage of GRAB, a leading platform player offering mobility, delivery, fintech and enterprise services in SEA (Southeast Asia Ecommerce).” JPMorgan upgrades XPO to overweight from neutral JPMorgan said in its upgrade of the logistics company that it likes the company’s recent management changes. “Our estimates remain unchanged but we are upgrading to Overweight with a higher, yet still discounted, multiple compared to peers as we believe this strategic hire should help unlock the potential at XPO which is still not completely reflected in the stock.” Read more about this call here. Goldman Sachs reiterates Philip Morris as buy Goldman says the tobacco company is an “earnings compounder with attractive valuation.” “Ultimately, we believe mgmt’s Q2 guide is conservative and therefore we see a nice set up for a potential beat and raise quarter. This, in addition to PM’s Investor Day in September, should be positive catalysts for the stock.” Read more about this call here. Morgan Stanley reiterates Spotify as overweight Morgan Stanley raised its price target on the stock to $160 per share from $130 and says “price increases, margin expansion, and market share” will drive the stock. “We continue to see streaming music & audio as an attractive growth market and remain OW WMG and SPOT.” Wells Fargo reiterates Microsoft as overweight Wells says expectations are “mixed” heading into earnings next week, but that the firm is standing by the stock. “While optimizations and macro are likely to impact FQ3 results, we see favorable offsets forming beyond, inc. MSFT’s ability to both consolidate spend from incumbent categories (productivity, biz apps, security) & gain share in newer ones.” Truist downgrades Tesla to hold from buy Truist said in its downgrade of the stock that it was surprised by the company’s “willingness to accept lower margins.” “What surprised us is TSLA’s stated willingness to reduce price further, accepting still lower automotive margins, to broaden & deepen its ability to generate revenue from AI projects, most notably FSD.” Goldman Sachs reiterates ServiceNow as buy Goldman says it’s bullish heading into the work flow solutions company’s earnings report next week. “We expect investors to put more weight on NOW’ s 1Q results, despite it being a seasonally weak quarter, as they look for signs of continued durability.” Truist initiates CyberArk as buy Truist initiated the cyber security company with a buy and says it has a first mover advantage. ” CYBR is a leader in Privilege Access Management, which is becoming a critical layer of cybersecurity and center of identity security. The company’s transition to a subscription-based model has resulted in strong visibility and durability of its business as well as higher customer lifetime value.” Baird reiterates McDonald’s as outperform Baird says it’s bullish heading into earnings next week. “We see potential for Q1 comps/EPS to exceed estimates (perhaps already priced in?), and we continue to believe MCD can fuel solid operating momentum in the balance of 2023 despite possible economic headwinds.” Stephens upgrades Pool Corp. to overweight from equal weight Stephens said in its upgrade of Pool that it sees an “attractive entry point” for the pool company. “The stock could tread water in the ultra-near-term as seasonally it is still too early to fully gauge activity levels, which could keep investors waiting. However, we think 20x next year’s earnings for a best-in-class, high quality compounder that consistently puts up 25%-30% ROIC, consistent market out-performance and strong FCF is an attractive entry point.” Stephens initiates SentinelOne as overweight Stephens initiated the cyber security company with an overweight and says it has “best-in-class growth.” ” SentinelOne’s platform addresses many of the highest priority areas of security spending.” JPMorgan reiterates Charles Schwab as overweight JPMorgan says Charles Schwab could be worth more if it were to “de-bank.” “While earnings would fall materially were Schwab to de-bank, we believe Schwab would trade at a higher (possibly meaningfully higher) multiple, which would/ could justify a higher value than the stock is trading at today. … .Schwab could feasibly de-bank. Schwab is not a bank, but rather is a broker that operates a bank, and as such we see it feasible that Schwab could operate without a bank.”
