Analyst: Dollar General story now less one of all-out growth

Nomura researcher sees law of big numbers increasingly at work

A prominent retail sector analyst says Dollar General has become so large that it can’t sustain its growth rate using the same strategies as in the past.

But that doesn’t mean Aram Rubinson at Nomura Securities is telling investors to stop buying shares of Dollar General. Instead, the analyst has reiterated his ‘buy’ rating and raised his price target for the stock to $60 from $58.

Rubinson, who has long been bullish about Dollar General’s ability to boost its sales of consumable goods and expand its footprint at a steady pace, on Thursday said his investment thesis for the Goodlettsville-based retail giant has changed. No longer will an aggressive building program and operational improvements work on their own.

“The Law of Large Numbers has […] begun to weigh on growth,” Rubinson wrote about Dollar General, which now runs almost 11,000 stores in 40 states. “In addition to new stores, comps have also hit a barrier now that DG has improved every dimension of its stores. Intellectual honesty requires us to acknowledge that, but it does not mean the investment merits have weakened.”

Rubinson now sees Dollar General’s future growth being more balanced. Square footage, he says, should now grow about 5 percent annually — the company earlier this year said it was aiming for 7 percent — while he expects same-store sales to rise 3 percent to 4 percent, a point lower than Dollar General execs recently said they expected.

Making up those differences to ensure Dollar General grows its earnings per share over time, says Rubinson, will be a larger number of share buybacks.

Investors in Dollar General (Ticker: DG) seemed to take Rubinson’s note in stride Thursday. Heading into the close, the stock was up 1.6 percent to about $55.50 on normal volume. At that level, it was just pennies below its all-time high.