Dollar General’s Results Snowed in by Winter Storm Elliott, but Long-Term Opportunity Set Unchanged

We don’t plan any material change to our $212 per share fair value estimate for narrow-moat Dollar General after digesting preliminary fourth-quarter results that were softer than expected. But after a mid-single-digit rout in the share price, we view the stock as fairly valued. Fourth-quarter same-store sales growth of 5.7% was a touch below our 7% projection and the firm’s 6%-7% outlook, but the updated EPS forecast of $2.91-$2.96 was 9% below the midpoint of the prior range ($3.15-$3.30) and our implied $3.25 estimate. Fortunately, the shortfall is not due to fundamental weakness in the business, but rather from the idiosyncratic impact of Winter Storm Elliott, which strangled the northern U.S., hindering sales and prompting increased damages to inventory. Given the transitory nature of weather events, we don’t think this affects the durability of Dollar General’s brand asset or cost edge.