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Around the Desk: This is where we at Avory think out loud, challenge narratives, and look for signal through the noise. Each episode, the Avory & Co. team dives into what’s moving markets, how companies are performing, and where opportunities may be forming. We break down earnings, macro trends, and investor sentiment — all from the lens of a concentrated, high-conviction portfolio.
*** The views expressed on Avory Podcast: Around the Desk are those of the hosts and guests and do not constitute investment advice. This podcast is for informational purposes only and should not be relied upon to make investment decisions. All investments involve risk, including potential loss of capital. Avory & Co. may hold positions in the companies discussed.
Audio Only - All Participants: All right.
Welcome everybody to Around the desk.
I am Sean Emery, chief Investment Officer
and founder here at Avery and Company.
We are here with Alex Morris,
TSOH, investment Research.
You know, if you follow him online,
you know, he puts a lot of great
stuff out there, you know, looking
at his portfolio, dollar General
Dollar Tree, the dollar stores in
Vogue, uh, you know, with Alex here.
You know what I appreciate about
your work, Alex, is, you know, really
around the, the level of research
I think you do, , in many of these
names,, but also doing it openly.
Uh, you know, we believe
in a, you know, in a.
Pretty high level, you know,
being, uh, open, transparent
about your research process.
You know, we're running a strategy
and a fund, but you know, you're
running, uh, more of a research,
you know, solution over there.
Uh, and really just spewing, you know,
a lot of the, the deeper focus on,
you know, business quality, capital
allocation, long-term earnings,
power of many of these businesses.
So appreciate you coming on today
and, and sharing a little bit about,
you know, some of your names, but
then also some of your philosophy.
So again, thanks for, uh, being on today.
Yeah.
Thank you for the very kind intro.
I'm excited to do this.
Yeah.
So let's start with, you know,
stepping back, I think before we go
into one of your names, which is.
Dollar General.
Um, but in, you know, we'll go there,
but before that, you know, share a
little bit about, you know, how you
ended up here, um, with the philosophy
that I think, you know, you see Munger
behind me on one of my shoulders here.
Um, I think you have some of the roots
that we share, which is, you know,
forward looking, but still valuation
driven, you know, capital allocation
driven at the business level, let's say.
Um, but just share a little bit
how you even got to this point.
Sure.
Uh, from a professional perspective.
Um, so I went to college in,
in the mid two thousands.
And when I first got there, I really
didn't know what I was going to do.
Um, I, I had some kind of entrepreneurial
leanings when I was younger, but
nothing that necessarily was gonna
lead me down the road to investing.
Um, so when I first went to school,
my dad's a plumber, so I went, I
went for building construction.
Um.
I'm, I'm not sure where, where that track,
uh, where I got off track there either.
I dunno if it was lack of interest
or if it was, some of the classes
in physics and other things were,
uh, a little bit challenging for me.
So I would, I would an easier
route than building construction, I
guess, which is, which was finance.
Um, and my, my love in of finance and
business really kind of got started, uh,
as I remember one summer where a buddy
and I kind of stumbled onto the, the
Berkshire Hathaway shareholder letters.
Um, so that was, you know, almost
20 years ago now at this point.
Um, and that, that kind of started an
obsession and love for these topics
that, you know, continues to this day.
Um, when I was, when I was
going through school, I went
to the University of Florida.
As I was getting closer to graduation
with a finance degree, I wanted to go
work at, uh, you know, a hedge fund or
a mutual fund or something like that.
And, and as I sent out.
A bunch of resumes.
Um, the response was pretty consistent
in terms of let us know when you have
a CFA and let us know when you have
an MBA and, you know, five years of
experience or whatever it may be.
And I had to get from A to B, which
was a bit challenging to figure out.
Um, so around that time, I started
writing online as a way to kind of
bolster my resume and try to try to
build that network a little more.
Um, you know, so fast forward over
time, I eventually did get a job as,
as an equities analyst at a really
small RIA later on moved to, to a
larger RIA in Savannah, Georgia.
Um, but throughout that, that 10
year period where I worked in, in the
industry, I was still writing online
and, and building those connections
and kind of testing my own analytical
process and communication abilities,
which, um, apparently I had a lot
to learn because some of the early
work was not particularly good.
Um, so, so yeah, I kept
working at that over time and.
Got my CFA, got my MBA, all those things.
And, um, as it came to to 2021, I, I
looked around and saw people like Ben
Thompson, ery, scuttle, blurb, uh, MBI,
most of our ideas, people like that.
Talked to some of these people and,
you know, decided I'm gonna take a
shot at selling my research directly
to people, basically through TSOH
investment research, which the kind
of the core idea is a hundred percent
transparency, as you kind of put it.
I complete transparency around
everything I own and why I own it.
Prior disclosure of all changes.
Um, just really as I looked at finance
or think about finance, I think at
times the discussions can be a little
bit, uh, surface level or not really
hitting on the points that matter.
And that was a bit of a pet peeve for
me that, uh, I wanted to try to go the
opposite direction on, which is certainly
uncomfortable at times when you're.
Trying to really explain why
you're doing some things.
And sometimes a little, it's a little
bit more field and science, right?
Or, you know, you, you talk about
something and you get it exactly wrong.
Those are, those are not enjoyable
conversations necessarily, but I
think that's a really important
part of one building trust with the
people who subscribed to my service.
And also, honestly, this continued,
uh, progress in trying to improve
and, and figuring out why something
went wrong or didn't go as expected.
So that's been kind of my journey
in terms of the professional stuff.
In terms of my investment philosophy,
you know, I, when I first started
buying things in the, you know, call
mid to late two thousands, it was, um.
The things that in my mind, you
probably shouldn't be doing, right?
I was buying solar panel
companies and, uh, micro caps
that I didn't understand at all.
Uh, a lot of things that were, were
not too well thought out and with the
outcome, uh, that they deserved, um,
for not being too well thought out.
Um, as I, as I learned more about,
you know, value investing and Warren
Buffett and Charlie Munger and, and
started to take those, some of those
things to heart, um, probably the most
informative investment during that
period was buying Microsoft and I bought
it in 2011 and I still own it today.
Um, and that journey of it going from
a kind of more traditional value stock
with a low PE to, to what it is now and,
and seeing the business change and the
importance of, of Satya NA's leadership
just been so many lessons in there that
have kind of informed how I continue
to think about investments to this day.
Um, and if I had to pick out a few
things, it'd be quality of the business
and the management team, which I
kind of view as I kind of view as.
Really closely tied at the hip in
terms of as time goes on, I mean,
decisions that management makes.
Uh, they can turn a good business into a
less good business and they can turn a,
a decently good business into a better
business based on the decisions they make.
Um, long-term holding period,
um, relatively high levels of
concentration in the portfolio.
So those are kind of the core, the core
things that are, that are still kind
of at the heart of my, my process and
the implementation of that process.
Got it.
Yeah, we share a lot of, uh, I would say
commonalities in terms of our, you know,
general beliefs other than that you are
a gator and, you know, I'm a gator hater.
But, uh, other than that, um, you're also,
you know, we spoke about this, you know,
before we turned this thing on, which
was the science of hitting, um, you know,
take us into a little bit of the world
of, uh, you know, why baseball, why, why
is baseball such a, um, um, you know,
what seems like a big part of, uh, um.
Your, you know, aura around, uh,
you know, the investment world.
Sure.
Um, well, I love sports.
I love baseball.
I'm a huge Cleveland fan as we
were discussing, which has not
been particularly enjoyable
some, so the last couple years.
But, um, but yeah, I mean, that was
somewhat by happenstance when I, when
I was going through that period, um,
when I was coming outta college and
going to get a job in the industry,
um, the ability to keep writing online
and posting things online under my
name was, uh, not going to be allowed.
So I, that's why I had to
come up with a pseudonym.
And at that time I, I picked the
science of hitting, or, or TSOH now,
which is for people who don't know,
it's a reference to the book by Ted
Williams about basically the sweet
spot of, of the batter's box and, you
know, waiting for the right pitch.
And, and Warren Buffett's version
of this is, you know, in baseball.
The batter standing there, and if it's, if
it's a curve ball on the outside corner,
but if he has two strikes, he still has
to swing, otherwise he's gonna strike out.
And in investing, there's
no called strikes.
You can stand there and wait for, wait
for the pitch and, and swing, swing
big when it comes across the plate.
So yeah, that's kind of, that's kind
of the inspiration for the name.
And, uh, I think over time, thankfully,
or luckily, it's, it's still very
closely aligned with how I, how I
think about the investment process,
which we'll get into on some of
these names we're gonna discuss.
Yeah, no, interesting.
I mean, I, I often write about,
you know, baseball in general
in, uh, in the grand scheme, you
know, as it relates to investing.
You know, I, I think one analogy I like
to use is just, you know, the failure
rate of a, you know, successful hitter.
Um, which is, you know, part of,
uh, investing is around psychology.
And, you know, um, you are going
to have, you know, periods of, uh,
perceived, I guess, uh, failure, um,
and not failure to the end, right?
Like, not failure where you have failed,
uh, but where things aren't as perfect,
you know, you're, uh, you've, you've
struck out twice, but you still have
to come up in the, you know, the ninth
inning, you know, against the closer
and, and try to get a hit and you kind
of have to brush everything else off
and, and kind of move on and get to, you
know, the batter's box like you said.
So I think there's a lot of analogies
from, again, how many, uh, looking
for that right pitch, but then, you
know, having the fortitude that when
things get a little shaky out there,
whether it's macro stuff and the
markets are moving and, you know,
COVID hits and market's down 20% and
you feel this, uh, you know, pit in
your stomach, um, you know, if you've
played baseball, if you watch baseball,
then uh, you felt that pit before.
Um, and it's just, you know,
another moment in time where.
You kind of just go past it and, and, uh,
you know, stay disciplined and, and keep
moving forward with, uh, your process.
You take the same swing, right?
Your swing doesn't change too much.
Um, it's more your brain and you know
how that tricks your body into, you
know, moving a little bit differently.
Um, now let's go to, uh, you
know, maybe some of your names.
I know you run a concentrated portfolio,
um, and, you know, we spoke here over the
last call it couple months really just
trying to hone in on, you know, which
one, you know, do we want to talk about.
And, and when you run a concentrated
book, we can talk about 'em.
All right?
You know, 'em all very well.
We run a concentrated book, you
know, 12 names, uh, as well.
So it's, uh, very, you know, there's a
lot of similarities here, um, repeatedly,
but, you know, dollar General, dg, um,
you know, none of this is again, just
for preemptive purposes, you know, and
not investment advice from me or him.
And again, we'll have, uh, you know,
some of the disclosures here, but
let's start with Dollar General.
How'd you land there and, and kind
of what makes it exciting for you?
Just real quick.
I was gonna say on, on your, on your other
comment, I think it's worth pointing out.
I, I like the way you framed it in
terms of how much of it, how much
of it, this mental part of the, of
the game, whether it's, you know,
playing baseball or playing golf.
I'm sure people can appreciate that.
Uh, and investing and this idea of
having a process or philosophy that
aligns with your own, you know, obviously
your, your own financial situation and
ability and willingness to bear risk,
but also your mental and your, you know,
kind of the biases that you have to
navigate, which everybody has different
things and that's where, especially
for someone who's newer to investing,
that's where ideas on concentration
and diversification and those things.
I think people a lot of times come into
the game and have a black or white view
of, I mean, myself included, there's
things I believe more vehemently when I
was younger that I definitely cooled on
over time and appreciated that there's
different answers for different people.
Right.
And that's, I think that's
an important part of.
Playing the game, even though when
you then go into as we'll talk about
something like a dg, you go into the
visual individual security selection,
it shouldn't necessarily matter.
But those building blocks are
hugely important in terms of,
um, how you actually apply that.
So I think it's important for people to
think about, especially younger investors.
Um, you know, DG is, in my mind, probably
the most telling thing that you can say
about the company is a quote from a former
former CEO at the company in the early two
thousands said in, in relation to Walmart.
We went where they ain't,
was his way of framing it.
And that's really DGS story is there's,
there's roughly, I believe 21,000 stores
at this point scattered throughout the us.
Vast majority of stores are in the
US to have 10 or 15 stores in Mexico.
Um, but the strategy is to be
in smaller towns and to offer.
You know, the, the retail value
equation for, for any retailer or
especially for, you know, consumables
retailer, grocery type retailer is
some combination of, you know, store
quality, product pricing, and convenience
I'd say are really the main things.
And d G's pitch is effectively we will
offer much higher convenience relative to
the Walmart that may be 10 minutes down
the road or 15 minutes down the road.
For someone who lives in a
smaller town, you know, it's
a minute drive to come see us.
You may pay 5% more for the products, but
are, we're selling convenience basically.
Um, and I think there's a lot of
merit to what they've done in that
regard over time, which is, which is
evident in the results to some extent.
They've also, in my mind, been
really effective competitor to,
to other players kinda like them.
Most notably kinda like the do, uh,
the drugstores, things like that.
Um, and smaller mom and pop
type, uh, grocery stores.
Um, so that's kind of the core idea
in my mind, how that's now evolved
over time throughout the pandemic
and, and also kind of the rise of
e-commerce and, and omnichannel.
Most specifically at Walmart, who I, in my
mind is kind of the main competitor and a
company that has, um, under the leadership
of Doug McMillan, I think been really,
really well run, got focused again on what
was important to the core US business.
And it's taken a long time and a lot
of work, but over the past five to 10
years, they've really gotten into a much
better place where e-commerce has now
really driving a lot of the business.
Um, and specifically as it re relates to
competing with dg, a lot of the buy online
pickup in store, or the delivery options
have, they've become much better value
in terms of the quality of the offering
and the price of the offering than what
Walmart offered at one point in time.
So that's been a competitive
issue for DG that they've.
Been navigating.
The other issue has been, again, this kind
of rollercoaster of pandemic, tailwinds
and headwinds, um, has, has really taken
a, a hatchet to the p and l in the last
couple of years in terms of them getting
their cost structure where it needs
to be getting the margin profile back
to the area where it was historically.
Um, so yeah, the company's been navigating
these, these, these considerations
and, you know, anytime you have a
stock that goes from, I think at one
point it was probably $250 a share
and, um, it probably got to, I wanna
say $60 a share, um, in the past 12
to 18 months at some point in time.
Um, so a ton of volatility, right?
For pretty.
Pretty straightforward business.
But as going back to the mental thing,
we were just discussing, anytime a stock
goes from two 50 to $60, doesn't matter
how straightforward the business is.
Right?
As you and I know the, the questions
start it, it's a little more nerve
wracking to answer the questions about
the sustainability of the model or the
sustainability of the p and l, et cetera.
Um, so yeah, it's been a very interesting
period where I, I think they've, I
think it's fair to say they've had
some, what you could probably call
deferred maintenance that they needed
to do in terms of just the quality
of the, the model and the cleanliness
of the stores and keeping shelves
stocked, et cetera, et cetera.
Um, and I think they've now started to
get that back to where it needs to be.
Um, and now they're moving into things
like delivery from the stores in a
way that I think can be much more
competitive with where the landscape
and retail's kind of going generally.
Got it.
You know, stepping back
a little bit, the, um.
What is the market, I guess, what
have they been skeptical about?
Like what has created that?
Um, I guess lack of, uh, you know, dollar
General, the dollar stores for a long
time were kind of bellwethers, right?
Seeing as, you know, traditional
compounders, you know, new units,
productive units, uh, in areas
where Amazon, Walmart, you know,
mostly Amazon and then Walmart
obviously has really emphasized, you
know, their digital capabilities.
But you, you know, what is wrong with
this story or at least perceived wrong,
um, with the story from the market.
And, uh, and then we can go from there.
Yeah.
Yeah.
I think, I mean, one of the main things
is for a long time, as I mentioned this
convenience piece, for a long time,
the mix of what DG sells kept moving
more and more towards consumables.
So think of, you know, people stopping
in and getting a bag of potato chips
or getting toiletries or whatever it
may be, things like that, that they're.
You know, they're coming in and
picking up on the way home from work.
And the problem is those categories
tend to have, uh, much tighter
gross margins than some of the non
consumable stuff that they sell.
And coming out of the pandemic
early on in the pandemic when, when
everything was racing higher, right?
And people were spending a ton
of money, dgs, non consumables
departments had really strong growth.
Um, but they've spent the last five
years basically comping it with negative
numbers against prior year, um, and non
consumables not really finding a floor.
So again, there was a lot
of margin pressure that was
coming through from that.
There was also pressure on the
amount of sale sales dollars
going through the box as a result.
Um, so I guess overall you
could just say it's, it's been a
combination of, um, AUVs average
unit volumes for those, those stores.
And then the margin profile going forward
and the market having questions about.
You know, if they can't get comps
back to two, three, 4%, can DG
deal with, you know, the natural
cost inflation that they're gonna
see on labor and other things?
And can they, can they effectively
and efficiently manage labor such that
they do not have an outsized level of
turnover, which obviously then shows
up in a customer experience that's
underwhelming relative to, again, like
what someone like Walmart's doing.
And I think Walmart's, Walmart's a really
instructive example in a lot of ways
because, as I said before, Doug McMillan
in my mind really being a key, a critical
piece of the company getting to a much
better place now, which, which you can
see, well, not to some extent in a large,
to a large extent in the stock price.
It, it trades very
differently than it used to.
And I think directionally that's the right
decision or the right analysis by the
market because the company is in a much
better place than they were 10 years ago.
Part of that story has been.
Walmart having the perception and
certainly to some extent the reality of
not having good labor relations and in
the US specifically, and them taking the
last five to 10 years and, and investing
a lot more in wages and, and doing a
much better job at being a retailer.
Right?
Um, and that's, that's something
that DG has, has been behind on.
And again, so I think it's part
of this question of if you're not
getting sufficient revenue growth
in those boxes, how are you gonna
be able to invest to fix that?
Um, we saw a really prominent example
when after we came out of the pandemic,
you know, a lot of companies, a
lot of retailers started doing buy
online, pickup in store, right.
Or things where you could go get it in
the parking lot 'cause you might not
be able to go into the store in a lot
of cases, depending on the retailer.
When DG implemented that, what
happened was employees in the stores
are now going and picking product
from the shelves and basically doing
the shopping for people, right?
Which given the constraints
in their financial model.
Effectively wasn't feasible for them.
So they've now transitioned it over time
to a delivery model that's served through
third party partners, basically, who
obviously get a cut of the economics.
But point being that DG has to be
really thoughtful about, our stores
are doing like $2 million a box, right?
Which is, which is not a lot of
money relative to the average.
Walmart does, uh, close to, close to 50
times that amount basically in a year.
So you can imagine the, the number
of labor hours you have going through
there is, is significantly different.
So they have to be really
thoughtful about those constraints.
And again, I think they got, they got
outta whack with that equation and
in a couple years after the pandemic
and, and the sales volatility around
the pandemic certainly didn't help.
And obviously supply chain issues
and things like that as well.
I think they're now getting,
figuring out the equation and
figuring out the path forward.
Got it.
And you drew analogies, you know,
uh, to Home Depot, you know, in
your original piece, I guess.
Um.
I have some questions on like
the convenience and such, but you
know, I thought it was interesting
when you did bring up Home Depot.
Um, now if you, you know, if you, you
track the history of Home Depot and I'll,
you know, I would for, for the listener's
sake, you know, let you obviously
share your, your Home Depot view.
But it, you know, when I step back
and I think of Home Depot's journey,
um, you know, they continue to,
I guess row the size of location.
So, you know, locations kept growing
in terms of, uh, footprint and
then that led to obviously more
category, um, you know, that they
could in theory, you know, capture.
And today you go to a Home Depot, right?
And you can get toilet paper and
uh, you know, you can get, you
know, uh, a Christmas tree, a blower
for your, you know, leaf blower,
couple plants and uh, you know,
and some toilet paper and go home.
Um, much different than that.
So like, you know, share your Home Depot
analogy and, you know, where does the,
I guess, the Home Depot analogy, I guess
start, and then where does it end as well?
Yeah, I mean, the, the analogy and to
your point that you're alluding to, like,
there's very different, these businesses
are very, are these retailers are very
different in some really important ways,
those notably in terms of what they
sell and, and who they're selling it to.
So there's some really important
considerations there that, that
people need to think about as
they consider this analogy.
The part that I think is really
interesting is Home Depot went through
a period from, if I remember correctly,
it's the 15 years leading up to oh 7, 0
8, where the store count went from like
200 stores to like 2300 or 2,400 stores.
And if you look at the 15
years subsequently, or I
guess 17 years subsequently.
The store count today is basically
unchanged from where it was in 2007, 2008.
So it went from a massive unit
growth story to something where unit
growth has completely come to a halt.
And the CEO at the time, Frank Blake,
made a point of the company really needing
to stop adding new stores and having so
much focus on that as, as what to what
would drive kind of the, the earnings
growth of the business to really focusing
on the four economics and running the
boxes better than they had previously.
And obviously as part of that
equation, figuring out e-commerce
and omnichannel over time.
Um, so that's kind of what I've
alluded to on the DG story that
I think is, is really important.
Um, if you look at how does this translate
to dg DGS guidance for 26 is basically
for 2% net unit growth, which is the
lowest growth rate that they've had in.
At least the past 15 years.
Um, they've remodeled almost 20% of the
stores in 25, and they're planning to
remodel another 20% of the stores in 26.
So I think it, it's an important
shift in terms of management's focus
and we, I'm sure it's sort late,
we'll talk about Dollar Tree as well.
I view things like that that I
think sometimes people view as,
and it's not that huge of a deal.
You can focus on multiple things at once.
I think a lot of companies struggle
with having too many priorities and not
really honing in on what really matters.
And I think for DG, they got to a
place where it became really apparent
that putting a lot of time and capital
behind unit growth and a lot of
management focus behind unit growth
really wasn't the top priority.
Running the base well was the
top priority, and to the extent
that you could figure that out
and you want to then readjust
again, I can appreciate that, but.
They needed to focus
on what mattered first.
And just to, to explain why they said
Dollar Tree there, dollar Tree on
Family Dollar for a long time, which is
basically the other direct competitor to
DG besides Walmart, it's Family Dollar.
It's a very different business than
the Core Dollar Tree retail concept.
And in my mind, a distracted management
for, for far too long and they
effectively just needed to throw in
the towel and admit this isn't working.
And the opportunity that we have
with the Core Dollar Tree banner
is very significant that we need to
just get rid of this and move on.
Um, which they, which they
did here relatively recently.
Um, so I, I just think management
focus is incredibly important and
you can see in the case of, of Home
Depot in terms of what it then led to
in terms of their per store results.
Especially if you come to someone like
a Lowe's, they've really meaningfully
outperformed 'em, generally speaking
over the last, call it 15 years.
So, um, I think there's a, a
similar type of opportunity at
DG with, again, the caveat that.
They are, they're selling
different things than that leaf
blower or, uh, lumber, right?
Mm-hmm.
For sure.
Now, to play a little devil advocate
on the, on the convenience side,
you know, you mentioned Walmart.
You, you didn't really mention Amazon
in the same, you know, Vogue, um,
where, you know, we all know Amazon
is, you know, clearly, you know,
trying to push, you know, same day
slash 30 minutes slash whatever.
Um, you know, I I I tend to try
to think, you know, 5, 7, 10, you
know, 15 years, not necessarily
who's gonna win or, or whatnot, but
like, you know, what is gravity?
You know, pulling, um, you know,
many of these things, grocery slash
you know, some of the more, um, non
consumable related products that you
can, you can wait a day or, you know,
some stuff need to get there that day.
But I think of Amazon.
I would love to hear your views on
them, but then there's, you know,
there's Target to some extent,
but you know, that is depending on
the location and, and and whatnot.
But then alongside that, there's
companies like Five Below.
There's companies that play
their own little space.
You know, I think they've carved
out their own, you know, niche
within kind of the low cost dollar
storage type of, um, uh, purchase.
And then I think what is under potentially
appreciated, not by you, I'm saying
just by, you know, in general is, um,
your gas station earning to convenience
store and, and la much larger, nicer,
uh, locations that have, you know,
many of the same things that you would
find in a dollar store to some degree.
Um, how does it, you know, IE there's
a lot of circling competitors that
either have no footprint or low
footprint or expanding their current
footprint, um, to try to serve the same.
Thing which is convenience.
And it, yeah.
Is the question is, is like
convenience no longer unique?
And maybe it's not, that's not the
answer today, but 5, 7, 10 years from
now, will all of those kind of be
encroaching on, uh, the convenience
factor in a way that is just obvious?
Yeah, I think it, I think
it's a very fair point.
I mean, that's one of the most interesting
things about retail is you say like,
who's, who's the competitor to X, Y, Z?
And the answer typically is like,
well, there's a list of like 10
competitors, and some of them are
really direct competitors, probably
for everything the company does.
Some are more narrow competitors for
a piece of what the business does.
But as you, as you're also saying,
those things are always changing.
Right.
I would say specifically as it
relates to Amazon, I would view
them historically, let's say, let's
say over the last five years, 10
years as more of a direct competitor
for that non-consumables business.
Something where you can.
You know, potentially buy something
with the idea that you're gonna
wait, even if it's two days, right?
You can wait the two days to get
something and maybe you're saving a
reasonable amount of money where that's
worthwhile to do, or you have more
variety and selection to choose from than
you do inside of DG stores, et cetera.
And that's where, for me, I have
been, I have been concerned over
time about their ability to continue
to compete and win in a reasonable,
you know, reasonable definition of
compete and win in non consumables,
because that does strike me as the
harder piece of the business to defend.
I think part of what they need to do and
what they have done subsequently is to
lean into a lot of the things that Dollar
Tree is really good at, um, specifically
in terms of seasonal and, uh, you know,
things like greeting cards, things with
lower absolute price points, because
that gives 'em a little bit of protection
in terms of, you know, what they're
then facing from online competitors.
You know, it's worth noting as
part of this DGS average ticket.
So the average, you know, when someone
goes to the cash register, what's the
average amount of money they spend?
It's right around $15.
So obviously it's not a ton of money.
Um, and if the average is 15, there's a
lot of purchases that are five, 10 bucks
that, uh, I'm still really skeptical on
Amazon being able to efficiently serve
that type of purchase with a delivery
and to have the economics make sense,
especially where, you know, a lot of
DG stores and customers are located.
Um, I'm skeptical that that's gonna
work, but if it's, and we're talking
about consumables and things like
that, um, I think that's gonna
be pretty darn challenging and
has been pretty darn challenging.
That said, if they, if they're adding,
you know, I see they're now testing
more of kind of the at and when you
go to check out, Hey, you can add,
you know, whatever I'm gonna say,
a loaf of bread or something like
that to your basket that you, you
really couldn't do that previously.
So it's definitely a fair
point in terms of continued
evolution and change over time.
Um, you know, what I was saying a
moment ago on delivery, uh, from dg,
they, they also need to respond, right?
They need to have their own
continued evolution and improvement.
Um, and I think they've now got that
to a place for, for someone who's
really, who's really focused on that,
that that new definition of convenience
and is willing to pay a small amount
of money to, to have that happen.
I, I, I have it in one of my writes, I
think it's around $5 for this delivery.
You know, DG sat on their last
call, more than 70% of their
online orders, they get delivered
to the customer in under an hour.
Um, you know, if the closest Walmart's
25 minutes away, Walmart's gonna
have a hard time getting deliveries
to the customer in under an hour.
So there's, there's certain things
of, of their real estate position
that I, that I think still translate
to kind of an omnichannel world.
But yeah, it's, it's continuing
to e evolve and change over time.
So dgs gonna have to continue to
evolve and change over time as well.
Yeah.
Yeah.
Fair.
One other thing, one other
thing that's worth noting.
And again, this is another one of my
writeups I looked at, as I said before,
family Dollar was, um, dollar Tree
sold Family Dollar before they sold it.
They announced a pretty significant change
in the, in the store footprint where they
closed, uh, if I'm remember correctly,
some, something like a thousand stores.
And there were certain articles that had,
Hey, here's a list of 20 stores that are
CLO closing in a given state, let's say.
And one of the articles I wrote,
I, I went and looked at, here's the
address for this family dollar store.
Let's look on Google Maps and zoom
out and see what the landscape is
in terms of grocery competitors.
Let's say a Walmart, you
know, anything like that.
A dg.
What you find in a lot of these cases
is DG is located in a way that the
Walmart is, again, 15, 20 minutes away.
And, you know, I just think you have
to ask for, for someone who is going
in for that, again, call it a $15
purchase, or it might be someone who.
Is heading home from work and
wants a frozen pizza and a bag of
chips or, you know, two liter soda.
I think you just gotta really step back
and go, how much of this is, how much of
this is actually able to be competed away?
How much of it is even more convenient
to have to kind of figure out how
to do that through an e-commerce
solution or something, versus just
walking into a DG and having that
picked and paid for in two minutes.
Right.
So I think, I think what they do is,
is very defensible, even though it, it
unquestionably is getting chipped away
at a little bit on some of the margins.
Yeah, yeah, yeah.
Makes sense.
And you know, obviously new categories
can emerge where, you know, they continue,
um, you know, old, older categories, you
know, fade and, you know, get eaten up
by Amazon and newer categories that are.
Uh, again, where convenience is much
more of a, a factor and, and, you know,
while there's competitors turning on,
there's also, you know, historical
competitors turning off like Party
City, kind of, you know, going away.
And, you know, I, we find ourselves
going to a, you know, a dollar store
to get a, you know, a bag, um, for
a, for a gift or something like that.
Um, you know, so there's, there's
always this convenience factor.
I just, again, try to think
through the, um, the eventual
and, you know, one eventual that
is likely to happen, you know?
You would say in, in rural areas
more so than, than non-rural are,
you know, the drone economy, right?
Where you, you can, you can
go 25 miles fairly quickly not
to go into drones right now.
That's not the purpose of this.
But, um, you know, going to the, the
quarter, uh, your recent post here that
you, I think you posted something here,
you know, uh, this past Monday, or you
know, recently, let's say, depending
on when this, uh, podcast goes out.
Um, and one of 'em was, you know, you
definitely saw a pickup in the business.
You highlighted how traffic picked up,
um, and pricing was less of the driver,
or if not the driver of, of comparable
sales team or sales for those listening.
Um, now, like what's your view on the why?
Um, I have some, you know, takes and, and,
you know, ask some questions on it, but.
What, like what, what's your
rationale, uh, behind the why?
Um, you know, same store sales has
finally, you know, turned positive in
traffic, which is obviously the, the,
the, the lifeblood of any, uh, retailer
is getting people in the door and then,
uh, you know, trying to upsell them.
Yeah, I mean, I think it's, I think
there's a couple of different reasons.
I mean, I think some of it is, some of
it's just the blocking and tackling,
kind of like I was saying before.
I mean, I think they just got to a place
where, and again, people, I think people
understand when they, when they shop
these stores, you know, as with anything
in retail, there's a, there's a level
of, of, let's say, quality, for lack of
a better term, cleanliness, you know,
number of employees around to help you.
People have an appreciation for
kind of what that range looks like.
Um, but I think even DG got to a point
where they were outside of the range
that customers reasonably expect from
them, given the constraints of the model.
So they had to, they had to get
back to a place to fix that.
Right.
And you know, it's kind of, not to go
on a tangent here, but it's one of the
funnier things when I, when I think about,
um, uh, things from like a regulatory
perspective and people, especially when
they talk about dollar stores saying, you
know, the, uh, the, the issues that they
have with these companies, and it's, you,
you look at it from the perspective of a
shareholder and investor, it's like, well,
you guys have comp competition coming
from at them from every angle, right?
And to the extent that you don't
run your stores well or treat your
employees well enough, well customers
and employees can both leave.
Um, so I think to some extent
they've dealt with that.
And to the extent that you don't address
those things, you're gonna go out of
business over time or you're gonna lose
profitability, whatever you wanna call it.
So you'll, you'll pay the price
for that, um, in due time.
Um, and I think to some extent they.
They were dealing with that
issue and they've now, they've
now got it to a better place.
Um, there's probably some
macro stuff in there as well.
I think they typically see when, when
things get a little tougher, kind of
as I was alluding to before, the size
of the basket can shrink a little
bit and the number of visits people
will then make as a result can, can
increase because they're, they're
stretching, you know, when they're
getting paid or, you know, whatever.
It may be a little bit more than,
than they might be otherwise.
Um, they've done a better job in the non
consumables piece as I was discussing.
I think they've, apparel has been
something that they've kind of
moved out of more, which I think was
probably a really intelligent decision.
And they've leaned more into kind of
the home and home and seasonal stuff,
which is, that's where I think they can
reasonably play and still do a good job.
And, you know, to the extent you
keep the price points low, right?
You can, um, a 5% price difference
on something that costs two 50 is
a lot different than a 5% price
difference on something that cost.
$25, right?
In terms of how it's perceived and how
much, how much value you're putting
on the convenience of getting it
right now versus waiting two days.
So I think they've thought about
those things a bit more intelligently
and have kind of, uh, changed
the, the skews to, to get that
aligned with where they need to go.
So yeah, I think there's a couple
of different pieces that have,
have that have got them here.
Did you, do you ever think of, uh,
this just came into my head when I
was, um, you know, reading it was,
uh, you know, obviously Tim Sheen,
uh, with the de minimis, um, you know,
ruling from a logistics standpoint.
You know, they weren't allowed,
you know, they essentially shut off
their US business for a little bit.
Um, did that play any factor?
Was it playing a factor, you know,
pre, you know, like two years ago where
people, you know, questioning the story
on, you know, given that fact that you
had these, I always say the dollar,
the dollar store of the internet,
um, and, you know, these are the, uh,
comparables and, and you know, they've
kind of shut down in the last year or so.
You know, you had negative comps.
For about two years straight.
So you had a, you know, favorable
comp, uh, that you were going up
against, plus you kind of had these
$2 stores of the internet kind of get
taken offline, you know, somewhat.
Does that play in your, in, in your brain
at all in this, or is it, you know, you,
you do think it's more of a, you know,
um, you know, just cleaning up the story
themselves and it was more them than it
was, you know, the environment around.
No, it does, it does play my,
and you know, this gets back to
what I was saying before, right?
Like, it's retail.
There's such a range of who the
competitors are and who the customers
are and how they're shopping.
So you're always, I, I think
there's, there's no question
that there's overlap, right?
The question is how much
overlap is there between them?
I, I think particularly at the
height of, of things like amu, that.
That amount of overlap
was getting overstated.
Um, I remember things with Bloomberg
articles citing credit card data in
terms of how many, what percentage
of, you know, DG shoppers or
customers and things like that.
I think it was getting framed a bit out of
whack with how I think it, it truly works.
Um, but again, I, there they're
also certainly competitors.
Um, and I wrote in, I wrote
in an article, I think it was
more focused on Dollar Tree.
I look at something like Party Supplies
and, and looked at, you know, you can go
on Amazon and search for party supplies
and rank by the cost of the products.
And I, I think I showed
'em the one article.
There were like five or 10 SKUs on
all of Amazon when you searched Word
party supplies that were priced at less
than two 50 or something like that.
And those products also did
not have the, the capability
to be shipped through Prime.
So, and again, similarly at Temu, right,
if you're talking about something like
buying party supplies and you think about
how the average person shops Dollar Tree.
They're going in there Wednesday
or Thursday or Friday to
buy something for Saturday.
It, it doesn't work if Temu says, Hey,
you can save some money or have wider
variety, which is, which is relevant
to the question, but none of it's
gonna take three weeks to get there.
So I think a lot of this comes back to,
and this is where I think a lot of my
conviction in Dollar Tree specifically,
has been kind of rooted as someone who
shops there and, and sees how people
shop there and someone like my mom or
you know, just walking around the store
and looking, I think the way that it's
shopped and who their competitors are.
There's again, a lot of overlap with a
large number of the SKUs in the store,
but there's also a piece of what they
do that's really unique to Dollar Tree.
And as they moved into this multi
price strategy that they've been
running over the last couple years,
I felt like it would give them the
room to continue to run that strategy.
But even in a way that's more effective
as they removed a little bit of the
constraint that they were feeling
on, especially at the $1 price point,
their ability to serve categories like
seasonal, it just got really constrained
when you can only sell things for a
dollar versus now if you go walk in
and look at Halloween or during, you
know, the holiday season, they can,
they can, they can merchandise the store
much better in a way that is a better
experience for customers and still have
it work out for the business as well.
And I think you're seeing
that now in the results.
So, so again, I think all
these things are competitors.
It's just like to what
degree are the competitors?
I felt like it was always, it was
always overstated, at least where
it was at that point in time.
Obviously it can continue to
continue to evolve and grow.
Um, but yeah, I, I, I think it, I think it
was a bit overstated, but still relevant.
That makes sense.
I mean, the only thing, you know,
clearly not direct, but it's, you
know, the, I guess the, the competition
is really about how many dollars are
in someone's wallet and, you know,
where do they allocate it to versus,
Hey, I'm choosing this over that.
Um, and I'm no longer going to that.
It's just, Hey, I don't have any
more dollars in my pocket left.
And therefore, uh, because I, you
know, kept spinning, spinning the
thing on Temu and, um, you know,
and it'll be here in a month.
Um, so yeah, I mean, there's
some of that for sure.
Now, you, you know, I, I, you
highlighted, and I think this is, you
know, fairly industry wide, um, we
don't have to elaborate too much, but
it's, you know, for the sake of the
listeners is shrink in the industry
and retail is starting to come down.
I think cities in general, um,
during COVID, this was a big problem.
Best Buy and some others, you know,
just after that there was a lot of
retailers out there essentially,
you know, articulating how shrink
meaning essentially the, you know,
the amount of your inventory that is.
In many ways wasted.
Some of it is theft, right?
A lot of it is theft.
Uh, it was theft, at least post COVID,
so wasted returns, uh, stuff like that.
That's why you have like the open
box stuff mandates at, you know,
best Buy as they try to, you know,
offset some of the shrink where some
buys it, sends it back and whatnot.
But, you know, dollar Tree,
dollar General, I think we're
seeing the same benefits.
So that's good for the industry.
So I think if you're, you're, you're
investing in, you know, these retailers,
you know, think, uh, there is this margin
story that is happening, uh, you know,
mostly on the shrink side, mind you, that
you have to counter it somewhat with, uh,
you know, some of the tariff, uh, stuff
that has, you know, been pushed through.
So there's kind of this balance there.
But going past that Dollar Tree
versus Dollar General, you know,
just share a little bit about how
you, you, you contextualize the two.
Um, like what is that main
difference in your view?
Um, because we, we are seeing
a little bit of a diverging.
Um, trends, let's say, um, in the numbers,
and this is me just reading some of
the stuff that you wrote, and, uh, so
just, you know, elaborate a little bit.
What, how do you view the
two differently or the same?
And then, um, you know, why is it
seemingly looking like, you know,
dollar General has hit potentially
an inflection point while Dollar Tree
potentially is, you know, sput, not
sputtering, but, you know, um, not as,
uh, inflecting, you know, positively,
even though I think they were performing
better, you know, heading into this.
Anyways.
Yeah, that's a good question.
I think I, it it'd probably be helpful
for, to provide, especially now that
this is, you know, a little bit more
in the past than it was previously.
I provide a little context
on how, at least from my.
My investments, like how
I've navigated this period.
So I owned, I own DG into this
period where they came into a lot
of margin pressure and the stock
has been hit very significantly.
And as I said before, I think
it got down to 60 or $70, you
know, somewhere around there.
And I think it was at one 30 or 1 35.
So it's had a fairly significant recovery
from where it was trading at, but it
also got, you know, absolutely demolished
in the period leading up to that.
Um, I've held it through that period
and, and I, as I said before, all
everything I do is, uh, disclose the
subscribers before I do it so someone
can go back and look and check this.
I think it, to the extent I added
more, it was small additions.
I, I have not added significantly
through that period.
I've largely just held on, and again, it
partly was around some of these questions
on non consumables and what that piece of
the business looked like going forward.
What does that then to the, do
the profitability for the box,
if that comes under pressure?
You know, for a while the delivery
piece wasn't as clear as I
think it's starting to be now.
So long story short, there were,
there were sufficient number of
questions about kind of the core
model and the ability to evolve.
That put me in a place where I was
still comfortable continuing to
own it, but I was less comfortable
really aggressively buying more.
Contrast that with Dollar Tree, I, I
followed Dollar Tree for a really long
time, but then as I said before, I never
owned it because I always felt the Family
Dollar issue was, was significant and
was too much of a draw on management of
resources that I just didn't want to get
involved until they effectively fix that.
You go through the period where they
break the block and go to a dollar 25
and then they start doing multi price.
That was a really interesting change
that I started to follow more closely.
Then they brought in Richard
Drying, used to be the CEO of dg.
Moving forward, moving forward announced
that they're gonna sell Family Dollar.
For me, that was kind of the,
the moment where, okay, now I see
all the pieces coming into place.
Um, stock got hit really hard in
the back half of 24, um, to, I, I
think it got to 60 or $65 a share.
Um, and again, people can go check this.
I, I had started buying I think
in mid 24 and in, in late 24
when it got hit really hard.
I, I swung pretty, uh, pretty big swing,
um, and made it my largest position.
And, uh, the stock has, has done
fairly well subsequently, so
obviously it, it kept getting larger.
So I guess my point in saying all that is
my conviction on what Dollar Tree's retail
model is and its point of differentiation
and its ability to, to continue to find
a path forward, I think has, has been.
I've had higher conviction in
that view than I have with dg.
I've had, I've had questions at times
about dg, I still feel good about it,
obviously 'cause I own it, but on a
relative basis, dollar Tree has been the
one that I've been more confident in.
And again, it comes back to, it
can comes back to this question of
what is Dollar Tree's core purpose
and who is their customer base?
And I, I think if you look at,
you know, most Dollar Tree stores,
think of the ones around me.
One's in a plaza with a Publix,
which is a regional grocery store,
another's in a plaza with a Target.
Another is in a plaza with a Walmart.
A Walmart.
And these are ostensibly their
competitors, but they actually sell
something and serve a purpose that in a
lot of cases, I would venture to bet that
someone may be walking into both of those
boxes and it's actually supplemental.
Um, so that's your bull case right there.
Yeah.
You, you're saying, you know,
all the competition stuff that I
asked earlier, I mean, you know.
That is it, right?
They're right next to a grocery store.
So, you know, they're, they're
clearly carving something out,
you know, they're next to a
target, they're next to a Walmart.
I mean, why in your right mind would
you, you park next to, you know what
I am over here, you know, saying
potentially a competitor, uh, you
know, threat, um, to the business.
Um, that's an interesting survey is
like, you know, someone walking in there
would be like, you know, why aren't
you walking in Walmart and getting the,
uh, you know, whatever you're getting?
Um, right.
Well, and you and I think about it too.
I mean, this is, this is
stretching it somewhat, but I
think this idea is relevant.
You think of like a floor and
decor, which has been, has had a
lot of success in, in flooring.
And you think about them compared
to a Home Depot, and you can kind of
ask yourself like, well, why has Home
Depot allowed floor and decor to take
a lot of market share in flooring?
And I think the answer
is because Home Depot's.
Serving a different purpose, right?
I mean, they play in flooring, but
they're not just a flooring retailer.
They have a bunch of other categories
that they're serving in their boxes
and, you know, they have a certain view
on what their strategy is, and which
by the way, has, has worked pretty
darn well over the last 10, 15 years.
Um, and they're not trying to
be everything to everybody.
And I think the same applies in
a lot of ways to, again, like a
Target or a Walmart, how they think
about what they're trying to do and
how they think about convenience
and value relative to how someone
like a Dollar Tree thinks about it.
Um, so I think that's where a
lot of the opportunity lies.
Um, as I said a moment ago, I think
when they, when they broke the buck,
it gave them the opportunity in a
lot of the consumables categories.
Think of something like aluminum foil.
I think it was an opportunity for them
basically to take just about every penny
of that increase from, say a dollar to
a a dollar and a quarter, and to put
that back into the value of the product.
Make the packs, you know, make the, the
square footage 30% larger, whatever it
may be, stay really competitive in those
categories on the quality of what you
do on some of the non consumables and
seasonal products and things like that.
I think gave 'em the opportunity to
really open up kind of the wallet
that was available to 'em by having
a higher quality of product that
they couldn't service previously.
Um, you know, you have some examples
kind of that fall in between those.
One really prominent one that they
discussed on their investor day a couple
years ago was a, a bag of ice where
they were, they were getting a custom
bag of ice made at five pounds so they
could stay at $1, as opposed to the
industry had moved to a seven pound
bag of ice, which became the standard.
If you go to like a Publix,
you know, it's probably two 50
or 2 99 for that bag of ice.
They eventually realize like, we're
having this thing custom made.
It's more difficult to do it, and
the supplier eventually told 'em
like, we can't do this anymore.
They then moved to the seven
pound bag at a buck and a quarter.
Basically, it just allows 'em to be
a lot more efficient than it could
be otherwise, when you're forcing
everything into that one price point.
That said, I think it's super important
for them to be cognizant of the importance
of the low absolute price point in terms
of how the customer shops the store,
but there is some flexibility to, to
play with that model a little bit, and
again, like as a way to, to add value.
Maybe one last thing to add here
is a, another really in instructive
part of my Dollar Tree investment
has been the Dollarama case study,
which is a, a retailer up in Canada.
Um, the, the competitive environment
is, is quite a bit different in,
in Canada and the US from what I
understand US, is probably quite
a bit more competitive, but.
The, the trajectory of what Dollarama did
and the way that they also, uh, broke the,
I think they call it the loony, the way
they also broke the buck and went to a
multi, multi price strategy starting in,
I believe it was 2009 up through today,
is really instructive in terms of what
that then allowed them to do and how that
showed up in the economics for the stores.
Um, I mean, there's a lot of
parallels there that are, that are,
I, I've written about this, but
it's worth looking into for people
who are interested in the story.
Got it.
You know, a couple more, you know,
sections here and then wrap up the
capital allocation balance sheet.
I know, I think Dollar General was
buying their, their shares for a while.
Um, perceive, you know, from a investment
perspective, obviously, you know,
it, it tied up capital into, uh, you
know, the share buybacks versus, you
know, red redeploying it back into,
you know, the actual units themselves.
Um, your thoughts on, on
capital allocation balance
sheets of those companies.
And then, you know, if you wanna, um.
You know, jump to how you view the
valuations, um, of these businesses.
Like how do you get to that upside that,
you know, you think you're looking for?
Is it really units and margin
or is it, you know, uh, or, you
know, productivity plus margin?
Or is it, uh, uh, you know,
multiple expansion, um, over time?
So kind of those, those different areas
of, uh, the question on the investments.
Yeah.
We can start with dg.
Um, you know, as I said before, DG
went through this period after the
pandemic where the financials for
the business, particularly in terms
of the unit volumes and the margins
look different than it had previously,
looked better than it had previously.
Um, and during that period,
it's always been one of my.
One of my issues with companies that
kind of run capital returns relative
to a call it like a leverage target,
is during the periods where things
are going really well, that enables
the ability to buy a lot more shares
than you would in a normal situation.
Those are also the periods where your
stock price is doing really well.
Um, so you buy a lot when your business is
doing great and the stock price is doing
great, and then you don't buy much, if
any, when your business is struggling a
bit more and your stock is doing poorly.
So, um, little bit of, a little
bit of a buy high, don't buy low,
which doesn't work too great.
Um, so yeah, they bought, they bought
a decent, I I wrote a, can't remember
if you have the number in front of you.
I think it was a couple billion dollars,
um, during the, the 20 to 22 period.
Um, I can't give them too much flack
for, for buying the stock there
because that's not too dissimilar
from when I bought the stock.
So I think they, like myself,
may have underappreciated the.
The kind of short term volatility
around some of these key
metrics, particularly on margins.
Um, so yeah, they've kind of been
digging outta that hole ever since,
'cause of margins coming in so much.
They then got caught off
sides basically on leverage.
So they've been working through
that over the past couple years.
Um, that's effectively done at this
point, which is, uh, potentially a
nice turning point for the story.
Um, but, but yeah, it's been
kind of painful to work through.
Um, dollar tree's been a bit different.
They, they did have, they did
have a stretch where they didn't
repurchase shares following
the Family Dollar deal in 2015.
Um, but they had worked through that by
the time you get to the last couple years.
Um, and then when they announced
the decision to sell Family
Dollar, that also gave them some
added, uh, you know, firepower.
Um, so they've, they've been aggressively
approaching shares in the past.
Uh.
Past year or so, um, more, more so than I
thought they, that they, than they would.
And you know, they've done it at
something like $90 a share on average,
which looks, looks pretty good relative
to where it's trading currently.
Um, you know, in terms of the valuation
on, on, on both of them, I think the one
thing they had in common, particularly as
you get to, you know, late 24, early this
year, is a lot of pessimism priced in,
um, whether it's tariffs or competitive
issues or, you know, all these things
that kind of come together to, to make
you question whether or not the margins
in particular would get back to where
they had been at one point in time.
Um, there was a, a lot of pessimism
priced in, and, and that's lessened to
some extent, but I still think it's,
you know, it's, it's fairly, fairly
pessimistic, um, relative to the, the
potential of the businesses or what
they've just delivered historically.
So, um, obviously that, that depends on
them actually delivering the results.
Um, the key drivers on each name, DG is.
Is more of a margin story in my mind.
Getting back to, you know,
this year they're at, call
it roughly 5% EBIT margins.
That should be, that should be, call it
200 basis points higher than where it is.
And obviously going from 5% margins
to 7% margins is a big change
in terms of the amount of EBIT
dollars that are flowing through.
So it doesn't look particularly expensive
on kind of current profitability.
And if 5% margins are seven or
8% margins in 3, 4, 5 years, then
obviously that's a massive lift to,
to earnings and DPS as a result.
So that's kind of the main thing.
And then on, on the sales side of
the DG story, it's really again, the
ability of these remodels to drive.
You know, sufficient same store
sales growth, thus that they can
kind of leverage the expense base.
So, um, I think we're in a pretty good
place in terms of that story playing out.
Um, that's, that's really in my mind,
the reason why the stock's done so well.
And I think I mentioned the article,
right, that goes up, I think it was
up 30 or 35% just in the past month.
Um, so there was a, a lot of incremental
confidence that that piece of the story
is coming together after the market,
maybe not buying it when management
kind of first started talking about
these things a couple quarters ago.
Um, dollar Tree, I, I view it
differently and it speaks in
terms of the margin profile.
I, I view it differently than
what I referenced earlier on.
Do Dollarama, if you look at that
story from that, from the start of that
multi price in, in, again, like 2009
to to last year, you're looking at, um.
Over a thousand basis points
of improvement on gross margins
and on EBIT margins, which
obviously is a massive lift.
Um, I've, I've always thought of the
Dollar Tree story as multi price affording
them the opportunity to, to make a bit
more investment, whether in terms of
the product, you know, how much value
someone's getting for that dollar 25
versus a dollar or some of the things
in the stores where they've admittedly
also had a bit of deferred maintenance.
And again, I think there's an appreciation
among the customer base of what they're
paying, paying for, and how, how the
stores need to look or, you know, how fast
it needs to be when you go to checkout.
I think there's some reasonable
range of, people expect there to
the extent that Dollar Tree wants to
attract an incremental customer that
may have slightly higher standards.
They need to do a little bit
better at some of these things.
So, so I viewed it mostly as, as opposed
to that, you know, thousand basis
points of lift that Dollarama has seen
through this process of transformation.
Dollar Tree, having something much less
than that at, at most a couple hundred
basis points with a large majority
improvement, basically reinvested, um.
The driver there will
more so be sales growth.
Um, with a lot of help from
a lot of help from ticket.
Um, you know, again, in the case of
Dollarama, you're looking at something mid
single digits in terms of ticket lift from
makeshift to these different products.
Um, and hopefully we'll
help from traffic as well.
So, and, and they can also get back
to, I should also mention, you know,
to the point on the balance sheet
being better and the strategic vision
being clearer, post family dollar,
dollar Tree got to a point where unit
growth for the core banner had really
slowed from where it had once been.
Um, and I think as they now figure out
multi price and the, the unit volumes
flowing through the stores is moving
higher, it puts them back in a position to
go play offense In terms of unit growth,
um, they're at about 8,000 stores, I
think, I think it's pretty reasonable for
them to expand the base at, you know, at
least four or 5% a year over time to the
extent that that becomes a major focus.
So all those things in combination with.
Repurchases at at prices that
have looked pretty good, at least,
you know, six, 12 months ago.
Um, it sets up for a pretty good equation.
Got it.
Cool.
Um, that is a full, complete story here.
Um, I think, you know, you know, summary
for me is, you know, if, if you're looking
at Dollar Tree or even, you know, dollar
General, dollar General, we've talked
about more here, but the, um, you know,
in general, you're having this moment
in time where, you know, people are
questioning the competitive threats.
Um, you had a couple mistakes in the
past, you know, and you're at a point
where they're starting to drive traffic
back to the locations and ultimately that
is likely the number one KPI, because,
you know, any initiatives they're
doing inside these locations, whether
it's category specific and or, um, you
know, marketing, channel distribution,
all of that in theory has to flow back
to traffic and be your signal that.
People are coming back to the stores,
it's not, you know, and they're not
driving revenue growth or same store
sales just on increasing pricing.
Um, and therefore, as you see sustained
potential traffic growth, that'll be the
evidence to support the notion of, you
know, what you're, you're suggesting here.
And, and then obviously just being
aware of the, the, the competitive
threats that are around them.
But I think you made it, you know,
when you brought up the, that they're
next to, you know, some of their
competitors, it makes you question
that competitive, that that bear case.
Um, and if it works there,
obviously there's 21,000 locations,
so there's a lot of locations.
Um, so not every location's, you
know, uh, you know, the same.
But I think that, you know, for me,
listening to you and reading some of
your stuff as well, is the key KPI
that I would be tracking is traffic.
And, you know, read, that's
a normal KPI to track in.
In retail.
But there's also, you know, when
you're talking about a story that
is com uh, changing, um, it becomes
even more elevated of a, of a KPI to
track, uh, than margins or anything
else because ultimately it's about,
you know, people coming to the store
and approving management's changes.
Um, so yeah, I think that that's that.
Now for you, uh, just wanted to,
you know, give you a moment here,
um, to share a little bit about, you
know, where to find more about you.
Uh, you know, uh, I follow you online
and, and, uh, I think it's a good place
for anyone out there that either wants
to have idea generation and or full-blown
idea, um, you know, creation, let's say.
Um, and anyways, just wanted to give
you a second here 'cause I definitely
appreciate the time and we've been
trying to do this for a while.
Um, and we've kind of been delaying
it, putting it off, you know, waiting
for earnings to happen so that we have
more, you know, insights to share and
then, you know, holidays, this and that.
So, number one, appreciate you coming on
number two, you know, try to, you know,
flush out the story in the simplest way.
And then number three, if you could just
share where people can find more about,
you know, TSOH and, and what you're doing.
Yeah.
I don't know if it's a
good thing or a bad thing.
We've been trying to do
this for a little while.
We got, we, we talked about two
companies where the stocks have kind
of gone on a little bit of a crazy run.
Um.
I can confirm two things.
One, that we've been talking about
this for a long time, and two, that
that, that that doesn't always happen.
So for sure it is pretty rare for things
to move, like how these two names have,
again, with the caveat that they went
through, they went through a pretty
rough stretch leading up to this period.
So everybody should take everything
that we discussed with, uh, the
appropriate, you know, considerations.
Um, yeah, the best place to find me is
at over at TSOH Investment Research.
Again, as I said before, um, I worked
in the industry for 10 years, basically,
um, left to start this full time.
I, I publish something every
Monday and every other Thursday.
And the content is, you know, deep
dives on new companies, updates on
companies that I've looked at previously
that I may consider investing in.
Like the one I posted today was
on Build a Bear, which is a really
interesting story of a company that was.
You know, effectively priced for
bankruptcy at the low and during the
pandemic, obviously, you know, for
a long time, mall-based retailer,
that was, that was not where you
wanted to be in the world of retail.
And that is kind of since we found
their footing and a stock that was at,
you know, a buck at the, at the lows
in 2020 is now at, call it $55 a share.
Um, so again, like I look into
a lot of stories that I find
interesting for one reason or another.
Um, periodically there'll be one-offs.
A lot of times they're usually kind of the
starting of an ongoing journey of what is
this business, what are the key things I'm
kind of looking at to potentially invest.
I think that, again, the Dollar Tree
example is a, a really good one of,
I might follow something for many
years waiting for, for one thing
that I think is really important in
combination with the right valuation.
Obviously, that'll then take me
from having been on the sidelines
to being five 10, potentially a
larger percentage of the portfolio.
Um, so yeah, that's
all, that's all shared.
As transparently as it
possibly can with people.
Um, if anybody ever has
suggestions on how to make it more
transparent, I'm happy to listen.
Um, but yeah, so that's, that's
the best place to find me.
Um, or people can look on
on Twitter if they want to.
I post a bunch of charts and
things, um, at, at TSH investing.
Awesome.
Alex Morris, SOH investing research,
you know, appreciate you coming on
today, and we'll do it again and catch
up on, on a different story and, you
know, see where we are, you know, 5,
6, 7, you know, 10 months from now.
You too, I should say, for anybody who's
not watching the video, if there is
a video, you're, you have a very nice
bookshelf behind you with a lot of great
books, but I'm have to send you a copy
of, uh, buffet and Munger un scripted
to add to your bookshelf there, because
that's the only one that's missing.
I will start with that.
I'm, I'm gonna redo the entrance of
this thing and, uh, share your book.
I everyone get it?
It's all good.
Uh, you know, I got the Munger book,
uh, you know, innovator's still on.
That's a good one over here, but got my
Ray Lewis, so I know you're a gator, so
you, you don't appreciate that one as much
or you can't even see it actually in this.
Um, but awesome man.
I'm a big pissed off.
I'm a big Raven.
I'm a big Raven fan as well, actually.
'cause Ed re back in the day.
Um, so our season, our season just
ended last night 'cause we, 'cause
we lost to the Patriots, but,
uh, I'm a big Ray, Ray Lewis fan.
There you go.
Yeah, I'm a, if I had to choose, uh,
you know, one team in the NFL that I
like the most, um, my Miami people will
hate me for it, but, uh, it's probably
the Ravens 'cause uh, there's a lot
of hurricanes historically on them.
So.
Yeah, well Dolphins and Ravens
are both done this year, so Cool.
All right, Alex, appreciate it, man.