Dollar General’s CEO Is Selling. Should You?

Look at Dollar Tree and Family Dollar Stores for possible insight.

Apr 7, 2014 at 2:30PM

It can naturally be nerve-racking when the CEO of one of your investments is selling shares on the open market. It begs the question: Is he or she selling due to a lack of confidence in the future and should you sell as well? While it's impossible to know for sure the reasons behind Dollar General's (NYSE:DG) CEO Richard Dreiling selling,  turn to the histories of Dollar Tree Stores (NASDAQ:DLTR) and Family Dollar Stores (NYSE:FDO) to help analyze its meaning.

Dgstacked
Source:  Dollar General

According to a March 19 filing with the U.S. Securities and Exchange Commission, Dreiling sold the majority of his shares in the company in the open market for nearly $19 million. Should you be worried?

The General could be peaking
Dollar General has enjoyed 24 consecutive years of successful same-store sales growth. This is a record Dollar General is proud of, and a reversal could spell trouble for the stock price. Same-store sales were up 3.3% for 2013 but only 1.6% for the fourth quarter.

The earnings press release stated:

"The increase in sales of consumables outpaced the increase in sales of non-consumables, with sales of tobacco, perishables and candy and snacks contributing the majority of the increase throughout the year."

This suggests same-store sales may actually be declining for its core products.

Tobacco not only stimulated additional sales of tobacco itself, but it brought more traffic in the door. Excluding tobacco, Dollar General may have been on its way to negative same-store sales...and still may be in the future. The Dreiling selling is perhaps ahead of a peak on the horizon.

The earnings report warned about "an aggressive competitive retail landscape and our customers' uncertainty about spending in the current economic environment." Even Dreiling stated, "We remain cautious on the current operating environment and the many challenges our customer is facing in 2014."

Fldc

Source: Family Dollar Stores

The negative Family
Family Dollar Stores is an example of a dollar store with negative same-store sales, as it has been seeing persistent declines for several quarters now. Last quarter, Family Dollar Stores saw another 2.8% drop in same-store sales.

CEO Howard Levine has blamed "economic uncertainties...an intensified promotional environment...softness in discretionary categories...[and] a difficult operating environment." Could this be true for Dollar General also?

Levine has been selling large quantities of shares for two years. With the benefit of hindsight, those sales successfully foreshadowed Family Dollar Stores' lackluster performance in its financials and its stock price.

Money grows on dollar trees
For Bob Sasser, CEO of Dollar Tree, is a counter example because his selling proved to be meaningless so far. . Sometimes CEOs do some selling for diversification or other personal reasons even though the company is still wrong.  Sasser has been selling shares here and there for the last couple of years yet Dollar Tree has continued to impress with an exploding top line, same-store sales, and bottom line as well as a stock price that is higher than Sasser's sales.

2012 saw a 3.4% same-store sales rise. 2013 saw another pop of 2.4%. Dollar Tree expects 2014 to show another jump in the "low single-digit" percentage. It looks as though Sasser would have done better if he held off, and so would have investors who got spooked and sold.

Foolish final thoughts
Looking back over the last two years, Dreiling has been selling shares of Dollar General at prices that have since proven to be too cheap. Will that continue to be the case with the latest large batch of sales? It remains to be seen. However, the best you can ever hope for with insider sales is that they prove to have little or no meaning...they never mean good news. Fools should watch Dollar General's same-store sales trend extra closely just in case.

Boost your 2014 returns with The Motley Fool's top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers