By Bruce Erickson, C.P.M.
November 3, 2009
Dollar General has announced an IPO due out in the next couple of weeks. The small box retail giant has been private since July of 2006 when an investment group bought the shares out. In order to raise capital to reduce debt, the firm is offering 22.7 million shares of stock to raise revenue. In addition, owners are selling 11.4 million shares of their own. It was interesting that in the prospectus they mentioned that DG had no dividend plans for the future. But they did declare a special dividend a couple months ago for over $263 million. At a sale price right about where they left off in 2007, the question is, is investing in Dollar General a good idea?
Considering that the economy has driven many to the dollar stores, it would seem like an opportune time. But there are two lingering concerns in the case of Dollar General. The transaction will create a half billion dollars in equity to pay down debt. But with $4.4 billion on the books, this doesn't get them out of the woods. With a debt to equity currently at 2.3, they are leveraged twice as much as competitor Family Dollar. The pickup form the new equity will only drop them to 1.6, better but still dependent on adding new stores which requires utilizing additional letters of credit.
Not mentioned in their prospectus is what they intend to do about their lagging information systems. Without an overarching ERP system to drive efficiencies in all operations, Dollar General relies on several management systems for individual operations. Although they have cracked the code on opening new stores quickly and efficiently, the store manager is still limited to a clipboard for many inventory management tasks. For more information on their information systems, download our full case study at http://bit.ly/16vDrg
No comments:
Post a Comment