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Discount-Variety Stores Industry Module 5: Valuation Using Cash Flows Kate Johnson

Discount-Variety Stores Industry Module 5: Valuation Using Cash Flows Kate Johnson. “Save Time. Save Money.”. Largest discount retailer in the US by number of stores Goodlettsville , Tennessee 11,000 stores 40 States Southern, Southwestern, Midwestern, Eastern US

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Discount-Variety Stores Industry Module 5: Valuation Using Cash Flows Kate Johnson

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  1. Discount-Variety Stores Industry Module 5: Valuation Using Cash Flows Kate Johnson

  2. “Save Time. Save Money.” • Largest discount retailer in the US by number of stores • Goodlettsville, Tennessee • 11,000 stores • 40 States • Southern, Southwestern, Midwestern, Eastern US • Merchandise is typically $10 or less • Founded in 1939 • Stock publicly traded in 2009

  3. Product Types • Two brands: 1)High quality nationalbrands from leading manufacturers 2)Comparable quality privatebrand selections 10,000 SKUS/store 10$ or less

  4. How are they profitable? • Convenient Locations • Time Saving Shopping Experience • Everyday Low Prices on Quality Merchandise • Key items in a broad range of general merchandise categories • Most basic shopping needs are met in one trip

  5. Discount-Variety Stores

  6. But DG is a Dollar Store? • Dollar General is more suited to be compared with Walmart, Target, and Costco, as not everything is $1 (DLTR) and they have produce (unlike FDO) • Characteristics such as industry and size are often chosen for comparable

  7. Store Growth • 2010-2011 Growth: 6.02% • 2011-2012 Growth: 5.72%

  8. Assumptions and Multiyear Forecasts for DG • Because FYE is February 1, 2013 data is not available yet • Thus, 2013 data was the first year forecasted • Parsimonious forecasting will thus have to be adjusted when these numbers are released

  9. FCF=EPAT-ΔNEA

  10. Valuing DG • Estimated growth rate beyond 2017: 4.3% • Estimated enterprise cost of capital: 7.4%

  11. Valuing Dollar General

  12. Discounted Cash Flow Model

  13. Continuing Value

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