Dollar General Faces Challenges Ahead of Earnings Report
Dollar General Corporation (DG), headquartered in Goodlettsville, Tennessee, is a well-known discount retailer offering a range of products, including consumables, laundry essentials, and food & beverage items. With a market capitalization of $17.7 billion, the company runs over 20,000 stores across the United States. Investors are keenly awaiting the announcement of its Q3 earnings, scheduled for Thursday, Dec. 5.
Anticipated Earnings Drop in Q3
Analysts forecast that Dollar General will report earnings of $0.97 per share for the third quarter, marking a 23% decline from $1.26 reported during the same period last year. Over the previous four quarters, the company has beaten Wall Street earnings expectations three times, while it missed them on one occasion. In the last reported quarter, the adjusted EPS fell 20.2% year-over-year to $1.70, also coming in 5% short of consensus estimates.
Future Projections and Financial Health
Looking ahead, analysts anticipate that Dollar General’s adjusted EPS for fiscal 2025 will be $5.86, down 22.4% from $7.55 in fiscal 2024. However, a small recovery is expected in fiscal 2026, with projected growth of 8.4% year-over-year, reaching $6.35.
Stock Performance Under Pressure
This year, DG stock has dramatically declined by 40.9%, significantly lagging behind the S&P 500 Index’s ($SPX) increase of 21.8% and the Consumer Staples Select Sector SPDR Fund’s (XLP) growth of 12.5%.
Latest Earnings Disappointment Spooks Investors
The stock faced a sharp drop of 32.2% following Dollar General’s disappointing Q2 earnings announcement on Aug. 29. Despite achieving a 4.2% increase in net sales year-over-year, reaching $10.2 billion, the results fell short of analyst targets by 1.6%. Same-store sales growth was minimal at just 50 basis points, compounded by a 20.2% drop in net income to $374.2 million. The decline stemmed from rising costs related to goods and administrative expenses, leading to a net margin contraction of 113 basis points, bringing it down to 3.7% compared to the prior year.
Customer Concerns and Investor Sentiment
According to CEO Todd Vasos, the recent sales slowdown is partly due to financial pressures faced by core customers. The company subsequently downgraded its revenue and earnings forecasts, prompting concerns among investors.
Analyst Ratings Show Mixed Outlook
The consensus on DG stock is moderately optimistic, with an overall “Moderate Buy” rating. Among the 29 analysts covering the stock, 10 suggest a “Strong Buy,” one recommends a “Moderate Buy,” 16 advise “Hold,” while one each suggests a “Moderate Sell” and a “Strong Sell.” The average price target stands at $98.82, indicating a potential upside of 22.9% from current pricing.
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On the date of publication, Aditya Sarawgi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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