Dollar General Corp (DG) shares took a tumble on Thursday after the company’s second-quarter earnings fell short of Wall Street expectations. The company reported earnings of $1.70 per share, missing the anticipated $1.79 per share.
The decline in earnings was attributed to a weaker-than-expected performance in same-store sales, a metric that tracks sales at stores open for at least a year. Analysts pointed to several factors contributing to this weakness, including pressure on the low-income consumer, price competition, and a lack of discretionary spending.
Following the earnings report, several analysts weighed in with their insights. JPMorgan’s Matthew Boss reiterated a Neutral rating on the stock, but reduced his price target from $130 to $97. He attributed the earnings miss to the company’s same-store sales falling short of consensus and noted that the last three weeks of the quarter saw the weakest sales performance, suggesting a prolonged payroll cycle for low-income consumers. Boss also highlighted that management lowered their full-year earnings guidance by nearly 18%.
Truist Securities’ Scot Ciccarelli also maintained a Hold rating on the stock, while reducing his price target from $130 to $94. He expressed concern about the company’s core low-income consumer facing financial stress, potentially leading to a decline in market share as customers shift to competitors like Walmart.
BMO Capital Markets’ Kelly Bania maintained a Market Perform rating, reducing her price target from $130 to $90. Bania noted that Dollar General’s full-year guidance was also impacted by plans for increased promotional activity. She expressed concern over the company’s inventory strategy, stating that while inventory declined year-on-year, it needs to decrease further to reach historical levels, raising questions about inventory quality and freshness.
Goldman Sachs’ Kate McShane maintained a Buy rating and price target of $122, while acknowledging the sequential decline in same-store sales. McShane attributed this decline to pressure on the low-income consumer, price competition, and a lack of discretionary spending. However, she noted that traffic trends remained positive and that promotional strategies implemented in late July and early August had led to improved unit growth.
Telsey Advisory Group’s Joseph Feldman reiterated an Outperform rating and price target of $168. While acknowledging the miss on earnings and the reduction in full-year guidance, Feldman expressed optimism about the company’s long-term prospects. He attributed the miss to gross margin compression due to increased markdowns, inventory damages, and unfavorable product mix shifts.
Despite the stock’s initial decline, Dollar General shares rallied on Friday, rising by 2.84% to $86.42.
