Dollar General Market Share Loss To Walmart Is 'Opposite Of What Historically Happens' When Consumers Stress: Analyst (UPDATED)

Editor’s note: This story has been updated with additional details on Dollar General stock price action.

Shares of Dollar General Corp DG tanked Thursday after the company reported second-quarter earnings at $1.70 per share, missing the Street expectations of $1.79 per share.

Five analysts provided their takeaways following the report:

• JPMorgan analyst Matthew Boss reiterated a Neutral rating, while reducing the price target from $130 to $97.
• Truist Securities analyst Scot Ciccarelli reaffirmed a Hold rating, while reducing the price target from $130 to $94.
• BMO Capital Markets analyst Kelly Bania maintained a Market Perform rating, while cutting the price target from $130 to $90.
• Goldman Sachs analyst Kate McShane maintained a Buy rating and price target of $122.
• Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating and price target of $168.

Check out other analyst stock ratings.

JPMorgan: Boss said the earnings miss was on account of the company's same-store sales coming in short of the consensus, he added.

"The last week of each month in the quarter represented the 3 softest weeks pointing to an extended payroll cycle for the low-end consumer," the analyst wrote. Management lowered their full-year earnings guidance by around 18% to $5.55-$6.20 per share, he further stated.

Truist Securities: The Goodlettsville, Tennessee-based company reduced its outlook by nearly 20%. "We believe its core lower-income consumer remains under material stress (running out of $ by month-end)," Ciccarelli said.

The company may also be losing market share to Walmart Inc WMT with traffic slowing. That’s "the opposite of what has historically happened in times of consumer stress," the analyst added. Margins could "continue to be pressured by price and labor investments and mix, although shrink could improve in 4Q24/25.”

BMO Capital Markets: Plans for increased promotional activity "predominately in traffic-driving categories" in the back half of the year also impacted Dollar General's full-year guidance, Bania added.

"We continue to believe that DG’s evergreen inventory strategy is proving to be a greater-than-expected headwind," the analyst wrote. While inventory was down 7% year-on-year, it needs to decline by 17% to reach historical inventory and sales levels, putting into question "the quality & freshness of inventory at this stage," the analyst stated.

Goldman Sachs: The company same-store sales deteriorated sequentially, mainly due to "pressures on the lowest income consumer, price competition and lack of discretionary growth," McShane said. Dollar General's margins also missed expectations and could remain under pressure as the company spends on promotions to drive demand.

Although the reduction in guidance was "highly unexpected," the stock reaction seems "overdone," the analyst state. "We were encouraged with traffic trends still in the positive range and think the promotional strategies the company started to push in late July/early August have yielded better unit growth," he further wrote.

Telsey Advisory Group: Dollar General's operating margins contracted by 168 basis points (bps) to 5.4% and missed the consensus of 5.6%, Feldman said. This reflected gross margin compression of 112 bps to 30%, "given higher markdowns, inventory damages, and shrink, as well as an unfavorable product mix shift toward consumables," he added.

"Given tough consumer spending trends and related gross margin pressures, the company cut its 2024 EPS guidance to $5.50-$6.20 from $6.80-$7.55," the analyst wrote. The reduction was on account of a cut in the sales growth outlook to 4.7%-5.3%, from the previous projection of 6.0%-6.7%, he further stated.

DG Price Action: Shares of Dollar General had risen by 2.84% to $86.42 at the time of publication on Friday after losing 9.2% in Thursday’s session.

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