Can New CEO Todd Vasos Navigate Through Dollar General's Escalating Investor Concerns? Analyst Weighs In

Telsey Advisory Group analyst Joseph Feldman reiterated the Market Perform rating on Dollar General Corporation DG, lowering the price target to $124 from $145 after the company appointed Todd Vasos as its CEO.

Feldman thinks the move explicitly acknowledges rising investor concerns about the company's future related to a clouded business strategy, choppy execution, and consistent earnings misses.

However, the analyst applauds Vasos's deep understanding of core customers, control over operations, and closeness with associates and buyers should help the company stabilize its business performance, improve operations, and regain market share.

In conjunction with the announcement, Dollar General revised its 2023 guidance. The company guided 2023 EPS to decline 29%-34% YoY to $7.10-$7.60 vs. $7.10-$8.30 previously.

The analyst thinks Dollar General's updated 2023 guidance reflects incremental pressure on sales and profits, with margins likely pressured by an unfavorable product mix, selective promotions, elevated labor and shrink costs, and execution challenges. 

Feldman lowered the 2023 EPS estimate to $7.50 from $7.80, with a comp of (0.6%) vs. (0.3%) previously and operating margin compression of 240 bps to 6.4% vs. 6.6% previously.

Looking at 2024 and beyond, Dollar General should return to profitable market share gains, supported by new store growth, remodels, and multiple initiatives, including healthcare and private brands. Furthermore, profitability should recover as the product mix normalizes, shrink gets under control, and structural initiatives, such as DG Fresh and DG Media, generate returns.

For FY24, the analyst lowered EPS estimate to $8.25 from $8.57.

Price Action: DG shares are trading higher by 8.63% to $110.61 on the last check Friday.