Dollar General May Have Reported Solid Q3 Performance, But This Analyst Cautions "The Path Could Be Bumpy" Ahead

Telsey Advisory Group analyst Joseph Feldman reiterated the Market Perform rating on Dollar General Corporation DG, raising the price target to $135 from $124.

Dollar General reported better-than-anticipated 3Q23 earnings, albeit still down YoY, and maintained its soft 2023 outlook. 

Sales have been improving sequentially, with traffic turning positive in the middle of 3Q23 and continuing to improve through November. 

That said, lower markups and increased markdowns seemed to drive part of the improvement, the analyst writes.

Furthermore, the business continues to be impacted by the tough consumer spending environment and ongoing investments, such as retail labor, markdowns, and shrink, which are expected to still pressure results in 4Q23 and into early 2024, the analyst adds.

Taken together, Dollar General may have found a base from which to build going forward, but the path could be bumpy, especially in early 2024, the analyst notes.

The return of CEO Todd Vasos on October 12 has reenergized the story, as his leadership has refocused the company on getting back to basics across stores, supply chain, and merchandising to revive the business, Feldman writes.

Dollar General continues to believe it has an opportunity to open ~12K more stores in the U.S. over time, but the company is slowing new store openings to 800 in 2024 from 990 in 2023, given increased capital and construction costs, a prudent decision in this uncertain environment.

Following the quarterly performance, the analyst raised the FY23 EPS estimate to $7.53 from $7.37 to reflect the beat in 3Q23.

Price Action: DG shares are trading lower by 4.1% to $126.88 on the last check Friday.

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