Dollar General Corporation, a popular variety store chain, recently reported its third-quarter earnings for 2023. While the results were better than anticipated, they were still down year-over-year. Joseph Feldman, an analyst at Telsey Advisory Group, reiterated the Market Perform rating on Dollar General and raised the price target from $124 to $135.
Despite the positive earnings report, Dollar General maintained its soft outlook for 2023. Sales have been improving sequentially, with traffic turning positive in the middle of the third quarter and continuing to improve through November. However, the analyst notes that lower markups and increased markdowns may have driven part of this improvement.
The company continues to face challenges in the form of a tough consumer spending environment and ongoing investments in areas such as retail labor, markdowns, and shrink. These factors are expected to put pressure on results in the fourth quarter of 2023 and into early 2024.
While Dollar General may have found a base from which to build going forward, the analyst warns that the path could be bumpy, especially in early 2024. However, the return of CEO Todd Vasos on October 12 has reenergized the company, as his leadership has refocused Dollar General on getting back to basics across stores, supply chain, and merchandising to revive the business.
Despite the challenges, Dollar General still believes it has an opportunity to open approximately 12,000 more stores in the U.S. over time. However, due to increased capital and construction costs, the company has decided to slow down new store openings to 800 in 2024 from 990 in 2023.
Following the quarterly performance, the analyst raised the earnings per share (EPS) estimate for fiscal year 2023 to $7.53 from $7.37 to reflect the beat in the third quarter.
In terms of price action, Dollar General’s shares are currently trading lower by 4.1% at $126.88.
Overall, Dollar General’s third-quarter earnings showed some positive signs, but the company still faces challenges. With the return of its CEO and a focus on the basics, there is potential for future growth, but the uncertain environment may create bumps along the way. Investors will need to monitor the company’s progress closely in the coming months.
