Dollar General May Have Reported Solid Q3 Performance, But This Analyst Cautions “The Path Could Be Bumpy” Ahead – Dollar Gen (NYSE:DG)

Dollar General Corporation, a variety store chain, recently reported better-than-anticipated earnings for the third quarter of 2023. Despite the positive news, the company maintained its soft outlook for the year. Telsey Advisory Group analyst Joseph Feldman has reiterated a Market Perform rating on Dollar General, raising the price target to $135 from $124.

Sales at Dollar General have been improving sequentially, with traffic turning positive in the middle of the third quarter and continuing to improve through November. However, lower markups and increased markdowns have played a significant role in driving this improvement, according to Feldman.

The company continues to face challenges due to the tough consumer spending environment and ongoing investments, such as retail labor, markdowns, and shrink, which are expected to pressure results in the fourth quarter of 2023 and into early 2024.

Despite these challenges, Dollar General may have found a base from which to build going forward. However, Feldman warns that the path may be bumpy, especially in early 2024.

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.

Dollar General still believes it has an opportunity to open approximately 12,000 more stores in the U.S. over time. However, the company is slowing down new store openings to 800 in 2024 from 990 in 2023 due to increased capital and construction costs, a prudent decision given the uncertain environment.

Following the positive quarterly performance, Feldman raised the FY23 EPS estimate to $7.53 from $7.37 to reflect the beat in the third quarter.

Despite the positive news, Dollar General’s shares were trading lower by 4.1% at $126.88 on the last check Friday.

In conclusion, Dollar General has shown signs of improvement, but challenges remain. The company’s focus on getting back to basics under the leadership of CEO Todd Vasos may help revive the business in the long run. However, the path forward may be challenging, especially in the early part of 2024. Investors will need to closely monitor the company’s progress and its ability to navigate the tough consumer spending environment.