Dollar General Stock Swoons As Earnings Decline 20%

(MENAFN- ValueWalk) Will the firm now buckle under pressure from inflation and competitors like Walmart?

Dollar General (NYSE:DG) stock sank 32.15% on Thursday, tumbling to $84.03 as the firm's Q2 2024 results showed more than a 20% decline in income.

The discount goods store chain also lowered its full-year fiscal 2024 EPS guidance range from approximately $6.80 to $7.55 previously, to approximately $5.50 to $6.20.

Dollar General CEO Todd Vasos acknowledged that“softer sales trends” that“are partially attributable to a core customer who feels financially constrained”.

On the surface, Dollar General's second-quarter fiscal 2024 sales growth might seem perfectly respectable. Specifically, the company's net sales increased 4.2% year over year to $10.2 billion.

On the other hand, the analysts' consensus estimate called for Dollar General to generate $10.37 billion in revenue. Plus, that's not the only quarterly miss for Dollar General.

The company also reported a sharp decline in net income to $374.2 million, as well as a 20.2% drop in earnings to $1.70 per share. Meanwhile, Wall Street had expected Dollar General to earn $1.79 per share.

Making matters worse, Dollar General reduced its fiscal 2024 EPS outlook to approximately $5.50 to $6.20, whereas the expected range had previously been approximately $6.80 to $7.55. That's a steep downward revision, so this may very well be what shook Dollar General stock investors the most on Thursday.

It also probably ratted investors a little bit when Dollar General CEO Todd Vasos admitted :“[W]e are not satisfied with our financial results.”

It's generally not a positive sign when a company's chief executive says something like that in an earnings report.

Inflation has been a major issue for Dollar General in 2024. The firm's same-store sales only grew 0.5% year over year in Q2 FY2024, and higher-for-longer product prices are undoubtedly a contributing factor.

Dollar General also acknowledged that its gross profit as a percentage of net sales declined from 31.1% in the year-earlier quarter to 30% in 2024's second quarter. The company cited an array of issues for this unfavorable result, including“increased markdowns, increased inventory damages, a greater proportion of sales coming from the consumables category, and increased shrink [i.e., shoplifting]”.

So it's not all about inflation, though this seems to be a common denominator to a certain extent. For example, inflation evidently prompted consumers to pull back on their spending, which in turn caused Dollar General to rely on“increased markdowns”.

Along with all of that, Dollar General has had to deal with competition from a famous retail rival, Walmart (NYSE:WMT). Evercore ISI analyst Michael Montani contends that Dollar General's results“show the challenge of maintaining market share with Walmart winning in a slower growth environment”.

So, once again, the inflation issue cannot be avoided. Inflation manifests itself as“slower growth” and tighter budgets for American families. Amid this challenging backdrop, if Walmart offers some better product deals than Dollar General, some consumers will choose to shop at a familiar Walmart location rather than venture out to Dollar General.

It will be a long, difficult three months before Dollar General has another chance to impress Wall Street with a set of quarterly financial results. In the meantime, Dollar General stock is susceptible to further declines as investors mull over the company's less-than-ideal results and forward guidance.

Hence, instead of rushing to grab shares at an apparent discount, cautious stock traders may choose to wait in the wings and let the market punish Dollar General for a while.

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