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Why Dollar General Stock Was Sliding Today


What happened

Shares of Dollar General (DG -8.75%) were falling today on mounting evidence that low-income consumers are struggling with inflation and that the company is up against difficult comparisons with the quarter a year ago, when Americans received stimulus checks last March. One analyst also lowered its rating on the discount retailer.

As of 11:56 p.m. ET on Friday, the stock was down 6.7%.

A Dollar General storefront

Image source: Dollar General.

So what

Last night, Ross Stores (ROST -23.96%) was the latest discount retailer to serve up a subpar earnings report as the off-price apparel chain said comparable-store sales fell 7% and earnings per share (EPS) declined 28%. Ross also missed estimates on the top and bottom lines and cut its guidance for the year.

It was the latest data point showing weakness in discount retail, coming after Walmart and Target both plunged on their earnings reports, while Kohl’s also reported a decline in sales.

Since Dollar General is focused on the lower-income consumer, it seems like a good bet that the company also experienced a sales decline in its first quarter.

This morning, Gordon Haskett Research Advisors downgraded the stock from buy to hold with analyst Chuck Grom saying the stock could experience some EPS weakness this year, given what’s happened to its peers. Grom nonetheless commended the business model and management team, implying he still likes the stock over the long term.

Now what

Dollar General will report earnings next Thursday. Analysts are expecting revenue to increase 4% to $8.7 billion, but they see EPS falling from $2.82 in the quarter a year ago to $2.33. 

Wall Street may lower its estimates on Dollar General following the fallout in the retail sector this week, but the good news for investors here is that much of the downside in the earnings report should already be priced in.





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