Citi Analysts Downgrade Dollar General Stock to Sell Amid Concerns of Challenging Fiscal Years Ahead
In a recent move, Citi analysts have downgraded Dollar General (NYSE:DG) stock to Sell from Neutral and reduced their price target to $73 from $91. This decision comes as a result of concerns about DG's challenging fiscal years 2023 and 2024, with only slight positive comparable sales (comps) expected each year. Additionally, analysts point out the estimated fiscal year 2024 EBIT margin of 4.7%, a significant decline from the 8.4% margin in fiscal year 2019, despite a larger sales base.
The competitive landscape for Dollar General has also shifted unfavorably over the past five years, especially with Walmart (NYSE:WMT) strengthening its market position. Analysts note that Walmart is tough to beat on price and convenience, which puts pressure on Dollar General's market share. Looking ahead, analysts project that Dollar General's EBIT margin will remain under pressure, likely staying between 4-5% in the coming years unless the company can achieve over 3% in comparable sales growth, which Citi does not foresee.
The margin pressure is attributed to the need for more competitive pricing and increased selling, general, and administrative (SG&A) expenses, including labor costs. Despite Dollar General's expansion from 16,000 stores in 2019 to around 20,000 stores, analysts suggest that this growth has not translated into a stronger competitive position. They recommend that Dollar General should focus on optimizing its existing store fleet rather than opening new stores.
In premarket trading, shares in Dollar General fell more than 2% following the downgrade. Overall, the outlook for Dollar General appears challenging, with tough competition from Walmart and pressure on margins. Investors should consider these factors when evaluating their investment decisions in the retail sector.
