On Friday, Evercore ISI maintained an In Line rating and a $97.00 price target for Dollar General (NYSE:DG) but added the retailer to its Tactical Asset Picker (TAP) Underperform list ahead of its earnings report on December 5.
The firm anticipates a possible decline in Dollar General's stock price to the range of $68-$72, corresponding to a 10-11 times multiple of the projected calendar year 2026 earnings per share (EPS) of $6.75.
The forecast by Evercore ISI suggests Dollar General may report a comparable store sales growth of approximately 1.4% for the third quarter, slightly above the consensus estimate of 1%. The firm expects the company to achieve third-quarter earnings of $0.94 per share.
However, there are concerns that comparable sales growth could slow to below 1% in the fourth quarter, and the guidance provided by the company might be cautious due to a shortened holiday season. Evercore ISI models a 0.8% comparable sales increase for the fourth quarter, with an EPS of $1.53, compared to the consensus estimate of $1.55.
The firm also referenced a recent survey comparing Amazon (NASDAQ:AMZN) Prime and Walmart+, indicating that Walmart (NYSE:WMT) is rapidly increasing its Walmart+ households, with spending by these customers 1.5 times higher than non-members.
Notably, a significant portion of new Walmart+ subscribers are from Supplemental Nutrition Assistance Program (SNAP) households, which could impact Dollar General as Walmart's enhanced multi-channel capabilities challenge the convenience advantage traditionally held by dollar stores.
Additionally, Dollar Store industry expert Mike Wilkins highlighted potential wage pressures for Dollar General, with overtime exemption pay likely to rise from $44,000 to $58,000 per year starting in early January. This change could represent roughly 20 basis points or $70 million challenge for the company, with further wage investments potentially exacerbating the impact.
Another concern for Dollar General and its peers is the possibility of reduced entitlement spending, including SNAP benefits, under a potential future Republican government, given that approximately 12-13% of Americans have relied on these benefits in the past twelve months.
Lastly, while Dollar General may have less exposure to tariffs than other dollar store retailers, the impact of tariffs could become more pronounced in the second half of 2025.
In other recent news, Elf Beauty has allied with Dollar General to penetrate rural markets. This strategic partnership aims to extend Elf's affordable cosmetics to Dollar General's customer base, primarily families with annual incomes less than $35,000.
The collaboration is expected to boost Elf's accessibility to lower-income consumers, with a focus on underserved rural communities. Dollar General, meanwhile, is poised to benefit from increased store traffic due to Elf's positive product reputation, as noted by Brian Mulberry from Zacks Investment Management.
In related developments, Dollar General has secured a significant $2.375 billion unsecured revolving credit facility, replacing a prior agreement. This financial maneuver includes a $100 million subfacility for letters of credit and a $50 million swingline loan subfacility, available until September 3, 2029.
The company also reported a 4.2% increase in net sales, totaling $10.2 billion, for the second quarter. However, concerns over financial performance due to inflation and employment issues faced by its core customers have led to plans to boost markdown investments.
Analysts have offered mixed reviews on Dollar General's performance. Goldman Sachs reaffirmed its Buy rating on the company, while Raymond (NS:RYMD) James reduced its stock price target, maintaining an Outperform rating.
Simultaneously, Dollar General has cautioned shareholders against an unsolicited mini-tender offer from TRC Capital Investment Corporation, advising them to consult with financial advisors and exercise caution.
InvestingPro Insights
Dollar General's current financial metrics and market position offer additional context to the Evercore ISI analysis. According to InvestingPro data, the company's stock is trading at a P/E ratio of 12.04, which aligns with the "low earnings multiple" highlighted in one of the InvestingPro Tips. This valuation could be attractive to value investors, especially considering the stock's recent performance—it has fallen significantly over the last three months and is trading near its 52-week low.
The company's revenue for the last twelve months stands at $39.68 billion, with a modest growth of 2.24%. This slow growth rate supports Evercore's cautious outlook on comparable store sales. Additionally, the projected decline in net income for this year, as mentioned in the InvestingPro Tips, corroborates the concerns about potential challenges ahead, including wage pressures and competitive threats from Walmart+.
Despite these challenges, Dollar General maintains a strong market position with a market capitalization of $16.94 billion. The company's dividend yield of 3.06% may provide some appeal to income-focused investors during this period of stock price weakness.
For readers interested in a deeper analysis, InvestingPro offers 10 additional tips for Dollar General, providing a more comprehensive view of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.