Dollar General Downgraded by Citi Analysts

Citi analysts downgraded Dollar General (NYSE:DG) stock from Neutral to Sell on Friday, cutting the price target from $91 to $73.

This downgrade follows concerns about Dollar General’s challenging fiscal years 2023 and 2024, with only slightly positive comparable sales for each year. Analysts noted a significant decline in the estimated fiscal year 2024 EBIT margin of 4.7%, down from 8.4% in fiscal year 2019, despite a sales base roughly 50% larger.

In premarket trading, shares of Dollar General fell more than 2%.

The analysts pointed out a shift in the competitive landscape over the past five years, especially with Walmart (NYSE:WMT) strengthening its market position. According to their report, both DG and WMT are known for value, but WMT’s pricing is tough to beat. Additionally, consumers’ perceptions of convenience have evolved, with WMT enhancing its omnichannel delivery options since the pandemic.

Citi analysts stated, “We believe WMT’s market share gains will continue to pressure DG, making a recovery very tough.” Going forward, they project Dollar General’s EBIT margin will remain under pressure, likely staying between 4-5% unless the company achieves over 3% in comparable sales growth, which Citi does not foresee.

This margin pressure is attributed to the need for competitive pricing and increased selling, general, and administrative (SG&A) expenses, including higher labor costs.

The report also highlighted Dollar General’s store expansion from approximately 16,000 stores in 2019 to around 20,000 now, suggesting this growth has not strengthened its competitive position. Analysts recommended that Dollar General should halt further openings to refocus existing stores on improving performance.