It was a good day for Dollar General stock amid a sea of red.
Dollar General (NYSE:DG) stock was on the move Thursday, as the discount retail store chain saw its stock rise some 5%, while the rest of the market tanked.
The catalyst for the move was Dollar General’s fourth quarter earnings release, which was a mixed bag. But investors saw some bright spots in the report, pushing the share price higher.
Revenue was a bright spot for Dollar General, as net sales increased 4.5% year-over-year to $10.3 billion. That was slightly above consensus estimates of $10.26 billion. Same-store sales rose 1.2% compared to the fourth quarter of 2023 and the average transaction amount rose 2.3%.
For the full year, net sales jumped 5% to $40.6 billion. Same-store sales increased 1.4% year-over-year, reflecting a 1.1% increase in customer traffic and 0.3% rise in average transaction amount.
Net income was a different story, as the chain made $191.2 million in the quarter, which was less than half the $402 million generated in Q4 2023. Earnings were 87 cents per share, down from $1.83 per share a year ago, and badly missed estimates of $1.50 per share.
But there’s a giant caveat there that most analysts did not figure into their estimates. Dollar General has been undergoing a massive Store Portfolio Optimization Review under CEO Todd Vasos. As part of the review, it closed 96 Dollar Generals and 45 Popshelf stores and converted six Popshelfs to Dollar Generals.
This review resulted in impairment charges for the store closures of $232 million, or 81 cents per share. That took a huge bite out of earnings, which otherwise would have beaten estimates.
“While the number of closings represents less than one percent of our overall store base, we believe this decision better positions us to serve our customers and communities,” Vasos said.
Stock rises on outlook
In many ways, Dollar General is a bellwether for the state of the economy. It tends to outperform other stocks when the economic growth is slow, or negative, and lags other retailers in good times.
That may explain why the stock has underperformed the past couple of years but is beating its competitors this year.
As a deep discounter, it caters to lower and middle-income shoppers with its low prices. But when times are tough, it gets more middle and upper-income shoppers as well, as more people look to spread their dollar further.
“Our customers continue to report that their financial situation has worsened over the last year as they have been negatively impacted by ongoing inflation. Many of our customers report that only have enough money for basic essentials with some noting that they have had to sacrifice even on the necessities,” Vasos said on the earnings call.
And he does not anticipate an improvement in the macro environment in 2025.
“We are committed to providing the value they need and continue to feel very good about our everyday low-price position relative to competitors and other classes of trade,” Vasos said, adding that the company is well positioned to mitigate the impact of tariffs.
Dollar General’s outlook for 2025 showed steady growth, with net sales growth of 3.4% to 4.4% and same-store sales growth in the range of approximately 1.2% to 2.2%. Diluted EPS is targeted at approximately $5.10 to $5.80 per share, compared to $5.11 per share in 2024.
10% growth in 2026
The near-term outlook is solid, given the uncertain and likely slowing economy. But the long-term outlook is even better, as Dollar General plans to increase its capital expenditures to add 575 new stores in the U.S. this year and 15 new stores in Mexico. It also plans to remodel more than 4,000 of its 20,594 stores.
With these new stores and remodels, Dollar General is targeting 10% EPS growth in 2026 – and that likely pleased investors.
Dollar General has a consensus price target of $84, which would suggest 8% growth. In this environment, that’s not bad at all. And it is cheap, trading at 12 times earnings, with some tailwinds for long-term growth.
