Lower outlook affects the stock
For Dollar General’s (DG) third quarter of fiscal 2018, which ended on November 2, the company reported adjusted earnings and sales ahead of analysts’ expectations. Still, Dollar General stock fell 6.8% on December 4 as the company lowered its earnings guidance for fiscal 2018, citing the impact of higher expenses relating to damage from hurricanes Florence and Michael.
The S&P 500 was down 3.2% on December 4 as investors expressed doubt over the US-China trade conflict ceasefire and concern about a possible slowdown in US growth.
As of November 4, Dollar General stock was up 11.9% year-to-date, outperforming the S&P 500 Index, which had risen 1.0%. It also performed better than rival Dollar Tree (DLTR), which is down 19.6%.
Reaction to results
Following the third-quarter results, RBC lowered its price target for Dollar General stock to $122 from $128 on December 5. Morgan Stanley cut its price target to $115 from $118 while Raymond James revised its to $118 from $122. As of December 4, Dollar General stock had a “buy” rating from 17 out of 28 analysts. Ten analysts had a “hold” recommendation while one analyst had a “sell” rating. As of December 4, the average 12-month price target for Dollar General stock was $116.83, which reflects potential for the stock to rise about 12%.
Dollar General operated 15,227 stores as of the end of the third quarter, and it’s on track to open 900 stores, remodel 1,000 mature stores, and relocate 100 stores in fiscal 2018. In the first nine months of fiscal 2018, Dollar General opened 750 new stores, remodeled 925 stores, and relocated 92 stores. The company expects to open 975 new stores in fiscal 2019 and relocate 100 stores. It also aims to remodel 1,000 mature stores in fiscal 2019, of which 500 are to be in the Dollar General Traditional Plus format. This format represents traditional stores with expanded cooler doors.
We’ll discuss Dollar General’s third-quarter earnings in the next part of this series.