Dollar General CFO Kelly Dilts and Director of Investor Relations Marianne Denenberg travelled to London for a JPMorgan conference, and got a downgrade by the bank to its worst rating in response.
JPMorgan cut its rating on Dollar General to underweight from neutral and reduced its price target to $116 from $132.
Dollar General stock DG, +1.27% fell 2% in premarket trade to $112.60. Its shares have tumbled 53% this year.
Analysts led by Matthew Boss say Dollar General’s core low-end consumer, with a household income of about $35,000, is already at a stress point acting recessionary today.
These consumers are weathering multiple storms — the near evaporation of pandemic-era savings, inflationary pressures of roughly 12% on a two-year stack, and a big reduction in government assistance from the expiration of the expanded child-tax care credit and roughly $90 per household reductions to the Supplemental Nutrition Assistance Program.
The middle-income cohort — with household incomes between $35,000 and $75,000 — are on pace to have excess savings depleted by the end of fall 2023, and now face the return of student loan repayments, elevated interest rates and higher fuel prices.
Besides the macro picture, company executives are banking on investments in making stores better to first improve consumer satisfaction, then market share gains, followed by improved traffic and then sales.
Dilts said the Goodlettsville, Tenn.-based company is targeting a return to historical operating profit growth over the next few years, but not necessarily 2024 in particular. Margins already 200 basis points below 2019 levels might not improve owing to elevated levels of shrink, a mix of lower-margin consumables and potential markdowns.
JPMorgan’s new price target is based on 15 times its fiscal 2024 earnings per share estimate. Boss noted that is the mid-point to Dollar General’s pre-pandemic 13x to 18x multiple. Boss also forecast flat comparable sales growth for fiscal 2024.