Shares of retail chain Dollar General (DG -3.44%) plummeted on Thursday after the company reported financial results for the second quarter of 2024. As of this writing, Dollar General stock was down a hefty 30% and trading below $87 -- it hasn't been this low since late 2017.
How bad is it?
Investors are likely reacting to Dollar General's lower full-year financial guidance. Management had expected to grow net sales by 6% to 6.7% in 2024 but now it believes it will only muster growth of 4.6% to 5.3%. For perspective, the company has annual sales of nearly $40 billion, so even a small percentage change in its growth rate is substantial.
Dollar General's profitability continues to take a hit as well. For perspective, the company had full-year earnings per share (EPS) of $10.68 in 2022. But today, management lowered its EPS guidance for 2024 to just $5.50 to $6.20 -- that's a big drop from profits just two years ago. And without any light at the end of the tunnel, investors are bailing on Dollar General stock, sending it to six-year lows.
Can Dollar General push through its problems?
On the profit side of the equation, Dollar General is still working through inventory issues that have led to higher damaged merchandise, higher theft, and higher discounts. Management is making changes that will hopefully improve things, but success may still be a few quarters away.
On the sales side of the equation, Dollar General's management did share some concerning commentary. Much of its customer base is lower-income. And lower-income consumers have been disproportionately impacted by inflation. Many are struggling to pay their bills, leading to lower spending.
In my opinion, Dollar General isn't going anywhere. And it trades at a quite cheap valuation today. Investors shouldn't buy Dollar General stock just because it's cheap -- if it's problems continue or worsen, this will likely be a bad investment. But for those that share my view that it will push through its headwinds, this could be a good entry point for a long-term investment.
