Shares of Dollar General (DG -3.09%) took a dive last year. Challenges with inflation, weak consumer spending in its demographic, operational struggles, and market share losses to Walmart and other larger competitors all contributed to the downturn.
While the company managed to deliver modest revenue growth, margin fell sharply over the year, weighing on profits and sending the stock tumbling.
According to data from S&P Global Market Intelligence, the stock lost 44% in 2024. Most of the stock's losses for the year came from one earnings report in August.
Dollar General gets discounted
The stock plunged 32% on Aug. 29, after Dollar General turned in dismal second-quarter results. While that was just one trading day out of the whole year, the results and the reaction symbolize why the stock fell so far.
Same-store sales rose 0.5% in the quarter on a 4.2% increase in revenue to $10.2 billion. However, that was short of the consensus at $10.37 billion.
The real problem came further down the income statement, as margin fell substantially. Gross margin fell from 31.1% to 30% because of increased markdowns and inventory damages, and selling, general, and administrative expenses rose from 24% to 24.6%.
As a result, operating income in the quarter tumbled from $692.3 million to $550 million, and earnings per share declined 20% to $1.70, below the consensus at $1.79.
Management also slashed its guidance for the year, revising its sales growth forecast from 4.7% to 5.3%, and called for EPS of $5.50 to $6.20, down from a previous forecast of $6.80 to $7.55 and well below the consensus at $7.12.
The guidance cut underscored the severity of the challenges the company is facing, and management reaffirmed its commitment to its Back to Basics strategy, improving on things such as getting a handle on out-of-stock situations and ensuring there are enough cashiers for people to check out efficiently. It also said it had endured other macroeconomic challenges in the past and had gotten through them, and it still expects to do the same.
Image source: Getty Images.
What's next for Dollar General?
The stock declined modestly over the rest of the year from there, but the business seemed to be stabilizing in its third-quarter earnings report, as some of its turnaround initiatives were gaining traction.
Recovering won't be easy, especially since it faces intense competition from Walmart, but the stock is cheap enough to offer value at a price-to-earnings ratio of 12. Patient investors should eventually be rewarded with Dollar General.
