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Shares of Dollar General Corp. dove to a nine-month low Thursday, after the discount retailer warned of a fourth-quarter profit miss, citing the negative effect of Winter Storm Elliott on December sales.
But Jefferies analyst Corey Tarlowe reiterated his buy rating on the stock, and recommended investors buy the stock on the dip in price, as the reason for the warning was a one-time event and the because the company still managed to gain market share.
The company said it now expects earnings per share for the quarter ended Feb. 2 of $2.91 to $2.96, below the previous guidance range of $3.15 to $3.30. Same-store sales, or sales from stores open at least a year, are now projected to rise 5.7% from a year ago, below previous expectations of 6%-to-7% growth.
The stock
DG,
sank 3.6% to $217.11, the lowest close since May 25, 2022.
“The company believes the lower-than-expected results are primarily attributable to lower-than-anticipated sales and higher-than-anticipated inventory damages, both of which were negatively impacted, to varying degrees, by Winter Storm Elliott during the fourth quarter,” the company said in a statement. “While both November and January same-store sales results were within the company’s expected guidance range for the fourth quarter at 6.7% and 6.5%, respectively, December’s same-store sales results were lower than anticipated at 4.5%, believed to be primarily as a result of the storm.”
The company said it will provide full financial results for the fourth quarter on March 16.
The company currently expects fiscal 2023 same-store sales growth of 3% to 3.5%, which surrounds the current FactSet consensus for a 3.3% rise.
Jefferies analyst Tarlowe said he encouraged investors to focus on the fact that Dollar General gained market share in consumables and non-consumables, which he believes is a testament to the strength of the company’s business. He reiterated his buy rating and $285 stock price target, which implied about 31% upside from Thursday’s closing price.
“We recommend accumulating [Dollar General’s stock] on today’s weakness, as [Dollar General] remains one of the best positioned companies in the present environment, in our view,” Tarlowe wrote in a note to clients.
Tarlowe said the company’s fiscal 2023 sales outlook appears to be “achievable.” And although the company is not immune to a slowing economy, he believes it will benefit as higher-income consumers “trade-down” to more inexpensive products.
He also reminded investors that Dollar General tends to be a “recession winner,” and believes the company’s results could improve as economic conditions potentially worsen.
The stock has tumbled 15.3% over the past three months, while the Consumer Discretionary Select Sector SPDR exchange-traded fund
XLY,
has gained 2.5% and the S&P 500
SPX,
has slipped 0.4%.
