On Thursday, CFRA adjusted its financial outlook on Dollar General (NYSE:DG), reducing the 12-month stock price target slightly to $172 from $173, while continuing to recommend the stock as a Buy. The revision follows the company's fourth-quarter earnings report, which posted an earnings per share (EPS) of $1.83, a 38% decrease year-over-year, yet surpassing expectations by $0.10.
Despite the earnings beat, Dollar General's margins did not meet projections, and the company's guidance for fiscal year 2025 presented a mixed picture.
Dollar General reported a modest increase in same-store sales of 0.7% year-over-year, defying the consensus estimate of a 1.2% decline. Nonetheless, the retailer's financial forecast for fiscal year 2025 has been adjusted, with expectations for margin expansion and EPS growth to be concentrated towards the end of the year.
The company anticipates overcoming the challenges of labor investments, and it projects benefits from shrink and supply chain improvements in the latter half of the fiscal year.
The company's journey to regain 7%-8% operating margins is anticipated to extend further than initially expected. This delay is attributed to persistent issues such as shrink, an evolving sales mix, and a competitive promotional landscape. Despite these challenges, CFRA believes Dollar General is on a solid path toward profitable growth, with the potential to achieve over 10% EPS growth in fiscal year 2026.
Looking ahead, Dollar General is expected to leverage various strategies for margin growth. These include the expansion of the DG Media Network, increased penetration of private label products, and the continued rollout of pOpShelf stores, which are seen as long-term drivers for the company's margin expansion.
These initiatives are part of Dollar General's broader strategy to enhance profitability and shareholder value in the coming years.
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