Buy, Hold or Sell Dollar General? Key Tips Ahead of Q1 Earnings

As Dollar General Corporation DG prepares to release its first-quarter fiscal 2025 earnings results on June 3, before the opening bell, investors face a critical decision: Is now the time to buy, hold or sell the stock? The impending report could be a turning point, offering insight into whether the discount retailer’s turnaround strategy is gaining traction.

DG is likely to have registered an increase in the top line. The Zacks Consensus Estimate for revenues is pegged at $10.29 billion, which indicates an improvement of 3.8% from the prior-year reported figure.

However, the company is expected to have witnessed a year-over-year decrease in its bottom line. Although the Zacks Consensus Estimate has increased by a penny over the past 30 days to $1.47 per share, it still suggests a decline of 10.9% from the year-ago period.
 

Dollar General has a trailing four-quarter negative earnings surprise of 1.2%, on average. In the last reported quarter, the company’s bottom line beat the Zacks Consensus Estimate by a margin of 12%. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
 

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote

What the Zacks Model Predicts for DG

As investors prepare for Dollar General's first-quarter announcement, the question looms regarding earnings beat or miss. Our proven model predicts that an earnings beat is likely for Dollar General this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General has an Earnings ESP of +2.64% and carries a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Factors to Note Ahead of DG’s Q1 Earnings

Dollar General’s strategic push to grow its market share in the consumables and non-consumables categories underscores its competitive pricing and strong value proposition, which resonate well with budget-conscious consumers. Proactive pricing strategies, targeted promotions and the ongoing expansion of private-label offerings are expected to have supported top-line growth.

We remain optimistic about several key initiatives, including DG Fresh, SKU rationalization, digitization and the expansion of the private fleet, which are likely to have contributed to improvements in same-store sales. The company’s “back-to-basics” approach has helped reinforce operational discipline, while efforts to reduce shrinkage are already delivering measurable gains. For the quarter under review, we project a 0.8% increase in same-store sales.

The same-day delivery pilot program is expected to have driven incremental sales by providing additional convenience for shoppers. Furthermore, the company’s partnership with DoorDash is likely to have helped capture digital sales. These factors, combined with increased foot traffic, are expected to have boosted revenues in the quarter.

Despite these strategic moves, Dollar General guided a challenging first half of fiscal 2025 due to upfront costs associated with remodeling projects and increased labor-related expenses. Management projected earnings per share (EPS) to decline on a year-over-year basis during this period. We expect SG&A expenses, as a percentage of net sales, to deleverage 90 basis points. As a result, we foresee an operating margin contraction of 70 basis points.

Dollar General Stock Performance

Shares of Dollar General have rallied 35.3% over the past three months, outperforming the industry’s 0.2% growth. The stock has also outpaced key competitors, including Dollar Tree, Inc. DLTR, Target Corporation TGT and Costco Wholesale Corporation COST. While Dollar Tree has seen a gain of 31.2%, Costco and Target have declined 0.6% and 22.2% during the same period.
 

Does DG Present a Strong Case for Value Investing?

Dollar General is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 16.84. This valuation reflects a discount compared to the industry’s average of 33.73 and the S&P 500's P/E of 21.71. However, the stock appears overvalued compared to its median P/E level of 13.62, observed over the past year.

Dollar General is trading at a premium to Target (with a forward 12-month P/E ratio of 12.03) and Dollar Tree (16.71) but at a discount to Costco (53.65). 

How to Play Dollar General Stock Now: Buy, Hold or Sell?

Given the ongoing turnaround efforts and encouraging early signs of operational discipline, Dollar General seems to be on the right track, though challenges remain. While near-term margin pressures and earnings pressure necessitate caution, the underlying fundamentals and strategic initiatives indicate potential for gradual recovery. For now, current investors may consider holding the stock, meanwhile, potential investors may wait for stronger evidence of margin stabilization before initiating a position.

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This article originally published on Zacks Investment Research (zacks.com).

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