Dollar General Sees BMO Reiterate $265 Price Target Following Q2 Earnings

Dollar General Corporation (NYSE: DG) last Thursday reported its second-quarter financial results. The company announced that net sales increased 9% year over year to $9.4 billion, with the consumables segment growing 13% to $7.475 billion, while Dollar General saw its apparel segment see a 21% decline, going to $303.2 million.

Operating profits for the quarter increased 7.5% to $913 million, while same-store sales increased by 4.6%. The company noted that it repurchased 1.5 million common shares during the second quarter at an average price of $233.36 per share for a total consideration of $349 million.

Lastly, the company is updating its full-year guidance due to “product cost inflation, supply chain dynamics, new store opening delays, and the evolution of consumer spending throughout the year.” They now expect net sales to grow 11% and same-store sales to grow between 4% to 4.5%.

Dollar General currently has 28 analysts covering the stock with an average 12-month price target of $265, or an upside of 12%. Out of the 28 analysts, seven have strong buy ratings, 13 have buy ratings, six analysts have hold ratings, and the last two analysts have sell ratings.

In BMO Capital Markets’ note on the results, they reiterate their market perform rating and $265 12-month price target, saying that even though the company showcased its strong execution, they see the stock at a more balanced risk and reward.

On the results, they say that the company’s earnings per share and gross margins “were solid.” They believe that the gross margin beat came from LIFO and better than expected supply-chain costs. At the same time, the company saw an increase in its market share in the food/consumables segment.

Though the company reported higher general and administrative costs, BMO believes this will support a stronger second half of the year. BMO increased its third and fourth quarter growth rates to 6%.

Lastly, BMO believes that Dollar General’s price increase at their Family Dollar stores might backfire. Though BMO believes that the grocery and drug price gaps between other big box retailers will remain in effect, closing the margin on all other goods “may make things incrementally tougher for DG, on the margin.”

Below you can see BMO’s updated estimates.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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