Dollar General has forecast annual targets below estimates, joining a growing list of retailers that have signalled a grim year as still-high inflation and economic uncertainty dent consumer spending.
Fears of an economic slowdown as a result of US President Donald Trump's trade policies, and spending cuts in the federal government have led to a cautious retail outlook for the year, and caused weakness in the US labour market.
But resilient demand for cheap groceries in a turbulent economy could help Dollar General's stock trade higher, said Truist Securities analyst Scot Ciccarelli.
Shares of Dollar General were up about 5% in premarket trading despite a dour forecast, as the discount retailer beat holiday-quarter estimates.
The stock has slumped nearly 70% over the last two years amid stiff competition from players such as Walmart, Shein and Temu.
Turnaround Plan
Dollar General has been improving its private-label brands selling everyday essentials, and focusing on remodelling its stores and closing underperforming outlets as part of a turnaround plan.
"We believe that these (store) closures could be just the beginning of a larger culling process. Competitive dynamics have shifted over the last few years ... we suspect the returns from locations with more competition (especially Walmart) have likely declined," Ciccarelli added.
Dollar General is expected to benefit from store closures by companies such as Big Lots and Party City that have recently filed for bankruptcy, analysts from UBS noted earlier this month.
For the holiday quarter, its comparable sales rose 1.2%, ahead of estimates, while profit of $1.68 per share topped expectations of $1.50, according to data compiled by LSEG.
The company expects annual same-store sales growth between 1.2% and 2.2%, largely behind estimates of a 1.82% rise, while the fiscal 2025 profit forecast of about $5.10 to $5.80 per share was below estimates of $5.85.
In December 2024, Dollar General warned that profit margins would be pressured in the holiday quarter due to higher promotions and discounts as shoppers stuck to buying more essentials like groceries.
