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On Thursday, CFRA adjusted its financial outlook on Dollar General (NYSE:), slightly lowering the stock's 12-month price target 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 earnings per share (EPS) of $1.83, down 38% year-over-year but beating expectations by $0.10.
Despite the earnings beat, Dollar General's margins fell short of projections and the company's fiscal 2025 forecasts presented a mixed picture.
Dollar General reported a modest comparable sales increase of 0.7% year over year, defying the consensus estimate of a 1.2% decline. However, the retailer's financial forecast for fiscal 2025 has been adjusted, and expectations for margin expansion and EPS growth will be concentrated toward the end of the year.
The company plans to overcome labor investment challenges and projects benefits from supply chain reductions and improvements in the second half of the fiscal year.
The company's path to recovering operating margins of 7% to 8% is expected to take longer than initially expected. This delay is attributed to persistent issues such as shrinkage, an evolving sales mix and a competitive promotional landscape. Despite these challenges, CFRA believes Dollar General is on a solid path to profitable growth, with the potential to achieve EPS growth of more than 10% in fiscal 2026.
Looking ahead, Dollar General is expected to leverage several strategies to increase margin. These include the expansion of DG Media Network, increased penetration of private label products and the continued launch 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 improve profitability and shareholder value in the years ahead.
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