Dollar General projects long-term growth despite recent struggles

Dollar General has struggled in the stock market, losing 63% of its value over the past three years. This is partly due to tough competition from Walmart and a decline in consumer spending. In 2024, the company’s operating income dropped 30% to $1.7 billion, worsened by increased markdowns and inventory issues. The company's recent fourth-quarter earnings report was disappointing, with earnings-per-share estimates missed. Despite these challenges, Dollar General's stock rose 7% after the earnings report. Investors were encouraged by guidance that still predicted growth. Over the past month, the stock has increased by 9%, even while the broader S&P 500 index fell about 10%. Dollar General has introduced a “Back to Basics” plan to address issues, focusing on reducing stock shortages and improving customer service. They also announced plans to close 96 stores and 45 Popshelf stores, which may look like a loss but should help profitability. Besides closing stores, the company aims to open 575 new stores in the U.S. and 15 in Mexico in 2025. The retailer projects same-store sales growth of 2% to 3% annually over the next five years and a 10% increase in earnings-per-share starting next year. They expect to improve their operating margin to 6% to 7% by 2028-2029. While the market environment remains tough, Dollar General has a solid growth history and leads in the small discount retail sector. With over 20,000 stores in the U.S., it remains a strong player. Many believe that with its focus on essential goods and an improving business plan, Dollar General could outperform the market in the coming years.