Why Dollar General stock fell to 6-year lows today

Retail chain shares general dollar (DG -32.15%) tumbled on Thursday after the company reported financial results for the second quarter of 2024. At the time of writing, Dollar General shares were down 30% to trade below $87 — it hasn’t been that low since at the end of 2017.

How bad is it?

Investors are likely reacting to Dollar General’s lower financial guidance for the full year. Management expected net sales to grow 6% to 6.7% in 2024, but now believes it will only muster growth of 4.6% to 5.3%. For perspective, the company has nearly $40 billion in annual sales, so even a small percentage change in growth rate is substantial.

Dollar General’s profitability continues to take a hit as well. For perspective, the company had full-year earnings per share (EPS) of $10.68 in 2022. But today, management cut its 2024 EPS guidance to just $5.50 to $6.20 — that’s a big drop from profits just two years ago. And with no light at the end of the tunnel, investors are dumping Dollar General stock, sending it to a six-year low.

Can Dollar General fix its problems?

On the profit side of the equation, Dollar General is still working through the inventory issues that led to more damaged merchandise, higher thefts and higher markdowns. Management is making changes that will hopefully improve things, but success may still be a few quarters away.

On the sales side of the equation, Dollar General management shared some troubling comments. Much of its customer base is lower income. And lower-income consumers have been disproportionately affected by inflation. Many are struggling to pay their bills, leading to lower spending.

In my opinion, Dollar General is going nowhere. And it’s trading at a pretty cheap valuation today. Investors shouldn’t buy Dollar General stock just because it’s cheap — if the problems continue or worsen, it will likely be a bad investment. But for those who share my view that it will weather the headwinds, this could be a good entry point for a long-term investment.