Dollar General Stock Plunges 44% in 2024: What Happened?

In 2024, Dollar General (DG) stock took a nosedive, losing a staggering 44% of its value. This significant decline has raised eyebrows among investors, leaving many wondering what went wrong. Let's delve into the factors that contributed to this dramatic fall.



1. Inflation and Weak Consumer Spending: Dollar General's core customer base is lower-income individuals who have been disproportionately affected by inflation. This led to weak consumer spending in the company's demographic, contributing to the downturn in the stock's performance. In the fiscal year 2024 first quarter, the company reported that its core customer base was financially constrained due to inflation and weak consumer spending, which affected its sales and profitability.
2. Operational Struggles: Dollar General faced operational challenges, including inventory issues that led to higher damaged merchandise, higher theft, and higher discounts. These issues weighed on the company's profitability and contributed to the decline in the stock's price. In the second quarter of 2024, the company's gross margin fell from 31.1% to 30% due to increased markdowns and inventory damages, and selling, general, and administrative expenses rose from 24% to 24.6%.
3. Market Share Losses to Walmart and Other Larger Competitors: Dollar General faced intense competition from Walmart and other larger competitors, leading to market share losses. This competition, combined with the company's operational struggles and weak consumer spending, contributed to the stock's decline in 2024. In the second quarter of 2024, the company's same-store sales rose 0.5% on a 4.2% increase in revenue to $10.2 billion, but it was short of the consensus at $10.37 billion.
4. Missed Earnings Expectations: In the second quarter of 2024, Dollar General missed earnings expectations, with operating income tumbled from $692.3 million to $550 million, and earnings per share declined 20% to $1.70, below the consensus at $1.79. Management also slashed its guidance for the year, revising its sales growth forecast from 4.7% to 5.3%, and called for EPS of $5.50 to $6.20, down from a previous forecast of $6.80 to $7.55 and well below the consensus at $7.12.

In conclusion, Dollar General's stock fell 44% in 2024 due to a combination of factors, including inflation and weak consumer spending, operational struggles, market share losses to larger competitors, and missed earnings expectations. Despite these challenges, the company remains committed to its Back to Basics strategy, focusing on improving operational efficiency and enhancing the customer experience. As an investor, it's essential to stay informed about the company's progress and assess the potential risks and opportunities that lie ahead.