Dollar General Corp (NYSE:DG) has been downgraded to a ‘Sell’ rating by analysts at Citi who believe Walmart’s market share gains will make a recovery for the chain of discount stores challenging.
In a note to clients, analysts highlighted that Dollar General had a tough fiscal 2023 and 2024 with a fiscal 2024 earnings before interest and taxes (EBIT) margin of just 4.7% compared to 8.4% in fiscal 2019, even though its sales base has grown about 50% in the past five years.
Industry dynamics have changed during this time in a way that challenges Dollar General’s competitive positioning, they wrote.
“‘Walmart winning’ is a theme in retail, and Dollar General is on the wrong side. Dollar General is known for value. So is Walmart, and Walmart is tough to beat on price,” they wrote.
“Dollar General is known for convenience (easy in-and-out purchase). And increasingly since the pandemic, so is Walmart, as the way consumers think about convenience is changing and Walmart has upped its game with omnichannel delivery options.”
The analysts awarded the stock a $73 price target, a 16% decrease from its current share price of about $87.
“We believe Walmart’s market share gains will continue to pressure Dollar General, making a recovery very tough,” they concluded.