The bank's analysts cut their recommendation from Neutral to Underweight and lowered their price target to $116 from $132 following a fireside chat with Dollar General’s CFO Kelly Dilts at a JPMorgan conference in London.
“DG’s core low-end consumer is already at a stress point acting recessionary" given the combination of pandemic-related savings diminished, inflationary pressures, the expiration of child tax care credits and SNAP food stamp cuts, analysts said in a research note.
“Compounding matters, management sees excess saving for the middle-income cohort on pace to be depleted by the end of fall ’23,” wrote Matthew Boss and his team of analysts.
Student loan repayments, elevated interest rates, and higher fuel prices could also worsen the picture for consumers, the note said. Gasoline prices are hovering near 2023 highs amid elevated oil prices.
“On the bottom-line, CFO Dilts is targeting a return to historical operating profit growth “over the next few years (albeit not explicitly in 2024),” wrote Boss.
On Aug. 31, Dollar General's stock sank 12% after the Tennessee-based company's second quarter gross profit margin slid to 31.1% compared to 32.3% a year ago.
Dollar General said the decline was "primarily attributable to lower inventory markups and increased shrink," among other factors.
The stock has 11 Buy recommendations, 16 Holds and three Sells.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.