Dollar General (NYSE:DG) had a brutal 12 months in 2023, as its stock price plummeted 44% in a 12 months when the S&P 500 was up by about 24%. The retailer faced one problem after one other, from fines for safety violations to executive turnover and lower profit margins, all of which kept Dollar General’s stock price in freefall.

It was an unusually bad turn for this traditionally regular and solid-performing company that, even including a terrible 2023, it still has a median annualized turn of 10.6% over the past 10 years as of March 14. With its valuation so low and returning CEO Todd Vasos back within the corner office, the stock looked poised for a turnaround. Vasos previously served as CEO from 2015 to 2022, which was a period of tremendous growth for Dollar General.

The discount retailer got off to strong start in 2024, but its stock price fluctuated wildly after its fourth-quarter earnings results and 2024 outlook on Thursday. Dollar General was up some 6% in early trading to around $168, but then it tumbled back to around $151 per share by mid-morning. The volatility was likely tied to the retailer’s mixed outlook for 2024.

Getting back to basics

The fourth-quarter numbers weren’t all that spectacular, despite the fact that Dollar General performed higher than analysts had expected. Net sales fell 3.4% 12 months over 12 months within the quarter to $9.9 billion, while same-store sales rose 1%.

Nevertheless, the numbers were barely skewed as this past quarter included one fewer week in comparison with Q4 2022. Some store closures also impacted net sales, although they were offset somewhat by the expansion in same-store sales.

Dollar General’s expenses rose 5% to $2.3 billion or 23.6% of net sales. That increase was due partially to its “Back to Basics” strategy of improving operations from the standpoint of the shopper, which involved higher labor costs and increased repairs and maintenance expenses, amongst other costs.

This dented the corporate’s bottom line, as its operating profit plunged 38% to $580 million while its net income dropped by the same percentage to $401 million, or $1.83 per share. Nevertheless, despite the drop, the result was still higher than the $1.75 per share that analysts had expected.

“We’ve made solid progress executing on our ‘Back to Basics’ strategy, which we consider supported our improved operational performance throughout the quarter,” Vasos said. “While we’re pleased with the operational improvement we now have seen, we consider that significant opportunity stays, as we proceed to concentrate on enhancing the best way we support our teams and serve our customers.”

Thus, Dollar General reported solid, if not spectacular numbers, but Thursday’s volatility likely had more to do with the outlook.

Slow and regular progress

The turnaround strategy spearheaded by Vasos should begin to repay throughout the course of 2024, particularly within the back half of the 12 months.

In Q1, the corporate expects same-store sales to rise by 1.5% to 2%, which is modest but an improvement from the fourth-quarter year-over-year gain. Nevertheless, Dollar General also expects it to be the worst quarter of 2024.

“While we anticipate the primary quarter shall be pressured by our lowest expected same-store-sales increase of any quarter in fiscal 2024, in addition to the annualization of prior 12 months headwinds akin to retail labor and shrink, we’re focused on delivering our full-year plans, including anticipated strong EPS growth within the back half of the 12 months,” said Chief Financial Officer Kelly Dilts within the earnings report.

The complete-year outlook calls for same-store sales growth to be between 2% to 2.7%, up from 0.2% in 2023. Meanwhile, net sales growth is predicted to be within the 6%-to-6.7% range, up from 2.2% in fiscal 2023.

Nevertheless, earnings per share is projected between $6.80 and $7.55 for 2024, which can be just like 2023 on the high end. This assumes higher compensation costs and tax rates and indicates that Dollar General’s profit margins could remain under pressure from higher costs.

Further, the firm is planning $1.3 billion to $1.4 billion in capital expenditures, including launching some 800 latest stores, 85 relocations and 1,500 remodels.

Time to purchase?

While the online sales projections are higher than analysts expected, the earnings numbers only meet the consensus estimates of $7.55 per share if Dollar General hits the high end of its range. This iffy earnings forecast could have been the explanation for the volatility on Thursday.

Prior to Thursday, Dollar General stock had been up by about 16% 12 months to this point, closing at $158 on Wednesday. With the rise, its valuation has climbed, and it’s now trading at 21 times forward earnings, up from 13 last fall.

I feel Dollar General is headed in the best direction, but given its earnings outlook, I’m unsure you’ll see far more growth beyond the 13% gain it had prior to Thursday, at the least over the following couple of quarters. It could bounce a bit off today’s negative overreaction, but not loads. Nevertheless, Dollar General is definitely a long-term hold and one for interested potential buyers to ascertain back in with within the second half of the 12 months.