Dollar General’s profits are still falling, but the real question at the next earnings call will be what reinstated leader Todd Vasos is doing about it. After less than a year in retirement, Vasos is back at the helm, and investors are waiting to see if he can reverse the company’s year-long slide. 

“I would expect the big themes to be around what Todd Vasos can do to stem the tide,” said Brian Yarbrough, an equity analyst at Edward Jones. “It felt like every quarter they would report lower and lower guidance.”

In the next quarterly conference call on Dec. 7, Dollar General is expected to report earnings of $1.23 for the three months ended Nov. 4, according to the consensus forecast of analysts surveyed by Bloomberg. That would represent a drop of 47% from the same period last year. Revenue is expected to rise 2% to $9.6 billion. 

The expected decline will be another blow for a company still recalibrating to a changing market. Reduced consumer spending, combined with supply chain snags and labor management issues, contributed to slumping profits over the past year. 

But in the long term, analysts remain optimistic about the future of a company that is still the country’s biggest retailer by store count. Analysts believe Vasos can show some sales growth and bring inventory problems under control—eventually. 

Vasos had led the company for seven years before passing the reins to his successor, Jeff Owen, in November 2022.  Confidence in the new leadership dropped along with the stock price, and the board returned Vasos to the chief executive’s desk in October. 

Dollar General’s share price jumped to $123 after Vasos’ reappointment, a gain of 22% in just over a month. Shares in the company are still down 52% over the past year, while competing discounter Dollar Tree is down 24%. Over the same period, the S&P 500 index, a measure of the broader market, rose 14%. 

A stock chart comparing Dollar General, Dollar Tree and the S&P 500.

Dollar General(DG), Dollar Tree (DLTR), and S&P 500 returns over the past year. Via TradingView.

The downturn that Dollar General has faced is, in part, attributed to shifting spending habits, as high inflation has sapped away at consumer buying power. The termination of a pandemic-era boost in SNAP benefits last February put additional pressure on sales, while inventory losses due to shoplifting increased throughout the retail sector. 

But other wounds were self-inflicted. Dollar General has come under fire for its labor practices, settling several enforcement actions by state and federal regulators.  Supply chain problems caused a glut of unsold inventory, while some in-demand products became unobtainable.

Fixing those problems will be expensive. In August, Owen—who was then still CEO—announced a $150 million investment in labor spending, and deployed “smart teams” to relieve understaffed stores. The company also began shedding excess inventory, adding further weight to its margins. 

“That’s a big hit to profitability,” Yarbrough said. “They’re just going to move through the stuff and blow it out at clearance prices.”

Meanwhile, competing retailers are finding their footing. Last week, Target stock jumped nearly 20% after the company reported better-than-expected earnings and progress in managing its inventory glut. Walmart, Dollar General’s leading rural competitor, also beat expectations but issued cautionary guidance due to weakening consumer spending.

Competing discounter Dollar Tree has faced similar doldrums to Dollar General. In its most recent earnings release on Aug. 24, Dollar Tree narrowly beat expectations but lowered its guidance due to weakening discretionary spending. Dollar Tree’s next release will be on Nov. 29.

Looking forward, analysts are still bullish about Dollar General’s future prospects.

“I don’t expect Dollar General’s strategy to radically change,” said Noah Rohr, a consumer equity analyst at Morningstar Research Services. However, labor hours and store remodels may become a bigger focus as the company adapts to cover its weak points. The company is likely to increase investments in cooler equipment, Rohr predicted, which will increase sales of refrigerated and frozen products. 

 “I expect margins to gradually improve,” Rohr added, “but I also expect this to take some time.”