Shares of Dollar General jumped 8% premarket on Friday, as investors and analysts drew confidence from the return of former CEO Todd Vasos to the top job to help steer the retailer away from weakening traffic and margin pressure.
The dollar store chain after market hours on Thursday said Vasos will take charge effective immediately, replacing Jeff Owen less than a year after his appointment.
"The move is a clear acknowledgment of rising investor concerns about the company's future related to a clouded business strategy, choppy execution, consistent earnings misses, and a decline in the share price of (about) 60% since Owen took over," Telsey Advisory Group analyst Joe Feldman said.
Dollar General has missed profit estimates in all of the past four quarters, struggling to stem a margin squeeze amid a shift in demand to less-profitable food and consumable items, store traffic declines, inventory shrink and competition.
Vasos will be focused on improving in-stock levels at stores, tidying up store operations, refocusing labor investments and implementing new accounting methods to minimize inventory shrink, J.P. Morgan analysts said, citing a conversation with Vasos.
Vasos previously was at the helm of Dollar General from June 2015 to November 2022.
The surprise appointment was a "difficult but necessary step," Evercore analyst Michael Montani said, adding Vasos' return would be key to rebuilding investor trust.
Still, some analysts held the view that the return of Vasos was no silver bullet for Dollar General. At least six brokerages cut their price targets on the retailer's stock as the company also trimmed the top end of its annual sales and profit forecasts.
Dollar General's price-to-earnings ratio for the next 12 months - a key benchmark for valuing stocks - stood at 12.88, compared with rival Dollar Tree's 15.83 and 25.30 for Canada's Dollarama.
Dollar General shares were trading at $109.81 premarket.
(Reporting by Deborah Sophia in Bengaluru; Editing by Shailesh Kuber)
