Dollar General, one of the largest and well-known discount retailers, provides various merchandise in the southern, midwestern, and eastern United States. The company offers consumable products such as packaged foods and snacks, perishables like eggs and bread, and alcohol including beer and wine.In addition, Dollar General provides cleaning products such as paper towels, storage bags, disinfectants, and laundry products. Based in Tennessee, the discount retailer also supplies apparel, seasonal offerings, health and beauty products, and over-the-counter medicines.The stock has been struggling after Citi analysts recently downgraded shares and trimmed their price target, noting a challenging operating environment over the past several years. With retail giant Walmart strengthening its market position and product delivery options, a recovery for Dollar General is looking increasingly unlikely. The Zacks RundownDollar General (DG) , a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Retail – Discount Stores industry group, which currently ranks in the bottom 16% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.Along with many other retail stocks, DG shares have been underperforming this year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head into the fourth quarter. Recent Earnings Misses & Deteriorating OutlookDollar General has fallen short of earnings estimates in three of the past six quarters. Back in August, the company reported second-quarter earnings of $1.70/share, missing the $1.79/share Zacks Consensus estimate by -5%. Consistently falling short of earnings estimates is a recipe for underperformance, and DG is no exception.The discount retailer has acknowledged recent challenges in its gross margin, which has primarily occurred due to shrink and markdowns, a greater consumable sales mix, and lower inventory markups. Rising selling, general, and administrative (SG&A) expenses are also a concern.Dollar General has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by -36.18% in the past 60 days. The Q3 Zacks Consensus EPS Estimate is now $0.97/share, reflecting negative growth of -23% relative to the year-ago period.
Image Source: Zacks Investment ResearchFalling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see. Technical OutlookAs illustrated below, DG stock is in a sustained downtrend. Notice how the stock has made a series of lower lows, widely underperforming the major indices. Also note that shares are trading below downward-sloping 50-day (blue line) and 200-day average (red line) moving averages – another good sign for the bears.
Image Source: StockChartsDG stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. The stock would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen nearly 40% this year alone. Final ThoughtsA deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that DG is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of DG until the situation shows major signs of improvement.More By This Author:Bull Of The Day: NetApp
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