Dollar General's (DG) core lower- and middle-income consumers are under pressure amid sticky inflation and higher gas prices, but continue to show resilience, Truist Securities said in a Wednesday note.
Dollar General's consumer base continues to be steady and manage budgets despite inflation and periods of stress, Truist analyst Scot Ciccarelli said. Continued employment is a key factor driving this strength and shopping behavior, the analyst added.
"Most importantly, this customer is also still employed, which is the single biggest driver to shopping behavior, even as the recent drop in gas prices (if sustained) should also help at the margin," Ciccarelli wrote.
Dollar General is also benefiting from "trade-in" activity from higher- and upper-middle-income shoppers, attracted by its value and convenience proposition, the brokerage said. Third-party delivery services are further expanding its reach, helping bring in more higher-income customers.
"While still a small part of the base, Dollar General's highest income customers are their fastest growing cohort," the note added.
Dollar General remains "very comfortable" with its competitive pricing and positioning, Truist said, noting that its prices are within about 3%-5% of mass retailers like Walmart (WMT).
The brokerage maintained its Hold rating and $114 price target on Dollar General.
