Shoppers Are Abandoning Dollar General: "Really Bad Situation"

Dollar General stock has been downgraded.

There are some warning signs for Dollar General. Most notably, JPMorgan lowered its rating for the retailer on Sept. 20, WallStreetZen reported. Led by veteran retail analyst Matthew Boss, the bank downgraded Dollar General's stock from hold to strong sell.

In other words, the new rating "indicates a strong recommendation for investors to sell their holdings in the stock," because JPMorgan has grown concerned about the company's prospects, according to the news outlet. The bank also cut their price target for Dollar General by 12.1 percent from $132 to $116 per share.

RELATED: The 5 Worst Things to Buy at Dollar General.

Shoppers appear to be turning away from the retailer.

Boss' decision to downgrade Dollar General follows a concerning quarter for the retailer. In an Aug. 31 press release, the Dollar General Corporation revealed that its same-store sales for the second quarter of its 2023 fiscal year had decreased by 0.1 percent compared to the same quarter last year. That decline was "driven by a decline in customer traffic," according to the company.

On an Aug. 31 earnings call with analysts, Dollar General CEO Jeff Owen acknowledged that its core customer base is continuing to feel "financially constrained" overall.

"Our customer, what she's telling us is that certainly as gas prices are less than last year, but they're accelerating throughout 2023, and she's still feeling the headwinds of the SNAP reduction and also the lack of tax refunds. And her savings are gone. And so certainly, she is still living with the inflationary pressure," Owen said. "So certainly, the customers are challenged."

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Dollar General is working to improve its standing with customers.

During the earnings call, Owen admitted that Dollar General is currently "not satisfied" with its overall financial results. But according to the CEO, the company has been working to bring shoppers back.

"We are continuing to improve execution in our distribution centers and stores, providing our customers with even lower prices and an improved shopping experience and working towards rightsizing our inventory levels," Owen said.

Dollar General CFO Kelly Dilts told analysts during the call that the company expects traffic trends to improve over time with its efforts, though she noted that they "do not expect positive traffic until the fourth quarter" of the 2023 fiscal year.

"Hopefully, as we look to the back half of this year and into next year, the stability in the store will help us drive continued traffic, and that's one of the metrics we're most focused on improving as we go forward," Owen said.

But experts say Dollar General is now in "really bad situation."

Despite Dollar General's hope for progress, its recent stock downgrade highlights just how much its financial situation is being challenged by the consumer pullback. In a Sept. 20 interview on CNBC's Squawk on the Street, Mad Money host Jim Cramer said that Boss' decision to move the retailer's stock from hold to sell was "highly unusual," and suggested investors should indeed stay away.

Dollar General's consumer base "is just really, really hurting," according to Cramer. And the company is now expecting that restarted student-loan repayments and higher fuel prices will continue to financially strain its costumers.

"This is a really bad situation," Cramer said.

Best Life reached out to Dollar General about the stock downgrade and Cramer's warning, and we will update this story once we hear back.