What to Look for in Dollar General Earnings

Dollar General Corp. (NYSE: DG) is scheduled to release its fiscal third quarter earnings report before the markets open on Thursday. The consensus estimates from Thomson Reuters are calling for $0.93 in EPS and $5.37 million in revenue. The same period from last year had $0.88 in EPS and $5.07 billion in revenue.

The company suffered after it reported second quarter results earlier this fall, with the stock dropping about 11% on the results. For the second quarter Dollar General said that same-store sales increased 0.7%, driven primarily by an increase in average transaction amount, offset by a decline in traffic. Same-store sales increases were driven by positive results in the consumables category, accompanied by results in the seasonal category that were flat when compared to the 2015 second quarter, offset by negative results in the apparel and home categories.

Also during this time, retail food deflation and a reduction in both SNAP participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger than expected headwinds. The competitive environment has also intensified in select regions of the country.

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Credit Suisse detailed in a recent report:

Dollar General’s impressive stock run looks to be over sooner than we anticipated, as Q2 results signal a material deceleration in earnings momentum. Bottom line performance was only a touch below consensus, but a comp miss on negative traffic was a clear disappointment. A solid gross margin, expense control and lower tax rate made up for most of the shortfall. The company highlighted weather, food deflation, and SNAP as the largest top line issues, but commentary about intensifying competition from other staples players (likely includes Wal-Mart) was notable and its clear underlying business momentum has slowed. Visibility on a reacceleration is low in our view, even with the company poised to react with its own price cuts. This development adds to the recently introduced incremental wage pressure from new overtime rules, and combined now creates visible downside risk to forward consensus estimates. We expect these headwinds to weigh on the stock, making Outperformance to the staples group unlikely.

A few other analysts weighed in on Dollar General ahead of the earnings report:

• Guggenheim has a Buy rating with a $90 price target.
• Buckingham Research has a Buy rating with a $90 price target.
• Deutsche Bank has a Buy rating with a $77 price target.

Excluding Wednesday’s move, Dollar General has performed more or less in line with the broad markets with the stock up roughly 9% year to date.

Shares of Dollar General were last trading down 1% at $77.53, with a consensus analyst price target of $82.96 and a 52-week trading range of $65.11 to $96.88.

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