Dollar General (DG) Q2 Earnings: Solid Comps to Fuel Results

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Dollar General Corporation DG is scheduled to report second-quarter fiscal 2018 results on Aug 30. Well the first question that is likely to cross investors' mind is whether this discount retailer will be able to pull off positive earnings surprise. In the last reported quarter, the company reported a negative earnings surprise of 2.9%.

Dollar General Corporation Price and EPS Surprise

Dollar General Corporation Price and EPS Surprise | Dollar General Corporation Quote

After registering a bottom-line increase of 33.3% in the first quarter, Dollar General is likely to record year-over-year growth of roughly 35% in the second quarter. The Zacks Consensus Estimate for the quarter under review is pegged at $1.49 compared with $1.10 reported in the year-ago quarter. We note that the Zacks Consensus Estimate has been stable in the last 30 days. Analysts polled by Zacks now project revenues of $6,370 million, up 9.3% from the year-ago quarter.

Factors at Play

We believe that Dollar General's commitment toward better price management, cost containment, private label offering, effective inventory management, merchandise and operational initiatives should drive sales and margin trends. This is evident from the aforementioned Zacks Consensus Estimate.

These along with a compelling store growth story at convenient locations, comparable-store sales (comps) growth and focus on consumable products provide the company an edge over competitors. Additionally, the company is expanding its cooler facilities to enhance the sale of perishable items and is rolling out DG digital coupon program.

However, a deleverage in SG&A rate owing to higher labor expenses, occupancy costs and utilities expenses might impact margins. Moreover, increasing threat from online retailers on parameters such as same-day delivery and pricing might hurt the company's market share. Not to forget, a cut in SNAP benefit may also weigh on the performance.

Number Crunching

Dollar General's comps growth story is impressive. Rise in average transaction has been driving comps higher. In the first, second, third and fourth quarter of fiscal 2017, comps increased 0.7%, 2.6%, 4.3% and 3.3%, respectively. Notably, the sturdy trend continued in the first quarter of fiscal 2018, while comps grew 2.1%.

Given the past trends and strategic endeavors, the company is likely to continue with its positive comps performance in the to-be-reported quarter, as evident from the Zacks Consensus Estimate of 2.7%.

Analyst polled by Zacks expects sales in the Consumables, Home Products and Apparel categories to be $4,954 million, $368 million and 308, up 10.5%, 12.3% and 3.3% year over year, respectively. Seasonal category sales are projected to be $717 million, almost flat year over year.

What the Zacks Model Unveils?

Our proven model shows that Dollar General is likely to beat estimates this quarter. This is because a stock needs to have both - a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Dollar General has an Earnings ESP of +0.63% and a Zacks Rank #3. This makes us reasonably confident that it is likely to outperform estimates.

Other Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

The Michaels Companies, Inc. MIK has an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

PVH Corp. PVH has an Earnings ESP of +0.16% and a Zacks Rank #3.

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +2.98% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: AEO , DG , MIK , PVH

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