Market Overview

Deutsche Bank Previews Dollar Store Earnings


While expressing optimism regarding the long-term growth prospects for the Retailing / Department Stores sector, Deutsche Bank’s Paul Trussell said that consumer spend in the dollar stores was being driven by employment and wage gains. The analyst added, however, that labor headwinds, price investments by Wal-Mart Stores, Inc. (NYSE: WMT) and rising gas prices would challenge valuations in the near term.

Impact Of New Labor Department Regulation

The new Labor Department regulation will result in a substantial rise in overtime pay. Dollar Stores are expected to feel the most pressure, analyst Paul Trussell mentioned. He estimated a potential headwind of ~$0.13 for Dollar Tree, Inc. (NASDAQ: DLTR), impacting around 3 percent of 2017 EPS, and of ~$0.27 for Dollar General Corp. (NYSE: DG), impacting about 5 percent of 2017 EPS.

Dollar Tree

While low-end consumers seem to be in a “relatively good shape,” which should benefit Dollar Tree, there are concerns surrounding the integration of Family Dollar Stores, Inc. (NYSE: FDO) presenting greater-than-anticipated difficulty and risk, Trussell commented.

“We are modeling 1Q EPS of $0.79, in-line with guidance of $0.75-$0.83 and two pennies below the Street at $0.81,” the Deutsche Bank noted.

The analyst maintained a Hold rating for the company, while raising the price target from $70 to $77. The EPS estimate for FY17 has been revised up from $4.38 to $4.39.

Dollar General

The is good visibility into Dollar General’s “earnings algorithm, accelerating square footage growth, upside opportunity on GPM, and strong cash flow to support share repurchase and a higher dividend payout ratio,” Trussell mentioned. He added, however, that expectations from the company were high and the current valuations left little room for error.

The EPS estimate for 1Q is at $0.94, slightly below the Street at $0.95. The analyst maintained a Buy rating for the company, while reducing the price target from $95 to $91. The EPS estimate for FY17 has been cut from $5.26 to $5.08 to reflect higher overtime pay.

Latest Ratings for DG

Apr 2019UpgradesHoldBuy
Apr 2019MaintainsOverweightOverweight
Mar 2019Initiates Coverage OnUnderperform

View More Analyst Ratings for DG
View the Latest Analyst Ratings

Posted-In: Deutsche Bank Paul TrussellAnalyst Color Long Ideas Price Target Reiteration Analyst Ratings Trading Ideas


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