Market Overview

The Battle Plan For Dollar General Ahead Of Q4 Earnings And Beyond

Share:
The Battle Plan For Dollar General Ahead Of Q4 Earnings And Beyond

Dollar General Corp. (NYSE: DG) will report its fourth quarter earnings on Thursday. Investors will focus on comps, commentary about initiatives in pricing, investments and 2017 store opening plans.

Q4 Expectations

Michael Lasser of UBS believes Dollar General’s top-line remained stable, but sluggish in the fourth quarter. Lasser expects an EPS of $1.43, slightly ahead of the consensus estimate of $1.42. The analyst projects a 0.5 percent comp, slightly ahead of the consensus view of 0.3 percent.

Lasser, who reiterated his Buy rating, said the fourth quarter comp could have been pressured by 150-175 bps again this quarter following Wal-Mart's aggressive posture and competitive flare ups in certain markets, SNAP and deflation.

As such, the analyst sees a 55 bp gross margin decline in the fourth quarter and expects comp growth to remain under pressure for the next couple of quarters.

That said, the analyst is bullish on the stock, saying Dollar General's earnings algorithm is achievable and compelling.

“Sustaining 10%-15% annual EPS growth through a visible formula that hinges on 6%-8% square footage increases, modest comp growth, stable to increasing margins, and 5% reductions to shares outstanding should be handsomely rewarded by the market,” Lasser highlighted.

Price Investments

Looking ahead, one of the key debates on Dollar General is how much more price investment is needed to compete with the rest of consumables retail.  Lasser said surgical price reductions in selected additional markets may be necessary in the current environment.

“For every 10% of stores they make price investments in, it would drive 10-20 bps of GM pressure, all else being equal. Though, we think its sales will improve,” Lasser wrote in a note.

For FY2017, Lasser expects EPS of $4.61 (vs. cons. of $4.69) and comp of 1.4 percent and -40 bps of operating margin contraction.

What Loop Capital Expects

Meanwhile, Loop Capital’s Anthony Chukumba remains Hold-rated on Dollar General ahead of its earnings. Chukumba’s fourth quarter and F2017 EPS estimates of $1.39 and $4.73 are $0.02 below and $0.05 above consensus, respectively.

Chukumba, who expects the company to provide a “high-level” guidance for the full year, expects a 0.4 percent increase in the fourth quarter same-store sales and a 100-bps gross margin decline.

To become more positive on the stock, the analyst is looking for sequential improvement in same-store sales, food price deflation and better-than-expected profitability. Chukumba is waiting for a better entry point to become more constructive on the shares.

Lasser has a price target of $85, while Chukumba has a target price of $76.

Related:

Tech Earnings Expectations: Adobe Vs. Oracle

Stocks To Watch For March 13, 2017

Latest Ratings for DG

DateFirmActionFromTo
Oct 2020Wolfe ResearchInitiates Coverage OnOutperform
Aug 2020KeyBancMaintainsOverweight
Aug 2020B of A SecuritiesMaintainsBuy

View More Analyst Ratings for DG
View the Latest Analyst Ratings

 

Related Articles (DG)

View Comments and Join the Discussion!

Posted-In: Anthony Chukumba Loop CapitalAnalyst Color Price Target Previews Reiteration Analyst Ratings Trading Ideas

Latest Ratings

StockFirmActionPT
STZUBSMaintains238.0
ZMRBC CapitalMaintains550.0
ZMStifelMaintains450.0
ZMJP MorganMaintains450.0
DISUBSMaintains155.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com