Dollar General Earnings Preview: Strong Revenue Growth Expected (DG)

Discount retailer Dollar General DG, shares of which reached a new 52-week high last week, is scheduled to report its second-quarter fiscal 2013 results Wednesday, September 4, before the markets open. Investors will be watching to see whether, now that the economy has started to revive, consumers remain wary of spending too much and therefore Dollar General will keep up its growth. Also, will merchandising initiatives such as adding private-label brands and remodeling stores help boost softening margins? Expectations Analysts on average predict that Dollar General will report its revenue for the second quarter rose more than 10 percent year-over-year to $4.36 billion. The forecast also calls for per-share earnings to come to $0.74, which would be up from $0.69 per share in the same quarter of last year. That consensus earnings estimate is unchanged in the past 60 days, suggesting that analysts are confident in their assessment. Also note that Dollar General earnings have not fallen short of consensus EPS estimates for the past six quarters. EPS were in line with expectations in the first quarter. Back in the first quarter, Dollar General said improving sales helped boosted its profit. But margins were soft, and the company lowered its forecast for the full year, which did not please investors. The share price pulled back about nine percent following the first-quarter report and did not fully recover for more than a month. Looking ahead to the current quarter, the analysts' consensus forecast calls for sequential and year-over-year growth of revenue and for EPS to be about 11 percent higher than a year ago. So far, full-year EPS are expected to more than nine percent higher, relative to the previous year, on a rise of about 10 percent in revenues. The Company Dollar General is a discount retailer operating about 10,600 variety stores in 40 states. Its offerings include consumable items, such as packaged foods, household products and personal care products, as well as seasonal items and casual apparel. The company came public in 2009 and now has a market capitalization near $17.5 billion. It was founded in 1939 and is based in Goodlettsville, Tennessee. Richard W. Dreiling has been the chairman of the board and chief executive of Dollar General since 2008. Competitors include dollar store operators Dollar Tree DLTR and Family Dollar FDO, as well as the likes of Walgreen WAG and Walmart WMT. Dollar Tree fell short and Family Dollar exceeded analysts' EPS expectations in their reports the most recent quarter. Walmart's EPS were in line with consensus estimates, Analysts are looking for strong year-over-year EPS growth in the current quarter. During the three months that ended in July, Dollar General awarded more than $6 million to schools and literacy programs and it announced $200 million share buyback plan. Performance The company has a long-term EPS growth forecast that is near 15 percent, as well as a price-to-earnings (P/E) ratio that is less than the industry average. Its operating margin is greater than the industry average, and the return on equity is more than 19 percent. The number of Dollar General shares sold short, as of the August 15 settlement date, represents less than two percent of the float. That was the lowest level of short interest so far this year, after falling for three straight periods. The days to cover remains a little more than two. Of the 27 analysts surveyed by Thomson/First Call who follow the stock, 17 recommend buying shares. They believe the stock has some room to run as their mean price target represents about nine percent potential upside. That target price would be a new multiyear high. Shares are up more than 25 percent since the beginning of the year, despite pulling back a bit in the past week. The share price is above the 200-day and 50-day moving averages. Over the past six months, the stock has underperformed Dollar Tree, Family Dollar and Walgreen, but it has outperformed Walmart and the S&P 500. At the time of this writing, the author had no position in the mentioned equities.