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Here's Why Dollar General's (DG) Q4 Earnings May Disappoint

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Dollar General (DG - Free Report) , one of the largest discount retailers, is slated to report fourth-quarter fiscal 2016 results on Mar 16. In the preceding quarter, Dollar General underperformed the Zacks Consensus Estimate by 3.3%. In the trailing four quarters, it beat the Zacks Consensus Estimate by an average 1.9%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds now is, whether Dollar General will be able to post positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is $1.41, reflecting a year-over-year increase of over 8%. We note that the Zacks Consensus Estimate has been stable  in the past 30 days. Analysts polled by Zacks expect revenues of $5,976 million, in comparison with $5,287 million reported in the prior-year quarter.

We note that the stock has underperformed the Zacks categorized Retail-Discount & Variety industry and the S&P 500 in the past one year. The company’s shares have declined 14%, while the Zacks categorized industry has lost 3.4% in the past one year. Meanwhile, the S&P 500 has gained 16.4% during the same time frame.

Factors at Play

Of late, Dollar General has been bearing the brunt of price deflation and the reduction in SNAP benefits that are weighing on comparable-store sales performance. In third-quarter fiscal 2016, Dollar General informed that price deflation and the reduction in SNAP benefits adversely impacted comparable-store sales by about 150 to 175 basis points. Moreover, the company’s lower-than-expected sales in the last 13 quarters remain a matter of concern.

On Mar 10, the company provided long-term growth model and stated that it expects earnings to fall in the range of 10% to 15%. However, during third-quarter fiscal 2016 conference call, the company stated that it expects earnings growth for fiscal 2016 to be at the low end of the earlier guidance of 10–15%.

However, we believe that the company’s commitment toward better price management, cost containment, private label offering, effective inventory management, merchandise and operational initiatives should drive sales and margin trends. Moreover, in order to increase traffic, Dollar General is focusing on both consumables and discretionary categories, and items.

Dollar General Corporation Price, Consensus and EPS Surprise

 

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

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Dollar General is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Dollar General has an Earnings ESP of -0.71% as the Most Accurate estimate is at $1.40, while the Zacks Consensus Estimate is pegged higher at $1.41. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Moreover, Dollar General carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

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

Conagra Brands, Inc. (CAG - Free Report) currently has an Earnings ESP of +4.44% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands, Inc. (STZ - Free Report) currently has an Earnings ESP of +2.21% and a Zacks Rank #3.

Fastenal Company (FAST - Free Report)   currently has an Earnings ESP of +2.17% and a Zacks Rank #3.

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