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Dollar General (DG) Q3 Earnings Likely to Rise: Here's Why

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Dollar General Corporation (DG - Free Report) is scheduled to report third-quarter fiscal 2018 results on Dec 4, before the opening bell. Well the first question that is likely to cross an investor’s mind is whether this discount retailer will be able to pull off positive earnings surprise in the to-be-reported quarter. Notably, the company’s bottom line beat the Zacks Consensus Estimate by 2% in the last reported quarter.

How Are Estimates Faring?

After registering a bottom-line increase of 38% in the second quarter, Dollar General is likely to witness year-over-year growth of roughly 29% in the third quarter. The Zacks Consensus Estimate for the quarter under review is pegged at $1.26 compared with 98 cents reported in the year-ago quarter. We note that the Zacks Consensus Estimate has been stable in the last 30 days. The Zacks Consensus Estimate for revenues is pegged at $6,388 million, up 8% from the year-ago period.

Factors Likely to Influence the Performance

Dollar General’s commitment toward better price management, cost containment, private label offering, effective inventory management, merchandise and operational initiatives is likely to 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 its peers. Additionally, the company is expanding its cooler facilities to enhance the sale of perishable items and is rolling out DG digital coupon program and DG Go app.

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, any cut in SNAP benefit may also weigh on the performance.

Dollar General Corporation Price, Consensus and EPS Surprise


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

Number Crunching

Dollar General’s comps growth story is impressive. Rise in average transaction and customer traffic have been driving comps higher. In the first and second quarters of fiscal 2018, comps increased 2.1% and 3.7%, respectively. 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 2.5%.

Analyst polled by Zacks expects sales in the Consumables, Home Products and Apparel categories to be $5,009 million, $360 million and $302, up 8.3%, 4% and 2.4% year over year, respectively. Seasonal category sales are projected to be $705 million, up 10.7% 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 +1.62% 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:

Boot Barn Holdings (BOOT - Free Report) has an Earnings ESP of +6.85% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez (ZUMZ - Free Report) has an Earnings ESP of +0.69% and a Zacks Rank #3.

Kroger (KR - Free Report) has an Earnings ESP of +0.58% and a Zacks Rank #3.

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