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Can Dollar General (DG) Sustain Earnings Growth in Q4?

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Dollar General Corporation (DG - Free Report) is scheduled to report fourth-quarter fiscal 2018 results on Mar 14. 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. We note that the company’s bottom line came in line with the Zacks Consensus Estimate in the last reported quarter.

How Are Estimates Faring?

After registering a bottom-line increase of 35.5% in the third quarter, Dollar General is likely to witness year-over-year growth of roughly 27% in the fourth quarter. The Zacks Consensus Estimate for the quarter under review is pegged at $1.88 compared with $1.48 reported in the year-ago quarter. We note that the Zacks Consensus Estimate has increased by a penny in the past 30 days. The Zacks Consensus Estimate for revenues is pegged at $6,603 million, up about 7.7% 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. 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, Dollar General is expanding its cooler facilities to enhance the sale of perishable items, and 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 affect margins. Moreover, increasing threat from online retailers on parameters such as same-day delivery and pricing might hurt the company's market share.

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, second and third quarters of fiscal 2018, comps increased 2.1%, 3.7% and 2.8%, 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 $5,032 million, $409 million and $308, up 8.7%, 3.9% and 7.6% year over year, respectively. Seasonal category sales are projected to be $847 million, up 3.3% year over year.

We note that Dollar General had trimmed fiscal 2018 view in the last reported quarter citing "greater-than-anticipated expenses" related to hurricanes and higher transportation costs. Management projected net sales to increase about 9% and earnings in the band of $5.85-$6.05 per share.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Dollar General is likely to beat estimates this quarter. 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 a Zacks Rank #3 but an Earnings ESP of -0.09%, which makes surprise prediction difficult.

Stocks With Favorable Combination

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:

Darden Restaurants (DRI - Free Report) has an Earnings ESP of +1.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. (PVH - Free Report) has an Earnings ESP of +1.14% and a Zacks Rank #2.

G-III Apparel (GIII - Free Report) has an Earnings ESP of +0.92% and a Zacks Rank #3.

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