What's In Store For Dollar General (DG) This Earnings Season?

Dollar General Corporation (NYSE:DG) is scheduled to report first-quarter fiscal 2019 results on May 30. 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. In the last reported quarter, the company has a negative earnings surprise of 2.1%.

How Are Estimates Faring?

After registering a bottom-line increase of 24.3% in the fourth quarter of fiscal 2018, Dollar General is likely to witness year-over-year growth of roughly 2.2% in the first quarter of fiscal 2019. The Zacks Consensus Estimate for the quarter under review is pegged at $1.39 compared with $1.36 reported in the year-ago quarter. We note that the Zacks Consensus Estimate has remained unchanged in the past 30 days. The Zacks Consensus Estimate for revenues is pegged at $6,566 million, up about 7.4% 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 cooler facilities to enhance the sale of perishable items, and rolling out DG digital coupon program and DG Go app.

Dollar General’s comps growth story is impressive. Rise in average transaction and customer traffic have been driving comps higher. 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 2.9%.

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 had earlier guided gross margin to remain under pressure during the first quarter of fiscal 2019.

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 a Zacks Rank #2 and an Earnings ESP of +2.13%. This makes us reasonably confident that it is likely to outperform estimates.

3 Stocks With Favorable Combination

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

Abercrombie & Fitch (NYSE:ANF) has an Earnings ESP of +0.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel (NASDAQ:GIII) has an Earnings ESP of +5.35% and a Zacks Rank #3.

Costco (NASDAQ:COST) has an Earnings ESP of +2.10% and a Zacks Rank #3.

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