Analysts at the Bank of America (BoA) believe Dollar General Corp. (NYSE:DG) will report an earnings miss before the market opens on Thursday, August 31, amid moderating inflation, increasing competition, labor investments and other factors.
They expect Dollar General to report second quarter earnings per share (EPS) of $2.34 compared to the consensus analyst estimate per Zacks Consensus Estimate of $2.49 on revenue of $9.94 billion.
This is based on a lower same-store sales estimate than the consensus (0.5% compared to 0.7%) and a higher expense ratio.
“DG expected its most significant year-over-year EPS declines for the year in the fiscal second quarter given continued strain on the consumer, a difficult gross margin comparison versus last year, and a pull forward of $40 million of labor investments,” they wrote in a note to clients.
Regarding Dollar General's long-term sales outlook, the BoA analysts wrote that they see a number of risks to its top line including continued discretionary spending and moderating inflation in frequency categories.
They also noted lower traffic versus its food and discount peers, with traffic possibly tracking as low as negative high single-digits, and elevated competitive pressures from Family Dollar and Walmart as Family Dollar improves its price positioning and store standards and as Walmart offers compelling opening price point and targets lower-income customers digitally.
“Profitability could face pressure from incremental mix and shrink (similar to Dollar Tree), potential markdowns, and labor investments,” they wrote.
The BoA analysts maintained their ‘Underperform’ rating on the stock with a US$155 price objective.
Dollar General shares traded up about 1% at US$156.50 on Wednesday afternoon.
Contact the author at emily.jarvie@proactiveinvestors.com
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