Dollar General (DG) assessment ahead of first quarter earnings release

Dollar General Corporation DG is likely to see revenue growth when it reports first-quarter fiscal 2024 earnings before the opening bell on May 30. The Zacks Consensus Estimate projects the company to post revenue of $9.87 billion, up 5.6% in compared to the same quarter last year. This projected growth signifies the discounter’s continued efforts to appeal to budget-conscious consumers.

Despite expected revenue growth, Dollar General’s financial performance will likely face challenges. The Zacks Consensus Estimate for first-quarter earnings per share has held steady at $1.57 over the past 30 days. This figure indicates a significant decline of 32.9% compared to the results recorded in the same period last year.

Historically, Dollar General has had a mixed track record of meeting earnings expectations. Over the last four quarters, the company has surprised with average negative earnings of 1.3%. However, in the most recent quarter, Dollar General surpassed the Zacks Consensus Estimate by 5.2%.

Key factors to pay attention to

Dollar General’s market share growth in both consumer and non-consumer product categories underscores its competitive pricing and value offerings, which continue to resonate with low- and moderate-income demographics. The company’s strategic pricing and promotional efforts, combined with continued growth in private label sales, are expected to have a positive impact on results.

We continue to be encouraged by a number of initiatives such as DG Fresh, SKU rationalization, digitization and private fleet expansion, which are expected to result in improved same-store sales. Additionally, the positive impact of the company’s Back to Basics initiatives to improve store operations and customer service is expected to translate into same-store sales growth. We expect same-store sales to increase 1.7% in the quarter to be reported.

However, shrinkage and markdown issues are likely to put pressure on gross margin. In addition, inflationary pressures on operating costs, including higher wages and logistics costs, further reduce margins despite efforts to normalize other expenses. We expect gross margin to decline by 140 basis points in the first quarter. We also expect selling, general and administrative expenses, as a percentage of net sales, to reduce leverage by 110 basis points.

Dollar General Corporation Price, Consensus and EPS Surprise

Price-eps-surprise-consensus-chart Dollar General Corporation | Quote from Dollar General Corporation

What the Zacks Model Reveals

As investors prepare for Dollar General’s first-quarter results, the question is whether they will be better or not. Our proven model does not clearly predict an increase in Dollar General’s earnings this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, this is not the case here.

Dollar General has a Zacks Rank #3, but its Earnings ESP is -0.43%. With our Earnings ESP filter, you can discover the best stocks to buy or sell before they are reported.

Stocks with a favorable combination

Here are the companies worth considering because our model shows they have the right combination of elements to see earnings growth:

Bath & Body Works BBWI currently has an Earnings ESP of +5.23% and a Zacks Rank of 2. The Zacks Consensus Estimate for first-quarter fiscal 2024 earnings per share is projected at 33 cents, unchanged year-over-year. You can see complete list of today’s Zacks #1 ranked stocks here.

Bath & Body Works’ revenues are expected to decline year over year. The Zacks Consensus Estimate for quarterly revenue is expected to be $1.37 billion, representing a decline of 2.1% from the prior-year quarter’s figure. BBWI surprises with results for the last four quarters, averaging 23.2%.

Kohl Company KSS currently has an Earnings ESP of +85.06% and is sporting a Zacks Rank of #3. The Zacks Consensus Estimate is calling for first-quarter fiscal 2024 earnings per share of 4 cents, suggesting a sharp decline from the year-ago figure of 13 cents.

Kohl’s revenues are expected to decline year over year. The Zacks Consensus Estimate for quarterly revenue is expected to be $3.54 billion, representing a decline of 0.9% from the prior-year quarter’s figure. KSS surprises with results for the last four quarters, averaging 84.2%.

American Eagle Outfitters AEO currently has an Earnings ESP of +3.98% and a Zacks Rank #3. The company is likely to see earnings growth when it reports first-quarter fiscal 2024 numbers. The Zacks Consensus Estimate is that quarterly earnings per share of 28 cents suggests an increase of 64.7% from the year-ago quarter.

American Eagle Outfitters’ revenues are expected to increase year over year. The consensus revenue estimate is $1.15 billion, up 6.2% from the year-ago quarter. AEO has been surprising with results for the last four quarters, which amount to an average of 22.7%.

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