Dollar General to Release Q2 Earnings: Key Factors to Note

Dollar General Corporation DG is likely to register an increase in the top line when it reports second-quarter fiscal 2024 results on Aug 29 before the opening bell. The Zacks Consensus Estimate suggests that the company will achieve revenues of $10.39 billion, marking a 6% increase compared to the same quarter last year. This anticipated growth implies the discount retailer's continued efforts to attract budget-conscious consumers.

Despite the expected rise in revenues, Dollar General's bottom line is likely to face challenges. The Zacks Consensus Estimate for earnings per share for the second quarter has slid by a penny to $1.80 over the past seven days. This figure indicates a decline of 15.5% from earnings reported in the year-ago period.

In the trailing four quarters, the company delivered an average earnings surprise of 0.4%. In the last reported quarter, Dollar General's bottom line exceeded the Zacks Consensus Estimate by 5.1%.

Factors to Note Ahead of DG's Q2 Earnings

Dollar General's strategic focus on expanding its market share, particularly in the consumable product category, highlights its competitive pricing and strong value proposition, which resonate well with the low-to-middle-income demographic. The company's proactive pricing strategies and promotional efforts, alongside the ongoing expansion of private brands, are expected to have a positive impact on its revenue growth.

We are optimistic about several key initiatives, including DG Fresh, SKU rationalization, digitization, and the expansion of the private fleet, all of which are likely to have driven improvements in same-store sales. Furthermore, the "Back to Basics" initiative, aimed at enhancing store operations and customer service, is anticipated to contribute to higher same-store sales. We forecast 2.2% growth in same-store sales for the to-be-reported quarter.

However, Dollar General faces challenges such as higher shrink and markdown pressures, rising SG&A expenses, and potential shifts in consumer spending patterns due to economic conditions. These factors highlight the dynamic environment in which the company operates. The company's efforts to reduce shrink, including changes in self-checkout strategies, are expected to yield results but in the latter half of fiscal 2024. Consequently, we expect the gross margin to decline 90 basis points in the second quarter.

Furthermore, inflationary pressures on operating costs, including higher wages and logistics expenses, are compressing margins despite efforts to normalize other expenses. We expect SG&A expenses, as a percentage of net sales, to deleverage 50 basis points.

What the Zacks Model Says About DG

As investors prepare for Dollar General's second-quarter earnings, the question looms regarding earnings beat or miss. Our proven model does not conclusively predict an earnings beat for Dollar General this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the odds of an earnings beat. However, that's not the case here.

Dollar General has a Zacks Rank #4 (Sell) and an Earnings ESP of -2.68%.

Stocks With the Favorable Combination

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

Burlington Stores BURL has an Earnings ESP of +2.68% and a Zacks Rank of 3 at present. The company is expected to register top and bottom-line growth when it reports second-quarter fiscal 2024 numbers. The Zacks Consensus Estimate for BURL's quarterly earnings has increased by a penny in the past seven days to 95 cents. The consensus mark for earnings indicates a 58.3% surge from the figure reported in the year-ago quarter.

The consensus estimate for quarterly revenues is pegged at $2.42 billion, which implies a rise of 11.2% from the year-ago quarter. BURL delivered a trailing four-quarter average earnings surprise of 21.7%.

Costco Wholesale Corporation COST currently has an Earnings ESP of +0.89% and a Zacks Rank of 3. The company is expected to register top and bottom-line growth when it reports fourth-quarter fiscal 2024 numbers. The Zacks Consensus Estimate for COST's quarterly revenues is pegged at $80.1 billion, which implies growth of 1.4% from the year-ago quarter's reported figure.

The consensus estimate for Costco's bottom line has been stable at $5.02 per share over the past 30 days. The consensus mark for earnings suggests growth of 3.3% from the year-ago quarter's reported figure. COST delivered an earnings beat of 2.3%, on average, in the trailing four quarters.

Chewy CHWY currently has an Earnings ESP of +4.55% and a Zacks Rank of 3. The company is expected to register top and bottom-line growth when it reports second-quarter fiscal 2024 numbers. The Zacks Consensus Estimate for CHWY's quarterly revenues is pegged at $2.86 billion, which suggests growth of 3% from the year-ago quarter's reported figure.

The consensus estimate for Chewy's bottom line has been stable at 22 cents a share over the past 30 days. The consensus mark for earnings suggests growth of 46.7% from the year-ago quarter's reported figure. CHWY delivered an earnings beat of 57.7%, on average, in the trailing four quarters.

To read this article on Zacks.com click here.