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Can Dollar General’s Fiscal 2Q16 Earnings Deliver According to Expectations?

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Earnings performance

Dollar General’s (DG) adjusted earnings have beaten the consensus analyst estimate in five of the past nine quarters. The discount retailer recorded adjusted EPS (earnings per share) growth of 22.4% to $1.03 in fiscal 1Q16 (ended April 29, 2016).

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Fiscal 1Q16 earnings summary

Dollar General’s fiscal 1Q16 adjusted EPS beat the consensus analyst estimate of $0.95. Its 22.4% growth in that quarter’s adjusted EPS was driven by higher sales.

Dollar General’s earnings in fiscal 1Q16 were also positively impacted by share buybacks. The company’s diluted weighted average share count fell by 5% in fiscal 1Q16. Dollar General repurchased about 2.7 million shares for $231 million during the quarter.

The company’s fiscal 2Q16 adjusted EPS excludes the impact of a non-recurring income tax benefit of $9 million, or $0.03 per diluted share.

Peer comparison

Dollar Tree’s (DLTR) fiscal 1Q16 sales jumped by 25.4% to $0.89 due to high sales performance. By comparison, Wal-Mart Stores’ (WMT) fiscal 2Q17 adjusted EPS dipped by 0.9% to $1.07 due to the negative impact of currency. The company updated its fiscal 2017 adjusted EPS guidance to $4.15–$4.35, which is a decline of 5%–10% from its previous range of $4.00–$4.30.

Notably, Costco Wholesale’s (COST) fiscal 3Q16 adjusted EPS increased by 6% to $1.24 due to high sales.

Investors can gain exposure to Dollar General’s stock through the First Trust Consumer Discretionary AlphaDEX Fund (FXD). Dollar General constitutes 1.3%, of FXD.

Earnings outlook

Based on the guidance issued in March 2016, Dollar General expects its diluted EPS to grow between 10% and 15% in fiscal 2016. Analysts expect the company’s 2Q16 adjusted EPS to grow by 14.7% to $1.09 on a year-over-year basis.

Now let’s discuss the company’s fiscal 2Q16 margin expectations.

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