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Wall Street Expects Dollar General’s EPS to Contract in 1Q17

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Dollar General’s earnings to contract in 1Q17

Wall Street predicts that Dollar General’s first quarter earnings will contract 2.8% YoY (year-over-year) to $1 per share. For full fiscal 2017, earnings per share (or EPS) are likely to fall 0.7% to $4.45.

Dollar General’s management has predicted fiscal 2017 EPS to be in the range of $4.25 to $4.50, which includes an anticipated negative impact of $0.34 per share resulting from an expected rise in store manager compensation, the 53rd week in 2016, the impact of the early adoption of income tax changes for stock-based compensation, and charges related to retirement of debt.

Dollar General’s earnings

Dollar General’s EPS have grown at an average of 14% over the last five years. The company’s strong business model, which focuses on providing convenience with quality products at competitive prices, has helped it survive in an extremely competitive retail environment.

Competitor Dollar Tree (DLTR) has also produced average earnings growth of around 14% in the past five years, though fiscal 2016 growth of over 31% YoY was largely driven by the Family Dollar acquisition.

Fiscal 2016 bottom-line performance

As discussed in the last part of this series, DG’s top line was dampened by deflationary headwinds and lower SNAP benefits in fiscal 2016. The company’s 2016 gross margin also fell 11 basis points to 30.8%, driven by higher markdowns, especially in the second half of the year. The rise in markdowns was primarily a result of an increase in promotional activities. There were reports that Walmart (WMT) made some aggressive price cuts in stores located near Dollar General stores, which prompted the discount retailer to cut prices, thereby sacrificing its margins.

Investors looking for exposure to Dollar General through ETFs can consider the ProShares DJ Brookfield Global Infrastructure ETF (TOLZ), which invests 3.7% of its total holdings in the company.

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