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Why Wall Street Projects 36% Growth in Dollar General’s Earnings

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How will Dollar General’s first-quarter earnings look?

Dollar General (DG), the United States’ leading discount store retailer, is slated to report its first-quarter results on May 31. Wall Street has projected stellar 36% YoY (year-over-year) growth in the company’s earnings per share to $1.40 during the quarter. Growth is likely to be driven by a strong 10% increase in the company’s top line and a lower tax rate.

DG outdid Wall Street’s bottom-line expectations in all four quarters of 2017. Adjusted diluted EPS increased 2% YoY to $4.57 during the year. Growth was driven by a 6.8% YoY rise in sales and a lower tax rate, which was partially offset by a lower gross margin and higher SG&A expenses. DG’s effective income tax rate stood at 19.3% for fiscal 2017, compared to 36.3% for fiscal 2016, owing to the implementation of the Tax Cuts and Jobs Act.

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Expectations from 2018

Management has guided for a 9% YoY jump in fiscal 2018 sales, driven by ~2% growth in comps and 900 new store openings. The company plans to invest in expanding its digital footprint and non-consumable assortment during the year. However, despite these planned investments and other expected cost increases, operating margin is forecasted to remain flat for the year.

Diluted earnings per share are projected to range between $5.95 and $6.15, assuming an effective tax rate between 22% and 23%. At the mid-point, this range reflects EPS growth of 32% for the year.

Investors looking for exposure to Dollar General through ETFs can consider the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD), which invests 1.4% of its total holdings in the company.

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