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Dollar General’s Q3 Earnings: The Headwinds and Tailwinds

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Adjusted EPS beat expectations

Dollar General’s (DG) third quarter of fiscal 2018 EPS of $1.31 beat analysts’ estimate of $1.26. The company’s adjusted EPS exclude the impact of hurricanes and disaster-related expenses of $0.05 per share. Dollar General’s third-quarter adjusted EPS grew 33.7% year-over-year.

The strong growth in Dollar General’s adjusted EPS was driven by higher sales, a lower effective tax rate, and the impact of a lower share count as a result of share repurchases. Dollar General’s effective tax rate of 20% for the quarter was lower than its 35.8% tax rate in the third quarter of fiscal 2017.

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The company’s weighted average diluted shares outstanding fell 2.7% to 265.5 million at the end of the quarter due to share repurchases. In the first nine months of fiscal 2018, the company repurchased 6.5 million shares for $647.5 million. For fiscal 2018 as a whole, the company plans for share repurchases of at least $850 million

Rival Dollar Tree’s (DLTR) third-quarter adjusted EPS increased 16.8% to $1.18. The growth was driven by reduced interest expenses and lower taxes.

Lowered earnings outlook

Dollar General expects its fiscal 2018 reported EPS in the range of $5.85–$6.05, compared to its previous outlook of $5.95–$6.15. The lower guidance for the fiscal 2018 earnings reflects higher-than-expected hurricane- and other disaster-related expenses as well as higher transportation costs.

The company expects its fourth-quarter EPS to include hurricanes and other disaster-related expenses of $0.04.

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