Will Dollar General’s Profitability Improve in Q1?

Company’s guidance

Dollar General’s (DG) earnings exceeded analysts’ estimates in two out of four quarters in fiscal 2018. The company’s adjusted EPS of $1.84 lagged analysts’ expectation of $1.88 in the fourth quarter of fiscal 2018 (which ended on February 1). Its earnings increased 24.3% in the fourth quarter driven by higher sales and a lower share count due to share repurchases.

Dollar General’s fiscal 2018 adjusted EPS rose 33% to $5.97. Based on the guidance it issued in March, Dollar General expects its fiscal 2019 EPS to be in the range of $6.30–$6.50.

Will Dollar General’s Profitability Improve in Q1?

Dollar General’s investments in its strategic initiatives are expected to put pressure on its profitability in fiscal 2019. In March, Dollar General announced two new strategic initiatives, DG Fresh and Fast Track.

DG Fresh involves a multiphase shift to the self-distribution of perishable items, mainly fresh and frozen goods. This initiative aims to reduce product costs, help maintain higher in-stock levels of fresh and frozen goods to drive sales, and control the distribution of perishables based on customers’ needs.

The Fast Track initiative aims to improve labor productivity, help get products on the shelves faster, and allow for a self-checkout option. Initially, these initiatives will have up-front costs, but they’re expected to generate selling, general, and administrative expense savings in the long term.

Aside from investments in strategic initiatives and higher transportation costs, the company’s profitability in fiscal 2019 is also expected to be affected by the recently announced rise in tariffs.

Analysts’ forecast

Dollar General is scheduled to announce its results for the first quarter of fiscal 2019 on May 30. Analysts expect Dollar General’s adjusted EPS to rise 2.2% on a year-over-year basis to $1.39 in the first quarter of fiscal 2019.

Analysts expect Dollar General’s fiscal 2019 adjusted EPS to rise 7.5% to $6.42.