DG Earnings Preview: What to look for when Dollar General reports Q3 results

Discount store chain Dollar General Corporation (NYSE: DG) will be reporting third-quarter results next week. Operating nearly 20,000 stores across the US, it is one of the largest supermarket chains in the country.

The company’s stock has been in a free fall since peaking a year earlier, and the value nearly halved during that period. However, DG is regaining strength ahead of the earnings but is trading well below its 12-month average. Lingering macro uncertainties and pressure on consumer spending remain a challenge for the company now. It makes sense to wait until a clearer picture emerges, before investing in Dollar General. Meanwhile, the stock looks pretty cheap from a long-term perspective.

Q3 Report on Tap

Dollar General is set to release the third-quarter report on December 7 at 6:00 a.m. ET. Market watchers are not very optimistic in their estimates – they see a 49% decline in earnings to $1.19 per share. The sales estimate is $9.65 billion, which is lower than the revenue generated in the year-ago quarter.

Ongoing investments in the business might weaken the bottom line in the near term but the growth initiatives would start bearing fruit as 2024 progresses. The company is working to right-size the inventory and provide value to customers by expanding promotional activities, with focus on the non-core segments that contracted in the most recent quarter. In-stock levels and on-time delivery rates from distribution centers have improved significantly from last year’s lows.

From Dollar General’s Q2 2023 earnings call:

“While the investment in labor hours was initially allocated across the store base, we also strategically deployed additional hours to a set of focused stores based on the areas of greatest need and opportunity and also through high-performing teams in each district that could assist in stores where they were needed the most. While early, we are pleased with the impact of these labor investments, including the positive impact on overall customer satisfaction and store standards.”

Q2 Outcome

In the second quarter, net income decreased to $468.8 million or $2.13 per share from $678 million or $2.98 per share in the comparable period of 2022. At $9.8 billion, net sales were up 4% year-over-year in Q2, while same-store sales edged down by 0.1%. Among the four operating segments, only the core Consumables division registered growth. Both earnings and the top line missed expectations. In Q2, a decline in customer traffic was partially offset by an increase in average tickets, mainly reflecting inflation.

Overall, the retailer’s financial performance, compared to consensus estimates, has not been very impressive in recent quarters, with earnings missing estimates for four consecutive quarters. The management lowered its 2023 guidance and forecasts that full-year sales would grow in the range of 1.3% to 3.3% year-over-year. The forecast for same-store sales is between a decline of 1% and a rise of 1%. Fiscal 2023 EPS is expected to be in the $7.10-8.30 range.

After gaining steadily since the beginning of the week, shares of Dollar General closed the last trading session slightly above $130.