What to expect when Dollar General (DG) reports Q1 earnings this week

Shares of Dollar General Corporation (NYSE: DG) were down 1% on Tuesday. The stock has dropped 17% year-to-date and 11% over the past 12 months. The discount retailer is set to report its first quarter 2023 earnings results on Thursday, June 1, before market open. Here’s a look at what to expect from the earnings report:

Revenue

Analysts are projecting revenue of $9.46 billion for the first quarter of 2023. This reflects a growth of over 8% from the same period a year ago. In the fourth quarter of 2022, net sales increased 18% year-over-year to $10.2 billion.

Earnings

The consensus estimate is for EPS of $2.38 in Q1 2023, which is lower than the $2.41 reported in Q1 2022. In Q4 2022, EPS increased 15% YoY to $2.96.

Points to note

Last quarter, Dollar General’s top line benefited from growth in same-store sales, which in turn was driven by an increase in average basket size. Same-store sales grew 5.7%, helped by growth in the consumables category. The company benefited from customers turning to its stores during the inflationary environment seeking more value.

Dollar General is seeing customers opt for more affordable options, which has helped drive growth for its private brands. Private brands represent over 20% of the company’s total sales and in Q4, it saw the highest growth in private brands within consumables. This trend is likely to have continued through the first quarter as well.

The company also continues to invest in its stores which it believes will help capture additional market share. It plans to invest around $100 million in its stores in 2023.

However, Dollar General’s margins continue to be under pressure. In Q4, gross profit margin dropped 35 basis points due mainly to consumables forming a larger part of sales as well as higher inventory shrink, damages and markdowns.

The company continues to expect challenges in the first half of 2023 from sales mix pressure, higher interest expense, and increased shrink and damages. Some of these headwinds are expected to be more pronounced in the first quarter. These include an estimated YoY increase of around $40 million in interest expense along with inventory damages and impacts from storage capacity constraints and labor investments.

Competition

Last week, Dollar General’s peer Dollar Tree (NASDAQ: DLTR) reported its first quarter 2023 earnings results. While sales rose 6% YoY to $7.3 billion, beating expectations, adjusted EPS fell 38% to $1.47, missing estimates.