Dollar General Corporation DG, one of the largest discount retailers in the U.S., is slated to report third-quarter fiscal 2015 results on Dec 3, before the opening bell.
In the preceding quarter, the company had posted a positive earnings surprise of 1.1%. Notably, the company has surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average earnings surprise of 0.6%. Let’s see how things are shaping up for this announcement.
Factors at Play This Quarter
We believe that the company’s commitment toward better price management, cost containment, private label offering, effective inventory management, merchandise and operational initiatives speaks for itself.
Although management had projected sales growth of 8% to 9% for fiscal 2015, we cannot ignore the fact that the top line has fallen short of the Zacks Consensus Estimate for eight straight quarters. Moreover, margins may come under pressure due to higher sales of lower margin carrying consumables. In order to increase traffic, Dollar General is focusing on both consumables and discretionary categories. These items typically range between $1 and $5.
Earnings Whispers
Our proven model does not conclusively show that Dollar General is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: Earnings ESP for Dollar General is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 87 cents.
Zacks Rank: Dollar General carries a Zacks Rank #3 (Hold). Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
CarMax Inc. KMX has an Earnings ESP of +1.45% and a Zacks Rank #2 (Buy).
Casey's General Stores Inc. CASY has an Earnings ESP of +2.08% and a Zacks Rank #2 (Buy).
Restoration Hardware Holdings Inc. RH has an Earnings ESP of +1.59% and a Zacks Rank #3 (Hold).
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