U.s. Dollar Stores Offer Lackluster Forecast as Shipping Costs Rise

Shares of Dollar Tree Inc dropped 6% before the bell, as it forecast freight costs to be as much as 80 cents per share higher for the rest of the year, compared to 2020. Dollar General Corp’s shares were down 1%.

Increasing freight cost pressures across industries have dented profit outlooks, including that of retailers Abercrombie & Fitch Co and Kohl’s Corp as well as many packaged food companies, at a time when companies are seeing a rebound in sales after a pandemic-led slump.

Retailers are also facing higher labor costs as the job market tightens, putting more pressure on the bottomline.

Dollar Tree, which also operates Family Dollar stores, on Thursday forecast its earnings per share to range between $5.80 and $6.05 for fiscal 2021. Analysts on average expect a profit of $6.24 per share, according to IBES data from Refinitiv.

The Chesapeake, Virginia-based company said its projection of an increase in freight costs for the remaining quarters of the year was significantly higher from a quarter ago, but the increase due to shipping disruptions would not be permanent.

Dollar General, which also called out higher costs, raised its forecast fiscal 2021 profit to be between $9.50 and $10.20 per share, with the average market estimate of $9.58 near the low end of the range.

Still, both the chains beat estimates for first-quarter net sales as more people used their stimulus checks to splurge on apparel, seasonal goods and household products.

(Reporting by Praveen Paramasivam in Bengaluru; Editing by Anil D’Silva and Maju Samuel)

Earnings to Watch Next Week: AutoZone, Nvidia, Medtronic and Costco Wholesale in Focus

Earnings Calendar For The Week Of May 24

Monday (May 24)

Ticker Company EPS Forecast
NDSN Nordson $1.64

Tuesday (May 25)

IN THE SPOTLIGHT: AUTOZONE

The Memphis, Tennessee-based auto parts retailer is expected to report its fiscal third-quarter earnings of $20.02 per share, which represents year-over-year growth of about 39% from $14.39 per share seen in the same period a year ago.

The United States’ leading retailer and a leading distributor of automotive replacement parts and accessories would post revenue growth of 17% to $3.26 billion. In the last four quarters, on average, the company has beaten earnings estimates over 12%.

AutoZone (AZO) could comp ~30% in F’Q3 with a boost from the stimulus, and a flat comp is possible in F’Q4 on a tougher compare. However, these beats may not fully flow through to F’22. Risk/reward looks positive but less favorable after the stock’s recent run. Stay ‘Overweight’ with a $1,640 price target,” noted Simeon Gutman, equity analyst at Morgan Stanley.

AZO is our top pick in DIY Auto. We see it as a high-quality retailer with the ability to compound earnings/FCF growth over time. While not immune to a tougher macro backdrop (fewer miles driven), we believe AZO is best positioned through any recession given its leading exposure to the more defensive DIY segment (~80% of sales). In addition, its DIFM growth was accelerating pre-COVID and we think it can gain more share in that segment going forward. In our view, ongoing share gains coupled with solid expense management should allow AZO to overcome headwinds from less driving in the near- to medium-term.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 25

Ticker Company EPS Forecast
SHB Shaftesbury £0.64
VSAT Viasat $0.22
CBRL Cracker Barrel Old Country Store $0.27
AZO AutoZone $20.02
HTHT Huazhu Group Limited -$1.61
DY Dycom Industries $0.06
URBN Urban Outfitters $0.17
HEI Heico $0.48
TOL Toll Brothers $0.79
A Agilent $0.83
INTU Intuit $6.52
JWN Nordstrom -$0.58
VNET 21Vianet -$0.43
BYG Big Yellow £22.76

Wednesday (May 26)

IN THE SPOTLIGHT: NVIDIA

The Santa Clara, California- based multinational technology company is expected to report its first-quarter earnings of $3.28 per share, which represents year-over-year growth of over 80% from $1.80 per share seen in the same period a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 10%. The company, which designs graphics processing units for the gaming and professional markets, as well as system on a chip unit for the mobile computing and automotive market would post year-over-year revenue growth of over 70% to $5.4 billion.

“For the first quarter of fiscal 2022, NVIDIA anticipates revenues of $5.3 billion (+/-2%). Non-GAAP gross margin is projected at 66% (+/-50 bps). Non-GAAP operating expenses are estimated to be $1.20 billion. Capital expenditures are expected to be approximately $300-$325 million,” noted equity analysts at ZACKS Research.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 26

Ticker Company EPS Forecast
VAR Varian Medical Systems $1.10
NVDA Nvidia $3.28
BMO Bank Of Montreal USA $2.17
CPRI Capri Holdings Ltd $0.01
ANF Abercrombie & Fitch -$0.41
DKS Dick’s Sporting Goods $1.16
UHAL Amerco $5.07
WDAY Workday $0.73
SNOW Intrawest Resorts -$0.16
AEO American Eagle Outfitters $0.47
DXC DXC Technology Co $0.70
LI Li Auto -$0.14
WSM Williams Sonoma $1.72

Thursday (May 27)

IN THE SPOTLIGHT: MEDTRONIC, COSTCO WHOLESALE

MEDTRONIC: An American Irish-domiciled medical device company is expected to report its fiscal fourth-quarter earnings of $1.42 per share, which represents year-over-year growth of over 140% from $0.58 per share seen in the same period a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 44%. The Fridley, Minnesota-based medical company would post year-over-year revenue growth of over 35% to $8.14 billion.

“Peer results and commentary suggest ~33-34% organic growth (the upper end of mgmt guidance) is achievable, and we expect FY22 guidance in-line with Cns with room for raises. We continue to see valuation as attractive and Risk/Reward positive into FY22 recovery,” noted Cecilia Furlong, equity analyst at Morgan Stanley.

Medtronic is well aligned with our 2021 pro-recovery thesis, and we see sustainable 5%+ organic growth driven by the company’s ~5% WAMGR and supported by pipeline product launches & tuck-in M&A contributions. CEO Geoff Martha has committed to initiatives to smooth bulk purchasing and deliver more consistent results, and redeploy $450mn annual OpEx savings toward innovation & product reinvestment.”

COSTCO WHOLESALE: The world’s fifth-largest retailer is expected to report its fiscal third-quarter earnings of $2.31 per share, which represents year-over-year growth of over 20% from $1.89 per share seen in the same period a year ago.

The Fridley, Minnesota-based medical company would post revenue of $43.6 billion.

COST’s results have consistently been among the best in Retail. Over the past decade, COST has delivered ~6% comps and ~10% EBIT growth on average. It is rare to find a business with COST’s solid comp/membership growth, while relative e-commerce insulation differentiates its value proposition from other retailers,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“We are Overweight even as the stock trades at an elevated valuation given COST’s scarcity value, safety, and scale. In the near-term, we expect incremental sales uplifts from COVID-19 disruption, and earnings power looks stronger despite COVID-19 expenses.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 27

Ticker Company EPS Forecast
EGFEY Eurobank Ergasias S.A. ADR $0.01
SAFM Sanderson Farms $2.44
DG Dollar General $2.13
ADSK Autodesk $0.94
CM Canadian Imperial Bank Of Commerce USA $2.49
DLTR Dollar Tree $1.39
TD Toronto-Dominion Bank $1.39
RY Royal Bank Of Canada $2.06
MDT Medtronic $1.42
BBY Best Buy $1.34
BURL Burlington Stores $0.80
ULTA Ulta Salon Cosmetics Fragrance $1.93
CRM Salesforce.com $0.88
VMW VMware $1.58
HPQ HP $0.88
BOX BOX $0.17
PLAN Progressive Planet -$0.09
VEEV Veeva Systems $0.78
GPS Gap -$0.06
COST Costco Wholesale $2.31
ASND Ascendant Resources -$1.83
YY YY -$0.06

Friday (May 28)

Ticker Company EPS Forecast
BIG Big Lots $1.67
For a look at all of today’s economic events, check out our economic calendar.

Why Shares Of Dollar General Are Down By 5% Today?

Dollar General Video 18.03.21.

Dollar General Stock Moves Lower As Company’s Guidance Misses Analyst Estimates

Shares of Dollar General found themselves under strong pressure after the company released its quarterly report.

Dollar General reported revenue of $8.41 billion and GAAP earnings of $2.62 per share, beating analyst estimates on revenue and missing them on earnings.

The company decided to raise its quarterly dividend by 16.7% to $0.42 per share. At current price levels, the stock yields about 0.94% which is not sufficient enough to attract yield-oriented investors. At the same time, the material increase of the dividend will be certainly welcomed by Dollar General’s long-term shareholders.

In addition to raising the dividend, the company announced that it increased its share repurchase program by $2 billion.

Higher dividend and the increase of the share buyback program did not help the stock as the market focused on the company’s guidance. Dollar General expects that its net sales may decline by up to 2% and projects that its full-year earnings will be in the range of $8.80 – $9.50 per share compared to analyst consensus of $10.08 per share. The disappointing guidance was the main bearish catalyst for the stock today.

What’s Next For Dollar General?

The previous year was very successful for the company which stated that consumer behavior driven by COVID-19 provided significant support to its business. This year, the economy continues to rebound as more people get vaccinated, which is a bearish development for discount stores like Dollar General.

At the same time, the new stimulus payments may provide additional support to retailers, but it remains to be seen whether this support will be strong enough to boost the company’s stock.

Assuming Dollar General manages to deliver earnings at the midpoint of its guidance for the year, its stock is trading at less that 20 forward P/E which looks like a reasonable valuation for the current market environment but is not cheap compared to the company’s peer group. In this light, the stock will likely need some additional upside catalysts to get back to the previous upside mode.

For a look at all of today’s economic events, check out our economic calendar.

Dollar General Shares Slump Over 6% as Earnings, Outlook Disappoints

Dollar General’s shares slumped over 6% on Thursday after the discount retailer reported lower-than-expected earnings in the fourth quarter and gave a downbeat outlook for the fiscal year 2021 as vaccine rollouts and opening up of the economy would hurt sales.

The company, which offers merchandise including consumables, seasonal, home products and apparel at everyday low prices, said its net sales increased 17.6% to $8.4 billion in the fourth quarter of 2020 compared to $7.2 billion in the fourth quarter of 2019, also beating the Wall Street expectations of $8 billion.

Although diluted EPS increased 24.8% to $2.62 for the fourth quarter of 2020 compared to diluted EPS of $2.10 in the fourth quarter of 2019, it missed the market consensus estimates of $2.72 per share.

For the fiscal year 2021, which ends on January 28, 2022, Dollar General forecasts net sales in the range of a 2% decline to flat and same-store sales decline of 4% to 6%, which reflects the growth of approximately 10% to 12% on a two-year stack basis.

Diluted EPS is expected to be in the range of $8.80 to $9.50, which reflects a compound annual growth rate between 15% and 20% (or between 14% and 19% on an adjusted basis) over a two-year period. That is lower than the analysts’ expectations of $10.08 per share.

Following this release, Dollar General shares, which surged about 35% in 2020, slumped over 6% on Thursday.

Analyst Comments

DG’s Q4 results and ’21 guide were a little light. But, like other Retail COVID-19 beneficiaries, DG was already in the penalty box. Comps may be bottoming, which combined with healthy underlying trends and a now cheaper multiple, makes for a good 2H setup,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“That said, mega-cap COVID-19 beneficiaries probably remain rangebound in the early part of 2021. The reality is there probably wasn’t much DG could have said to change the trajectory of the stock; we have seen this story several times in Q4 EPS from other COVID-19 beneficiaries including COST, WMT, TGT, HD and LOW. But with DG shares down 11% year to date (vs. S&P 500 +6%) and a possibly conservative ’21 guide, investors with long-term time horizons could use this opportunity to slowly build to positions (assuming the constructs of gross margin expansion remain in place).”

Dollar General Stock Price Forecast

Eight analysts who offered stock ratings for Dollar General in the last three months forecast the average price in 12 months of $241.88 with a high forecast of $260.00 and a low forecast of $215.00.

The average price target represents a 36.24% increase from the last price of $177.54. Of those eight analysts, seven rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $245 with a high of $315 under a bull scenario and $155 under the worst-case scenario. The firm gave an “Overweight” rating on the discount retailer’s stock.

Several other analysts have also updated their stock outlook. Dollar General had its target price reduced by Oppenheimer to $225 from $240. They currently have an outperform rating on the stock. Loop Capital upgraded to a buy from hold and set a $260 price target. Deutsche Bank raised to a buy rating from hold and lifted their price objective to $241 from $214.

DG is a best-in-class operator offering a rare combination of 1) consistent, high-quality top-and bottom-line results; 2) visible store growth; and 3) a shareholder-friendly capital allocation policy. Recent high-quality results add more confidence to the 10% L-T EPS growth algorithm, ramping top-line initiatives appear sustainable, and we see underappreciated margin upside from rollout of Fresh self-distribution,” Morgan Stanley’s Gutman added.

“We think DG’s multiple, while elevated, is justified given consistent execution and potential for significant earnings upside especially amidst COVID-19 disruption and a potential recession.”

Check out FX Empire’s earnings calendar

Dollar General Warns of Dropping Sales as Pandemic Boost Runs Out of Steam

The company’s shares, which have gained nearly 22% over the last year, fell over 5% in early trading on Thursday.

The promise of a return to relative normalcy later this year as more Americans get inoculated against COVID-19 has made the boom in pantry stocking, which made Dollar General one of the bigger retail beneficiaries of the health crisis, unlikely to be repeated.

Analysts expect sales at discount stores to drop in the later half of the year after new stimulus money, on the way to mostly lower- and middle-income households, has dried up.

Dollar General said it expects full-year same-store sales to fall 4% to 6%, compared with estimates of a 1.2% decline, according to IBES data from Refinitiv. The company forecast overall net sales to be flat to 2% lower, compared with estimates of a 1.4% increase.

“Significant uncertainty continues to exist regarding the severity and duration of the COVID-19 pandemic, including its impact on the U.S. economy, consumer behavior and the company’s business,” Dollar General said in a statement.

Telsey Advisor Group analyst Joseph Feldman said while the company’s forecast was softer than expected, he was confident it could gain market share, especially in rural markets where the majority of its stores are located.

The company forecast annual earnings per share of $8.80 to $9.50, below estimates of $10.08.

Same-store sales in the fourth quarter ended Jan. 29 rose 12.7%, beating analysts’ estimate of a 10.7% increase, helped by the $600 stimulus checks that boosted spending.

Net income rose about 20% to $642.7 million, or $2.62 per share, but missed estimates of $2.72 per share.

(Reporting by Uday Sampath in Bengaluru; Editing by Krishna Chandra Eluri)

Earnings to Watch Next Week: Lennar, Five Below, Dollar General, FedEx and Nike in Focus

Earnings Calendar For The Week Of March 15

Monday (March 15)

Ticker Company EPS Forecast
YALA Yalla $0.12
FCEL Fuelcell Energy -$0.04
YY YY $7.54
HQY Healthequity Inc $0.40
CBPO China Biologic $0.69
NGHC National General $0.73
MNTA Momenta Pharmaceuticals -$0.50
KHOLY Koc Holdings AS $0.55
PKX Posco $1.52
PE Parsley Energy $0.25
WPX WPX Energy $0.04
BEAT BioTelemetry $0.48
JOBS 51job $6.40
BKRKY Bank Rakyat $0.13

Tuesday (March 16)

IN THE SPOTLIGHT: LENNAR

Lennar Corp, a home construction and real estate company, is expected to report a profit of $1.71 per share in the first quarter, which represents year-over-year growth of about 35% from $1.27 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 35%.

Miami, Florida-based company would post year-over-year revenue growth of about 14% to around $5.1 billion.

“Shares of Lennar have outperformed the industry in the past six months. The company is benefiting from effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in higher operating leverage. Higher demand for new homes backed by declining mortgage rates and low inventory levels bodes well. Focus on the lighter land strategy to boost free cash flow will bolster the balance sheet and thereby drive returns,” said equity analysts at ZACKS Research.

“Moreover, solid first quarter 2021 guidance indicates margin expansion and deliveries to increase significantly. Also, earnings estimates for 2021 have increased over the past 30 days. However, higher land, labour and material costs are concerning. This may exert pressure on the company’s upcoming quarters as well.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 16

Ticker Company EPS Forecast
UTG Unite Group £45.10
GRG Greggs -£10.80
FERGY Ferguson ADR $0.22
JBL Jabil Circuit $0.94
CRWD CrowdStrike Holdings Inc. Cl A $0.09
SMAR Smartsheet Inc. -$0.13
LEN Lennar $1.71
WF Woori Bank $0.75
HTHT China Lodging $2.51
ANTO Antofagasta £0.42
HDS HD Supply Holdings $0.39
WG John Wood Group £0.14

 

Wednesday (March 17)

IN THE SPOTLIGHT: FIVE BELOW

Five Below, a discount retailer that sells products that cost up to $5, is expected to report a profit of $2.11 per share in the fourth quarter, which represents year-over-year growth of over 7% from $1.96 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 44%.

The Philadelphia, Pennsylvania-based company would post year-over-year revenue growth of about 25% to around $857.1 million.

FIVE reported strong Holiday sales results in Jan, and 4Q guidance was better than expected. With 4Q largely preannounced, we believe investor focus will turn to the expansion of partnerships (with Bugha here and Andrea Pippins here), Five Beyond progress, and potential guidance. For 4Q, we are estimating EPS to be $2.12, at the high end of mgmt’s guidance of $2.08-2.12 and ahead of cons. of $2.11,” noted Randal J. Konik, equity analyst at Jefferies.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 17

Ticker Company EPS Forecast
KC Kutcho Copper -$0.84
CTAS Cintas $2.19
WSM Williams Sonoma $3.36
FIVE Five Below $2.11
PD PagerDuty Inc. -$0.11
SMTC Semtech $0.48
TCEHY Tencent $0.50
ILD Iliad €0.75
EGFEY Eurobank Ergasias S.A. ADR $0.01
MLHR Herman Miller $0.58

 

Thursday (March 18)

IN THE SPOTLIGHT: DOLLAR GENERAL, FEDEX, NIKE

DOLLAR GENERAL: The U.S. largest discount retailer by number of stores is expected to report a profit of $2.72 in the fourth quarter, which represents year-over-year growth of over 29% from $2.10 per share seen in the same quarter a year ago.

The company, which offers merchandise including consumables, seasonal, home products and apparel at everyday low prices, would post year-over-year revenue growth of over 15% to around $8 billion.

“We believe cons. ests. for 4Q and next year are likely conservative. We est.4Q EPS of $2.75 vs. cons. of $2.72 and EPS in ’21 of $10.68 vs cons. of $10.04. When DLTR reported 4Q, FD comps were better than expected (+8.1%, ahead of cons. of+6.7%, and above 3Q levels). Note, however, that DG’s comp has outperformed that of FD by ~400bps over the last 11 quarters, on average, and DG’s comp has outperformed that of FD by >600bps through the first three quarters of 2020, on average. Thus, we believe DG’s 4Q comp could be ~12% (or perhaps even higher), given the company exited 3Q with a comp of +14%, discussed,” Jefferies’ Konik added.

FEDEX: Memphis, Tennessee-based multinational delivery services company is expected to report a profit of $3.35 in the fiscal third quarter, which represents year-over-year growth of over 137% from $1.41 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 36%.

The package delivery company would post year-over-year revenue growth of over 13% to around $20 billion.

“We expect a modest beat for F3Q21 as peak-season momentum exiting 2020 should help offset a few cost headwinds. However, both numbers and expectations face tough comps and receding momentum in FY22, which will be challenging to overcome. Remain Equal-weight,” Ravi Shanker, equity analyst at Morgan Stanley.

“We see EBIT growth through YE of FY21 driven by both margin improvement and vol. driven rev. growth which is helped by limited Airfreight capacity and an eCommerce surge, though yields are mixed. We continue to see secular threats to Parcel and remain skeptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14x PE) on current EPS.”

NIKE: The world’s largest athletic footwear and apparel seller is expected to report a profit of $0.76 in the fiscal third quarter, which represents a year-over-year decline of over 2% from $0.78 per share seen in the same quarter a year ago.

The Beaverton, Oregon-based company would post year-over-year revenue growth of over 8% to around $11 billion.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 18

Ticker Company EPS Forecast
UTZ Utz Brands $0.10
DG Dollar General $2.72
CMC Commercial Metals $0.51
WB Weibo $0.71
ACN Accenture $1.89
SIG Signet Jewelers $3.59
WOOF VCA $0.12
OLLI Ollies Bargain Outlet Holdings Inc $0.85
FDX FedEx $3.35
NKE Nike $0.76
TOELY Tokyo Electron Ltd PK $0.80
GOL Gol Linhas Aereas Inteligentes -$0.36
AUOTY AU Optronics $0.31

 

Friday (March 19)

Ticker Company EPS Forecast
ERJ Embraer -$0.31
CHL China Mobile $2.01

 

Dollar General Beats Earnings Estimates; Net Sales Surge Over 17%

Dollar General Corporation, the largest discount retailer in the United States, reported better-than-expected earnings in the third quarter with net sales surging over 17% as consumers continued to buy low-priced consumables, seasonal, home products and apparel during the COVID-19 pandemic.

The American chain of variety stores said its net sales increased 17.3% to $8.2 billion in the third quarter of 2020 compared to $7.0 billion a year ago. Same-store sales increased by 12.2% compared to the third quarter of 2019, driven by an increase in average transaction amount, partially offset by a decline in customer traffic. Same-store sales increased in each of the consumables, seasonal, home products and apparel categories, with the largest percentage increase in the home products category.

The Company reported net income of $574.3 million for the third quarter of 2020, an increase of 57.1% compared to $365.6 million in the third quarter of 2019. Diluted EPS increased 62.7% to $2.31 for the third quarter of 2020, beating market expectations of $2.01, up compared to diluted EPS of $1.42 in the same period last year.

Despite that Dollar General’s shares dipped 1.74% to $213.75 in pre-market trading on Thursday. However, the stock is up about 40% so far this year.

Dollar General Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $247.00 with a high forecast of $260.00 and a low forecast of $232.00. The average price target represents a 13.54% increase from the last price of $217.54. All those eight analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave the base target price of $240 with a high of $315 under a bull-case scenario and $150 under the worst-case scenario. The firm currently has an “Overweight” rating on the discount retailer’s stock. Telsey Advisory Group raised their stock price forecast to $245 from $240.

Several other analysts have also upgraded their stock outlook. Jefferies raised the target price to $260 from $246. Dollar General had its price target lifted by JP Morgan to $250 from $230. JP Morgan currently has an overweight rating on the stock. Bank of America lifted their target price to $229 from $220 and gave the company a buy rating.

Analyst Comments

“Dollar General (DG) is a best in class operator offering a rare combination of 1) consistent, high-quality top-and bottom-line results; 2) visible store growth; and 3) a shareholder-friendly capital allocation policy. Recent high-quality results add more confidence to the 10% L-T EPS growth algorithm, ramping top-line initiatives appear sustainable, and we see underappreciated margin upside from the rollout of Fresh self-distribution,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We think DG’s multiple, while elevated, is justified given consistent execution and potential for significant earnings upside especially amidst COVID-19 disruption and a potential recession,” Gutman added.

Upside and Downside Risks

Risks to Upside: 1) COVID-19/recession drives greater middle/upper income spend to Dollar Stores. 2) Margin upside from DG Fresh and Fast Track initiatives. 3) Accelerating contribution from new store concepts and remodel initiatives – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID-19 fails to drive comp uplift and pressures expenses/margins. 2) Increased competitive threat from DLTR/FDO/WMT. 3) Difficulties continuing expansion into productive new locations.

Check out FX Empire’s earnings calendar

Dollar General Q2 Net Sales Surge Over 24%; Buy with Target Price of $222

Dollar General Corporation, the largest discount retailer in the United States, reported a 24.4% increase in net sales in the second quarter as consumers bought low-priced consumables, seasonal, home products and apparel during the COVID-19 pandemic, sending its shares up over 1% in pre-market trading on Thursday.

The American chain of variety stores said its net sales increased by 24.4% to $8.7 billion in the second quarter of 2020 compared to $7.0 billion in the second quarter of 2019. The net sales increase included positive sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures.

Same-store sales increased by 18.8% compared to the second quarter of 2019, driven by an increase in average transaction amount, partially offset by a decline in customer traffic. The Company believes consumer behaviour driven by COVID-19 had a significant positive effect on net sales and same-store sales.

Dollar General said its gross profit as a percentage of net sales was 32.5% in the second quarter of 2020 compared to 30.8% in the second quarter of 2019, an increase of 167 basis points.

On Wednesday, Dollar General shares closed about 3% higher at $204.09, rising over 1% to 206.60 in pre-market trading on Thursday. Also, the stock is up over 30% so far this year.

Executive comments

“We continue to operate from a position of strength and are excited to announce the acceleration of several key strategic initiatives, including the rollout of DG Pickup, DG Fresh, and our Non-Consumables initiative, as well as an increase in our expected number of real estate projects for fiscal 2020,” said Todd Vasos, Dollar General’s chief executive officer.

“Our robust portfolio of initiatives, coupled with our expansive real estate footprint of nearly 17,000 store locations, positions us well to continue delivering value and convenience for our customers while driving sustainable long-term growth and value for our shareholders.”

Dollar General stock forecast

Fifteen analysts forecast the average price in 12 months at $212.79 with a high forecast of $230.00 and a low forecast of $182.00. The average price target represents a 4.26% increase from the last price of $204.09. From those 15 analysts, 13 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $222 with a high of $290 under a bull-case scenario and $130 under the worst-case scenario. Dollar General had its target price raised by analysts at Telsey Advisory Group to $225 from $210. The firm currently has an “outperform” rating on the stock.

Other equity analysts also recently updated their stock outlook. Goldman Sachs Group set a “buy” rating and a $202.00 price objective on the stock. Oppenheimer increased their price target to $225 from $205.00 and gave the stock an “outperform” rating. At last, Zacks Investment Research upgraded Dollar General from a “hold” rating to a “buy” rating and set their price target to $193.

We think it is good to buy at the current level and target $222 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“DG is a best in class operator offering a rare combination of 1) consistent, high-quality top- and bottom-line results; 2) visible store growth; and 3) a shareholder-friendly capital allocation policy. Recent high-quality results add more confidence to the 10% L-T EPS growth algorithm, ramping top-line initiatives appear sustainable, and we see underappreciated margin upside from the rollout of Fresh self-distribution,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We think DG’s multiple, while elevated, is justified given consistent execution and potential for significant earnings upside especially amidst COVID-19 disruption and a potential recession,” Gutman added.

Upside and Downside risks

Upside: 1) COVID-19/recession drives greater middle/upper income spend to Dollar Stores. 2) Margin upside from DG Fresh and Fast Track initiatives. 3) Accelerating contribution from new store concepts and remodel initiatives – highlighted by Morgan Stanley.

Downside: 1) COVID-19 fails to drive comp uplift and pressures expenses/margins. 2) Increased competitive threat from DLTR/FDO/WMT. 3) Difficulties continuing expansion into productive new locations.