Why Dollar General Earnings Should Keep Growing

Dollar General (NYSE: DG  ) will release its quarterly report next Wednesday, and investors have recently sent the stock to an all-time high. With some big strategic initiatives to make a big splash in the dollar-store deep-discount retail segment, Dollar General earnings look poised to reap the rewards from the retailer's moves to bolster growth.

Dollar General came public in the aftermath of the financial crisis, after its peers had demonstrated their resiliency in the face of a deep recession that hurt many more traditional retailers. As the industry has gotten more competitive, however, Dollar General has had to work harder to maintain its edge and sustain its past growth rates. Will the company's efforts bear fruit in the future, as well? Let's take an early look at what's been happening with Dollar General over the past quarter, and what we're likely to see in its report.

Stats on Dollar General

Analyst EPS Estimate

$0.74

Change From Year-Ago EPS

7.2%

Revenue Estimate

$4.36 billion

Change From Year-Ago Revenue

10.3%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Dollar General earnings keep growing this quarter?
Analysts have pulled back somewhat in recent months on their views about Dollar General earnings, cutting their July quarter estimates by $0.02 per share and their full fiscal year projections by $0.07 per share. The stock, though, hasn't suffered as a result, holding its own, and picking up about 1% since late May.

Dollar stores rose to prominence during the 2008 recession, as their deep-discount business models appealed greatly to newly cost-conscious shoppers looking for bargains. Even as the overall stock market dropped precipitously that year, Family Dollar (NYSE: FDO  ) , Dollar Tree, and other dollar-store peers saw their stock prices make huge gains as they reaped new business from shoppers at the expense of higher-end retailers. Since then, even though the economy has improved, the deep-discount niche has still thrived.

Still, competition in the space has taken its toll on growth to some extent. Last quarter, Dollar General disappointed investors with earnings that only matched expectations, and guidance that pointed analysts toward the lower end of the company's previous ranges for earnings and revenue. Meanwhile, Family Dollar has managed to earn substantial pricing premiums on its products that make up for the fact that its operations have relatively high costs compared to the rest of the industry.

Last quarter's setback hasn't stopped Dollar General's resolve. It's still looking to increase its reach across the industry with a big expansion plan that includes opening more than 600 stores this year. The company has sported gains in sales per store of more than 30% over the past five years, and so boosting its store count seems like a natural way to take advantage of clear demand for its products. Moreover, more disciplined use of pricing discounts led to Dollar General earning an analyst upgrade earlier this month, sending the stock higher.

In the Dollar General earnings report, watch to see how the company's ongoing expansion is affecting existing-store sales. At some point, adding new stores could cannibalize existing locations, but as long as customers keep wanting low-priced products, Dollar General should continue to have room to grow.

Dollar-store dominance is just one aspect of the big paradigm shift that the retail industry is going through right now. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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