Dollar discount stores Dollar Tree (DLTR) and Dollar General (DG) will report first quarter earnings tomorrow before the open. There will be conference calls at 9:00 and 10:00 ET respectively. 

The company guided for Q1 EPS of $1.05-1.11 & $5.74.5.84 bln with comps increasing low single digits. 

Q1 Capital IQ consensus calls for EPS of $1.14 (-4% yr/yr) on revenue of $5.78 bln (+4% yr/yr). The Street is expecting Q1 comps to be near +2.0% vs +1.4% last year. The company is expected to guide for Q2 where Capital IQ consensus calls for EPS of $0.98 (-14% yr/yr) and revenues of $5.78 bln (+3.6% yr/yr). The company is also expected to update its guidance for FY20 which as of Q4 stood at $4.85-5.25 for EPS and revenues of $23.45-23.87 bln. Capital IQ consensus for FY20 stands at $5.36 (-1.8% yr/yr) for EPS on revenue of $23.7 bln (+3.7% yr/yr). As of Q4, the company saw FY20 comps increasing low single digits (ests 2.1%).

  • In FY20, the Company will be accelerating its store optimization program, and as of Q4, expected to renovate at least 1,000 Family Dollar stores. The Company planned to open 350 new Dollar Tree and 200 new Family Dollar stores. Its FY20 guidance is based on the expectation that Section 301 tariffs would move to 25% in March 2019 (tariffs are now 25%).

  • DLTR based its guidance on tariffs being moved higher to 25% on the $200 bln tranche (which did occur).

  • Looking back, DLTR beat on EPS two out of the last four quarters, but missed on revenues three out of last four quarters. 

Dollar General (DG):

Q1 Capital IQ consensus calls for EPS of $1.39 (+2% yr/yr) on revenue of $6.56 bln (+7% yr/yr). The Street is expecting Q1 comps of +2.8% vs +2.1% last year.

  • The company is expected to update its guidance for FY20 which as of Q4 stood at $6.30-6.50 for EPS and revenues of +7% yr/yr to $27.42 bln. Capital IQ consensus for FY20 is $6.41 (+7% yr/yr) for EPS and revenues of $27.47 bln (+7% yr/yr). 

  • The Street is expecting FY20 comps of +2.6% vs guidance as of Q4 of +2.5%.

On the topic of tariffs, the company's guidance did not assume any increases in rates or additional tariffs. The fact that DG's outlook assumes the status quo could be viewed as an additional risk by investors (tariff rate on $200 bln tranche increased to 25% from 10% earlier this month).

Looking back, DG beat on EPS two out of the last four quarters, but beat on revenues three out of the last four quarters.

TECHS:

DLTR has a market cap of $23.5 bln vs DG at $31 bln. DLTR trades at 18 times FY20 EPS while DG trades at 19 times FY20 EPS.

TRADE: DLTR JUN21 90P &/OR 80P