From Standard & Poor's Equity Research
Raymond James downgraded Dollar General (DG) to market perform from outperform, after the company gave lower guidance for the second quarter.
Analyst Dan Wewer says Dollar General expects second quarter earnings per share (EPS) of 14 cents to 15 cents vs. 23 cents a year ago. This compares unfavorably to his 20 cents estimate and initial guidance of 18 cents to 22 cents. He says Dollar General is attributing the shortfall to two developments: gross margin under pressure due to addition of national brands, the shift to lower margin consumables, and back to school sales below expectations. He cut his 20 cents second quarter EPS estimate to 14 cents, his $1.07 fiscal year 2007 EPS estimate (ending Jan) to 97 cents, and his $1.18 fiscal year 2008 EPS estimate to $1.07. The analyst is not rating Dollar General at sell, as its inexpensive valuation could show up as an acquisition candidate for private equity investors.