Black Friday sales have, in rather short order, become one of the most closely watched metrics for modern retailers hoping to glean quick, early insights into what holiday sales will look like.
Most retailers didn’t like what they saw, as Black Friday sales reportedly fell 11% from last year — a shocking and extremely disappointing figure. Alas, it’s not too late to throw in the towel on retailers! Just wait to hear what Dollar General Corp. (DG) has to say when it reports third-quarter results before the bell on Thursday.
Dollar General and its Busy Industry
DG stock has narrowly underperformed the S&P 500 this year, gaining 10.3% to the S&P’s 11% return. But a strong third-quarter performance from the discount retailer could inspire investor optimism as DG goes into the all-important holiday quarter.
Dollar General investors should also watch DG’s biggest direct competitor Family Dollar Stores, Inc. (FDO) closely this week. FDO has said it will tell investors more about what kinds of divestitures the Federal Trade Commission wants Family Dollar to make in order for the regulator to approve a merger with Dollar Tree, Inc. (DLTR).
Unfortunately, this sideshow with Family Dollar and Dollar Tree could be a major distraction for DG stockholders, who should ideally only need to focus on how the Goodlettsville, Tennessee retailer did in the period ending Oct. 31.
Analysts expect DG stock to post 80 cents in earnings per share in the quarter, which would amount to EPS growth just more than 8% from the same period a year ago. Revenue is forecast to grow at a similar pace, with consensus calls for $4.75 billion representing 8.5% growth from the same quarter a year ago.
That tepid growth is the reason the family store operator wants to expand its reach and grow inorganically by means of acquisition.
In other words, the coming week should be more about consolidation in the industry and less about Dollar General’s numbers. So if you’re sick of hearing that old bittersweet Wall Street holiday hymn, “DG Stock, You Are My Rock,” this week should be a welcome reprieve for you. The lyrics, as we all know go something like:
“If it’s a beat for Dollar General,
Grab some flank I’ll fetch utensils!
If Dollar General misses though,
At least we’ve got our mistletoe…”
That one’s always a favorite with the shoeshine boy.
DG Stock: Looking Ahead
For investors purely interested in discerning whether December will generate enough holiday shopping to lift the broader economy, DG stock is a nice way to take an economic pulse. But Dollar General’s results shouldn’t be looked at in a vacuum: higher-end specialty retailers like Ulta Salon, Cosmetics & Fragrance, Inc (ULTA), which reports on Thursday after the bell, should give us a strong idea of where consumers are spending their disposable income within retail.
I’m very bullish on ULTA stock because of the company’s devotion to growth through store expansions and same-store sales growth. ULTA’s management has an enviable track record of doing this successfully, and ULTA stock shot up in September when it raised sales, same-store sales, and full-year revenue expectations.
Outside of retail, the chip-maker behind GoPro Inc (GPRO) cameras, Ambarella Inc (AMBA) also reports on Thursday. Given that I believe AMBA is the best growth stock in the market today, this week will be a much better indicator of where America is economically than Black Friday sales alone.
As of this writing, John Divine was long Jan 2015 AMBA $20 calls and Jan 2016 AMBA $25 calls. You can follow him on Twitter at @divinebizkid.
