03:52 PM EDT, 05/14/2024 (MT Newswires) -- Dollar General ( DG ) may miss earnings and comparable sales expectations when it reports fiscal first-quarter results on May 30 but low expectations leading into the print offer a favorable setup, UBS Securities said on Tuesday.

The brokerage reduced its earnings per share target to $1.50 from $1.55, putting it further below the consensus view that UBS put at $1.57. Its full-year EPS estimate was lowered to $7.06 from $7.10, versus the $7.25 consensus view, the report showed.

Margins likely remained "under meaningful pressure" in the three months ended May 3 amid headwinds related to factors including shrink, incentive compensation, and increased promotional markdowns, UBS analysts Michael Lasser, Zeyn Burak and Mark Carden said. Shrink is an industry term that indicates a loss of inventory due to theft and breakage.

Industry checks indicate a likely slowdown in comparable sales in April, compared to February and March, due to the timing shift of Easter and unfavorable weather, according to the UBS report. That that could put the discount retailer on track to miss its full-year same-store sales guidance.

UBS axed its first-quarter comparable sales growth estimate to 1.5% from 2%, putting it below the Wall Street view of 1.7% and at the low end of Dollar General's ( DG ) 1.5% to 2% guidance.

"If (Dollar General ( DG )) comps in the 1% area, that could raise questions on whether the company could reach its comp guidance of (2% to 2.7%) for the full-year, especially considering the guidance already embeds an acceleration through the course of (2024)," the analysts said.

Profit headwinds are expected to wane through the course of 2024 as the company laps elevated pressures that began surfacing in the second half of 2023, Lasser, Burak and Carden said. They reiterated a buy rating with a $167 price target on the stock. Shares of Dollar General ( DG ) edged up 1.4% ahead of market close on Tuesday.

"Overall, despite the (near-term) headwinds, we think this story appears well set up for upside, due to (Dollar General ( DG )) lapping easy comps, benefiting from trade-down, and potentially seeing a reversal in shrink in (the second half of 2024)," they said.

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