Avondale: Look for Dollar General to guide below consensus

Avondale Partners analyst Mark Montagna says investors shouldn't be surprised if Dollar General later this week guides its 2014 EPS outlook below the $3.70 the Street now sees the company making. Growth in the company's sales per square foot is slowing and the growth in tobacco sales will continue to pressure margins. Montagna has trimmed his EPS forecast for the year to $3.60 from $3.70 and his price target to $65 from $67. Dollar General shares (Ticker: DG) closed Friday at $59.39 and are down slightly over the past three months.

The easy gains are in the past and DG is now a story of 2%-4% comps, square footage growth of approx. 6%-7%, EBIT gaining 10-20 bp, and buying back approx. 3% of shares outstanding. This should consistently deliver EPS gains of 8%-12%.