Dollar General Earnings Beat Estimate

Zacks Equity Research

Dollar General Corporation (DG) posted better-than-expected third-quarter fiscal 2013 results, wherein earnings of 72 cents a share beat the Zacks Consensus Estimate by a couple of cents and jumped 14.3% from 63 cents in the year-ago quarter. Consumables category was the driving factor behind the sturdy results.

Including one-time items, earnings came in at 74 cents a share compared with 62 cents earned in the prior-year quarter.

Net sales increased 10.5% to $4,381.8 million, reflecting an 11.9% jump in the Consumables category to $3,362.8 million. The Seasonal category witnessed a 7.3% rise in sales to $505.8 million, while Home products increased 7.3% to $276.8 million. Sales in the Apparel category rose 2.4% to $236.5 million. Net sales fell short of the Zacks Consensus Estimate of $4,420 million.

Higher traffic and average transaction count led to 4.4% growth in comparable-store sales. Sales of the consumables category continue to improve, primarily buoyed by the sturdy sales of tobacco products, perishables, candy and snacks. Comps also remained strong across seasonal and home products.

Gross profit increased 8.3% to $1,328.5 million, while gross margin contracted 61 basis points to 30.3% during the quarter. The decline reflected higher sales of low margin products like consumables. Moreover, inventory shrinkage and markdowns hampered margins.

Adjusted operating profit increased 7.7% to $390.2 million, while adjusted operating margin shriveled 23 basis points to 8.9%.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $165.7 million, long-term obligations of $2,874 million and shareholders’ equity of $5,275 million. 

The company lowered its interest expense to $21.5 million from $27.7 million in the year- ago quarter. The company had incurred $444 million in capital expenditures during the first-nine months of fiscal 2013.                     

Dollar General bought back 3.5 million shares for $200 million during the quarter. Since the commencement of the share repurchase program in Dec 2011, the company has bought back 27.1 million shares aggregating $1.3 billion. Recently, the company’s board authorized an additional $1 billion share buyback program, resulting in total authorization of $1.2 billion.

Stores Update

Dollar General opened 577 new outlets, closed 22 stores and remodeled or relocated 534 stores during the first-nine months of 2013. In fiscal 2013, the company plans to open 650 new stores and remodel or relocate about 550 stores.

During fiscal 2014, the company expects to open about 700 new stores, and remodel or relocate approximately 525 outlets. The company anticipates its new distribution center in Pennsylvania to be fully functional in first-quarter fiscal 2014.


Dollar General now projects fiscal 2013 earnings in the range of $3.18 to $3.22 per share, indicating an increase in the lower end of the previously provided guidance of $3.15 to $3.22. The current Zacks Consensus Estimate for the year is $3.22 per share.

Total sales are expected to rise by 10% to 10.5% year over year, while comparable-store sales are expected to increase by 4% to 4.5%. Earlier, management had anticipated sales increase of 10% to 11%, with comps growth of 4% to 5%.

Adjusted operating profit is expected in the range of $1.745 billion to $1.770 billion. Interest expense is forecasted to be $90 million, while it projects capital expenditures in the range of $550 million to $600 million. 

Other Stocks to Consider

Currently, Dollar General, which operates 11,061 stores, holds a Zacks Rank #4 (Sell). Other better ranked stocks worth considering in the retail sector include Michael Kors Holdings Ltd (KORS), Big Lots Inc. (BIG) and PriceSmart Inc. (PSMT), all sporting a Zacks Rank #2 (Buy).

Read the Full Research Report on DG
Read the Full Research Report on KORS
Read the Full Research Report on BIG
Read the Full Research Report on PSMT

Zacks Investment Research