Dollar General rebounds after revising outlook

NEW YORK (AP) -- Shares of Dollar General are rebounding in Wednesday trading, a day after the discounter lowered the high end of its full-year adjusted earnings and revenue forecasts. An analyst says the company likely has ways to offset the gross margin pressure it's facing.

THE BACKGROUND: On Tuesday Dollar General Corp. said that it was revising its guidance to account for moderating sales growth and a lower-than-expected gross profit rate. The company also reported a 3 percent rise in its fiscal first-quarter net income, as more customers visited its stores and shoppers spent more per transaction.

The Goodlettsville, Tenn., company now anticipates fiscal 2013 adjusted earnings of $3.15 to $3.22 per share, with revenue up 10 percent to 11 percent. It previously predicted adjusted earnings of $3.15 to $3.30 per share and a revenue increase of 10 percent to 12 percent.

The revised guidance implies revenue of $17.62 billion to $17.79 billion, based on 2012's $16.02 billion.

Analysts polled by FactSet expect full-year earnings of $3.28 per share on revenue of $17.7 billion.

Dollar General also said that its gross profit — a measure of how much of each dollar of revenue a retailer gets to keep — declined in the first quarter because of factors such as increased markdowns and a higher mix of lower-margin consumables.

Shares of Dollar General closed at $48.64 on Tuesday, down 9 percent.

THE ANALYSIS: Wedbush's Joan Storms said in a client note that Dollar General may still be up against some gross margin pressure near term, but that the chain will have some ways to offset that — including the introduction of more private-brand products, the launch of tobacco and the debut of more coolers.

"The company continues to execute on growth and profitability initiatives, despite recent gross margin pressures mostly related to its core lower-income customer," she wrote.

Storms reaffirmed an "Outperform" rating and $58 price target.

Dollar General said it does not comment on analyst reports.

SHARE ACTION: Up $1.76, or 3.6 percent, to $50.40 in afternoon trading. The stock has traded in a 52-week range of $39.73 to $56.04. For the year to date, shares are up 16 percent.