Dollar General (DG) Q2 Earnings Top, Sales Miss Estimates
Shares of Dollar General Corporation DG are trading down 3.5% in the pre-market session after the company reported mixed second-quarter fiscal 2015 results, wherein earnings of 95 cents a share beat the Zacks Consensus Estimate by a penny but net sales of $5,095.9 million fell short of expectations pegged at $5,140 million. Management also retained the fiscal 2015 guidance.
On a year-over-year basis, both earnings per share and revenues grew 14% and 7.9%, respectively.
Sales in the Consumables category jumped 8.1% to $3,867.6 million while the Seasonal category witnessed an 8.2% rise in sales to $642.5 million. Home products sales increased 6.6% to $304.3 million and Apparel category sales grew 4.7% to $281.4 million.
Consistently increasing traffic and average transaction value led to 2.8% growth in comparable-store sales. Strength was witnessed across tobacco products, perishables, candy and snacks, seasonal items, hardware and house wares categories.
Gross profit increased 9.1% to $1,588.2 million, while gross margin expanded 36 basis points to 31.2% due to higher initial inventory markups and lower transportation costs partly offset by higher markdowns. Operating profit grew 11% to $475.8 million with, operating margin increasing 27 basis points to 9.3%.
Other Financial Details
Dollar General ended the quarter with cash and cash equivalents of $180.5 million, long-term obligations of $2,761.8 million and shareholders’ equity of $5,418.9 million.
For the first half of fiscal 2015, the company incurred $247 million in capital expenditures. Management continues to project capital expenditures in the band of $500 million to $550 million for fiscal 2015.
The company bought back 2.6 million shares for $199.7 million during the quarter, taking the total count to 9.7 million shares worth $734.3 million for the first half. Since the commencement of the share repurchase program in Dec 2011, the company has bought back 54.1 million shares aggregating $3 billion. The company still has $489 million available under its share repurchases authorization.
Stores Update
Dollar General opened 428 new outlets and remodelled/relocated 593 outlets. The company plans to open about 730 new stores and relocate or remodel around 875 stores during fiscal 2015. Further, the company remains on track to achieve new store openings square footage growth of 7% in fiscal 2016.
The company continues rapid store expansion after a failed bid to acquire Family Dollar. Family Dollar merged with Dollar Tree, Inc. DLTR in July this year. The combined entity will boast over 13,000 strong store network whereas Dollar General has 12,198 stores across 43 states as of Aug 27, 2015.
Guidance
Dollar General continues to expect fiscal 2015 earnings between $3.85 and $3.95 per share. The current Zacks Consensus Estimate for fiscal 2015 is $3.94.
Total sales for fiscal 2015 are expected to grow 8% to 9% year over year, while comparable-store sales are estimated to increase in the range of 3% to 3.5%. Management envisions operating profit growth of 7% to 9% over fiscal 2014 adjusted operating profit.
Zacks Rank
Dollar General currently carries a Zacks Rank #2 (Buy). Other stocks in the retail space worth considering include Target Corp. TGT and Aéropostale, Inc. ARO. Both carry the same Zacks Rank as Dollar General.
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