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Dollar General (DG) Up 3.7% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Dollar General Corporation DG. Shares have added about 3.7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is DG due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Dollar General Q4 Earnings In Line, Sales Miss Estimate

Dollar General Corporation reported fourth-quarter fiscal 2017 results, wherein earnings came in line but revenues missed the Zacks Consensus Estimate. In the quarter under review, adjusted earnings per share came in at $1.48. However, the bottom line declined 0.7% on a year-over-year basis.

Net sales came in at $6,129.4 million and improved 2% from the prior-year quarter. Increase in sales was driven by robust performance of consumables and seasonal categories. However, the metric came below the Zacks Consensus Estimate of $6,220 million. The company, which had an extra week of operations in fiscal 2016, negatively impacted the reported quarter earnings by nearly seven percentage points.

Moreover, Dollar General’s comparable-store sales increased 3.3% year over year primarily owing to rise in average transaction, marginally overshadowed decrease in customer traffic. Consumables, seasonal and seasonal categories provided a boost to the comparable-store sales, while the home products and apparel had a negative impact.

Sales in the Consumables category increased 2.8% to $4,629.5 million while the same in Seasonal category witnessed a rise of 2.4% to $820.2 million. Home products sales decreased 2.9% to $393.5 million, while Apparel category sales fell 3.9% to $286.3 million.

Gross profit advanced 3.4% to $1,965.4 million, while gross margin increased 43 basis points (bps) to 32.1% owing to increased initial inventory markups and decrease in markdowns. Although operating rose 8.4% to $623.4 million, operating margin contracted more than 110 bps to 10.2%.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $267.4 million, long-term obligations of $2,604.6 million and shareholders’ equity of $6,125.8 million. In fiscal 2017, the company incurred capital expenditures of $646 million. For fiscal 2018, it anticipates capital expenditures to be in the range of $725-$800 million.

The company bought back 7.1 million shares for $580 million in fiscal 2017. Since the commencement of the share repurchase program in December 2011, Dollar General has bought back 81.4 million shares aggregating $5.1 billion. At the end of the year, it has an outstanding authorization of nearly $354 million. On Mar 15, 2018, the company increased the share buyback program to $1 billion.

Additionally, management raised the quarterly dividend by to 29 cents per share that will be payable on Apr 24, 2018 to shareholders of record as on Apr 10.

Outlook

Management anticipates net sales for fiscal 2018 to increase by 9% year on year. Same store sales are expected to soar in mid-two percentage in the same time period.  Further, earnings for the fiscal are expected in the range of $5.95-$6.15. The consensus estimate for fiscal 2018 is currently pegged at $5.62, which is likely to witness upward revisions in the coming days.  

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been seven revisions higher for the current quarter.

Dollar General Corporation Price and Consensus

 

Dollar General Corporation Price and Consensus | Dollar General Corporation Quote

VGM Scores

At this time, DG has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value and growth investors than momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise DG has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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