Shares of Dollar General Corporation DG are up roughly 4% during the pre-market trading hours on Dec 5. The stock got a boost following the company’s better-than-expected third-quarter fiscal 2019 results, wherein both the top and the bottom line continued to improve year over year. Also, the company witnessed sturdy same-store sales performance. Impressive performance prompted this Goodlettsville, Tennessee based company to raise fiscal 2019 view.
Notably, in the past six months, shares of this Zacks Rank #2 (Buy) company have advanced about 17% compared with the industry's rally of 20%.
Let’s Delve Deep
Quarterly earnings came in at $1.42 per share that surpassed the Zacks Consensus Estimate of $1.38 and improved 12.7% from the prior-year period. The year-over-year increase in the bottom line can be attributed to higher net sales, cost containment efforts and share repurchase activity. Notably, this was the third straight quarter of positive earnings surprise.
Net sales of $6,991.4 million increased 8.9% from the prior-year period and came ahead of the Zacks Consensus Estimate of $6,919.4 million for the sixth quarter in row. Contribution from new outlets and same-store sales growth favorably impacted the top line.
Dollar General’s same-store sales increased 4.6% year over year primarily owing to rise in average transaction amount and customer traffic. Consumables, Seasonal, Apparel and Home categories favorably impacted the metric.
Dollar General Corporation Price, Consensus and EPS Surprise
Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote
Sales in the Consumables category increased 9.2% to $5,523.2 million, while the same in Seasonal category witnessed a rise of 9.2% to $750.8 million. Home Products sales rose 7.8% to $400.9 million, while Apparel category sales grew 5.8% to $316.5 million.
Gross profit advanced 9% to $2,065.1 million, while gross margin remained flat at 29.5%. Higher initial markups on inventory purchases, a reduction in markdowns as a percentage of net sales, and a lower LIFO provision were offset by higher shrink, increased transportation and distribution expenses, and a higher proportion of sales from Consumables category.
Meanwhile, operating income rose 11.1% to $491.4 million, whereas adjusted operating margin increased 14 basis points to 7%.
During the 39-week period ended on Nov 1, the company opened 769 new outlets, remodeled 928 stores and relocated 75 stores. In fiscal 2019, the company plans to open 975 new stores, remodel 1,000 stores and relocate 100 stores. In fiscal 2020, the company intends to open 1,000 new stores, remodel 1,500 stores, and relocate 80 stores.
Other Financial Details
Dollar General ended the quarter with cash and cash equivalents of $276.1 million, long-term obligations of $2,762.5 million and shareholders’ equity of $6,648.3 million. The company incurred capital expenditures of $518 million during the 39-week period ended on Nov 1. For fiscal 2019, it continues to anticipate capital expenditures in the range of $775-$825 million.
The company bought back 2.5 million shares for $400 million during the quarter under review. At the end of the quarter, it has an outstanding authorization of nearly $561 million. The company recently raised the authorization under the share repurchase program by $1 billion. The company intends to repurchase shares worth $1.2 billion during fiscal 2019.
Management now envisions fiscal 2019 adjusted earnings in the band of $6.55-$6.65 per share, the mid-point of which — $6.60 — is above fiscal 2018 reported earnings of $5.97. The current Zacks Consensus Estimate for the fiscal year is currently pegged at $6.61.
Dollar General projected net sales growth in the low 8% range with same-store sales expected to increase in the mid-to-high 3% range. The company envisions adjusted operating profit growth of approximately 7-9%.
The company had earlier guided fiscal 2019 earnings in the range of $6.45-$6.60 per share and same-store sales increase of low-to-mid 3% range. The company had forecast operating profit growth of approximately 6-8%.
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Target TGT has a long-term earnings growth rate of 7.5% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Costco COST has a long-term earnings growth rate of 8.5% and carries a Zacks Rank #2.
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