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Dollar General (DG) Q1 Earnings Surpass Estimates, Rise Y/Y

Zacks Equity Research

Dollar General Corporation DG reported better-than-expected first-quarter fiscal 2020 results, wherein both the top and the bottom line continued to improve year over year. Also, the company witnessed sturdy same-store sales performance. Management stated that change in consumer behavior due to the coronavirus pandemic had a favorable impact on the company’s performance.

Notably, in the past three months, shares of this Zacks Rank #2 (Buy) company have advanced about 17.3% against the industry’s decline of 0.8%.

Let’s Delve Deep

Quarterly earnings came in at $2.56 per share that comfortably surpassed the Zacks Consensus Estimate of $1.70 and increased significantly from $1.48 reported in the prior-year period. The year-over-year increase in the bottom line can be attributed to higher net sales and share repurchase activity. Notably, this was the fifth straight quarter of positive earnings surprise.

Net sales of $8,448.4 million improved 27.6% from the prior-year period and came ahead of the Zacks Consensus Estimate of $7,464.4 million for the eighth quarter in row. Contribution from new outlets and same-store sales growth favorably impacted the top line, partially offset by the impact of store closures.

Dollar General’s same-store sales increased 21.7% year over year primarily owing to rise in average transaction amount and customer traffic. Consumables, Seasonal, Apparel and Home categories favorably impacted the metric.

Sales in the Consumables category increased 28.6% to $6,703.4 million, while the same in Seasonal category witnessed a rise of 24.6% to $917.9 million. Home Products sales soared 32.6% to $498.3 million, while Apparel category sales grew 10.6% to $328.8 million.

Gross profit surged 29.6% to $2,595.7 million during the quarter under review. Notably, gross margin expanded 49 basis points to 30.7% mainly due to a reduction in markdowns and higher initial markups on inventory purchases. This was partly offset by increased distribution costs.

Meanwhile, operating income surged 69.2% to $866.8 million, whereas adjusted operating margin increased to 10.3% from 7.7% in the year-ago period.

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote

Store Update

During the quarter under review, the company opened 250 new outlets, remodeled 481 stores and relocated 17 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 $2,673.9 million, long-term obligations of $3,967.2 million and shareholders’ equity of $7,209.5 million. To improve its liquidity position, the company issued $1 billion of 3.5% Senior Notes due in 2030 and $500 million of 4.125% Senior Notes due in 2050. As of May 1, 2020, the company had $1.1 billion available under its revolving credit facility.

The company incurred capital expenditures of $195 million during the quarter under review. For fiscal 2020, it anticipates capital expenditures in the range of $925-$975 million.

The company bought back 0.5 million shares for $63 million during the quarter. However, management has temporarily suspended share repurchase program considering the current scenario. Notably, the company still had $1.1 billion remaining under authorization at the end of the quarter.

Key Notes

Although management withdrew its fiscal 2020 guidance issued on Mar 12 due to an uncertain environment, it expects the company to surpass the same. The company had earlier projected an increase of 10% in earnings per share on a year-over-year basis. It had guided net sales growth of 7.5-8% and same-store sales increase of 2.5-3% for the fiscal year.

Dollar General also informed that since the end of the first quarter, it has continued to witness “elevated demand” across its stores. Consequently, through May 26, 2020, same-store sales have risen roughly 22% compared with prior-year period.

3 Hot Stocks to Consider

Sprouts Farmers Market SFM has a trailing four-quarter positive average earnings surprise of 37.2% and sports a Zacks Rank #1 (Strong Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kroger KR, a Zacks Rank #2 stock, has a positive earnings surprise of 1.8% for the last reported quarter.

Office Depot ODP has a long-term earnings growth rate of 6.8%. Currently, it carries a Zacks Rank #2.

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