Dollar General (DG) Q2 Earnings Miss, Sales Increase Y/Y
Dollar General Corporation DG came up with second-quarter fiscal 2023 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate. Net sales grew year over year while earnings declined. This Goodlettsville, TN-based company witnessed same-store sales decline and gained market share in consumables.
Let’s Delve Deeper
The quarterly earnings came in at $2.13 per share, which missed the Zacks Consensus Estimate of earnings of $2.49 per share and decreased 28.5% from the prior-year period.
Net sales of $9,796.8 million rose 3.9% from the prior-year period on sales contributions from new stores, which was partly offset by a slight fall in same-store sales and the impact of store closures. The top line fell short of the Zacks Consensus Estimate of $9,931 million.
Dollar General Corporation Price, Consensus and EPS Surprise
Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote
Dollar General’s same-store sales dipped 0.1% year over year, driven by a decline in customer traffic, partly offset by higher average transaction amount. Same-store sales reflected declines in the home, seasonal and apparel categories, partly offset by an increase in the consumables category.
Sales increased 6% year over year to $7,921.6 million for Consumables. However, sales declined 1% to $1,076.2 million for Seasonal, 7.7% to $516.6 million for Home Products and 7.1% to $281.8 million for the Apparel category.
Gross profit dipped 0.1% to $3,044.7 million in the reported quarter and the gross margin decreased 126 basis points to 31.1%. The decline in the gross margin can be attributed to lower inventory markups, increased shrink, markdowns, and inventory damages, along with a higher proportion of sales from the consumables category, partly offset by a lower LIFO provision and decreased transportation costs.
SG&A expenses, as a percentage of net sales, increased 136 basis points to 24% in the quarter. Operating profit declined 24.2% to $692.3 million.
Store Update
In the second quarter of fiscal 2023, Dollar General opened 215 stores, remodeled 614 stores and relocated 20 stores. In fiscal 2023, the company anticipates carrying out 3,110 real estate projects in the United States, including 990 store openings, 2,000 remodels and 120 store relocations.
Other Financial Details
Dollar General ended the quarter with cash and cash equivalents of $353 million, long-term obligations of $7,295.2 million and shareholders’ equity of $6,297.7 million.
Management incurred capital expenditures of $768 million during the 26-week period ended Aug 4. For fiscal 2023, the company still anticipates capital expenditures in the band of $1.6-$1.7 billion.
During the second quarter of fiscal 2023, Dollar General did not repurchase shares. The company had $1.4 billion remaining under its authorization at the end of the quarter. It currently predicts no share repurchases for the fiscal year. On Aug 30, 2023, Dollar General announced a quarterly dividend of 59 cents per share, payable on or before Oct 24, 2023, to shareholders of record as on Oct 10.
Outlook
The company has been taking actions to accelerate the pace of inventory-reduction efforts and additional investments in planned areas like retail labor to elevate the in-store experience. Overall, it anticipates an incremental operating profit headwind of nearly $170 million in the second half of 2023.
The strategic actions and investments, coupled with soft sales trends and higher expected inventory shrink for the second half, compelled management to revise the outlook for fiscal 2023. Management now projects net sales growth to be in the band of 1.3-3.3% versus the previous expectation of 3.5-5.0%. This includes a negative impact of about two percentage points owing to the lapping fiscal 2022 53rd week. Further, same-store sales growth is likely to come in the range of a decline of about 1% to growth of 1% against the previous guidance of growth in the band of 1-2%.
For fiscal 2023, the company now expects earnings per share to be $7.10-$8.30, or a decrease of 34-22% versus the prior expectation of about 8% decline to flat growth. This view includes the adverse impact of nearly four percentage points.
Shares of this Zacks Rank #3 (Hold) company have declined 2.6% in the past three months against the industry’s rise of 7.3%.
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch ANF, Boot Barn BOOT and American Eagle Outfitters AEO.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share (EPS) suggests growth of 3.4% and 736%, respectively, from the year-ago reported figures. ANF has delivered an earnings surprise of 480.6% in the last four quarters.
Boot Barn, a fashion retailer of apparel and accessories, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 13.5%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 5.1% from the year-ago reported figure.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO has delivered an average earnings surprise of 9.2% in the last four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 7.2% from the year-ago reported figure.
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Dollar General Corporation (DG) : Free Stock Analysis Report
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Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
