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Dollar General Falls Sharply on 4th-Quarter Results

- By Alberto Abaterusso

Shares of Dollar General Corp. (DG) tumbled 7.18% to $112.02 in premarket trading on Thursday after missing earnings expectations for the fourth quarter of 2018 by 5 cents. The company posted earnings of $1.84 cents per share.

Revenue of $6.65 billion was up 8.5% year-over-year and missed expectations by $40 million.

Goodlettsville, Tennessee-based discount stores chain company also released results for the full year.

Dollar General recorded a 9.2% increase in total sales to $25.6 billion, a 3.2% increase in same-store sales, flat customer traffic and a 0.3 percentage-point decline in the gross margin to 30.5% of total sales. The gross profit margin declineddue to higher markdowns and sales of consumables and increased transportation costs and LIFO provision. At 22%, the selling, general & administrative expense of total sales ratio was flat.

Dollar General also reported a 5.4% increase in the operating profit to $2.1 billion, a 1.8 percentage-point jump into the effective income tax rate of 21.1% and a 6.7% increase in the net income to $1.6 billion.

Net earnings went up 6% to $5.97 per diluted share. Driven by the lower federal tax rate, the adjusted net earnings skyrocketed 33% to $5.97 per diluted share.

Looking ahead to 2019, Dollar General expects earnings to be between $6.3 and $6.5 per share. It also predicts 7% growth in net sales, 2.5% growth in same-store sales and between 4-6% growth in operating profit. The effective tax rate range is expected to be between 22-22.5%, and average capital expenditures to be $800 million.

The stock was trading around $120.68 per share at close Wednesday for a market capitalization of $31.72 billion. The stock climbed 29% over the 52 weeks through March 13 and is now above the 200-, 100- and 50-day simple moving average lines. The closing price on Wednesday was 38.9% above the 52-week low of $86.87 and 0.5% below the 52-week high of $121.27.

Wall Street issued an overweight recommendation rating for Dollar General with an average target price of $121.15 per share.

In addition, the company hiked the quarterly dividend by 10.34% to 32 cents per ordinary share, for a forward dividend yield of 1.06% versus an industry median of 2.22%. Dollar General will pay the dividend around April 23 to its shareholders of record April 9. Dollar General has paid dividends since 2015.

In 2018, Dollar General repurchased $1 billion shares of its common stock at an average price of $101.86 per share. Under its program, the company plans to repurchase another $1 billion of its shares in 2019.

Disclosure: I have no positions in any securities mentioned.

This article first appeared on GuruFocus.