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Dollar General Soars After Strong Q2 Performance: Is Now the Time to Buy?

Christopher Vargas

Discount retail giant Dollar General DG reported strong second quarter results before the opening bell today. Shares soared roughly 9% in intraday trading, hitting a new all-time high of $157.41. Dollar General has now surged 44.7% year-to-date, outpacing the broader discount retail market, which is up 34.1% YTD in comparison; the industry is ranked in the top 35% on the Zacks Industry Rank. Dollar General has been on a roll in 2019 thus far, but how will it perform in the latter half of the year? Let’s delve deeper into its second quarter and how it might perform later in the year.

Overview and Q2 Performance

Dollar General was founded in 1939 in Goodlettsville, Tennessee, and is one of the largest discount retailers in the United States. The company typically offers low priced merchandise to consumers for $10 or less, offering a wide variety of products like seasonal items, consumables, home products, and apparel. Their merchandise is comprised of national brands from leading manufacturers as well as private brand selections at substantially discounted prices from national brands. Dollar General has aggressively expanded their stores; in fiscal 2016 and 2017, they added 900 and 1,315 new stores, respectively. They have also remodeled and relocated hundreds of their stores.

Dollar General reported earnings of $1.74 per share in Q2, beating our estimate by 10.13%, and generated $6.98 billion in revenue. Its reported earnings and revenue were jumps of 14.5% and 8.36% Y/Y, respectively. Additionally, $267 million was returned to shareholders through share repurchases and cash dividends.

The company’s consumable segment brought in $5.43 billion in revenue, jumping 8.8%, and their seasonal items rose 7.8% to $854 million. Home products spiked 8.7% to $375 million while the company’s apparel products sold $324.6 million for a 2.2% pop. Same-store sales increased 4%, driven by increases in both average transaction amount and customer traffic. The company added 466 new stores in Q2, bringing their total store count to 15,836.

Company Outlook

Dollar General raised their fiscal 2019 guidance despite the looming threat of tariffs. The company expressed their ability to mitigate, absorb, and offset the impact of the tariffs. Dollar General expects earnings to fall in the range of $6.45-$6.60 for the year, and raised their revenue guidance to an 8% Y/Y jump from its previously guided 7%.

For Q3, our Consensus estimates call for the company’s bottom line to increase 8.73% to $1.37 per share on the back of a 7.4% sales hike to $6.89 billion. The consumables segment is expected climb 16% to $5.87 billion and home products is estimated to reel in $422 million for a 13.6% rally. Seasonal and apparel items are anticipated to pop 15.97% and 12%, respectively.

The company’s strong same store sales are projected to continue in Q3 with a gain of 2.57%. Additionally, Dollar General is forecasted to add 249 new stores, bringing their total to 17,042. Looking ahead to their full fiscal year outlook, estimates predict earnings to climb 8.54% to $6.48 per share and sales to grow 7.41% to $27.52 billion.

Bottom Line

Dollar General is sitting at a Zacks Rank #3 (Hold) and has a Style Score of A in Growth. They have beaten our estimates twice in the past four quarters for an average EPS surprise of 3.62%. Dollar General’s commitment to price management, inventory management, merchandise and operational initiatives should drive sales and earnings.

Discount stores typically perform well during times of economic uncertainty making DG a solid pick during these past few hectic weeks. Their optimistic approach to being able to combat the threat of tariffs bodes well for shareholders, and their success in expanding their store count is a catalyst for growth and capitalizes on their recent successes. You can see below how Dollar General has performed in comparison to some of its industry peers such as Burlington Stores BURL, Dollar Tree DLTR, and Big Lots BIG.

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Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
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