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Dollar General's (DG) Q4 Earnings Miss Estimates, Increase Y/Y

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Dollar General Corporation DG came up with fourth-quarter fiscal 2020 results, wherein both the top and the bottom lines improved from the prior-year period. The discount retailer also witnessed sturdy same-store sales performance. While net sales surpassed the Zacks Consensus Estimate, earnings were weaker than expected.

Notably, this Goodlettsville, TN-based company issued fiscal 2021 guidance, and signaled a decline in same-store sales. The company also guided earnings below analysts’ expectations. Certainly, the company did benefit from coronavirus-led demand spike in fiscal 2020. However, analysts expect pandemic-induced demand to moderate, as vaccination drive gathers pace and consumers return to the old normal.

Management informed that from Feb 27 through Mar 16, 2021, same-store sales declined approximately 16%.

We note that shares of Dollar General fell during the pre-market trading hours on Mar 18. This Zacks Rank #3 (Hold) stock has fallen 11% in the past three months compared with the industry’s decline of 2.1%.

Let’s Delve Deep

Quarterly earnings came in at $2.62 per share that missed the Zacks Consensus Estimate of $2.71 but increased 24.8% from $2.10 reported in the prior-year period. The year-over-year increase in the bottom line can be attributed to higher net sales and margins.

Net sales of $8,414.5 million increased 17.6% from the prior-year period and surpassed the Zacks Consensus Estimate of $8,276 million for the 11th straight quarter. 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 grew 12.7% year over year, primarily owing to a rise in average transaction amount, partly offset by lower customer traffic. Notably, consumables, seasonal, home products and apparel categories favorably impacted the metric. Among these categories, home products registered the highest increase. Consumer behavior driven by the pandemic significantly benefitted net sales and same-store sales.

Management also updated that from Jan 30 through Feb 26, 2021, same-store sales rose approximately 5.7%.

Sales in the Consumables category increased 15.5% to $6,321.6 million, while the same in Seasonal category witnessed a rise of 19.7% to $1,097.5 million. Home Products sales soared 32.2% to $608.5 million, while Apparel category sales grew 25.3% to $386.9 million.

Dollar General Corporation Price, Consensus and EPS Surprise

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

Gross profit jumped 20.4% to $2,736.7 million during the quarter under review. Notably, gross margin expanded 77 basis points (bps) to 32.5% due to lower markdowns and reduction in inventory shrink, coupled with higher initial markups on inventory purchases and a significant proportion of sales from the non-consumables product categories. These were partly offset by higher distribution and transportation expenses.

Meanwhile, selling, general and administrative expenses, as a rate of net sales, deleveraged 48 bps to 22.2% in the quarter, thanks to incremental expenses related to COVID-19 pandemic. Further, operating profit surged 21% to $872.2 million, whereas operating margin increased to 10.4% from 10.1% in the year-ago period.

Store Update

During fiscal 2020, the company opened 1,000 new outlets, remodeled 1,670 stores and relocated 110 stores. For fiscal 2021, management plans to carry out 2,900 real estate projects. This includes 1,050 new store openings, 1,750 remodels and 100 relocations.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $1,376.6 million, long-term obligations of $4,131 million and shareholders’ equity of $6,661.2 million. As of Jan 29, 2021, total merchandise inventories, at cost, came in at $5,247.5 million, up 6.3% on a per-store basis from the year-ago period.

Management incurred capital expenditures of $1 billion in fiscal 2020. For fiscal 2021, it anticipates capital expenditures in the range of $1.05-$1.15 billion.

In fiscal 2020, Dollar General repurchased shares worth $2.5 billion. The company had $679 million remaining under authorization at the end of fiscal 2020. Markedly, the company’s board of directors increased the authorization under the share buyback program by $2 billion on Mar 17, 2021. The company expects to make share repurchases of approximately $1.8 billion in fiscal 2021. Also, the company hiked its quarterly dividend by 16.7% to 42 cents a share.

Outlook

Management cautioned that there remains significant uncertainty related to the severity and duration of the ongoing pandemic, and its impact on the economy, consumer behavior and the business. As a result, it is tough to forecast specific outcomes. Additionally, the company said, “In addition, these outcomes could be impacted by several variables, which include, but are not limited to, economic stimulus payments, economic recovery, employment levels, COVID-19 vaccine status, and the ongoing impact of the COVID-19 pandemic.”

Dollar General envisions fiscal 2021 net sales to be flat to down 2% and same-store sales to decline in the band of 4-6%. The company anticipates earnings between $8.80 and $9.50 per share. The Zacks Consensus Estimate for fiscal 2021 is currently pegged at $10.03.

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