Dollar General Corporation (DG) posted lower-than-expected first-quarter 2013 results and consequently clipped its fiscal 2013 outlook. The company posted adjusted quarterly earnings of 71 cents a share that jumped 13% year over year but missed the Zacks Consensus Estimate by a penny.
Including one time items, earnings came in at 67 cents a share compared with 63 cents earned in the year-ago quarter.
Net sales increased 8.5% to $4,233.7 million, reflecting an 11% jump in the Consumables category to $3,194.9 million. The Seasonal category witnessed a marginal rise in sales to $529.3 million, while Home products increased 2.6% to $265.8 million. Sales in the Apparel category rose 1.4% to $243.7 million. Higher traffic and average transaction count led to 2.6% growth in comparable-store sales.
Despite witnessing higher sales in each category, total sales missed the Zacks Consensus Estimate of $4,245 million.
Gross profit increased 5.4% to $1,295.1 million, while gross margin contracted 89 basis points to 30.6% during the quarter. The decline reflected increased markdowns and higher sales of low margin products like consumables. Moreover, inventory shrinkage and lower initial markups hampered margins.
Adjusted operating profit increased 2.8% to $396 million, whereas adjusted operating margin contracted 53 basis points to 9.4%.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $155.5 million. As of May 3, 2013, merchandise inventories totaled $2,414.4 million, up 14% on a per store basis.
The company lowered its interest expenses to $25 million from $37 million in the year- ago quarter. Long-term obligations (including the current portion) were $2.84 billion. Dollar General bought back 0.4 million shares for $20 million and incurred $150 million in capital expenditures during the quarter.
Dollar General opened 165 new outlets and remodeled or relocated 207 stores during the first quarter. Going ahead, the company plans to open 635 new stores, which includes 20 Dollar General Market stores and 40 Dollar General Plus stores. Moreover, it plans to remodel or relocate 550 stores.
This Zacks Rank #3 (Hold) company expects adverse sales mix and macro headwinds to continue to deter its financials. Consequently, the company lowered the upper guidance range of its previous forecast.
Dollar General now expects fiscal 2013 earnings to be in the range of $3.15 to $3.22 per share compared with its earlier guidance range of $3.15 to $3.30.
Total sales are expected to rise by 10% to 11% year over year, while same-store sales are expected to increase by 4% to 5%. Gross margin is expected to decline when compared with the prior year, while adjusted operating profit is expected to be in the range of $1.73 billion to $1.77 billion.
Interest expenses are forecasted to be in the range of $95 million to $100 million, while it projects capital expenditures in the range of $575 million to $625 million.
Other Stocks to Consider
Until any further upgrade in Dollar General’s Zacks Rank, other well performing stocks in the retail, wholesale sector include Big 5 Sporting Goods Corp. (BGFV), which carries a Zacks Rank #1 (Strong Buy). The Gap, Inc. (GPS) and Cabela's Incorporated (CAB), carrying a Zacks Rank #2 (Buy) are also worth considering.
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