Dollar General Posts In-Line Earnings, Sales Miss - Analyst Blog

Dollar General Corporation DG posted fourth-quarter fiscal 2013 results, wherein earnings of $1.01 per share came in line with the Zacks Consensus Estimate and rose 4.1% from 97 cents in the year-ago quarter on the back of growth across the Consumables category. Moreover, better-than-expected gross margin rate and share repurchase activity provided cushion to the bottom line.

Net sales increased 6.8% to $4,493.9 million but fell short of the Zacks Consensus Estimate of $4,617 million. Unfavorable weather condition, tough competition and cautious consumer spending environment impacted the sales. As a result, shares skidded 2.8% to $57.66 during normal hours trading session.

Sales in the Consumables category jumped 8.5% to $3,302.3 million; the Seasonal category witnessed a 1.4% rise in sales to $648.6 million, while Home products sales increased 6.6% to $307.7 million. However, sales in the Apparel category fell 0.6% to $235.4 million.

Higher traffic and average transaction count led to 1.3% growth in comparable-store sales. Sales of the consumables category continue to improve, primarily buoyed by the sturdy sales of tobacco products and perishables.

Gross profit increased 4.9% to $1,434.8 million, while gross margin contracted 58 basis points to 31.9% during the quarter that fared better than management's expectation. The decline reflected higher sales of low margin products like consumables. Moreover, inventory shrinkage also hampered margins.

Operating profit increased 3% to $538.1 million, whereas operating margin shriveled 40 basis points to 12%.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $505.6 million, long-term obligations of $2,742.8 million and shareholders' equity of $5,402.2 million. 

The company lowered its interest expense to $22.3 million from $27.5 million in the year- ago quarter. The company had incurred $538.4 million in capital expenditures during fiscal 2013.                    

Dollar General bought back 11 million shares for $620 million during the quarter. Since the commencement of the share repurchase program in Dec 2011, the company has bought back 33.8 million shares aggregating $1.7 billion. So far in fiscal 2014, the company has bought back an additional 3.5 million shares for $200 million, and has $824 million remaining under its current share repurchase authorization.

Stores Update

Dollar General opened 650 new outlets, closed 24 stores and remodeled or relocated 582 stores during fiscal 2013. During fiscal 2014, the company plans to open about 700 new stores.

Guidance

Dollar General now projects first-quarter earnings in the band of 72 cents to 74 cents and fiscal 2014 earnings between $3.45 and $3.55 per share.

The current Zacks Consensus Estimates for the first quarter and fiscal 2014 are 82 cents and $3.70 per share, respectively. We could witness a downward revision in the estimates in the coming days.

For fiscal 2014, total sales are expected to rise by 8% to 9% year over year, while comparable-store sales are expected to increase by 3% to 4%. Management anticipates sales increase of 7% to 8%, with comps growth of 2% to 3% during the first quarter of fiscal 2014.

Adjusted operating profit is projected to increase in the range of 2% to 5% for fiscal 2014. Interest expense is forecasted between $85 million and $90 million, while it projects capital expenditures in the range of $450 million to $500 million. 

Other Stocks to Consider

Currently, Dollar General, which operates 11,132 stores, carries a Zacks Rank #3 (Hold). Other better-ranked stocks worth considering in the retail sector include Hanesbrands Inc. HBI and Michael Kors Holdings Limited KORS with a Zacks Rank #1 (Strong Buy), and Burlington Stores, Inc. BURL carrying a Zacks Rank #2 (Buy).