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Goldman Sachs reiterated its Buy rating on Dollar General Corp. (NYSE: DG) and raised its price target by $5 to $97, implying 10 percent upside, after the company delivered double-digit EPS growth in its first quarter.
Quarterly Results
Better cost controls and consistent top line led the Goodlettsville, Tennessee-based discount retailer to report 23 percent growth in its first quarter EPS to $1.03, above Goldman Sachs'/consensus estimate of $0.95.
Same-store sales were 2.2 percent, lower than Goldman Sachs'/consensus estimate of 2.5 percent/2.4 percent), but still solid relative to broader retail.
Dollar General reiterated its yearly long-term earnings algorithm at 10–15 percent EPS growth.
SG&A leveraged 27bp (versus Goldman Sachs' estimate for 15bp of deleverage) on lower utilities, payroll related, marketing costs and higher volume of customer cash back transactions. "Gross margin was up 16 bps, driven by higher initial markups and lower freight costs," analyst Stephen Grambling wrote.
"Mild weather helped drive lower utility costs. SG&A per sq. ft. declined yoy in 1Q, a positive read for DG's ZBB roll out," Grambling added.The analyst sees 13bp of gross margin expansion in FY16 driven by better freight costs and higher initial markups.
Expectations
Grambling also raised his FY16/17/18 EPS estimates to $4.70/$5.23/$6.07 from $4.63/$5.21/$6.05. The increase was driven by ongoing gross margin opportunity and greater SG&A leverage as result of ZBB.
"We expect future beats vs. consensus to sustain the current multiple," Grambling said.
Shares of Dollar General closed Thursday's regular trading 4.55 percent higher at $87.96.Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.
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