Shares of Dollar General Corporation DG are up roughly 8% during the pre-market trading hours. The stock got a boost following the company’s better-than-expected second-quarter fiscal 2019 results, wherein both the top and the bottom line continued to improve year over year. Also, the company witnessed sturdy same-store sales performance.
Impressive performance prompted this Goodlettsville, TN-based company to raise fiscal 2019 view. Management informed that the guidance “includes the anticipated impact of increased tariff rates on certain products imported from China.”
Notably, in the past six months, shares of this Zacks Rank #3 (Hold) company have advanced about 18% compared with the industry that gained 21%.
Let’s Delve Deep
Adjusted earnings came in at $1.74 per share that surpassed the Zacks Consensus Estimate of $1.58 and improved 14.5% from the prior-year period. The year-over-year increase in the bottom line can be attributed to higher net sales, cost containment efforts and share repurchase activity. Notably, this was the second straight quarter of positive earnings surprise.
Net sales of $6,981.8 million increased 8.4% from the prior-year period and came ahead of the Zacks Consensus Estimate of $6,890 million for the fifth quarter in row. Contribution from new outlets and same-store sales growth favorably impacted the top line.
Dollar General’s same-store sales increased 4% year over year primarily owing to rise in average transaction amount and customer traffic. Consumables, Seasonal and Home categories favorably impacted the metric, while Apparel category had a negative impact on the same.
Sales in the Consumables category increased 8.8% to $5,428 million, while the same in Seasonal category witnessed a rise of 7.8% to $854.1 million. Home Products sales rose 8.7% to $375.1 million, while Apparel category sales grew 2.2% to $324.6 million.
Dollar General Corporation Price, Consensus and EPS Surprise
Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote
Gross profit advanced 8.8% to $2,148.9 million, while gross margin expanded 13 basis points (bps) to 30.8% owing to fall in markdowns as a percentage of net sales and higher initial markups on inventory purchases. These were partly offset by higher shrink, increased distribution costs, and a higher proportion of sales from Consumables category.
Meanwhile, adjusted operating income rose 11.6% to $608.8 million, whereas adjusted operating margin increased 20 basis points to 8.7%.
Store Update
During the 26-week period ended on Aug 2, the company opened 489 new outlets, remodeled 653 stores and relocated 46 stores. In fiscal 2019, the company plans to open about 975 new stores, remodel 1,000 stores and relocate 100 stores.
Other Financial Details
Dollar General ended the quarter with cash and cash equivalents of $259.6 million, long-term obligations of $2,573.5 million and shareholders’ equity of $6,749.2 million. The company incurred capital expenditures of $293 million during the 26-week period ended on Aug 2. For fiscal 2019, it continues to anticipate capital expenditures in the range of $775-$825 million.
The company bought back 1.4 million shares for $185 million during the quarter under review. At the end of the quarter, it has an outstanding authorization of nearly $961 million. The company intends to buyback shares worth $1 billion during fiscal 2019.
Outlook
Management now envisions fiscal 2019 adjusted earnings in the band of $6.45-$6.60 per share compared with the current Zacks Consensus Estimate of $6.48. We note that the company’s guidance is above fiscal 2018 reported earnings of $5.97 per share.
Dollar General projected net sales growth of 8% with same-store sales expected to increase in the low-to-mid 3% range. The company envisions adjusted operating profit growth of approximately 6-8%.
Dollar General had earlier guided fiscal 2019 earnings in the range of $6.30-$6.50 per share, net sales growth of 7% and same-store sales increase of approximately 2.5%. The company had forecast operating profit growth of approximately 4-6%.
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