Dollar General Corporation DG reported mixed quarterly numbers for the third quarter of fiscal 2015, wherein adjusted earnings per share of 88 cents surpassed the Zacks Consensus Estimate by a penny. On the other hand, net sales of $5,067 million fell short of the consensus mark of $5,087 million. Management updated the fiscal 2015 guidance.
On a year-over-year basis, earnings per share and revenues grew 11.4% and 7.3%, respectively.
Sales in the Consumables category jumped 7.6% to $3,921.7 million while the Seasonal category witnessed a 6% rise in sales to $555.9 million. Home products sales increased 6.4% to $318 million and Apparel category sales grew 6.1% to $271.6 million.
Consistently increasing traffic and average transaction value led to 2.3% growth in comparable-store sales. Strength was witnessed across tobacco products, perishables, candy and snacks, hardware and house wares categories.
Gross profit increased 8% to $1,537 million, while gross margin expanded 19 basis points to 30.7% due to better inventory sink rate and lower transportation costs, partly offset by the company’s sales mix. Operating profit grew 7.5% to $423.6 million.
Other Financial Details
Dollar General ended the quarter with cash and cash equivalents of $182.5 million, long-term obligations of $3,105.3 million and shareholders’ equity of $5,343.6 million.
In the first nine months of fiscal 2015, the company incurred $387 million in capital expenditures. Management continues to project capital expenditures in the band of $500 million to $550 million for fiscal 2015.
The company bought back 3.8 million shares for $275 million during the quarter, taking the total count to 13.4 million shares worth $1 billion for the first nine months of 2015. Since the commencement of the share repurchase program in Dec 2011, the company has bought back 57.9 million shares aggregating $3.3 billion. On Dec 2, 2015, management approved an additional $1.0 billion for share repurchases, increasing the total approval to $1.2 billion for future repurchase.
Store Update
Dollar General opened 634 new outlets and remodeled/relocated 857 outlets. The company plans to open about 730 new stores and relocate or remodel around 875 stores during fiscal 2015. Further, the company remains on track to achieve new store openings square footage growth of 7% in fiscal 2016.
The company continues rapid store expansion after a failed bid to acquire Family Dollar. Family Dollar merged with Dollar Tree, Inc. DLTR in July this year. The combined entity will boast a 13,000 strong store network whereas Dollar General had 12,396 stores across 43 states as of Oct 30, 2015.
Guidance
Dollar General revised its guidance for fiscal 2015. The company now envisions earnings in the range of $3.88 to $3.93 per share, compared with $3.85–$3.95 projected earlier. The Zacks Consensus Estimate is pegged at $3.93 per share. Further, for the fourth quarter of fiscal 2015, the company expects earnings to be in the range of $1.23 to $1.28 per share.
The company expects net sales to grow 8% over fiscal 2014 compared with 8%-9% growth expected earlier. Same store sales are now expected to grow 2.5%-2.8% for fiscal 2015, compared with 3%-3.5% expected earlier.
Zacks Rank
Dollar General currently carries a Zacks Rank #3 (Hold). Stocks worth considering in the retail space include Ross Stores Inc. ROST and Foot Locker, Inc. FL. Both the stocks carry a Zacks Rank #2 (Buy).
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