Dollar General (DG) Earnings & Sales Beat Estimates In Q3

Dollar General Corporation (NYSE:DG) delivered positive earnings surprise for the fourth consecutive quarter, when the company posted third-quarter fiscal 2017 results. The company reported earnings of 93 cents per share. However, on an adjusted basis earnings per share came in at 98 cents, beating the Zacks Consensus Estimate of 94 cents and also increased 10.1% year over year.

Net sales came in at $5,903.6 million, an increase of 11% from the prior-year quarter. Moreover, net sales came ahead the Zacks Consensus Estimate of $5,803 million, marking the fourth consecutive quarter of beat. Increase in sales was driven by robust performance of consumables, seasonal and apparel categories.

The company’s comparable-store sales increased 4.3% year over year primarily owing to rise in average transaction amount as well traffic. Consumables, seasonal and apparel categories provided a boost to the comparable-store sales, while the home products had a negative impact.

Sales in the Consumables category increased 11.8% to $4,625.4 million, while the Seasonal category witnessed a rise of 10.5% in sales to $636.5 million. Home products sales increased 5% to $346.3 million and Apparel category sales grew 6.8% to $295.3 million.

Gross profit advanced 11.3% to $1,766.5 million, while gross margin increased 8 basis points (bps) to 29.9% owing to increased initial inventory markups. Operating rose 6.2% to $417.3 million, while operating margin decreased more than 30 bps to 7.1%.

Following the results, the company’s shares are up roughly 4% during pre-market trading session. In fact, the company’s shares have increased 20.2% in the past three months, outperforming the industry’s growth of 15.8%.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $226.2 million, long-term obligations of $2,719.6 million and shareholders’ equity of $5,744.2 million. In the first nine months of fiscal 2017, the company incurred capital expenditures of $489 million. It now anticipates capital expenditure for fiscal 2017 to be in the range of $700-$750 million, compared with earlier estimate of $715-$765 million.

The company bought back 1.8 million shares in the third quarter. Since the commencement of the share repurchase program in December 2011, the company has bought back 78.4 million shares aggregating $4.9 billion. At the end of the quarter, the company has an outstanding authorization of nearly $635 million. Further, management announced a quarterly dividend of 26 cents per share that will be payable on Jan 23, 2017 to shareholders of record as on Jan 9. Further in fiscal 2017, the company continues to project share repurchase of nearly $450 million.

Dollar General Corporation Price, Consensus and EPS Surprise

Outlook

Management now anticipates net sales to rise by 7%, compared with earlier estimate of 5-7%. However, the company expects GAAP earnings in the band of $4.37-$4.47 per share, compared with the earlier guided range of $4.35-$4.50. Same-store sales growth is anticipated to be 2.5%, up from the prior projected range of marginally positive to 2% for fiscal 2017.

Moreover, the company intends to introduce roughly 1,285 new outlets, relocate or remodel 760 stores. As of Nov 3, 2017, Dollar General operated 14,321 stores across 44 states.

Zacks Rank & Other Stocks to Consider

Dollar General’s currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks which warrant a look in the retail sector includes Guess?, Inc. (NYSE:GES) , Michael Kors Holdings Limited (NYSE:KORS) and PVH Corp. (NYSE:PVH) . All three stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Guess has reported better-than-expected earnings in the trailing four quarters, with an average beat of 28.2%.

Michael Kors Holdings has an impressive long-term earnings growth rate of 7.5%. It has also surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 23.7%.

PVH has reported earnings beat in the trailing four quarters, with an average of 2.6%.

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