December 4, 2022

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Dollar General (DG) Beats on Q1 Earnings, Lifts Sales View

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In spite of supply chain bottlenecks and heightened inflation, Dollar General Corporation DG reported better-than-expected first-quarter fiscal 2022 results. While net sales increased year over year, earnings per share continued to decline. This Goodlettsville, TN-based company witnessed a marginal decline in same-store sales but the same fared better than management’s expectations. Solid top-line performance and current expectations for the remainder year prompted management to lift fiscal 2022 net sales and same-store sales view.

Let’s Delve Deeper

Quarterly earnings came in at $2.41 per share that beat the Zacks Consensus Estimate of $2.32 but declined 14.5% from the prior-year period.

Net sales of $8,751.4 million rose 4.2% from the prior-year period on sales contributions from new stores, partly offset by the impact of store closures and a marginal decline in same-store sales. The top line came ahead of the Zacks Consensus Estimate of $8,708 million.

Dollar General’s same-store sales fell 0.1% year over year, owing to lower customer traffic, partly offset by a rise in the average transaction amount. Same-store sales reflected a decline in each of the Seasonal, Apparel and Home Products categories, offset by an increase in the Consumables category.

Based on categories, sales increased 9.1% year over year to $6,960.5 million for Consumables. However, sales declined 8.5% to $961.4 million for Seasonal, 5.5% to $539.8 million for Home Products and 27.8% to $289.7 million for the Apparel category.

Gross profit fell slightly 0.6% to $2,738.4 million in the reported quarter, while gross margin contracted 151 basis points to 31.3%. The decline was due to a significant proportion of sales coming from the low-margin consumables category; an increased LIFO provision; higher transportation and distribution expenses; an increase in markdowns as a percentage of sales; and an increase in inventory damages. These were partly offset by higher inventory markups.

SG&A expenses, as a percentage of net sales, increased 78 basis points to 22.8% in the quarter. Operating profit dipped 17.9% to $746.2 million, whereas operating margin shriveled 229 basis points to 8.5% from the year-ago period.

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote

Store Update

During the quarter under discussion, Dollar General opened 239 new stores, remodeled 532 stores, and relocated 32 stores. The company anticipates carrying out 2,980 real estate projects, including 1,110 store openings, 1,750 remodels and 120 store relocations in fiscal 2022.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $335.6 million, long-term obligations of $3,947.5 million, and shareholders’ equity of $5,961.6 million.

Management incurred capital expenditures of $282 million in the quarter. For fiscal 2022, the company continues to anticipate capital expenditure in the band of $1.4-$1.5 billion.

During the quarter, Dollar General repurchased 3.4 million shares for $747 million. The company had $1.4 billion remaining under the authorization at the end of the quarter. It expects to make share repurchases of $2.75 billion in fiscal 2022.

Outlook

Dollar General now anticipates net sales growth of about 10-10.5% — including an estimated benefit of approximately two percentage points from the 53rd week — for fiscal 2022. The company now foresees same-store sales growth of approximately 3-3.5%. Management had earlier guided net sales growth of approximately 10% and same-store sales increase of roughly 2.5%.

The company continues to anticipate earnings per share growth in the range of 12-14%, including an estimated benefit of approximately four percentage points from the 53rd week.

Shares of this Zacks Rank #4 (Sell) company have fallen 1.5% in the past three months compared with the industry’s decline of 13.3%.

3 Stocks Looking Red Hot

We have highlighted three better-ranked stocks, namely McCormick & Company MKC, Kroger KR and Sysco Corporation SYY.

McCormick, a manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2 (Buy). The company has an expected EPS growth rate of 6.1% for three-five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 7.3%, on average.

Kroger, the renowned grocery retailer, carries a Zacks Rank #2 at present. The company has an expected EPS growth rate of 9.9% for three-five years.

The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 3.2% and 4.1%, respectively, from the year-ago reported numbers. KR has a trailing four-quarter earnings surprise of 22.1%, on average.

Sysco Corporation, the leading global foodservice distribution company, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Sysco Corporation’s current financial year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago period. Sysco has an expected EPS growth rate of 11% for three-five years.

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