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Dollar General (DG) Lags Q3 Earnings & Sales; Stock Falls

Zacks

Dollar General Corporation DG reported negative earnings surprise for the second consecutive quarter. The company posted third-quarter fiscal 2016 adjusted earnings of 89 cents per share that missed the Zacks Consensus Estimate of 92 cents and also declined 1.1% from the year-ago period.

Net sales came in at $5,320 million, an increase of 5% from the prior-year quarter. However, net sales came below the Zacks Consensus Estimate of $5,360 million, consequently marking the 13th straight quarter of revenue miss. Following the results, the company’s shares declined nearly 7% during pre-market trading session.

The company’s comparable-store sales declined 0.1% year over year primarily due to fall in traffic. While strength was witnessed in the consumables category, comparable store sales in the seasonal, apparel and home categories declined.

Sales in the Consumables category jumped 5.5% to $4,137.7 million, while the Seasonal category witnessed a 3.6% rise in sales to $575.9 million. Home products sales increased 3.7% to $329.7 million and Apparel category sales grew 1.9% to $276.7 million.

Gross profit increased 3.3% to $1,587.5 million, while gross margin contracted 50 basis points (bps) to 29.8% due to increased markdowns, on account of inventory clearance and promotional activities, a higher percentage of of sales of consumables as well as increased inventory shrink.

Operating profit declined 7.3% to $393 million, whereas operating margin decreased 100 bps to 7.4%.

DOLLAR GENERAL Price, Consensus and EPS Surprise

DOLLAR GENERAL Price, Consensus and EPS Surprise | DOLLAR GENERAL Quote


Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $200.2 million, long-term obligations of $2,673.2 million and shareholders’ equity of $5,361.9 million. During the first nine months of fiscal 2016, the company incurred capital expenditures of $406 million.

The company bought back 2.9 million shares during third-quarter fiscal 2016. Since the commencement of the share repurchase program in Dec 2011, the company has bought back 70.2 million shares aggregating $4.3 billion. On Aug 24, 2016, the company announced an additional share repurchase program of $1 billion, thereby increasing the share repurchases authorization to nearly $1.2 billion.

Store Update

Dollar General opened 768 new outlets and remodeled or relocated 861 outlets during the first nine months of fiscal 2016. As per the company’s long-term growth model provided on Mar 10, 2016, the company plans to open about 900 new stores, and relocate or remodel around 875 stores during fiscal 2016. During fiscal 2017, the company plans to open about 1,000 stores and remodel or relocate approximately 900 stores. As of Oct 28, 2016, Dollar General operated 13,205 stores across 43 states.

Outlook

Dollar General provided more conservative view for fiscal 2016. On Mar 10, the company provided long-term growth model and stated that it expects earnings to fall in the range of 10% to 15%. However, the company now expects earnings growth for fiscal 2016 to be at the low end of the earlier guidance of 10% to 15%.

For fiscal 2017, the company is planning to increase square footage growth by nearly 7.5%.

Other Stocks to Consider

Dollar General’s currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks worth considering include The Children's Place, Inc. PLCE, sporting a Zacks Rank #1 (Strong Buy) while PVH Corp. PVH and Nordstrom Inc. JWN , both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place has an average positive earnings surprise of 36.3% in the trailing four quarters. The stock, with a long-term growth rate of 10.3%, has seen positive estimate revisions in the last 30 days.

PVH has a long-term earnings growth rate of 11% and the company’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 7.9%.

Nordstrom’s long-term EPS growth rate of 9.7% and solid positive estimate revisions for the current fiscal in the past 30 days aid it to stand strong in the industry. Moreover, the company has delivered back-to-back earnings beat in the last two quarters.

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