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Dollar General Corporation (DG - Analyst Report) posted better-than-expected second-quarter fiscal 2013 results, wherein earnings of 77 cents a share surpassed the Zacks Consensus Estimate of 74 cents, and jumped 11.6% from the year-ago quarter. Consumables category was the driving factor behind the sturdy results.

Including one-time items, earnings came in at 75 cents a share compared with 64 cents earned in the prior-year quarter.

Net sales increased 11.3% to $4,394.7 million, reflecting a 13% jump in the Consumables category to $3,301.8 million. The Seasonal category witnessed a 7.3% rise in sales to $575.9 million, while Home products increased 3.7% to $265.4 million. Sales in the Apparel category rose 7% to $251.5 million.

Higher traffic and average transaction count led to 5.1% growth in comparable-store sales. Net sales also came ahead of the Zacks Consensus Estimate of $4,353 million.

Sale of consumables category continue to improve, primarily buoyed by the introduction of tobacco products and robust sales of perishables and candy and snacks.

Gross profit increased 9% to $1,377.3 million, while gross margin contracted 65 basis points to 31.3% during the quarter. The decline reflected higher sales of low margin products like consumables. Moreover, inventory shrinkage also hampered margins.

Adjusted operating profit increased 8.6% to $421.3 million, whereas adjusted operating margin shriveled 24 basis points to 9.6%.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $169.2 million and shareholders’ equity of $5,231.5 million. 

The company lowered its interest expense to $20.6 million from $35.7 million in the year- ago quarter. Long-term obligations (including the current portion) were $2,871.1 million. The company had incurred $309 million in capital expenditures during the first-half of 2013.

Dollar General bought back 3.9 million shares for $200 million during the quarter. Since the commencement of share repurchase program in Dec 2011, the company has bought back 23.6 million shares aggregating $1.1 billion.  

Stores Update

Dollar General opened 375 new outlets and remodeled or relocated 377 stores during the first-half of 2013. Going ahead, the company plans to open 650 new stores, up from 635 forecasted previously.  Moreover, it plans to remodel or relocate about 550 stores.

Guidance

Dollar General continues to project fiscal 2013 earnings in the range of $3.15 to $3.22 per share. The current Zacks Consensus Estimate for the year is $3.20 per share.

Total sales are expected to rise by 10% to 11% year over year, while same-store sales are expected to increase by 4% to 5%. Gross margin is expected to decline when compared with the prior year by about 90 basis points, while adjusted operating profit is expected to be in the range of $1.73 billion to $1.77 billion.

Interest expense is forecasted to be $95 million, while it projects capital expenditures in the range of $575 million to $625 million.  

Other Stocks to Consider

Currently, Dollar General, which operates 10,866 stores, holds Zacks Rank #2 (Buy). Other stocks worth considering in the retail sector include Citi Trends, Inc. (CTRN - Analyst Report), which carries Zacks Rank #1 (Strong Buy) and Ross Stores Inc. (ROST - Analyst Report) and The Buckle, Inc. (BKE - Snapshot Report), both of which sport a Zacks Rank #2 (Buy).

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