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Dollar General (DG) Q1 Earnings Beat Estimates, Sales Miss

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Dollar General Corporation (DG - Free Report) posted the fifth straight quarter of positive earnings surprise with first-quarter fiscal 2016 results. The company posted quarterly earnings of $1.03 per share that beat the Zacks Consensus Estimate of 94 cents, and surged 22.6% from the year-ago period on higher sales and share repurchase activity.

Net sales came in at $5,265.4 million and increased 7% from the prior-year quarter. However, net sales came marginally below the Zacks Consensus Estimate of $5,281 million, thus marking the eleventh straight quarter of revenue miss.

Consistently increasing traffic and average transaction value led to 2.2% growth in comparable-store sales. Strength was witnessed at consumables category and in certain non-consumables categories, such as seasonal and home products.

Sales in the Consumables category jumped 7.6% to $4,039.2 million, while the Seasonal category witnessed a 6.4% rise in sales to $623.9 million. Home products sales increased 6.5% to $322.8 million and Apparel category sales inched up 1.5% to $279.5 million.

Gross profit increased 7.6% to $1,612.6 million, while gross margin expanded 16 basis points to 30.6% due to rise in initial inventory markups and decline in transportation costs on account of lower fuel rates, partially offset by increase in sales of consumables category, which carries lower gross profit rate compared with non-consumables category, higher inventory shrinkage, and increased markdowns.

Operating profit grew 12.3% to $480.7 million, whereas operating margin increased 42 basis points to 9.1%.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $187.7 million, long-term obligations of $2,989.7 million and shareholders’ equity of $5,388.4 million. During the quarter, the company incurred capital expenditures of $99 million.

The company bought back 2.7 million shares at an average price of $84.81 per share during the quarter. Since the commencement of the share repurchase program in Dec 2011 through the end of the first quarter, the company has bought back 64.7 million shares worth $3.8 billion. The company still had approximately $693 million remaining under its share repurchase authorization.

Store Update

Dollar General opened 249 new outlets and remodeled/relocated 301 outlets during the quarter. 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 Apr 29, 2016, Dollar General operated 12,719 stores across 43 states.

Zacks Rank

Dollar General currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the retail sector include Delta Apparel Inc. (DLA - Free Report) and The Children's Place, Inc. (PLCE - Free Report) both sporting a Zacks Rank #1 (Strong Buy), and Carter's, Inc. (CRI - Free Report) holding a Zacks Rank #2 (Buy).

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