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Dollar General (DG) Beats on Q1 Earnings, Raises FY21 View

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In spite of a challenging backdrop, Dollar General Corporation (DG - Free Report) reported stronger-than-anticipated first-quarter fiscal 2021 results. Management informed that the most recent round of government stimulus payment did have a favorable impact on the company’s performance. While the top line declined marginally year over year, the bottom line increased meaningfully. Following a stellar start, the discount retailer raised its fiscal 2021 outlook.

We note that shares of Dollar General were up during the pre-market trading hours on May 27. This Zacks Rank #3 (Hold) stock has increased 3.8% in the past three months compared with the industry’s rally of 12.1%.

Let’s Delve Deeper

Quarterly earnings was $2.82 per share that comfortably beat the Zacks Consensus Estimate of $2.14 and increased 10.2% from $2.56 reported in the prior-year period.

We note that net sales of $8,401 million decreased marginally by 0.6% from the prior-year period owing to the impact of store closures and decline in same-store sales. However, positive contributions from new stores did provide some cushion. Again, the top line surpassed the Zacks Consensus Estimate of $8,193 million for the 12th straight quarter.

Dollar General’s same-store sales fell 4.6% year over year, thanks to lower customer traffic, partly offset by rise in average transaction amount. While seasonal, apparel, and home products categories favorably impacted the metric, consumables category hurt the same. Management notified that consumer behavior driven by stimulus payments favorably impacted sales in non-consumable product categories.

Sales in the Consumables category decreased 4.9% to $6,378.1 million, while the same in Seasonal category witnessed a rise of 14.4% to $1,050.4 million. Home Products sales increased 14.7% to $571.3 million, while Apparel category sales grew 22% to $401.1 million.

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

Gross profit jumped 6.2% to $2,755.7 million during the quarter under review. Notably, gross margin expanded 208 basis points to 32.8% due to lower markdowns and a reduction in inventory shrink, coupled with higher initial markups on inventory purchases and a significant proportion of sales coming from the non-consumables product categories, which usually carry a higher gross profit rate. These were partly offset by rise in transportation expenses.

Meanwhile, selling, general and administrative expenses, as a percentage of net sales, deleveraged 152 basis points to 22% in the quarter. Further, operating profit grew 4.9% to $908.9 million, whereas operating margin increased to 10.8% from 10.3% in the year-ago period.

Store Update

Todd Vasos, chief executive officer, said, “During the first quarter, we executed more than 800 real estate projects, including new store openings in our pOpshelf and larger footprint Dollar General formats.”

During the quarter, Dollar General opened 260 new stores, remodeled 543 stores and relocated 33 stores. For fiscal 2021, the company remains on track to carry out 2,900 real estate projects. This includes 1,050 new store openings, 1,750 remodels and 100 relocations.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $688.1 million, long-term obligations of $4,130.7 million and shareholders’ equity of $6,249.9 million. As of Apr 30, 2021, total merchandise inventories, at cost, came in at $5,099.5 million, up 17.6% on a per-store basis from the year-ago period.

Management incurred capital expenditures of $278 million during the quarter under review. For fiscal 2021, the company reaffirmed its capital expenditures projection of $1.05-$1.15 billion.

During the quarter, the company repurchased 5 million shares of worth $1 billion. The company had $1.7 billion remaining under the authorization at the end of the quarter. The company now expects to make share repurchases of approximately $2.2 billion in fiscal 2021 compared to its prior expectation of roughly $1.8 billion.

Outlook

Management cautioned that there remains significant uncertainty related to the severity and duration of the ongoing pandemic, and its impact on the economy, consumer behavior and the business. As a result, it is tough to forecast specific outcomes. Additionally, the company said, “In addition, such outcomes could be impacted by several variables, which include, but are not limited to, any additional government stimulus payments, economic recovery, employment levels, COVID-19 vaccine status, and the ongoing impact of the COVID-19 pandemic.”

Nonetheless, the company’s first-quarter results were positively impacted by fresh round of stimulus checks. Better-than-expected results prompted management to lift fiscal 2021 view.

Notably, Dollar General now envisions fiscal 2021 net sales in the band of down 1% to up 1% and same-store sales to decline in the range of 3-5%. The company now anticipates earnings between $9.50 and $10.20 per share. The Zacks Consensus Estimate for fiscal 2021 is currently pegged at $9.51.

We note that the company had earlier predicted fiscal 2021 net sales to be flat to down 2% and same-store sales to decline in the band of 4-6%. The company had earlier guided earnings between $8.80 and $9.50 per share.

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