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Why Is Dollar General (DG) Up 13.3% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Dollar General Corporation (DG - Free Report) . Shares have added about 13.3% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is DG due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Dollar General Q1 Earnings & Revenues Miss Estimates

Dollar General posted lower-than-expected first-quarter results. In the quarter under review, earnings came in at $1.36 per share falling short of the consensus mark of $1.40. However, the bottom line surged 33.3% year over year, courtesy to higher net sales and share repurchase activity.

Net sales of $6,114.5 million improved 9% from the prior-year quarter but came below the Zacks Consensus Estimate of $6,189 million. Contribution from new outlets favorably impacted the top line.

Moreover, Dollar General’s comparable-store sales increased 2.1% year over year, primarily owing to a rise in average transaction, which marginally overshadowed decrease in customer traffic. Consumables provided a boost to the comparable-store sales, while apparel, seasonal and home categories had a negative impact.

Sales in the Consumables category increased 10.6% to $4,772.4 million, while the same in Seasonal category witnessed a rise of 4.3% to $691 million. Home products sales rose 6.4% to $354.6 million, while Apparel category sales fell 0.6% to $296.4 million.

Gross profit advanced 9.6% to $1,862.2 million, while gross margin expanded 17 basis points (bps) to 30.5%, owing to increased initial inventory markups, partly offset by sales from consumables that carry lower margin and higher transportation costs. Although operating income rose 3.5% to $490.2 million, operating margin contracted 43 bps to 8%.

Store Update

During the quarter, Dollar General opened 241 new stores, remodeled 322 stores and relocated 31 stores. The company plans to open about 900 new stores, remodel 1,000 stores and relocate 100 stores during the fiscal year.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $284 million, long-term obligations of $2,862.5 million and shareholders’ equity of $6,236.3 million. The company incurred capital expenditures of $165 million during the quarter. For fiscal 2018, it continues to anticipate capital expenditures in the range of $725-$800 million.

The company bought back 1.6 million shares for $150 million during the quarter. Since the commencement of the share repurchase program in December 2011, the company has bought back 83 million shares aggregating $5.3 billion. At the end of the quarter, it has an outstanding authorization of nearly $1.2 billion.

Outlook

Management continues to expect net sales growth of 9% with comparable-store sales increase in mid-two percent range during fiscal 2018. Dollar General also reiterated full year earnings in the band of $5.95-$6.15.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been four revisions higher for the current quarter compared with four lower.

VGM Scores

At this time, DG has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for value and to a lesser degree momentum.

Outlook

DG has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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