Earnings Preview : Dollar General Corp. (NYSE: DG) Second Quarter 2010
Thursday, August 26, 2021 10:51 AM

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Dollar General Corp. is scheduled to report its Q2 2010 results after the market closes on August 30, 2010. The Company remains committed to continuing its focus on productive sales growth, increasing gross margins, leveraging process improvements and information technology to reduce costs and strengthening and expanding Dollar General's culture of serving others. The volatility of the macroeconomic environment, including sustained rates of high unemployment, continues to pressure the consumer in general. Dollar General is closely monitoring how consumers respond to both the economic and the competitive climate. Based on first quarter results, the Company continues to expect total sales for the 2010 fiscal year to increase eight to ten percent, including an increase in same-store sales of four to six percent. The Company plans to open approximately 600 new stores and to remodel or relocate a total of approximately 500 stores in 2010. Capital expenditures are expected to be in the range of $325 million to $350 million, with approximately 50 percent relating to new stores, remodels and relocations, 25 percent for maintenance capital and 25 percent for special projects, including the expansion of the 78-inch store profile and point-of-sale upgrades.

Dollar General Corporation is a discount retailer of quality general merchandise at everyday low prices. Through conveniently located neighborhood stores, the Company offers a focused assortment of consumable basic merchandise including health and beauty aids, packaged food products, cleaning supplies, housewares, stationery, seasonal goods, basic apparel and domestics.

As for Q1 2010, net income was $136.0 million, or diluted earnings per share of $0.39, compared to net income of $83.0 million, or diluted EPS of $0.26, in the first quarter (13 weeks) of fiscal 2009. Excluding items totaling approximately $15.0 million relating to a secondary offering of the Company's common stock by certain existing shareholders during the 2010 first quarter, adjusted net income increased 75 percent to $145.4 million, or $0.42 per diluted share. Sales increased 11.9 percent to $3.11 billion in the 2010 first quarter compared to $2.78 billion in the 2009 first quarter. Same-store sales increased 6.7 percent in the 2010 quarter and 13.3 percent in the 2009 quarter, with customer traffic and average transaction amount contributing to the same-store sales increases in both periods. Sales were strongest in the consumables and seasonal categories. The 2010 gross profit rate increased by 136 basis points to 32.1 percent of sales from 30.8 percent of sales in the 2009 period. First quarter 2010 operating profit increased by 29 percent to $290.7 million, or 9.3 percent of sales, compared to $224.9 million, or 8.1 percent of sales, in the 2009 first quarter. Excluding the expenses relating to the secondary offering discussed above, first quarter 2010 operating profit would have been $305.8 million, or 9.8 percent of sales. Interest expense was $72.0 million in the 2010 first quarter compared to $89.2 million in the 2009 first quarter due to lower average outstanding borrowings resulting from the Company's repurchases of long-term obligations in fiscal 2009. The effective income tax rate for the 2010 quarter was 37.8 percent compared to a rate of 38.1 percent for the 2009 quarter.

Analysts' estimates for Q2 2010 range from a low of $0.36 to a high of $0.41, compared to a consensus estimate of $0.38, with number of estimates being 9 and a coefficient variance of 3.93. We estimate EPS of $0.39, in line with consensus and comps of 6%. We estimate gross margins of 32.1% representing 88 bps of expansion. If there is a source of upside, we believe it could come from gross margin performance as 2Q is traditionally higher margin than 1Q and we are modeling flat (accounting for any competitive activity and higher diesel fuel costs). We model 9.6% SG&A growth and estimate SG&A as 23.1% of sales.

The stock closed at $28.45 on August 25, 2021 and most analysts' rate this stock an Overweight with an average price target of $35. Investors should view Dollar General and the dollar stores not as cyclical recession plays any longer, but as a growing force in a changing economy. Whether this change becomes permanent is a long-term issue, but the sea change has at least begun. Two things have happened: consumer spending habits have changed, and so have the dollar discounters. Recent weakness in Dollar General's shares set up for a positive risk/reward headed into earnings next week. The market has become concerned over 2H sales and margins estimates and we believe strong 2Q results with reassuring guidance can help lift shares.

 

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