On March 18, 2014, we issued an updated research report on
Dollar General Corporation
) following the company's strong results for the fourth quarter
BURLINGTON STRS (BURL): Free Stock Analysis
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Dollar General's earnings of $1.01 per share came in line with
the Zacks Consensus Estimate and rose 4.1% year over year on the
back of growth across the Consumables category. However, net
sales fell short of the Zacks Consensus Estimate of $4,617 but
increased 6.8% to $4,493.9 million.
We believe that the company's commitment toward better price
management, cost containment, private label offering, effective
inventory management, merchandise and operational initiatives
will drive sales and margin trends, going forward.
Moreover, Dollar General has displayed remarkable comps growth.
The company's comps remained robust despite unfavorable
macroeconomic conditions mainly due to competitive pricing and
strategic store expansion plans, including remodeling and
relocations. Fiscal 2013 marked the 24th consecutive year of
Dollar General now projects first-quarter earnings in the band of
72 to 74 cents and fiscal 2014 earnings between $3.45 and $3.55
per share. For fiscal 2014, total sales are expected to rise by
8% to 9% year over year while comparable-store sales (comps) are
expected to increase by 3% to 4%.
Despite a year-over-year rise in its top and bottom lines, the
stock has witnessed a downtrend in the Zacks Consensus Estimate,
as analysts lowered their estimates to better align with the
company's projection. For the first quarter of fiscal 2014, the
Estimate fell 11% to 73 cents. The Estimate for 2014 fell 4.9% to
$3.53 while for 2015, it went down 3.3% to $4.12 per share, over
the last 30 days.
The increasing gross margin pressure due to rise in sales of low
margin-carrying products, remains a concern. Consumables category
now accounts for 73% of the fourth quarter fiscal 2013 sales
compared with 72% in the prior-year quarter.
Consequently, increased sales of lower margin merchandise weighed
on the company's gross margin, leading it to contract
approximately 58 basis points to 31.9% during the quarter under
review. Higher inventory shrinkage also hurt margins.
Apart from this, Dollar General operates in a highly competitive
discount retail merchandise sector with players like
Family Dollar Stores Inc.
Wal-Mart Stores Inc.
), which is quite challenging.
Currently, Dollar General carries a Zacks Rank #4 (Sell).
Key Picks from the Sector
Another stock worth considering in the sector is
Burlington Stores, Inc.
), which has a Zacks Rank #2 (Buy).