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Dollar General (DG) Q4 Earnings Miss, Stock Up on Upbeat View

Dollar General CorporationDG reported fourth-quarter fiscal 2017 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. Despite reporting lower-than-expected top- and bottom-line performance the company's shares are up roughly 8% in pre-market trading owing to rise in comparable sales and robust fiscal 2018 outlook. In a year's time, the stock has gained 21.9%, outperforming the industry 's rally of 13.7%.

In the quarter under review, adjusted earnings per share came in at $1.48 missing the consensus mark by a couple of cents after surpassing estimates in the trailing four quarters. Further, the bottom line declined 0.7% on a year-over-year basis.

Net sales came in at $6,129.4 million and improved 2% from the prior-year quarter. Increase in sales was driven by robust performance of consumables and seasonal categories. However, the metric came below the Zacks Consensus Estimate of $6,220 million. The company, which had an extra week of operations in fiscal 2016, negatively impacted the reported quarter earnings by nearly seven percentage points.

Moreover, Dollar General's comparable-store sales increased 3.3% year over year primarily owing to rise in average transaction, marginally overshadowed decrease in customer traffic. Consumables, seasonal and seasonal categories provided a boost to the comparable-store sales, while the home products and apparel had a negative impact.

Sales in the Consumables category increased 2.8% to $4,629.5 million while the same in Seasonal category witnessed a rise of 2.4% to $820.2 million. Home products sales decreased 2.9% to $393.5 million, while Apparel category sales fell 3.9% to $286.3 million.

Gross profit advanced 3.4% to $1,965.4 million, while gross margin increased 43 basis points (bps) to 32.1% owing to increased initial inventory markups and decrease in markdowns. Although operating rose 8.4% to $623.4 million, operating margin contracted more than 110 bps to 10.2%.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $267.4 million, long-term obligations of $2,604.6 million and shareholders' equity of $6,125.8 million. In fiscal 2017, the company incurred capital expenditures of $646 million. For fiscal 2018, it anticipates capital expenditures to be in the range of $725-$800 million.

The company bought back 7.1 million shares for $580 million in fiscal 2017. Since the commencement of the share repurchase program in December 2011, Dollar General has bought back 81.4 million shares aggregating $5.1 billion. At the end of the year, it has an outstanding authorization of nearly $354 million. On Mar 15, 2018, the company increased the share buyback program to $1 billion.

Additionally, management raised the quarterly dividend by to 29 cents per share that will be payable on Apr 24, 2018 to shareholders of record as on Apr 10.

Outlook

Management anticipates net sales for fiscal 2018 to increase by 9% year on year. Same store sales are expected to soar in mid-two percentage in the same time period. Further, earnings for the fiscal are expected in the range of $5.95-$6.15. The consensus estimate for fiscal 2018 is currently pegged at $5.62, which is likely to witness upward revisions in the coming days.

Moreover, this Zacks Rank #2 (Buy) company intends to open roughly 900 outlets, relocate 100 and remodel 1,000 stores. As of Feb 2, 2018, Dollar General operated 14,534 stores across 44 states.

Other Stocks to Consider

Burlington Stores, Inc. BURL delivered an average positive earnings surprise of 15% in the trailing four quarters. It has a long-term earnings growth rate of 18.6% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The Gap, Inc. GPS pulled off an average positive earnings surprise of 11.1% in the trailing four quarters. The company has a long-term earnings growth rate of 8% and a Zacks Rank of 2.

Nordstrom, Inc. JWN has delivered a positive earnings surprise in the preceding three out of four quarters. The company carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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