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Dollar General (DG) Shares Likely Range Bound Following Q3 Report; Results Bode Well for Other Dollar Retailers

Dollar General Corporation ( DG ) reported financial results for its fiscal 2011 third quarter ended October 28, 2011 early Monday morning. Shares of Dollar General are trading up 1.1 percent to $56.85 just minutes after the opening bell.

Sales increased 11.5 percent from the same quarter last year to $3.60 billion, just topping the Street consensus of $3.57 billion. Same-store sales increased 6.3 percent, better than the the 4.2 percent reported in the year-ago quarter.

Cost of goods sold totaled $2.48 billion and accounted for 68.96 percent of total sales, relatively flat on a year-over-year percentage basis.

Gross profit fell 40 basis points to 31 percent, while operating profit rose 13 percent to $311 million, or 8.6 percent of total sales.

Net income was $171 million, or $0.50 per share diluted, compared to net income of $128 million, or diluted EPS of $0.37 in the third quarter of fiscal 2010. Earnings per share exceeded the Street's consensus of $0.47 per share.

The company ended the quarter with $118.58 million in total cash and cash equivalents, well below the $497.44 million in the beginning of the year.

"Dollar General delivered another great quarter, and we expect to continue to build upon our strong track record of delivering excellent results for our shareholders," said Rick Dreiling, chairman and chief executive officer. "Our same-store sales increased 6.3 percent in the third quarter, representing our third consecutive quarter of accelerating same-store sales growth and demonstrating our ability to balance the challenges of pricing and rising input costs."

The company also announced a $500 million buyback program.

For full year 2011, Dollar General's outlook calls for adjusted diluted earnings per share in the range of $2.29 to $2.32 based on 345 million weighted average diluted shares, assuming $185 million of share repurchases in the fourth quarter. The company had previously FY11 EPS to $2.20-$2.30. The Street is estimating earnings of $2.29 per share for the fiscal year 2011 on $3.57 billion in total sales. Dollar General's guidance also calls for total sales for the full year will increase by 13 percent while same-store sales are expected to increase by 5.6-5.8 percent. Management reported plans to open approximately 625 new stores in fiscal year 2011 and another 625 stores in fiscal year 2012.

Mr. Dreiling commented, "For the holiday season and into 2012, we expect our customers to remain very interested in value and in ways to make their dollars go further. November sales were strong. Our Thanksgiving week and Black Friday sales suggest that we are well positioned to meet our customers' expectations."

An analyst at Deutsche Bank said the third-quarter upside was largely driven by strong same-store sales results and slightly lower-than-expected interest expense and tax rate. The analyst believes shares will continue to remain range bound following the release, but also said Dollar General's third-quarter results "bode well for Family Dollar ( FDO ) and Dollar Tree (Nasdaq: DLTR)."

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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