Dollar General Corp.’s fourth-quarter earnings report was better than Wall Street’s consensus estimates, and strategic investments that include a plan to open 1,000 new stores in 2020 will help it grab market share gains.
In a Nutshell: “We are very pleased with our fourth quarter results, capping off a strong year of performance across the company,” CEO Todd Vasos said. “Our full-year results were highlighted by double-digit diluted [earnings per share] growth, as well as our 30th consecutive year of same-store sales growth. During the fourth quarter, we delivered a healthy 3.2 percent increase in same-store sales, as well as strong margin performance. In addition, we executed well across many fronts, including our operating priorities and strategic initiatives.”
The company said it is monitoring the COVID-19 pandemic. “Based on information currently known by management, the company does not anticipate that supply chain disruptions experienced to date as a result of the coronavirus outbreak are likely to have a material impact on its fiscal 2020 financial results.
Dollar General also reiterated plans to open 1,000 new stores and remodel 1,500 others this year. That compares with the 975 new stores and 1,024 remodeled doors completed in 2019. The company ended the quarter with a total of 16,278 doors.
“Dollar General’s report stands out relative to its dollar store peers, like Dollar Tree and Five Below, and most retailers. The company is also among the best positioned to deal with a more challenging macro environment, given the nature of its business. Overall, Dollar General’s strategic investments are fueling market share gains and bolstering the operating model,” Joseph Feldman, retail analyst at Telsey Advisory Group, said following an initial review of the retailer’s earnings report.
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Net Sales: For the quarter ended Jan. 31, net sales rose 7.6 percent to $7.16 billion from $6.65 billion. Same-store sales rose 3.2 percent.
Gross profit for the quarter was $2.27 billion, or 31.8 percent of net sales. After selling, general and administrative expenses, the operating profit was $720.9 million, or 10.1 percent of net sales. The company said total merchandise inventories, at cost, were $4.7 billion on Jan. 31, up 7.8 percent from $4.1 billion on Feb. 1, 2019, the end of the year-ago quarter.
“The healthy comp of 3.2 percent beat our projection of 2.5 percent and [Fact Set] of 2.8 percent, reflecting continue market share gains,” Feldman said.
Earnings: Net income jumped 10.8 percent to $535.4 million, or $2.10 a diluted share, from $483.2 million, or $1.84, in the year-ago quarter.
Wall Street was expecting diluted EPS at $2.01 on revenue of $7.15 billion.
The company’s guidance for fiscal 2020, ending Jan. 29, 2021, projects net sales growth between 7.5 percent to 8 percent, with same-store sales growth at between 2.5 percent to 3.0 percent. Dollar General also estimated diluted EPS growth of 11.5 percent, and plans capital expenses between $925 million to $975 million, including those connected with investments for the retailer’s strategic initiatives.
The company said its diluted EPS growth estimate includes the anticipated impact of ongoing tariff rates on certain imports from China.
While 2020 EPS growth, translated to an estimated $7.40, is slightly below Feldman’s estimate of $7.43, the analyst concluded that 2020 guidance “could prove conservative, based on history.” He has an “Outperform” rating on shares of Dollar General.
CEO’s Take: “Our value-and-convenience proposition continues to resonate with both new and existing customers, and our unique real estate footprint remains a competitive advantage. As we enter 2020 from a position of strength, we will continue to keep our core customer at the center of all we do, while remaining steadfast in our efforts to deliver long-term shareholder value,” Vasos said.