Dollar General Corp. (DG, Financial) closed the first quarter reporting an EPS, adjusted to one-time charges, of $1.03, flat from the comparable quarter of 2016, and beat analysts’ expectations on earnings by 3 cents. The difference between actual EPS and forecasted EPS generated a positive surprise of 3%.
Source: Yahoo Finance
Without the adjustments of 1 cent for long-term obligations’ early retirement, Dollar General’s net income was $1.02 per diluted share or $279 million at the end of the first quarter on quarterly revenue of $5.61 billion.
Dollar General’s first-quarter net income was 5.3% lower than one year ago when the company reported a net income of approximately $295 million. First-quarter revenue was 6.5% higher than the revenue that came in from the comparable quarter of 2016.
Source: Yahoo Finance
Dollar General beat analysts’ expectations on first-quarter revenue by $20 million since analysts forecasted that revenue would come in at $5.59 billion as it is shown by the picture above. This forecast was an average figure calculated as a mean of 24 estimates of analysts who were surveyed.
The 6.5% increase in sales – on a year-over-year basis – was primarily driven by a higher average amount spent by consumers in Dollar General’s stores, even though the company reported lower customer traffic with more consumable goods and apparel sold. The opening of 293 new stores (a 17.7% increase from first-quarter 2016) also contributed to the year-over-year increase in sales. Decline in sales due to the closure of old stores (-7.7% from first-quarter 2016) and fewer products sold in the seasonal and home categories was not enough to completely counterbalance the positive influence from the aforementioned factors. Please note that the sales decline in the categories of home products and apparels refer to the same store, that is those Dollar General stores that have been open for at least one year.
When new store sales are also included in the analysis, Dollar General reported sales of $4.3 billion in consumables (up 6.8% on a year-over-year basis), $662.6 million in seasonal products (up 6.2%), a $333.15 million in home products (up 3.2%) and $298.3 million in apparel (up 6.7%).
Dollar General ended the first quarter with a store count of 13,601 for a total square footage of sales space of approximately 101 million, 7.2% growth from the square footage of the comparable quarter of 2016.
The gross profit for the first quarter was 30.3%, lower 34 basis points than the gross profit rate of the first quarter of 2016 because of higher discounts applied at stores and higher consumables products sold.
During the quarter, the company also reported an increase in labor costs. Selling, general and administrative expense increased on a year-over-year basis by 8.3% to $1.23 billion in the first quarter.
Dollar General reported a 37.2% tax rate on the income for the first quarter. In the comparable quarter of 2016 the tax rate was 35.4%.
The company generated a cash flow of approximately $510.5 million from operations, a 26.4% increase on a year-over-year basis. Dollar General used funds of $143.4 million as capex. The free cash flow for the first quarter was approximately $367 million, of which the company returned $160 million to its shareholders in the form of dividends paid for $71.294 million and buyback of its own ordinary shares for $88.76 million.
Dollar General says that “the company repurchased $89 million, or 1.3 million shares, under its share repurchase program in the first quarter at an average price of $70.86 per share” and adds that “share repurchases for fiscal 2017 continue to be forecasted to be approximately $450 million.”
For the fiscal year, which will end February 2018, the company forecasts that the diluted EPS, according to the GAAP, will range between $4.25 and $4.50. The company forecasted a 5% to 7% increase in net sales and that the capex will range between $715 million and $765 million. Dollar General confirmed a 2% increase in sales at the same stores.
Dollar General's board of directors declared a quarterly 26 cents per share cash dividend. The shareholders of record on July 11 will receive the payment of the dividend on July .25
The company closed the quarter with approximately $206 million in cash on hand and securities for a quick ratio of 0.17 and a current ratio of 1.39. The quick ratio and the current ratio of Dollar General’s peers are 0.60 and 1.20, according to reuters.com.
Total debt amounts to $3.03 billion as of the first quarter for a debt-equity ratio of 54.86 versus the industry average of 48.29. The company has an interest coverage ratio of 22.35 – versus an industry average of 251.94 – which indicates Dollar General does not have any trouble paying interest expenses on outstanding debt.
The stock is currently trading around $78.91 per share with a price-earnings (P/E) ratio of 17.81, a price-book (P/B) ratio of 4.02 and a price-sales (P/S) ratio of 0.99. The forward P/E ratio is 15.94.
For full fiscal 2017 analysts forecast Dollar General will generate an EPS of $4.51. When we multiply the forecasted EPS by the forward P/E ratio we obtain a value of $71.89 per share which is lower than the stock's current market value. The stock is trading slightly above its 52-week low of $66.50 per share. The 52-week high price is $96.88 per share.
The analysts’ average target price for Dollar General is $80.31 per share, which represents an upside of 1.8% from the current share price.
The recommendation rating sits between buy and hold at 2.5 out of 5.
Annually, the stock rose 11.24% over the last five years. For next year, analysts forecast an annual growth of 6.92%.
Disclosure: I have no positions in Dollar General.
