Dollar General Q4 Earnings Top, Guides FY16, Ups Dividend

Dollar General Corporation DG came up with the fourth straight quarter of positive earnings surprise with its fourth-quarter fiscal 2015 results. The company posted quarterly earnings of $1.30 per share that beat the Zacks Consensus Estimate of $1.27, and rose 11.1% from the year-ago period on the back of higher sales and share repurchase activity. The stock is up roughly 5% during pre-market trading hours.

Net sales came in at $5,286.9 million and increased 7% from the prior-year quarter. However, net sales came marginally below the Zacks Consensus Estimate of $5,293 million, thus missing on revenues for 10 quarters in a row.

Consistently increasing traffic and average transaction value led to 2.2% growth in comparable-store sales. Strength witnessed across tobacco products, perishables, candy and snacks, and seasonal and home categories was partially offset by the softness witnessed in apparel.

Sales in the Consumables category jumped 7.1% to $3,914.3 million, while the Seasonal category witnessed a 7.7% rise in sales to $738 million. Home products sales increased 7.9% to $364.1 million and Apparel category sales grew 3.3% to $270.5 million.

Gross profit increased 7.5% to $1,682.3 million, while gross margin expanded 12 basis points to 31.8% due to a better inventory shrink rate and lower transportation costs, partly offset by higher markdowns. Operating profit grew 8.1% to $612.4 million, whereas operating margin increased 11 basis points to 11.6%.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $157.9 million, long-term obligations of $2,969.2 million and shareholders’ equity of $5,377.9 million.

During fiscal 2015, the company incurred capital expenditures of $504.8 million. Management projects capital expenditures in the band of $550 million to $600 million for fiscal 2016.

The company bought back 17.6 million shares for $1.3 billion during fiscal 2015. Since the commencement of the share repurchase program in Dec 2011, the company has bought back 62 million shares aggregating $3.6 billion. The company still had approximately $920 million remaining under its share repurchase authorization.

Dollar General’s board of directors hiked the quarterly cash dividend by 14%. The first-quarter fiscal 2016 dividend of 25 cents a share will be paid on Apr 12, 2016 to stockholders on record as of Mar 29. During fiscal 2016, the company expects to return about $1.3 billion to stockholders via dividends and share repurchases.

Store Update

Dollar General opened 730 new outlets and remodeled/relocated 881 outlets. The company plans to open about 900 new stores and relocate or remodel around 875 stores during fiscal 2016. Further, the company plans to achieve new store openings square footage growth of 6% to 8% in fiscal 2016. As of Jan 29, 2016, Dollar General operated 12,483 stores across 43 states.

Guidance

Dollar General now anticipates earnings per share growth of 10% to 15% in fiscal 2016. The company expects net sales to increase between 7% to 10% and comparable-store sales to grow in the range of 2% to 4% during the fiscal year.

Zacks Rank

Dollar General currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the retail sector include Express Inc. EXPR, sporting a Zacks Rank #1 (Strong Buy), and Target Corp. TGT and Foot Locker, Inc. FL with a Zacks Rank #2 (Buy).

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