Stock of Dollar General Rises After Profit Beat, Same-store Sales Surprise

Shares of Dollar General Corp. initially surged, but later declined on Thursday following the discount retailer's unexpected rise in same-store sales for the latest quarter alongside a pessimistic profit forecast for the current quarter.

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According to a transcript from FactSet of the post-earnings call with analysts, CEO Vasos remarked, "Customers are continuing to feel the impact of the last two years of inflation, which we believe is driving them to make tradeoffs in the store." Meanwhile, Chief Financial Officer Kelly Dilts noted during the call that after experiencing fewer markdowns in recent years, the promotional landscape in 2024 is anticipated to revert to pre-pandemic norms, leading to heightened promotional discounting.

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The DG stock initially surged by as much as 6.9% shortly after the opening bell, before sharply reversing course to decline by 3.5% in morning trading. The intraday peak of $168.07 marked the highest price observed since August 10, 2023.

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This fluctuation in the stock's trajectory occurred following government data indicating persistent inflation levels that concerned the Federal Reserve. It also coincided with Dollar Tree Inc.'s stock declining the day prior due to a quarterly profit miss, a gloomy outlook, and plans to shutter 600 Family Dollar stores this year.

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For the quarter ending February 2, Dollar General reported a decline in net income to $401.8 million, or $1.83 per share, compared to $659.1 million, or $2.96 per share, in the same period last year. However, this surpassed the FactSet consensus of $1.73 per share.

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Net sales decreased by 3.4% to $9.86 billion, partly due to one less week in the latest quarter compared to the previous year, but exceeded the FactSet consensus of $9.77 billion.

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Furthermore, same-store sales, which measure sales of stores open for at least a year, grew by 0.7%, with a nearly 4% rise in customer traffic offsetting a decline in the average transaction. Analysts had predicted a 1% decrease.

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The growth in same-store sales was driven by strength in the consumables category, encompassing food, cleaning products, and health and beauty items, partially offset by weakness in home products, apparel, and seasonal categories.

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The gross margin decreased by approximately 1.4 percentage points to 29.5%, primarily due to increased shrink and inventory markdowns. Additionally, selling more consumables, which typically have lower margins, contributed to the decline.

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Dollar General reported ending the year with $7 billion worth of merchandise inventory, up 3.5% from the previous year but down 1.1% on a per-store basis.

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Looking forward, the company anticipates first-quarter EPS of $1.50 to $1.60, below the current FactSet consensus of $1.88, although same-store sales for the quarter are expected to increase by 1.5% to 2%, surpassing expectations of a 0.3% rise.

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For fiscal 2024, Dollar General forecasts EPS of $6.80 to $7.55, aligning with the FactSet consensus of $7.42, with projected same-store sales growth of 2% to 2.7% compared to expectations of 1.1% growth.

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CFO Dilts remarked, "[I]nflation continues to impact our customer as they make trade-offs in the aisle and we anticipate the related sales mix headwind-to-gross margin will continue in 2024."

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Over the past three months, the company's stock has risen by 16.5%, outpacing the S&P 500's gain of 9.3%.

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