3 Key Takeaways From Dollar General's Third Quarter

Shares of discount-retailer Dollar General  (NYSE: DG  ) were up more than 5% on Thursday's open following the second-quarter report. Analysts had estimated revenue of $4.4 billion and earnings per share of $0.70.Dollar General met on revenue and beat with EPS of $0.74. Profits were up 14% and comparable-store sales grew more than 4%. So Dollar General delivered on the key metrics. But what else was revealed in the earnings release?

Here are three key takeaways from Dollar General's third-quarter press release.  

1. Strength in lead segment 
Consumables remained Dollar General's leading segment in the third quarter with nearly 12% year-over-year growth. Seasonal and home products were tied at 7.3% growth while apparel grew more than 2%. Apparel growth had slowed due to the company's planned reduction in inventory.

Candy and tobacco drove the consumables growth and the segment now accounts for about 76% of total net sales. Discount stores in general remain strong in consumables because the low prices are hard to beat. Growth in the other segments has slowed as Wal-Mart drops prices to remain competitive and eats away some of the customer base that discount stores wooed during the recession. 

But Dollar General has managed particularly good comps growth this quarter. Family Dollar Stores'  (NYSE: FDO  ) consumables were up 8.3% but performance in that segment was offset by a nearly 5% comps loss in apparel and accessories that lead to a flat quarter overall.

2. Buyback and leaseback
Dollar General repurchased 3.5 million shares of outstanding common stock in the third quarter to the tune of $200 million. That brings the buyback total up to $1.3 billion since the program began in late 2011. The company used the press release to announce the approval of an additional $1 billion in future buybacks.

The company also has a leaseback program in progress. Last month, Dollar General announced plans to sell and lease back 233 buildings the company currently owns. The process should finish next month and bring in $200 million.

3. Full-year guidance
Dollar General updated its full-year guidance to EPS between $3.18 and $3.22. Analyst estimates are at the high end of that guidance, but Dollar General has a history of outperforming on EPS.

The company expects revenue to increase around 10% on last year's $16 billion, which is down from previous guidance but would come in near analyst estimates. Dollar General expects comps to grow between 4% and 4.5%, which is also down slightly from previous guidance. 

Foolish final thoughts 
Dollar General continues to win on consumables sales but is also making a smart move in scaling back the under-performing apparel segment. The beat over Family Dollar also suggests that Dollar General has the more desirable inventory. Guidance was adjusted down this quarter but the year should still come in around analyst estimates.

Tired of watching your stocks creep up year after year at a glacial pace?
Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2756061, ~/Articles/ArticleHandler.aspx, 4/20/2014 7:49:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.