Is Dollar General Worth Your Dollars?

What does the fourth quarter have in store for Dollar General?

Apr 15, 2014 at 10:00AM

Dollar General (NYSE:DG) is among the few retailers which were able to post strong results during this season. Let's see how the company has been able to achieve these results and how it's performing in relation to its peers Big Lots (NYSE:BIG) and Dollar Tree Stores (NASDAQ:DLTR).  

Fourth-quarter results
Earnings for Dollar General grew 4% year-over-year to $1.10 per share, beating analysts' expectations of $1.02 per share. The company identified three important factors that restricted sales; unfavorable climatic conditions, the aggressive promotional environment which prevailed throughout the holiday season, and reduced government assistance that hurt the spending of low-income consumers. Net sales during the quarter grew 6.8% to $4.49 billion, which fell slightly short of analysts' expectations of $4.62 billion. Same-store sales rose 1.3% primarily due to increases in customer traffic and the average transaction amount.

The gross margin shrank 58 basis points to 31.9% from 35.2% in the same quarter of last year. However, SG&A expenses for the company improved 14 basis points.

For fiscal 2013, Dollar General earned $3.20 per share, up 10% from the prior year. Sales grew 9.2% to a record high of $17.5 billion, while same-store sales increased by 3.3%.

What is Dollar General up to?
Since 2011, Dollar General has bought 33.8 million of its common stock worth $1.7 billion. During the fourth quarter, it bought $200 million of common stock. For the current quarter, the company plans to buy another $200 million of common stock, which will bring its buyback authorization to $824 million.

Over the last few quarters, Dollar General has taken several measures to reduce its operating costs. The company has eliminated several less-productive, higher-cost items from its shelves, mainly in the health and beauty care segments, as these high-priced items don't sell that well. Dollar General has also introduced a new stocking program which keeps track of productivity levels across its stores. Store managers will continue to benefit from the "work management system," which assists them in prioritizing and managing their work. Apart from this, the company plans to introduce many work-elimination initiatives in order to streamline work at its stores. On the whole, all these efforts will improve the company's inventory management and help it reduce its day-to-day costs.

According to Bloomberg, Fred's, the regional discount chain, has approached CVS Caremark, Walgreen and Dollar General in regard to a buyout. Fred's pharmacy customers in rural areas are extremely loyal, which is why buyers are interested in buying the discount chain's stores, said Dutch Fox, an analyst at Friedman Billings Ramsey. Though Fred's low operating margins are an issue, buying Fred's stores would mean that Dollar General wouldn't have to do a lot to expand its pharmacy business.

In the current quarter, Dollar General expects per-share earnings of $0.72-$0.74 with 2%-3% growth in same-store sales. For the full year, the retailer anticipates earnings of $3.45-$3.55 per share, which is below the consensus estimate reported by Reuters of $3.69 per share; the analysts expect comps to increase by 3%-4%.

Industry peers
Recently, Big Lots' per-share earnings fell 30% year-over-year to $0.98. Sales also declined 6.2% to $1.64 billion. The bulk discount retailer is striving to revamp its business since it has been suffering from a slowdown in earnings during the last few quarters. The company's abortive attempts to return to profitability in the Canadian market prompted it to cease its operations in the region. In an effort to boost its retail sales, the company is adding more and more freezers and coolers to its stores. Additionally, it has also started to offer furniture financing which it believes will spur sales in the days to come.

Dollar Tree posted a slip in its latest quarterly net income on account of its dwindling sales. Net profit for the quarter decreased 6.8% to $213 million, down from $228.6 million in the year-ago quarter. Although EPS edged up to $1.02 from $1.01 last year, this missed analysts' estimates of $1.05 per share. Same-store sales for the quarter grew merely 1.2%, which fell short of the 1.6% predicted by Retail Metrics. The company is expanding its merchandise selection by adding private-label brands and frozen foods to its stores. Moreover, it has also started to accept food stamps.

Final thoughts
Dollar General's fourth-quarter results encouraged investors, as its earnings and sales continued to increase. However, the gross margin declined slightly, in a point of concern for the company. Nevertheless, Dollar General's decision to eliminate high-cost products will ensure that the retailer increases its profitability this year. Further, the work elimination initiatives and the "work management system" will streamline the company's day-to-day operations, which will result in more productivity. If the company manages to buy some of Fred's stores, its pharmacy business will grow exponentially.

Considering all the aspects discussed above, I believe Dollar General is a good investment choice at this point in time.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Zahid Waheed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers