After unsettling investors last quarter with a muted outlook for fiscal 2019, Dollar General's (NYSE:DG) first-quarter results released Thursday indicated that the current year may yet hold promise. The dollar store retailing behemoth posted healthy revenue and comparable sales advances, as well as credible bottom-line growth, in the first three months of 2019. Let's sift through the most important details of the quarter below, and also review management's outlook for the remainder of the year. Note that all comparative numbers in this article are presented against the prior-year quarter.

The raw numbers

Metric Q1 2019 Q1 2018 Change (YOY)
Revenue $6.6 billion $6.1 billion 8.2%
Net income $385.0 million $365.0 million 5.5%
Diluted EPS $1.48 $1.36 8.8%

Data source: Dollar General. YOY = year over year. EPS = earnings per share.  

What happened with Dollar General this quarter?

  • The company's high single-digit top-line advance exceeded management's full-year fiscal 2019 revenue growth expectation of 7%, providing a jump-start for the current twelve-month period.
  • Comparable sales expanded by 3.8%, also exceeding management's full-year outlook, which calls for 2.5% growth.
  • The comps improvement was comprised of positive traffic and a higher average ticket. Both components bode well for Dollar General, as they suggest that the company's customers are remaining loyal even in a moderately accelerating economy. 
  • Gross margin dipped roughly 30 basis points to 30.2%. The company attributed the slight drop to higher distribution and transportation costs and a greater proportion of lower-margin consumables sales. More aggressive initial markups on inventory purchases partially offset these factors.
  • Merchandise inventories jumped 14.5% to $4.11 billion, or roughly 8.2% on a per-store basis. The company explained that it's changing its inventory replenishment process to focus on higher on-shelf availability.
  • Dollar General repurchased $200 million of its own common stock during the quarter, leaving $1.1 billion on its current repurchase authorization. 
  • The company closed the quarter with a store count of 15,597, which equates to a net new store growth rate of 5.6% against the prior-year quarter.
A sign in a dollar store aisle that says $1 Dollar Deals.

Image source: Dollar General. https://newscenter.dollargeneral.com/photos/interior+store+views/

What management had to say

In Dollar General's earnings press release, CEO Todd Vasos alluded to initiatives to drive traffic and improve gross margin that the company has instituted across its store base over the last few quarters:

Our team continued to make great progress on our strategic initiatives this quarter, while remaining focused on our four operating priorities. This hard work and focus led to strong top- and bottom-line growth, and I'm very proud of our achievements. Looking forward, we have a wide variety of initiatives and projects that we believe can help extend our growth trajectory over both the near and longer term. During 2019, we will enter our 80th year of serving others, and we remain dedicated to bringing innovation to our retail channel and delivering on our commitment of value and convenience to our customers. We are excited about our future and believe we are creating long-term value for our shareholders.

The "four operating priorities" Vasos mentions are to drive profitable sales growth, capture growth opportunities (primarily in real estate and new store formats), leverage and enforce the company's position as a low-cost operator, and invest in Dollar General's employee base through increased compensation and benefits. 

Looking forward

Despite vigorous first-quarter results, for now, Dollar General is leaving its full-year outlook unchanged. In addition to 7% annual sales growth and 2.5% comps expansion as discussed above, the company is aiming for operating profit growth of 4%-6%, and projects diluted EPS of $6.30-$6.50 in fiscal 2019.

The EPS goal includes an anticipated full-year share repurchase of approximately $1 billion, and will represent 7% year-over-year growth at the midpoint of the range. Though shareholders certainly would have appreciated a positive revision to earnings guidance, they were pleased enough with the solid start to the year: Shares of Dollar General climbed nearly 6% at the open of Thursday's trading session.