Discount retailer Dollar General (NYSE:DG) plans to release its fiscal fourth-quarter 2019 scorecard on Thursday before the markets open for trading. The company's 44% share price return in 2019 handily outpaced the S&P 500 index's return of 29%, and it's continued to beat the broader market, falling just 1.5% year to date. (The S&P 500 has shed 8% of its value over the same period.) Can this dollar price point destination keep ahead of major indices? Let's briefly review key numbers and issues that will inform the movement of Dollar General shares following the March 12 release.
Meeting the fiscal 2019 outlook
Following a strong third quarter, Dollar General raised its fiscal year outlook slightly in December. Investors will look for the fourth quarter to bring full-year performance over the finish line in the following 2019 management projections:
- Year-over-year annual net sales growth in the "low 8% range."
- Same-store sales expansion in the mid-to-high 3% range.
- Operating profit improvement of 6%-8%.
- Diluted earnings per share (EPS) of $6.46 to $6.56.
- Adjusted diluted EPS of $6.55 to $6.65.
These numbers appear well within reach. Through the first three quarters of fiscal 2019, sales have increased by 8.5% against the prior year, to $20.6 billion, while same-store sales have advanced by 4.1%. Comparable sales have benefited from both higher traffic and a larger average customer ticket, paced by gains in the seasonal, home, and consumables categories, offsetting weaker apparel sales.
Year to date, diluted EPS of $4.54 has improved by nearly 10% over fiscal 2018. In the fourth quarter, Dollar General will need to book $1.92 in diluted EPS at minimum to meet the bottom of the 2019 per-share earnings target.
While Dollar General doesn't forecast its full-year gross margin, investors have also recently paid special attention to this number, as the organization grappled with the imposition of import tariffs through most of calendar year 2019. Admirably, it managed to hold gross margin essentially flat at 30.2% through the first nine months of the fiscal year.
Shareholders will anticipate a similarly flat or slightly higher gross margin in the fourth quarter, as Dollar General continues to utilize productivity programs to offset tariffs and other cost pressures, including rising freight costs and inventory shrink.
A wrinkle in the earnings report?
Very few earnings releases this season will be unaffected by the shadow of the global COVID-19 epidemic. Dollar General has a choice to include projected impacts in its fiscal 2020 outlook, or, should these prove hard to quantify at this stage, management can provide an unaltered forecast -- with the caveat that the epidemic could affect projections as the year wears on.
This is the route competitor Dollar Tree (NASDAQ:DLTR) took last week, when it released its own fiscal fourth-quarter earnings. Dollar Tree's management issued 2020 guidance exclusive of coronavirus effects, though management did discuss the epidemic in its earnings conference call, noting the slightest impact so far this year on its supply chain.
It will be interesting to see if Dollar General also presents limited initial consequences from COVID-19. Looking further out, it's difficult to parse the potential effect on consumer spending, as any sales bump from an initial rush for household supplies could be negated as customers begin to stay closer to home and/or become subject to geographic quarantines.
As for the company's product availability, investors are already aware that Dollar General has been transitioning some of its Asian supply chains out of China because of tariff impositions last year. In August 2019, CEO Todd Vasos relayed that Dollar General had decreased its reliance on Chinese supply by 7%, although he didn't quantify the total percentage of merchandise still originating from China.
As Chinese distribution networks are only gradually coming back online as new cases of Coronavirus decline in the country, Dollar General may have reaped a benefit from its determination to decrease dependence on Chinese-based goods last year. Shareholders certainly hope this is the case, as continued brisk revenue growth is necessary if the consumer-staples chain is to keep outrunning the broader market this year.