Discount retailer Dollar General (NYSE:DG) opens its doors bright and early tomorrow morning, and the crowds are already forming to see what Q1 2006 earnings it will report. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Eighteen analysts follow Dollar General. Four of them rate the stock a buy, 11 a hold, and three a sell.
- Revenues. Analysts will be looking for 8% sales improvement tomorrow. The target is $2.1 billion.
- Earnings. Profits, however, are expected to decline 15% to $0.17 per share.
What management says:
Dollar General nailed the analyst estimates for sales this quarter. Earlier this month, it reported precisely the 8% improvement that Wall Street was looking for. Same-store sales also increased, albeit just 1.4% -- a weaker showing than several of its competitors. Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) grew their same-store sales 3.6% and 5.1%, respectively, this past quarter. Closer competitor DollarTree (NASDAQ:DLTR) came in with 4%.
Don't expect Dollar General to surprise on profits, either. According to the sales release, "gross margin . has been negatively affected by the mix of sales ... Sales in the higher-margin home and apparel departments have been below the Company's projections." Meanwhile, "rising fuel costs have contributed to higher-than-anticipated transportation expenses."
What management does:
Based on the already-established sales numbers and the disappointing news on margins, expect to see more of the usual from Dollar General when it reports tomorrow -- namely, a continuation of the steady downward march that all of the company's margins have experienced for the last five quarters.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
2/06 |
|---|---|---|---|---|---|---|
|
Gross |
29.2 |
29.5 |
29.3 |
29.2 |
28.8 |
28.7 |
|
Op. |
6.9 |
7.3 |
7 |
6.9 |
6.6 |
6.6 |
|
Net |
4.2 |
4.5 |
4.3 |
4.3 |
4.1 |
4.1 |
One Fool says:
Good news may not be entirely lacking tomorrow, however -- not if Dollar General keeps on doing the one thing it's been doing right. Over the last six-month period, as sales rose 11% versus last year, Dollar General kept tight rein on its inventories, allowing them to grow just 4%. The risk I see tomorrow is that management's warning of "below-expectations" sales in the home and apparel departments -- where goods tend to have longer shelf lives than do, say, food products -- means we'll also see that inventories have grown faster than in recent quarters.
I hope that won't be the case. Dollar General investors deserve to see at least some light at the end of this tunnel, and the company's continued production of decent free cash flow ($212 million generated in the last six months, versus GAAP net profits of $210 million), which depends in large part on good management of working capital, is one of the few line items still glowing here.
Competitors:
- Dollar Tree (NASDAQ:DLTR)
- Fred's (NASDAQ:FRED)
- 99 Cents Only (NYSE:NDN)
Wal-Mart and Dollar Tree are Motley Fool Inside Value recommendations. For more top-notch stocks at bargain-basement prices, try a free 30-day guest pass.
Fool contributor Rich Smith does not own shares of any company named above.
