Why Dollar General Earnings Fell Flat

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Dollar General Corp. (NYSE: DG) reported its fiscal second-quarter financial results before the markets opened on Thursday. The company watched its shares stumble early on Thursday after it reported a miss on both the top and bottom lines, not to mention weaker-than-expected guidance for the fiscal year and weak same-store sales.

The company said that it had $1.08 in earnings per share (EPS) on $5.39 billion in revenue. The consensus estimates from Thomson Reuters had called for $1.09 in EPS on $5.5 billion in revenue. In the same period of last year, Dollar General posted EPS of $0.95 and revenue of $5.1 billion.

Same-store sales increased 0.7%, driven primarily by an increase in average transaction amount, offset by a decline in traffic. Same-store sales increases were driven by positive results in the consumables category, accompanied by results in the seasonal category that were flat when compared to the 2015 second quarter, offset by negative results in the apparel and home categories.

During the second quarter, Dollar General repurchased 2.5 million shares of its common stock under its share repurchase program. Since the inception of the program in December 2011 through this quarter, the company has repurchased 67.3 million shares totaling $4.0 billion.

The board of directors authorized an additional $1.0 billion for share repurchases, increasing the total authorization for future repurchases to approximately $1.4 billion. The company has a total market cap of roughly $25 billion.

In terms of guidance for the fiscal year, the company expects to have EPS growth in the range of 10% to 15% and capital expenditures in the range of $580 million to $630 million. The consensus estimates for the full year call for $4.64 in EPS (compared with $3.96 in EPS in the previous year) on $22.41 billion in revenue.

Todd Vasos, CEO of Dollar General, commented:

We are pleased with our 2016 second quarter diluted earnings per share growth of 14 percent over the 2015 second quarter, although our same-store sales performance fell short of our expectations. Retail food deflation and a reduction in both SNAP participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger than expected headwinds to our business. The competitive environment also intensified in select regions of the country. Importantly, even amidst a challenging sales environment, we effectively managed our gross profit margin and leveraged our selling, general and administrative expense as a percent of sales.

On the books, Dollar General’s cash and cash equivalents totaled $185.0 million at the end of the quarter, up from $180.5 million at the end of the same period of last year.

Shares of Dollar General traded down more than 11% to $81.14 shortly after Thursday’s opening bell, with a consensus analyst price target of $99.71 and a 52-week trading range of $59.75 to $96.88.