Dollar General Corporation (DG) posted strong fiscal 2010 fourth-quarter adjusted earnings of 65 cents a share, up 27.5% from the year-ago earnings of 51 cents a share and ahead of the Zacks Consensus Estimate of 59 cents a share. Earnings including special items came in at 64 cents a share in the reported quarter.
For fiscal 2010, adjusted earnings came in at $1.88 per share compared with $1.31 per share in fiscal 2009. Adjusted earnings comfortably beat the Zacks Consensus Estimate of $1.82 per share. Earnings including special items came in at $1.82 per share.
Quarterly Details
Dollar General’s total revenue grew 9.4% in the final quarter to $3,486.1 million from $3,185.8 million in the prior-year quarter. Same-store sales for the period increased 3.8%. Total revenue fell short of the Zacks Consensus Estimate of $3,523 million.
Dollar General’s quarterly gross profit increased 10.2% year over year to $1,130.2 million, while gross margin expanded 23 basis points to 32.4%. The increase was primarily attributable to increased net markups, which were the result of the company’s sustained category management efforts and higher volumes.
Adjusted selling and administrative expenses for the quarter grew 5.7% to $717.2 million from $678.3 million in the year-earlier period. However, as a percentage of net sales, selling and administrative expenses decreased 72 basis points to 20.6% attributable to lower incentive compensation and maintenance expense.
Adjusted operating income for the quarter grew 19% to $413 million. Operating margin came in at 11.8%, reflecting an expansion of 95 basis points from the year-ago period. The increase in operating margin was a result of higher gross margin and lower selling and administrative expense.
Merchandise inventories were up 9% year over year to $1.77 billion. Dollar General ended the year with cash and cash equivalents of $497.4 million compared with a cash balance of $222.1 million in the year-ago period. Long-term obligations for the quarter came in at $3,287.1 million. During the year, the company spent $420 million on capital expenditure.
Outlook
Dollar General expects total sales to increase in the range of 11% to 13% on the back of same-store sales increase of 3% to 5% in fiscal 2011. Operating profit for the year is expected to accelerate by 14% to 16%. The company expects to earn in the range of $2.20 to $2.30 per share in fiscal 2011.
The company expects to incur capital expenditure in the range of $550 million to $600 million of which 55% will be used for store relocation and opening of new stores, 25% for special projects and 20% for maintenance capital. The company expects to open 625 new stores and remodel or relocate a total of approximately 550 stores in 2011.
Dollar General Corporation operates as a discount retailer of general merchandise in the southern, southwestern, midwestern, and eastern United States. The company is in direct competition with Dollar Tree Inc. (DLTR) and Family Dollar Stores Inc. (FDO).
We maintain our long-term “Neutral” recommendation on Dollar General. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward directional pressure on the stock over the near term.
DOLLAR GENERAL (DG): Free Stock Analysis Report
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