By Jessica Wohl
Sept 4 Dollar General Corp posted
better-than-expected second-quarter results on Wednesday as
efforts such as selling cigarettes and more brand-name products
The discount retailer's shares rose about 4.1 percent, or
$2.33, to $56.21 in early trading.
Dollar General stood by the lowered full-year profit
forecast it gave in June, even though its second-quarter
earnings per share was 3 cents better than Wall Street expected.
"They're probably being somewhat cautious given the
uncertainty in the economy," said John Tomlinson, head of retail
at ITG Investment Research. "Investors are cheering the results.
It's a little bit of a relief rally."
When Dollar General cut the top of its full-year profit
forecast, it warned of moderating sales growth and declining
margins as frugal shoppers were making it difficult to raise
prices. However, the 5.1 percent sales growth at stores open at
least a year in the second quarter matched the growth it posted
a year earlier, and exceeded competitors' results.
Dollar stores have been battling increased competition from
Wal-Mart Stores Inc and other large discount chains,
which are increasingly chasing budget-conscious consumers by
offering more items priced at $1.00 or less.
Wal-Mart, however, posted a surprising decline in quarterly
U.S. same-store sales as people limited discretionary spending
due to higher taxes and gasoline prices. The company also cut
its full-year revenue and profit forecasts.
Dollar General has been boosting sales for several months by
adding tobacco products to its lineup. Selling items such as
cigarettes drive sales, as many of its customers tend to use
tobacco more often than consumers overall. However, the margins
on such products are thin and pressure overall profit margins.
Total sales rose 11.3 percent to $4.39 billion in the
quarter, beating market estimates of $4.36 billion.
Same-store sales increased 5.1 percent. Analysts had
expected such sales to rise 4.2 percent.
Along with beating the decline in same-store sales at
Walmart U.S., Dollar General's same store sales were better than
a 3.7 percent increase at Dollar Tree Inc and a 2.9
percent increase at Family Dollar Stores Inc in the
latest periods those rivals reported.
Demand was strong for tobacco products, fresh food, candy
and snacks, the company said.
"Much of the sales gain was driven by low margin products
that continued to place pressure on the company's gross margin,"
said BB&T Capital Markets analyst Anthony Chukumba.
Gross profit dropped 65 basis points to 31.3 percent of
sales in the second quarter, a smaller decline than in the first
quarter, when it fell 89 basis points to 30.6 percent.
People were hoping for anything better than a decline of 90
basis points, Tomlinson said, citing conversations with his
clients and others.
The company stood by its June full-year profit forecast of
$3.15 to $3.22 per share. Analysts on average now expect it to
earn $3.21 per share, according to Thomson Reuters I/B/E/S.
Dollar General earned $245.5 million, or 75 cents per share,
in the second quarter that ended Aug. 2, up from $214.1 million,
or 64 cents per share, a year earlier.
On an adjusted basis, Dollar General earned 77 cents per
share. Analysts had expected a profit of 74 cents per share.