Reuters: Global Markets: Dollar General quarterly profit soars past expectations

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Dollar General quarterly profit soars past expectations Mar 25th 2013, 13:17 By Jessica Wohl Mon Mar 25, 2013 9:17am EDT (Reuters) - Dollar General Corp (DG.N) said on Monday sales growth this year could surpass the strength it saw in 2012 as increased demand for food and other basics helps drive gains despite consumers' concerns about the economy. The company's fourth-quarter profit came in well ahead of analysts' expectations despite lighter-than-anticipated sales growth. The results were "reasonably solid ... despite a challenging environment and sluggish consumer," said Bernstein analyst Colin McGranahan, who rates Dollar General shares "outperform." The shares rose 4.9 percent to $52.50 in premarket trading. Through Friday, the shares were up 13.6 percent this year, surpassing rivals. Shares of Family Dollar Stores Inc (FDO.N) were down 3.2 percent in that period, while shares of Wal-Mart Stores Inc (WMT.N) were up 8.9 percent. Dollar General generally does well when economic concerns push consumers on limited budgets to cut spending. It prices most of its merchandise below $10, and about 25 percent of the items it carries are priced at $1 or less. However, competitors led by Wal-Mart's Walmart chain have stepped up their focus on goods priced at $1 or less, putting added pressure on the so-called dollar stores such as Dollar General. Those chains have responded by stepping up their advertising and starting to sell items such as cigarettes to bring shoppers into their stores more often. Dollar General, with more than 10,500 stores in rural and urban parts of the United States, positions itself as being more convenient than big-box stores such as Walmart. Amid rising gasoline prices, proximity to low-income shoppers is key as consumers want to make shorter trips to cut down on spending. High gasoline prices can also put pressure on Dollar General's transportation costs, and with tough price competition, it cannot always raise prices to offset those higher costs. PROFIT UP Dollar General earned $317.4 million, or 97 cents per share, in the fourth quarter ended on February 1, up from $292.5 million, or 85 cents per share, a year earlier. Sales rose 0.5 percent to $4.21 billion. Analysts, on average, expected 90 cents per share on sales of $4.26 billion, according to Thomson Reuters I/B/E/S. Gross profit as a percentage of sales was 32.5 percent, up from 32.2 percent a year earlier, helped by a reduction in an inventory charge and other factors. While the sales growth "was a bit weaker than our forecast, the company more than made up for this through a better-than-expected gross margin," said BB&T Capital Markets analyst Anthony Chukumba. He has a "hold" rating on the shares. Sales at stores open at least a year, or same-store sales, rose 3 percent. The same-store sales surpassed a 1 percent rise in such sales at Walmart U.S. in its fourth quarter, yet came in at the low end of Dollar General's forecast of 3 to 4 percent growth. The sales gains at existing stores were helped primarily by consumables, or items such as food and household basics. More shoppers came into the stores and spent more on their purchases, the discount chain said. Dollar General expects to earn $3.15 to $3.30 per share on an adjusted basis this year, with total sales up 10 percent to 12 percent and same-store sales up 4 percent to 6 percent. Total sales rose 8.2 percent in 2012, or 10.4 percent excluding the impact of an extra week in 2011. Same-store sales rose 4.7 percent. (Reporting by Jessica Wohl in Chicago; Editing by Lisa Von Ahn, Chizu Nomiyama and John Wallace) Link this Share this Digg this Email Reprints

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