Dollar General Corporation DG reported third-quarter fiscal 2024 results, wherein the top line beat the Zacks Consensus Estimate and the bottom line missed the same. Also, net sales increased and earnings declined year over year.
Despite operating in a challenging environment where the core customer faces financial constraints, the company delivered same-store sales near the upper range of its expectations for the quarter. The ongoing success of the Back to Basics initiatives likely played a key role in this performance by improving operational execution and enhancing the in-store customer experience.
Moreover, the strategic focus on new store growth, coupled with an increased number of projects targeting improvements to its mature store base, is expected to further solidify Dollar General’s role as a vital partner in rural communities. These efforts are designed to provide a strong foundation for sustainable long-term growth and the creation of shareholder value.
Dollar General Corporation Price, Consensus and EPS Surprise
Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote
More on DG’s Q3 Results
The quarterly earnings of 89 cents per share missed the Zacks Consensus Estimate of 96 cents per share and declined 29.4% from the prior-year period.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Net sales of $10,183.4 million increased 5% year over year and surpassed the Zacks Consensus Estimate of $10,136 million. This increase was primarily driven by contributions from new store openings and growth in same-store sales, though partially offset by the impact of store closures.
Same-store sales grew 1.3% year over year, with a 1.1% rise in average transaction amount and a 0.3% increase in customer traffic. The growth in same-store sales was led by the consumables category, while the home, seasonal and apparel categories experienced declines. We anticipated same-store sales growth of 1% in the third quarter.
DG’s Quarterly Performance: Key Metrics and Margin Insights
For the quarter, net sales by category showed varied performance. The consumables category saw a significant increase of 6.4%, reaching $8.45 billion. Net sales for the seasonal category totaled $940.2 million, remaining flat compared to the same period last year. Home products sales plunged 2.3% to $522.4 million, while apparel saw a decrease of 1.2%, with sales dropping to $275.2 million.
The gross margin shrunk 18 basis points to 28.8%. This contraction in the gross margin was due to higher markdowns, increased inventory damages and a larger share of sales from the consumables category. These factors were partially offset by higher inventory markups, lower shrinkage and reduced transportation costs.
Selling, general and administrative expenses, as a percentage of net sales, increased 111 basis points to 25.7% in the quarter. The rise was mainly driven by higher hurricane-related costs, increased retail labor expenses, and greater depreciation and amortization. These were partially offset by a reduction in professional fees. We had anticipated 50 basis points deleverage in SG&A expenses.
We note that the operating profit declined 25.3% year over year to $323.8 million, whereas the operating margin contracted 130 basis points to 4.5%. We envisioned a 120-basis point decrease in the operating margin.
Dollar General’s Store Expansion & Remodeling Plans
During the quarter, Dollar General opened 207 new stores, remodeled 434 locations and relocated 27 stores. In fiscal 2024, the company plans to undertake 2,435 real estate projects, including 730 new store openings, 1,620 remodels and 85 store relocations.
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DG’s Financial Snapshot
This Goodlettsville, TN-based company ended the quarter with cash and cash equivalents of $537.3 million, long-term obligations of $5.72 billion and total shareholders’ equity of $7.34 billion. Management incurred capital expenditures of $1 billion during the 39 weeks ended Nov. 1, 2024. For fiscal 2024, the company anticipates capital expenditures in the band of $1.3-$1.4 billion.
During the quarter, Dollar General did not repurchase shares. The company had $1.4 billion remaining under its authorization at the end of the quarter. The company did not intend to repurchase shares in fiscal 2024.
What to Expect From Dollar General in Fiscal 2024?
Dollar General now envisions net sales growth between 4.8% and 5.1%, as compared with the prior estimate of 4.7-5.3%. It foresees same-store sales growth to fall between 1.1% and 1.4% compared with the earlier forecast of 1-1.6%. Management now anticipates earnings in the band of $5.50-$5.90 per share, down from the prior guidance of $5.50-$6.20.
The updated outlook accounts for hurricane-related expenses, which totaled $32.7 million in the third quarter and are expected to negatively impact the fourth quarter by approximately $10 million. Both figures reflect costs associated with hurricanes that occurred during the third quarter.
Shares of this Zacks Rank #3 (Hold) company have lost 3.7% in the past three months against the industry’s growth of 7.4%.
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