Dollar General Beats, Lifts Outlook - Analyst Blog - Dollar General (NYSE:DG)

Dollar General Corporation (DG), the discount retailer, recently posted better-than-expected second-quarter 2010 results as the budget-constrained consumers remained inclined toward lower-priced stores amid a fragile economy.

The quarterly earnings of 42 cents a share beat the Zacks Consensus Estimate of 38 cents, and jumped 44.8% from 29 cents earned in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 41 cents, reflecting a growth of 41.4% from the year-ago quarter.

The stronger-than-expected results prompted management to lift its outlook. Goodlettsville , Tennessee based company, Dollar General, now expects fiscal 2010 earnings between $1.68 and $1.74 per share, up from $1.62 to $1.69 previously anticipated.

Dollar General remains committed to improve sales and manage cost effectively to sustain its growth momentum. Revenue for the quarter climbed 10.8% to $3,214.2 million due to the rise in sales registered across Consumables categories (up 11.9%), Seasonal (up 11.3%), Home Products (up 4.8%) and Apparel (up 4.7%). However, total sales fell short of the Zacks Consensus Revenue Estimate of $3,220 million.

Comparable-store sales grew 5.1% during the quarter, as the retailer witnessed increase in traffic count and average transaction amounts. Management now expects fiscal 2010 sales to rise between 8.5% and 10.5%, including an increase of 4% to 6% in comparable-store sales.

Despite 9.1% increase in cost of goods sold, gross profit for the quarter jumped 14.3% to $1,036 million aided by top-line growth, whereas gross margin expanded 101 basis points to 32.2%. Operating profit beefed up by 29% to $300.8 million, whereas operating margin increased 140 basis points to 9.4%. Dollar General now expects operating profit to rise by 20% to 23%.

Dollar General, which faces stiff competition from Family Dollar Stores Inc. (FDO), targets to open about 600 new stores and to remodel or relocate about 500 stores in fiscal 2010. Till date, the company has opened 315 new stores and relocated or remodeled 301 stores.

The company ended the quarter with cash and cash equivalents of $281.4 million, total long-term debt of $3352.4 million, reflecting a decline of $785.4 million from the prior-year quarter, and shareholders’ equity of $3,682.8 million. Year-to-date capital expenditures were $163.1 million. Dollar General now expects fiscal 2010 capital expenditures to be about $350 million.

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