Discount retailer Dollar General Corp. (DG) Tuesday reported higher profit for the first quarter that met wall Street estimates, but cut its full year view, citing moderating sales growth and a lower-than-expected gross profit rate. The stock is falling close to 7 percent in pre-market activity.
Net income rose to $220.08 million or $0.67 per share from $213.42 million or $0.63 per share in the previous year. The latest results include expenses relating to secondary offerings of stock and losses associated with restructuring the credit facility.
Adjusted earnings per share was $0.71 in the just concluded quarter. On average, 21 analysts polled by Thomson Reuters expected earnings of $0.71 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales increased 8.5 percent to $4.233 billion from $3.901 billion in the prior year. Analysts expected revenues of $4.24 billion.
Same-store sales growth was 2.6 percent, reflecting strong growth in consumables categories offset by softer sales in seasonal and weather-sensitive categories. The retailer attributed the growth to higher customer traffic and increased average transaction amount.
Gross margin fell 89 basis points to 30.6 percent, hurt by higher markdowns, increased mix of consumables, rise in inventory shrinkage and lower initial markups.
Rick Dreiling, Dollar General's chief executive officer, said, "Solid SG&A leverage helped to offset gross margin declines in the first quarter. We believe the continued strength in consumables is a sign of the underlying health of our business."
Looking ahead, adjusted earnings per share are expected to be $3.15 to $3.22. Total sales are estimated to increase 10 to 11 percent from the previous year. Dollar General noted that sales to date in the second quarter are solid.
The company expects same-store sales growth to accelerate to four to five percent for the year as its initiatives such as the rollout of tobacco and Phase 5 planogram changes continue to gain traction. Sales of non-consumables are expected to remain challenging, and the company sees a continued shift to lower margin items within consumables and higher inventory shrink.
The previous forecast was for adjusted earnings in the range of $3.15 to $3.30 per share, along with a total sales increase of 10 to 12 percent and same-store sales growth of 4 to 6 percent.
DG, which closed at $53.55 on Monday, is losing 6.8 percent in pre-market activity.
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