Stock Story -
Discount retailer Dollar General (NYSE:DG) reported results in line with analysts' expectations in Q4 FY2023, with revenue down 3.4% year on year to $9.86 billion. It made a GAAP profit of $1.83 per share, down from its profit of $2.96 per share in the same quarter last year.
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Dollar General (DG) Q4 FY2023 Highlights:
- Revenue: $9.86 billion vs analyst estimates of $9.78 billion (small beat)
- EPS: $1.83 vs analyst estimates of $1.73 (6.1% beat)
- Full year 2024 EPS guidance: $7.67 excluding impact of higher incentive compensation, above expectations of $7.50
- Gross Margin (GAAP): 29.5%, down from 30.9% in the same quarter last year
- Free Cash Flow of $490.1 million, up 92.9% from the same quarter last year
- Same-Store Sales were up 0.7% year on year (beat vs. expectations of down 1.1%)
- Store Locations: 19,986 at quarter end, increasing by 882 over the last 12 months
- Market Capitalization: $34.72 billion
Appealing to the budget-conscious consumer, Dollar General (NYSE:DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.
Discount Grocery StoreTraditional grocery stores are go-tos for many families, but discount grocers serve those who may not have a traditional grocery store nearby or who may have different spending thresholds. Certain rural or lower-income areas simply don’t have a grocery store. Additionally, some lower-income families would prefer to buy in smaller quantities than available at most stores (think one or two paper towel rolls at a time). While online competition threatens all of retail, grocery is one of the least penetrated because of the nature of buying food. Furthermore, those buying small quantities for immediate need are even less likely to leverage e-commerce for these purposes.
Sales GrowthDollar General is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.
As you can see below, the company's annualized revenue growth rate of 8.7% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre as it opened new stores and grew sales at existing, established stores.
This quarter, Dollar General reported a rather uninspiring 3.4% year-on-year revenue decline to $9.86 billion in revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 4.4% over the next 12 months, an acceleration from this quarter.
Same-Store SalesSame-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.
Dollar General's demand within its existing stores has been relatively stable over the last eight quarters but fallen behind the broader consumer retail sector. On average, the company's same-store sales have grown by 2.2% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Dollar General is reaching more customers and growing sales.
In the latest quarter, Dollar General's year on year same-store sales were flat. By the company's standards, this growth was a meaningful deceleration from the 5.7% year-on-year increase it posted 12 months ago. We'll be watching Dollar General closely to see if it can reaccelerate growth.
Key Takeaways from Dollar General's Q4 Results It was good to see Dollar General beat analysts' EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates on a same store sales beat. Another major positive was that its earnings forecast for the full year beat analysts' expectations (when excluding the impact of higher incentive compensation, which Wall Street likely wasn't modeling). Overall, this was a mixed quarter for Dollar General. The stock is up 5.2% after reporting and currently trades at $166.26 per share.