Earnings Analysis: Dollar General Corp.

Dec.12.12 | About: Dollar General (DG)

Dollar General Corp. (NYSE:DG) reports preliminary financial results for the quarter ended 2012-10-31.

Dollar General Corp. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Dollar General Corp.'s analysis versus peers uses the following peer-set: Wal-Mart Stores Inc. (NYSE:WMT), Costco Wholesale Corp. (NASDAQ:COST), Target Corp. (NYSE:TGT), Dollar Tree Inc. (NASDAQ:DLTR), Family Dollar Stores Inc. (NYSE:FDO) and Big Lots Inc. (NYSE:BIG). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

*CapitalCube recently analyzed earnings for some of the peers in the above list; here are links: Earnings Analysis: Big Lots Inc. , Earnings Analysis: Wal-Mart Stores Inc. and Earnings Analysis: Family Dollar Stores Inc..



Quarterly (USD million) 2012-10-31 2012-07-31 2012-04-30 2012-01-31 2011-10-31
Revenues 3,964.6 3,948.7 3,901.2 4,185.1 3,595.2
Revenue Growth % 0.4 1.2 (6.8) 16.4 0.6
Net Income 207.7 214.1 213.4 292.5 171.2
Net Income Growth % (3.0) 0.3 (27.0) 70.9 17.2
Net Margin % 5.2 5.4 5.5 7.0 4.8
ROE % (Annualized) 17.4 18.2 18.4 25.4 15.3
ROA % (Annualized) 8.2 8.6 8.7 12.0 7.1
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Valuation Drivers

Dollar General Corp.'s current Price/Book of 3.0 is about median in its peer group. The market expects Dollar General Corp. to grow at about the same rate as its chosen peers (PE of 15.7 compared to peer median of 15.4) and to maintain the peer median return (ROE of 20.0%) it currently generates.

The company's relatively high profit margins (currently 5.8% vs. peer median of 4.2%) are burdened by asset inefficiency with asset turns of 1.6x compared to the peer median of 2.6x. Overall, this suggests a margin driven operating model relative to its peers. Dollar General Corp.'s net margin is its highest relative to the last five years and compares to a low of -0.1% in 2008.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 13.6% and better than peer median earnings growth performance 22.1%. Dollar General Corp. currently converts every 1% of change in annual revenue into 1.6% of change in annual reported earnings. We view this company as a leader among its peers.

Dollar General Corp.'s current return on assets is around the same as its peer median (9.3% vs. peer median 8.5%). This recent performance contrasts with its less than peer median return on assets over the past five years (3.9% vs. peer median 8.4%) suggesting that the company's relative operating performance is improving.

The company's gross margin of 33.5% is around peer median suggesting that Dollar General Corp.'s operations do not benefit from any differentiating pricing advantage. However, Dollar General Corp.'s pre-tax margin is more than the peer median (9.2% compared to 6.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While Dollar General Corp.'s revenues have grown faster than the peer median (12.3% vs. 8.0% respectively for the past three years), the market gives the stock an about peer median PE ratio of 15.7. This suggests that the market has some questions about the company's long-term strategy.

Dollar General Corp.'s annualized rate of change in capital of 1.4% over the past three years is less than its peer median of 2.0%. This below median investment level has also generated a less than peer median return on capital of 8.1% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Earnings Quality

Dollar General Corp. has reported relatively strong net income margin for the last twelve months (5.8% vs. peer median of 4.2%). This strong margin performance was accompanied by a level of accruals that was around peer median (1.3% vs. peer median of 1.4%) suggesting that the reported net income is supported by a reasonable level of accruals.

Dollar General Corp.'s accruals over the last twelve months are around zero. This level is also around the peer median suggesting a proper level of reserves.

Trend Charts

Company Profile

Dollar General Corp. operates as a discount retailer in the United States. It offers merchandise items, including consumables, seasonal, home products, private and national branded items that are used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, house wares and seasonal items in convenient neighborhood stores. The company was founded by J. L. Turner and Hurley Calister Turner in 1939 and is headquartered in Goodlettsville, TN.


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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.