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Summary

  • For the quarter, Dollar General matched analyst estimates but came up short on sales growth, suggesting that the business isn't growing as rapidly as Mr. Market might like.
  • This reinforces my opinion that analyst forecasts might have been asking too much but also suggests that the business is still an attractive long-term prospect.
  • While this information wasn't necessarily anticipated in my earnings preview, it was implied that growth moving forward might be difficult to achieve without acquiring Family Dollar.

After reporting mixed revenue and earnings for the second quarter of its 2014 fiscal year on August 28, shares of Dollar General (NYSE:DG) inched up almost 1% to close at $64.20. According to its press release, revenue for the quarter came in at $4.72 billion. Although this represents an almost 8% gain over the $4.39 billion management reported the same quarter a year earlier, the company fell short of the $4.77 billion analysts anticipated. This increase in sales was driven, in part, by a 2.1% improvement in comparable store sales, with the rest of the jump being chalked up to an increase in store count year-over-year.

Earnings Overview
Last Year'sForecastedActual
Revenue (billions)$4.39$4.77$4.72
Earnings per Share (adj.)$0.77$0.83$0.83

From a profit standpoint, Dollar General did slightly better. For the quarter, the discount giant reported earnings per share of $0.83. This matched analyst expectations and came in 11% above the $0.75 reported the same time a year ago and 8% greater than the $0.77 in adjusted profits the retailer earned. In addition to benefiting from an increase in revenue, the business saw profits increase because of a nearly 7% decline in share count.

In a previous article I wrote on Dollar General, I highlighted that while expectations were high for the quarter, the business's long-term performance implies that there's a lot of upside to be had. Given its strength in the industry, combined with the potential for a buyout of Family Dollar (NYSE:FDO), Dollar General makes for an interesting long-term prospect but with shares trading for 20 times profits, it's far from being a bargain.

Source: Update: Dollar General's Earnings