Dollar General Adjusts Forecast, Sees Gross Profit Slide

The company said that same-store sales rose 5.1% in the second quarter, driven by increased sales of consumables. The company specifically noted tobacco sales and strong sales of perishables, candy and snacks.

In its outlook statement, Dollar General said it expects full-year sales to rise 10% to 11% above the 2012 total and same-store sales are forecast to rise 4% to 5%. At the beginning of the 2013 fiscal year the top end of these ranges was one point higher.

Gross profit as a percentage of sales fell by 77 basis points in the second quarter, and the company forecasts full-year gross profit down 0.9%. Operating profit, forecast in March in a range of $1.78 billion to $1.845 billion, is now forecast at $1.73 billion to $1.77 billion.

Adjusted full-year EPS is now forecast at $3.15 to $3.22. The current consensus EPS estimate from analysts is $3.21.

The company’s CEO said:

We are very pleased with the increase in customer traffic in our stores. We continue to grow our market share and believe that our second quarter results position us well to deliver our financial outlook for the year.

Yearly gross profit was flat, at 31.7% . Positive factors included higher inventory markups and a lower provision for inventory. Weighing on gross profit were higher markdowns, a smaller impact from price increases, and a reduction in shrinkage. Operating profit rose from 10.1% in 2011 to 10.3% in in 2012.

Dollar General repurchased $220 million in its own stock in the first half of 2013. The company now has $424 million remaining for share repurchases.

The company has increased the number of new stores it plans to open in 2013, from 635 to 650. In the first half of the current fiscal year Dollar General opened a net 360 new stores and now claims a total of 10,866 stores in operation.

In our earnings preview yesterday, we noted the now more moderate growth in the discount variety store sector. Dollar General’s second-quarter performance and lowered outlook do not change our view of these stores’ futures.

Shares are up about 1.7% in premarket trading Wednesday morning at $54.80, in a 52-week range of $39.73 to $56.10. Thomson Reuters had a consensus analyst price target of around $59.50 before today’s results were announced.