Dollar General Hit By Hurricane-Related Expenses

Image Source: Valuentum

By Brian Nelson, CFA

On December 5, Dollar General (DG) reported mixed third quarter results with revenue exceeding the consensus forecast, but GAAP earnings per share coming up short relative to expectations. Net sales increased 5% in the quarter thanks to positive sales contributions of new stores and same-store sales expansion of 1.3%, which reflected increases of 1.1% in average transaction amount and 0.3% in customer traffic. In the quarter, operating profit fell more than 25% and diluted earnings per share fell nearly 30%, however, as the company suffered from hurricane-related expenses.

Management had the following to say about the quarter:

We are pleased with our team’s execution in the third quarter, particularly in light of multiple hurricanes that impacted our business. We are proud of the way our team responded to serve our communities, demonstrating the commitment and dedication to fulfilling our mission of Serving Others that is pervasive throughout our organization.

While we continue to operate in an environment where our core customer is financially constrained, we delivered same-store sales near the top end of our expectations for the quarter. We believe our Back to Basics efforts contributed to these results, as we have continued to improve our execution and the customer experience in our stores.

Looking ahead, we are excited about our robust real estate plans for 2025. We believe our balance of new store growth and a significantly increased number of projects impacting our mature store base will further solidify Dollar General as an essential partner to communities in rural America, while strengthening our foundation to drive long-term sustainable growth and shareholder value.

At the end of the quarter, Dollar General’s total merchandise inventories, at cost, were $7.1 billion compared to $7.4 billion at the end of last year’s quarter. During the third quarter, the company opened 207 new stores, remodeled 434 stores, and relocated 27 stores. Dollar General has $1.4 billion of total remaining authorization on its share repurchase program, but the company did not buy back any stock during the third quarter. The company ended the quarter with $537.3 million in cash and cash equivalents and short- and long-term obligations of $6.2 billion. For the 39 weeks ended November 1, 2024, net cash provided by operating activities was $2.2 billion, while the company spent $1.04 billion in capital, resulting in free cash flow of $1.16 billion for the period.

Looking to fiscal 2024, Dollar General’s net sales growth is expected in the range of 4.8%-5.1% compared to prior expectations of 4.7%-5.3%. Same-store sales growth for the year is targeted in the range of 1.1%-1.4% compared with prior expectations in the range of 1%-1.6%. Diluted earnings per share for the year is now anticipated in the range of $5.50-$5.90 compared to prior expectations of $5.50-$6.20. For fiscal 2025, Dollar General plans to execute 4,885 real estate projects, including opening roughly 575 new stores in the U.S., up to 15 new stores in Mexico, fully renovating approximately 2,000 stores, remodeling roughly 2,250 stores, and relocating approximately 45 stores. Though its same-store sales growth and store expansion initiatives are noteworthy, Dollar General no longer makes the cut for inclusion in any of the newsletter portfolios.

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