A good year for Dollar General (DG 94.03, +3.18, +3.5%) shareholders is getting even better following the discount retailer's third quarter earnings report. That's because the earnings report itself was good, but more importantly so was the company's guidance.
Shares of DG, which were up 22.7% for the year as of Wednesday's close, are up another 3% today after the company reported an 11% increase in net sales, a 4.3% increase in comparable sales, and an 11% increase in diluted earnings per share of $0.93, which includes an estimated net negative impact of $0.05 due to the hurricanes.
One of the more uplifting takeaways from the report was the understanding that the same-store sales increase was driven by an increase in both average transaction amount and customer traffic. In other words, Dollar General saw more customers visit its stores and those customers spend more on average than the year-ago period.
The latter is the best combination a retailer can hope for, because it suggests they are on target with their merchandise and their marketing, which is no easy feat in the competitive retail industry landscape.
It resonated, too, that Dollar General was able to boost its gross profit rate by eight basis points to 29.9% on higher initial inventory markup and an improved rate of inventory shrink.
Dollar General's earnings growth would have been stronger if not for a pickup in SG&A expense as a percentage of net sales, which jumped from 22.5% to 22.9%. That pickup was attributed in large part to higher retail labor expenses -- which wasn't necessarily surprising given the increased investment other retailers, and particularly Walmart (WMT 97.08, +0.31, +0.3%), have been making in their employees.
Perhaps the best takeaway from Dollar General's report, though, is that it served as a reminder that the company is holding its own in the face of competition from the likes of Dollar Tree Stores (DLTR 107.20, +1.68, +1.6%) and Walmart. Moreover, it's a testament to the understanding that the dollar stores are fairly insulated with their ultra-low price points from Amazon.com's (AMZN 1156.26, +3.91, +0.3%) competitive influence.
Dollar General's guidance has not triggered any undue concerns either about its prospects in the important holiday selling season.
The company narrowed its GAAP diluted earnings per share guidance range for fiscal 2017 from $4.35 to $4.50 to $4.37 to $4.47, citing the estimated net negative impact in the third quarter from the hurricanes.
Its fiscal 2017 net sales growth, meanwhile, is projected to be approximately 7%, compared to prior guidance of 5-7%, and same store sales are anticipated to be up 2.5%, versus its prior expectation of being at the upper end of slightly positive to up 2%.