Dollar General Shares Soar 4.5% on Dividend Hike & Upbeat Outlook

Shares of Dollar General (NYSE: DG) gained 4.5% on March 17 after the discount retailer delivered strong fourth-quarter results that met estimates. The company also increased its quarterly dividends by 31%.

On top of that, the company provided upbeat FY2022 guidance and a robust store growth outlook.

Q4 Performance

Q4 adjusted earnings of $2.57 per share decreased 4.2% year-over-year but came in a cent ahead of analysts’ expectations of $2.56 per share. The company reported earnings of $2.62 per share in the prior-year period.

Net sales grew 2.8% year-over-year to $8.7 billion and met consensus estimates of $8.69 billion. The increase in revenues reflected sales contributions from new stores, which offset a 1.4% decline in same-store sales and store closures.

However, gross profit declined 131 bps to 31.2% in the fourth quarter due to higher product costs, transportation and distribution costs, and a greater contribution to sales from the lower-margin consumables category.

Dividend Hike

Concurrent with the earnings release, Dollar General raised its quarterly dividend by 31% to $0.55 per share from $0.42 previously. The dividend is payable on April 19 to shareholders of record on April 5.

Dollar General’s CFO John Garratt commented, “We expect to return significant cash to shareholders in the form of a dividend increase, as compared to 2021, and share repurchases, including an estimated benefit from the 53rd week.”

FY2022 Outlook

Based on the ongoing uncertainty from the current geopolitical conflict, as well as a recovery from the impact of the COVID-19 pandemic, the company provided guidance for FY2022.

For FY2022, the company forecasts adjusted earnings to grow in the range of 12%-14%. This equates to EPS of $11.49 at the midpoint compared to FY2021 EPS of $10.17 and is higher than the consensus estimate of $11.12 per share.

Furthermore, net sales for FY22 are forecast to grow 10% and will benefit approximately two percentage points from the 53rd week. Same-store sales are expected to grow 2.5%, and revenue is forecast at $36.82 billion

Notably, for the full year, the company reaffirmed its plans to execute 2,980 real estate projects, including 1,110 new store openings, 1,750 remodels, and 120 store relocations.

For the first quarter, adjusted earnings are likely to range between $2.25 and $2.35 per share, lower than the consensus estimate of $2.73 per share. Same-store sales are projected to decline by 1% to 2% during the 13-week quarter ending April 29.

CEO Comments

Looking ahead, Dollar General’s CFO John Garratt cautioned, “While we anticipate a challenging first quarter due to elevated cost pressures, ongoing supply chain disruptions, and the prior year sales and gross margin comparison, both of which were positively impacted by stimulus payments, we are confident in our full year plan, including our outlook for sales and EPS growth.”

CEO Todd Vasos stated, “Despite a more challenging than expected operating environment, our teams remained focused on executing our operating priorities and advancing our strategic initiatives, which we believe position us well for solid sales and profit growth in 2022 and beyond.”

Wall Street’s Take

Following the Q4 results, Wells Fargo analyst Edward Kelly increased the price target on Dollar General to $255 (14.9% upside potential) from $220 and reiterated a Buy rating.

Kelly raised his EPS estimates on Dollar General for FY2022 and FY2023 based on “a constructive update” provided by the company during the earnings call. The analyst also cautioned that there could be some risk as the guidance is “back-half weighted”.

Consensus among analysts is a Strong Buy based on 8 Buys and 2 Holds. The average Dollar General stock forecast of $244.18 implies 10% upside potential to current levels.

Investors Weigh In

TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Dollar General, with 6.8% of investors increasing their exposure to DG stock over the past 30 days.

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