Dollar General raises profit view; sales gains beat rivals

Wed Sep 5, 2012 11:03am EDT

A price sign at a Dollar General store in Arvada, Colorado June 2, 2009. REUTERS/Rick Wilking

A price sign at a Dollar General store in Arvada, Colorado June 2, 2009.

Credit: Reuters/Rick Wilking

(Reuters) - Dollar General Corp (DG.N) posted a bigger-than-expected increase in quarterly profit and raised its earnings forecast for the year on Wednesday as more shoppers sought low-priced food and other basic necessities.

The retailer also said its board had authorized the repurchase of up to $500 million of its common stock, beyond the $15 million remaining under a prior $500 million buyback plan.

Dollar General shares were up 1.6 percent at $51.49 after rising as high as $51.90 in morning trading.

Analysts said the earnings were stronger than anticipated largely because of a tax benefit.

Dollar General, which prices most of its merchandise below $10, generally does well when economic concerns such as high unemployment and rising food prices push those on limited budgets to cut spending. The volatile economy is still putting pressure on shoppers, the company said.

The chain said it had earned $214.1 million, or 64 cents per share, in the second quarter ended on August 3, up from $146 million, or 42 cents per share, a year earlier.

Excluding expenses from secondary stock offerings, an adjustment for settling interest rate swaps, and other special items, earnings rose to 69 cents per share and topped the analysts' average forecast of 64 cents, according to Thomson Reuters I/B/E/S.

Sales increased 10.4 percent to $3.95 billion. Sales at stores open at least a year rose 5.1 percent.

Dollar General's sales gains outpaced recent growth at key rivals. In their latest quarters, same-store sales increased 2.2 percent at Wal-Mart Stores Inc's (WMT.N) Walmart U.S. chain, 5.0 percent at Family Dollar Stores Inc (FDO.N) and 4.5 percent at Dollar Tree Inc (DLTR.O).

The 5.1 percent increase in same-store sales "should relieve some of the pressure we have seen on the stock in recent weeks following weaker reports from competitors," said BMO Capital Markets analyst Wayne Hood, who rates Dollar General shares at "outperform."

In late August, shares of Big Lots Inc (BIG.N) plunged after the company slashed its profit forecast on the heels of disappointing quarterly results. U.S. same-store sales at Big Lots, which sells goods that have been overproduced, discontinued, or rejected by other retailers, fell 1.9 percent.

Goodlettsville, Tennessee-based Dollar General, which is opening some larger stores that emphasize food, said it had more customers during the quarter and that they had spent more per visit than a year earlier, on average.

RAISED FORECAST

Dollar General said it expected to earn $2.77 to $2.85 per share this fiscal year, up from a June forecast of $2.68 to $2.78. The new outlook includes 4 cents per share from the favorable resolution of an income tax audit in the second quarter, the company said.

The analysts' average forecast is $2.81 per share.

Dollar General now expects same-store sales to rise 4 percent to 5 percent this year. Previously, the lower end of its forecast was a 3 percent increase. It still expects total sales to rise 8 percent to 9 percent this year.

Key shareholders, including private equity firm Kohlberg Kravis Roberts & Co LP (KKR.N) and Goldman Sachs Group Inc (GS.N), sold some of their Dollar General shares earlier this year. KKR remains the company's largest shareholder, followed by Goldman Sachs.

The new repurchase authorization allows the company to buy its stock in the open market or in privately negotiated transactions. Those deals could include repurchases from Buck Holdings LP, a private investor group controlled by affiliates of KKR and Goldman Sachs, or other related parties, Dollar General said.

Dollar General, which has more than 10,200 stores, now plans to remodel or relocate about 575 of them this year, up from a prior target of 550. It still intends to open about 625 new stores in fiscal 2013.

(Reporting by Jessica Wohl in Chicago; Editing by Lisa Von Ahn and Maureen Bavdek)

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