March 22, 2012 / 11:47 AM / 8 years ago

Dollar General sales, profit continue to rise

(Reuters) - Dollar General Corp (DG.N) posted higher-than-expected holiday-quarter earnings and sales as more shoppers came into its U.S. discount stores and spent more per visit, and it expects its momentum to continue this year.

Shares of Dollar General, which packs a variety of general merchandise into thousands of small stores, rose 4.1 percent to $46.59 in morning trading on the New York Stock Exchange.

Analysts were generally pleased with the results, with profit and sales both exceeding Wall Street expectations.

Dollar General’s forecast for the current fiscal year appears “readily achievable and potentially on the conservative side,” said Bernstein Research analyst Colin McGranahan.

Still, JP Morgan analyst Matthew Ross said that within the “robust” dollar store sector he prefers Family Dollar Stores Inc FDO.N over Dollar General right now, as Family Dollar is earlier in its turnaround and has a relatively new chief operating officer, Michael Bloom, leading those efforts.

Dollar General, which prices most of its merchandise below $10, has generally done well as high unemployment, gas prices and food prices push those on very limited budgets to cut back on spending. However, shoppers have focused on buying essentials such as food, crimping sales of clothes and discretionary items.

During the fourth quarter, more shoppers visited its stores and they spent more when they shopped, although Dollar General said some of that increased spending was due to inflation.

Sales at stores open at least a year rose 6.5 percent and beat the company’s forecast of a 5 percent increase in same-store sales.

The company’s sales gains outpace those of key rivals. In their most recent quarters, same-store sales at Wal-Mart Stores Inc’s (WMT.N) Walmart U.S. chain and Family Dollar rose 1.5 percent and 4.1 percent, respectively.

SALES, PROFIT SET TO RISE THIS YEAR

Dollar General’s profit rose to $292.5 million, or 85 cents per share, in the fourth quarter ended February 3, from $222.5 million, or 64 cents per share, a year earlier.

Adjusted earnings per share, which exclude certain expenses, rose to 87 cents from 65 cents and exceeded analysts’ average forecast of 82 cents, according to Thomson Reuters I/B/E/S.

Sales rose 20.1 percent to $4.19 billion, while analysts expected $4.11 billion. Excluding sales during an extra week in the quarter, sales rose 11.8 percent.

Dollar General said this year’s same-store sales would rise 3 percent to 5 percent, and total sales would rise 8 percent to 9 percent. It forecast earnings per share of $2.65 to $2.75, up from $2.22 last year. Analysts expect it to earn $2.71 per share.

The company has nearly 10,000 U.S. stores and plans to open another 625 this year, the same amount it opened in 2011. About 80 of the new stores are set to open in new markets for Dollar General such as California, Nevada, Connecticut, Massachusetts and New Hampshire.

Dollar General said that during the first half of the year, it foresees modest contraction in its gross profit rate and higher expenses related to strategic investments as it starts running two new distribution centers and opens stores in California.

Dollar General is majority-owned by private equity firm Kohlberg Kravis Roberts & Co LP KKR.UL, which brought the Goodlettsville, Tennessee-based company back to the public market in November 2009.

During the fourth quarter, Dollar General repurchased 4.9 million shares from Buck Holdings LP, its controlling shareholder which is controlled by affiliates of KKR and Goldman Sachs. The company said it still has $315 million left under a $500 million buyback authorization.

Reporting by Jessica Wohl in Chicago and Phil Wahba in New York; editing by Mark Porter, Dave Zimmerman

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