Shares of Dollar General Corporation DGare down roughly 6% during pre-market trading hours, following the company’s soft start to fiscal 2018. This discount retailer posted lower-than-expected first-quarter results, wherein top line missed the Zacks Consensus Estimate for the second quarter in row. Management highlighted that the company encountered with inclement weather condition during the quarter.
We note that even the top and bottom line growth failed to cushion the stock. The company also kept its fiscal 2018 view intact.Notably, in the past six months, the stock has gained 10% compared with the industry’s increase of 11%.
In the quarter under review, earnings came in at $1.36 per share falling short of the consensus mark of $1.40. However, the bottom line of this Zacks Rank #2 (Buy) stock surged 33.3% year over year, courtesy to higher net sales and share repurchase activity.
Net sales of $6,114.5 million improved 9% from the prior-year quarter but came below the Zacks Consensus Estimate of $6,189 million. Contribution from new outlets favorably impacted the top line.
Moreover, Dollar General’s comparable-store sales increased 2.1% year over year primarily owing to rise in average transaction, marginally overshadowed decrease in customer traffic. Consumables provided a boost to the comparable-store sales, while apparel, seasonal and home categories had a negative impact.
Sales in the Consumables category increased 10.6% to $4,772.4 million, while the same in Seasonal category witnessed a rise of 4.3% to $691 million. Home products sales rose 6.4% to $354.6 million, while Apparel category sales fell 0. 6% to $296.4 million.
Gross profit advanced 9.6% to $1,862.2 million, while gross margin expanded 17 basis points (bps) to 30.5% owing to increased initial inventory markups, partly offset by sales from consumables that carries lower margin and higher transportation costs. Although operating income rose 3.5% to $490.2 million, operating margin contracted 43 bps to 8%.