Dollar General Disappoints with 2019 Profit Forecast
- by Maggie Mead
GOODLETTSVILLE, TN - While the discount retailer plans to increase spending on stores to draw in customers, its 2019 profit forecast fell below analysts’ expectation, sending shares down almost 6 percent.
"2018 was a great year for Dollar General and we entered 2019 with a strong foundation for success,"Dollar General Chief Executive Todd Vasos stated in a press release. "Looking ahead to 2019, we are excited to introduce two new transformational strategic initiatives, DG Fresh and Fast Track. DG Fresh, which is designed to enable self-distribution of fresh and frozen products, is already up and running in approximately 300 stores and Fast Track, which we believe will enhance in-store labor productivity and customer convenience, is launching soon. Our team is very excited about the future, and I believe we remain well-positioned to continue delivering best-in-class value and convenience to our customers and creating long-term shareholder value.”
In 2019, the company announced it would spend around $50 million in an effort to switch to self-distribution of fresh and frozen food, and improve shopping convenience and labor productivity, as reported by CNBC. In 2018, the company put efforts into remodeling stores, adding additional refrigeration units, and shortening lines at payment counters.
“It will allow us to control our own destiny in fresh foods,” Vasos said in a company corporate call this week. “Most notably, by distributing perishables ourselves, we can carry more of the fresh products and brands our customers want. These include better-for-you items and national brands. Today there are many items we cannot cost effectively procure through our current model. In addition, self-distribution will allow us to offer a wider selection of our own private brands to provide our customers with even more compelling value.”
The company also has plans in the works to open 975 new stores in the U.S. in 2019, as well as remodel 1,000 older stores to improve upon its checkout lines to increase impulse buys, according to CBS DFW. In 2018 the company opened 900 new U.S. stores, and 1,315 stores in 2017, showing a definitive growth trend.
Despite the 2018 fiscal year marking the company’s 29th consecutive year of same-store sales growth, according to the company’s fourth quarter financial report, Dollar General’s expected fiscal 2019 earnings fell below experts’ expectations. While the company reported its expected earnings as $6.30 to $6.50 per share, analyst estimates were at $6.65 per share, according to IBES data from Refinitiv.
Some of the financial report highlights include:
- Fourth quarter net sales increased 8.5%; fiscal year net sales increased 9.2%
- Fourth quarter same-store sales increased 4.0%; fiscal year same-store sales increased 3.2%
- Fourth quarter diluted earnings per share (“EPS”) of $1.84; fiscal year diluted EPS of $5.97
- Annual cash flows from operations increased 18.9% to $2.1 billion
- $1.3 billion returned to shareholders in the fiscal year through share repurchases and cash dividends
- Board of Directors declares increased quarterly cash dividend of $0.32 per share; increases share repurchase program authorization by $1.0 billion
In the fourth quarter, while the company earned $1.84 per share, it missed the average analyst estimate of $1.88 per share.
It wasn’t all doom and gloom, though, as the company’s same-store sales rose 4 percent in the fourth quarter, beating the 2.6 percent estimate from analysts. One theory for the increase is that its customers received food assistance benefits early in 2019, resulting in more spending on groceries. Similarly, the net sales increase by 8.5 percent to $6.65 billion, beating analyst estimates of $6.61 billion.
According to CNBC, before the opening bell, shares were trading down at $113.98 per share, despite the company increasing its share buyback program by $1 billion and raising its quarterly dividend by 10 percent.