Dollar General tops estimates, GC plans May exit

2013 guidance keeps lid on stock gains; CEO Dreiling sees stressed consumer helping H2 results

Discount retail giant Dollar General posted a fourth-quarter profit of $317 million, an increase of 9 percent from the same period a year ago. Per diluted share, earnings were 97 cents, 7 cents above analysts' expectations.

Same-store sales for the fourth quarter climbed 3 percent and profits were helped by a drop in transportation costs and favorable accounting treatment. Gross margins for the three months ticked up slightly to 32.5 percent and were flat for the year at 31.7 percent. For all of 2012, sales per square foot rose to $216 from $209.

Separately, the company also announced that Executive Vice President and General Counsel Susan Lanigan will step down from her post at the end of May. Lanigan has been with Goodlettsville-based Dollar General since 2002. The company has launched a search for her successor and will look both internally and externally.

While the Q4 numbers topped expectations, investors were not so thrilled with the guidance Chairman and CEO Rick Dreiling and his team gave for 2013. The executives say they are looking for the company to earn between $3.15 and $3.30 per share. Analysts' consensus estimate as of this morning was $3.27.

CFO David Tehle said the company expects to post total sales growth of 10 to 12 percent this year, with same-store sales rising 4 to 6 percent. Speaking to analysts and investors on his team's conference call, Dreiling said his team has a number of opportunities to continue to grow its top line. Cigarettes and alcohol are two of them — Dreiling mentioned that stores testing cigarette sales have beaten the company's expectations by 33 percent — while the company also plans to continue to add coolers and rearrange the layouts of older stores. On top of that, he said, the company is booking successes with early efforts to price some products differently in different parts of the country.

Another potential positive, Dreiling said, is that more stressed consumers are turning to Dollar General and other deep discounters as they try to absorb the payroll tax hike that kicked in at the beginning of the year. Asked by Avondale Partners analyst Mark Montagna if it's feasible to connect generally poor restaurant results of late with the rise in Dollar General's food sales, Dreiling said "you could make a logical leap there." Dollar General's results, he later added, should improve as the year goes on.

"Our perishables business continues to be on fire," Dreiling said. "Customers need us most when times are tough. One reason I'm bullish on 2013 is that it's very probable that things are going to be a little harder out there."

Heading into the last half hour of trading Monday, shares of Dollar General (Ticker: DG) were up almost 2 percent at almost $51. Early in the day, they had been up about 5 percent before sliding back into the red before gaining ground again. Year to date, they've risen 15 percent.