There was no doubt that discount retailer Dollar General Corp. (NYSE:DG) would bounce back after being beaten down a little over three months ago. The stock was punished after the company reduced its outlook for the recently-concluded fiscal year, but it has rallied around 15% since then. Dollar General’s latest quarterly report was enough to lend further momentum to the stock, as the company expects another solid year.
Moving forward with confidence
After growing revenue 8% in the previous fiscal year, Dollar General is looking at an even better rate of 10%-12% this fiscal year. However, the company’s bottom line will continue to be under pressure due to higher sales of low margin products. As a result, Dollar General Corp. (NYSE:DG) is looking at earnings of $3.15 to $3.30 per share this year, while analysts expect it to earn $3.27 a share.
However, a weaker-than-expected bottom line forecast couldn’t diffuse investor enthusiasm, and the stock is trading up as of this writing. Management’s positive commentary, as opposed to the previous conference call, added to investor confidence.
Last time, CEO Rick Dreiling commented that the looming fiscal cliff, weak consumer confidence, and payroll tax cuts would limit purchasing power. But, these are the sort of circumstances that should help a discounter such as Dollar General Corp. (NYSE:DG) perform better. Thus, it was not surprising that the CEO changed his tone this time around, telling Buckingham Research analyst John Zolidis over the call that, “…when times get tough, our customer needs us even more.”
Poised to perform
With an assortment of low-priced products Dollar General is equipped to perform well in difficult times, and it is going all out to push its top line higher. The company’s decision to sell tobacco products turned out to be a good one, as it is selling 33% more tobacco than projected. Its same-store sales grew 4.7% in the last fiscal year, better than the likes of peers such as Dollar Tree, Inc. (NASDAQ:DLTR), which saw an improvement of 2.4% in the previous quarter.