Why Dollar General Stock Surged after Its Q2 Results

Dollar General (DG) stock surged about 8% in premarket trading today after crushing expectations in its second-quarter results. It also raised its guidance for fiscal 2019.

Second-quarter performance

Dollar General’s net sales grew 8.4% to $6.98 billion in the second quarter of fiscal 2019, which ended on August 2. It exceeded analysts’ estimate of $6.89 billion. The company performed better than rival Dollar Tree (DLTR). Dollar Tree’s second-quarter sales increased 3.9% to $5.74 billion, and its same-store sales rose 2.4%. Dollar General stock was up an impressive 9.7% as of 10:09 AM today. In contrast, Dollar Tree was down 0.1%.

Sales from new stores and 4.0% SSSG (same-store sales growth) drove Dollar General’s second-quarter top line. The company topped analysts’ same-store sales expectation of 2.4%. Enhanced merchandise offerings and other strategic initiatives, including store renovations, helped in boosting its second-quarter sales. Dollar General’s first-quarter sales grew 8.3%, while its SSSG was 3.8%.

The company’s second-quarter adjusted EPS of $1.74 crushed analysts’ estimate of $1.57. Also, the company’s adjusted EPS grew 14.5% year-over-year. Higher sales and lower interest expenses drove the company’s adjusted EPS growth. Plus, a reduced average diluted share count due to share repurchases boosted its second-quarter adjusted EPS.

The company’s second-quarter adjusted EPS exclude the impact of legal expenses totaling $31 million.

Dollar General’s upgraded outlook

Dollar General raised its fiscal 2019 outlook following its strong performance in the second quarter. The company now expects its fiscal 2019 net sales to grow by about 8%. It previously forecast sales growth of about 7%.

Dollar General expects fiscal 2019 SSSG in the low- to mid-3% range. Its previous growth expectation was for SSSG of about 2.5%. The company expects fiscal 2019 EPS in the range of $6.36–$6.51 compared to its previous expectation of $6.30–$6.50. It expects adjusted EPS of $6.45–$6.60. Investors welcomed this upgraded outlook, as they’d been concerned about the effects of rising tariffs.

The company has been investing in several initiatives to improve its business. Through its DG Fresh initiative, it’s adopting a self-distribution model for fresh and frozen products. Its Fast Track initiative focuses on enhancing its in-stock position and labor productivity.

Today, Dollar General also announced the promotion of Jeffery C. Owen, executive vice president of store operations, to COO. Steven G. Sunderland will be the new executive vice president of store operations. The company said that these appointments were effective on August 27.