=Dollar General (DG) reported earnings on Thur 12/01/16 (b/o)

Dollar General misses Q3 estimates; lowers FY17 EPS guidance:

• Q3 EPS $0.89 (ex-$0.05 charge for store relocation costs and disaster-related expenses) vs. $0.93 CIQ Consensus; rev +5% to $5.32 bln vs. $5.365 bln consensus.
• Same-store sales decreased 0.1% vs. ests near +0.5% from the 2015 third quarter primarily due to a decline in traffic partially offset by an increase in average transaction amount. Same-store sales were driven by positive results in the consumables category offset by negative results in the seasonal, apparel and home products categories. The net sales increase was positively affected by sales from new stores, modestly offset by sales from closed stores.
  • Gross profit, as a percentage of net sales, was 29.8 percent in the 2016 third quarter, a decrease of 49 basis points from the 2015 third quarter. The gross profit rate decrease was primarily attributable to higher markdowns, driven mainly by inventory clearance and promotional activities, a greater proportion of sales of consumables, and increased inventory shrink, partially offset by higher initial inventory markups.
• The Company now forecasts diluted EPS growth for fiscal 2016 to be at the low end of the Company's long-term growth model range of 10-15% (consensus +13% to $4.49). The Company expects the 53rd week to contribute ~200 basis points to its net sales performance and continues to estimate a $0.09 per diluted share impact to EPS.
• "The challenging retail environment that we experienced in the 2016 second quarter continued into the third quarter, contributing to weakness in our same-store sales and our financial performance. In the 2016 third quarter, we invested in gross margin with the goal of driving traffic and sales over time. Many of these actions are gaining traction with our core customers, and we are encouraged by the early results. As expected, the full benefit on our same-store sales will not be immediate. In addition, we saw an acceleration in headwinds from average unit retail price deflation and reductions in SNAP benefits in the 2016 third quarter as compared to the 2016 second quarter. We are focused on efforts to drive traffic in our stores and to control the factors we can control as we look to overcome the issues impacting our results, many of which we believe are macroeconomic and transitory in nature."
• For the 52-week period ending February 2, 2018, the co plans to increase square footage growth by ~7.5% with the opening of ~1,000 new stores in addition to remodeling or relocating 900 stores.
• Peers: DLTR, WMT