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Dollar Stores May Be One of the Last Few Retail Growth Spots

Dollar General Corp. (NYSE: DG) reported its fiscal fourth-quarter financial results before the markets opened on Thursday. The company said that it had $1.49 in earnings per share (EPS) and $6.01 billion in revenue, versus consensus estimates from Thomson Reuters that called for $1.41 in EPS and revenue of $5.96 billion. The same period of last year reportedly had EPS of $1.30 and $5.29 billion in revenue.

Same-store sales increased 1.0% in the quarter, primarily due to an increase in average transaction amount, partially offset by a slight decline in traffic that moderated from the second and third quarters. Same-store sales were driven by positive results in the consumables and home products categories, partially offset by negative results in the seasonal and apparel categories.

In terms of guidance for the 2017 fiscal year, the company expects to see EPS in the range of $4.25 to $4.50, with net sales rising 4% to 6% and same-store sales growth slightly positive to up 2%. The consensus estimates call for $4.68 in EPS and $23.19 billion in revenue.

Dollar General repurchased $990 million worth of shares under its repurchase program in 2016. The total remaining authorization for future repurchases was approximately $930 million at the end of the 2016 fiscal year.

The board of directors also announced a 4% increase to its quarterly cash dividend. The first-quarter dividend of $0.26 per share will be payable on April 25, 2017, to shareholders of record on April 11.

On the books, Dollar General’s cash and cash equivalents totaled $187.92 million at the end of the quarter, up from $157.95 million in the same period of last year.

Dollar General CEO Todd Vasos commented:

Dollar General is well-positioned to serve our customers with value and convenience given our plans to open approximately 1,000 new stores in 2017. To strengthen our position for the long term, we are making significant investments, primarily in compensation and training for our store managers given the critical role this position plays in our customer experience, as well as strategic initiatives. While these investments are expected to put pressure on our 2017 earnings, we believe they will strengthen our market share position over time and are positive steps to further support sustainable growth for our shareholders over the long term.

In a separate release, the company announced that James W. Thorpe, executive vice president and chief merchandising officer, will retire from Dollar General effective April 15, 2017.

When Dollar Tree Inc. (NASDAQ: DLTR) reported its most recent earnings in early March, the rival said that it had $1.39 in EPS and $5.64 billion in revenue. Consensus estimates were of $1.33 in EPS and $5.63 billion in revenue.

Also the company’s gross margin and operating margin rates improved and EPS grew 40.2% from the prior year’s quarter. Enterprise same-store sales increased 1.2% on a constant currency basis. Adjusted to include the impact of Canadian currency fluctuations, the same-store sales increase was 1.3%.

Shares of Dollar General closed Wednesday at $72.81, with a consensus analyst price target of $79.54 and a 52-week trading range of $66.50 to $96.88. Following the release of the report, the stock was up about 0.8% at $72.81 in early trading indications Thursday.

Dollar Tree shares closed Wednesday at $74.56, in a 52-week range of $72.55 to $99.93. The consensus price target is $89.43. The stock was down 0.7% at $74.56 in early trading indications.

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