Dollar General’s (NYSE:DG) Q4 Earnings Results: Revenue In Line With Expectations, Stock Soars
Discount retailer Dollar General (NYSE:DG) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 4.5% year on year to $10.3 billion. Its GAAP profit of $0.87 per share was 42% below analysts’ consensus estimates.
Revenue: $10.3 billion vs analyst estimates of $10.26 billion (4.5% year-on-year growth, in line)
EPS (GAAP): $0.87 vs analyst expectations of $1.50 (42% miss due to impairment charges totaling $214 million related to the store portfolio optimization review)
Same-store sales guidance for the upcoming financial year 2025 is 3.9%, in line with analyst estimates by 7.6%
Updated long-term financial targets, calling for 2-3% same-store sales growth and 6-7% operating margin
Operating Margin: 2.9%, down from 5.9% in the same quarter last year due to impairment charges totaling $214 million related to the store portfolio optimization review
Free Cash Flow Margin: 5.1%, similar to the same quarter last year
Locations: 20,594 at quarter end, up from 19,986 in the same quarter last year
Same-Store Sales rose 1.2% year on year, in line with the same quarter last year (beat vs expectations of 0.9% growth)
Market Capitalization: $16.46 billion
Company Overview
Appealing to the budget-conscious consumer, Dollar General (NYSE:DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.
Discount Grocery Store
Traditional grocery stores are go-tos for many families, but discount grocers serve those who may not have a traditional grocery store nearby or who may have different spending thresholds. Certain rural or lower-income areas simply don’t have a grocery store. Additionally, some lower-income families would prefer to buy in smaller quantities than available at most stores (think one or two paper towel rolls at a time). While online competition threatens all of retail, grocery is one of the least penetrated because of the nature of buying food. Furthermore, those buying small quantities for immediate need are even less likely to leverage e-commerce for these purposes.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
With $40.61 billion in revenue over the past 12 months, Dollar General is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. To accelerate sales, Dollar General likely needs to optimize its pricing or lean into international expansion.
As you can see below, Dollar General’s 7.9% annualized revenue growth over the last five years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre.
Dollar General Quarterly Revenue
This quarter, Dollar General grew its revenue by 4.5% year on year, and its $10.3 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, a deceleration versus the last five years. We still think its growth trajectory is satisfactory given its scale and indicates the market is forecasting success for its products.
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
Dollar General operated 20,594 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 4.4% annual growth, much faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Dollar General Operating Locations
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Dollar General’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. Dollar General should consider improving its foot traffic and efficiency before expanding its store base.
Dollar General Same-Store Sales Growth
In the latest quarter, Dollar General’s same-store sales rose 1.2% year on year. This performance was more or less in line with its historical levels.
Key Takeaways from Dollar General’s Q4 Results
It was good to see Dollar General beat analysts’ same-store sales expectations this quarter. While EPS missed, this was due to impairment charges totaling $214 million related to the store portfolio optimization review. Looking ahead, full-year same-store sales guidance was in line, and the company updated its long-term financial targets, which were constructive. Overall, this was a decent quarter. The stock traded up 5% to $78.53 immediately following the results.
