Dollar General Surges, Kroger Falls on Earnings Reports

NEW YORK (TheStreet) -- Dollar General (DG) shares were surging 5% Thursday after the discount retailer reported third-quarter earnings that beat Wall Street expectations.

Dollar General said Thursday that profit rose 14% from the year-earlier period to $237 million, or 74 cents a share. Adjusted income rose 10% to $231 million, or 72 cents a share, 2 cents higher than consensus estimates for the quarter.

Same-store sales rose 4.4% in the quarter, fueled by increased traffic and average transaction value, while total sales rose 10.5% to $4.38 billion, the company said. The revenue number was lower than the $4.42 billion that analysts had expected, according to Thomson Reuters.

Dollar General noted that sales of tobacco, perishables and candy and snacks had the most significant growth. Same-store sales were also helped by seasonal and home products, while apparel sales were lower due to a "planned merchandising initiative that reduced apparel inventories in more than 4,000 stores" during the quarter.

The company also announced $200 million of share repurchases in the quarter and increased its buyback authorization by $1 billion.

The stock was surging 5.2% to $59.31 at last check.

DG Chart
DG data by YCharts

"Dollar General once again delivered strong results in the third quarter, even in the face of an ongoing challenging consumer environment," said Rick Dreiling, Dollar General's chairman and CEO. "Our merchandising initiatives have continued to be successful in driving traffic and sales. We had solid financial performance across key metrics, including better than anticipated gross margin performance and solid SG&A leverage."

Dreiling said the company is forecasting full-year adjusted earnings per share between $3.18 and $3.22, 3 cents higher on the low end than previously stated. Analysts, according to Thomson Reuters, forecast earnings of $3.22 a share.

Same-store sales for the year are expected to rise 4% to 4.5%, narrowed from the 4% to 5% guidance the company previously provided. Total net sales for the year are expected to rise 10% to 10.5%, also narrowed from 10% to 11% as previously stated.

"Looking ahead, while we are cautious on the current macroeconomic trends, we remain excited about the long-term growth prospects for our business," Dreiling said.

The company also said that last month it signed an agreement to sell and subsequently lease back approximately 233 currently owned stores. The transaction is expected to close in January 2014 and result in net proceeds to the company of approximately $200 million, which it plans to use to repurchase stock.

Dollar General announced that it plans to open approximately 700 new stores next year and remodel or relocate approximately 525 stores in the new year.

Third-quarter earnings fell at supermarket giant Kroger (KR), which reported net income of $299 million, or 57 cents per share, down from a year earlier when it reported income of $317 million, or 60 cents a share.

The third quarter ended Nov. 9 included a 4-cent tax benefit as well as expenses equating to a penny per share related to its pending merger with Harris Teeter.

Last year's third quarter included a 14-cent per share benefit from a settlement with Visa and MasterCard and from a reduction in the company's obligation to pension funds.

Excluding these adjustments, earnings per share would have been 53 cents a share for the 2013 quarter and 46 cents a share in the third quarter of last year. Adjusted earnings were in line with analysts' expectations.

"Our quarterly results show once again that Kroger is uniquely positioned to grow and win in the U.S. food retail industry," said David B. Dillon, Kroger's chairman and CEO.

Total sales rose 3.2% to $22.5 billion in the quarter, missing analysts' expectations of $22.75 billion. Excluding fuel, total sales rose 4.7% in the third quarter from the same period last year.

Kroger maintained its adjusted earnings guidance range of $2.73 to $2.80 per diluted share for fiscal 2013.

For the fourth quarter of fiscal 2013, Kroger expects identical supermarket sales growth, excluding fuel, of approximately 3.0% to 3.5%.

Shares were falling 4.1% to $39.83 on Thursday.

-- Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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