Dollar General Corporation (DG Quick QuoteDG - Free Report) came up with second-quarter fiscal 2022 results, wherein the top and bottom lines not only beat the Zacks Consensus Estimate but also improved year over year. This Goodlettsville, TN-based company witnessed same-store sales growth and gained market share in the Consumables category. Amid the heightened inflationary environment, people have been showing a preference for discount stores. The better-than-expected performance prompted management to lift the fiscal 2022 net sales and same-store sales view.

Let’s Delve Deeper

The quarterly earnings came in at $2.98 per share, which beat the Zacks Consensus Estimate of $2.93 and increased 10.8% from the prior-year period.

Net sales of $9,425.7 million rose 9% from the prior-year period on sales contributions from new stores and growth in same-store sales, partly offset by the impact of store closures. The top line came ahead of the Zacks Consensus Estimate of $9,400 million.

Dollar General’s same-store sales increased 4.6% year over year, driven by the higher average transaction amount and a slight increase in customer traffic. Same-store sales reflected an increase in the Consumables category, offset by a decline in each of the Seasonal, Apparel and Home Products categories.

Based on categories, sales increased 13% year over year to $7,475.8 million for Consumables. However, sales declined 0.3% to $1,086.9 million for Seasonal, 0.3% to $559.8 million for Home Products and 21.4% to $303.2 million for the Apparel category.

The gross profit increased 11.3% to $3,048.2 million in the reported quarter, while the gross margin expanded 69 basis points to 32.3%. The increase in the gross margin rate reflected higher inventory markups, partly offset by an increased LIFO provision, a significant proportion of sales coming from the low-margin Consumables category, higher markdowns, an increase in transportation and distribution costs and inventory damages.

SG&A expenses, as a percentage of net sales, increased 82 basis points to 22.6% in the quarter. The operating profit jumped 7.5% to $913.4 million. However, the operating margin shriveled 13 basis points to 9.7% from the year-ago period.

Store Update

During the quarter under discussion, Dollar General opened 227 new stores, remodeled 533 stores and relocated 30 stores. The company now anticipates carrying out 2,930 to 2,980 real estate projects, including 1,010 to 1,060 store openings, 1,795 remodels and 125 store relocations in fiscal 2022.

Other Financial Details

Dollar General ended the quarter with cash and cash equivalents of $326.3 million, long-term obligations of $4,290.7 million and shareholders’ equity of $6,188.5 million.

Management incurred capital expenditures of $659 million during the 26-week period ended Jul 29, 2022. For fiscal 2022, the company continues to anticipate capital expenditure in the band of $1.4-$1.5 billion.

During the quarter, Dollar General repurchased 1.5 million shares for $349 million. The company had $1 billion remaining under the authorization at the end of the quarter. On Aug 24, 2022, the company’s board of directors raised the share repurchase authorization by $2 billion. The company expects to make share repurchases of $2.75 billion in fiscal 2022.

Outlook

Dollar General now anticipates net sales growth of about 11% — including an estimated benefit of approximately two percentage points from the 53rd week — for fiscal 2022. The company now foresees same-store sales growth of approximately 4 to 4.5%. Management earlier guided net sales growth of approximately 10 to 10.5% and a same-store sales increase of roughly 3 to 3.5%.

The company continues to anticipate earnings per share growth in the range of 12-14%, including an estimated benefit of approximately four percentage points from the 53rd week.

Shares of this Zacks Rank #2 (Buy) company have advanced 24.8% in the past six months compared with the industry’s rise of 1%.

3 More Stocks Looking Red Hot

Here we have highlighted three other top-ranked stocks, namely Tecnoglass (TGLS Quick QuoteTGLS - Free Report) , Costco (COST Quick QuoteCOST - Free Report) and Sprouts Farmers (SFM Quick QuoteSFM - Free Report) .

Tecnoglass, a leading manufacturer of architectural glass, windows and associated aluminum products serving the global residential and commercial end markets, presently sports a Zacks Rank #1 (Strong Buy). TGLS has a trailing four-quarter earnings surprise of 24.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and EPS suggests growth of 28.2% and 47.7%, respectively, from the year-ago period’s reported numbers.

Costco, which is engaged in the operation of membership warehouses, carries a Zacks Rank #2. COST has an expected EPS growth rate of 9.2% for three to five years.

The Zacks Consensus Estimate for Costco’s current financial-year sales and EPS suggests growth of 15.4% and 18.2%, respectively, from the year-ago period. COST has a trailing four-quarter earnings surprise of 9.7%, on average.

Sprouts Farmers, which provides fresh, natural and organic food products, currently carries a Zacks Rank #2. SFM has an expected EPS growth rate of 7.4% for three to five years.

The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year revenues and EPS suggests growth of 4.3% and 5.2%, respectively, from the year-ago reported figure. Sprouts Farmers has a trailing four-quarter earnings surprise of 15.6%, on average.