Dollar General soars after reporting Q2 earnings on Thursday, August 29 before the market opened.
Entered the trade on Monday at $136.36 (cost of options trade was $4.30), and DG share price reached a high of $157.44 yesterday (the options trade had risen to $17.58 – a profit of 309%).
This momentum is expected to continue, therefore, it may be time to buy more options!
by Ian Harvey
August 30, 2019
Dollar General Corp. (NYSE:DG)
Tennessee-based discount retail giant Dollar General reported strong second quarter results before the opening bell yesterday, delivering high-single-digit sales growth, mid-single-digit comparable sales growth, and a fairly healthy advance in net earnings. Shares of Dollar General soars roughly 10% in intraday trading, hitting a new all-time high of $157.44. Dollar General has now surged 44.7% year-to-date, outpacing the broader discount retail market, which is up 34.1% YTD in comparison.
YOU NEED TO BE IN TO PROFIT!
And, as stated in the “Earnings Predictions” report before the results, “DG has shown earnings growth of 14% per annum over the last five years and analysts expected profits to continue to rise at an annual rate of 9.8% over the next five years.
For the last reported
quarter, it was expected that Dollar General would post earnings of $1.39 per
share when it actually produced earnings of $1.48, delivering a surprise of
Dollar General stock has
gained almost 30% so far this year. As a relatively defensive play, it’s
benefited from recession worries.
Discount retailers have continued to outperform during the economic recovery, and DG is currently trading near its all-time high despite a little volatility over the last month in sympathy to the overall market. If the trade war continues and the U.S. economy starts to falter, discount retailers will be a good defensive play as consumer confidence starts to erode.”
The Report as Dollar General Soars…..
Net sales increased 8.4% over the prior year to $7 billion, just ahead
of analysts' estimates calling for $6.9 billion. The strong top-line growth was
driven partially by a solid 4% increase in same-store sales, which was better
than analysts' estimates of 2.5%. The better-than-expected top-line figure
trickled down to a stronger bottom-line result: Adjusted earnings per share
were $1.74, well ahead of the $1.57 per share analysts had expected.
Dollar General CEO Todd Vasos offered the following comments in the company's earnings press release on Thursday:
“We are pleased with our second-quarter results, driven by strong performance on both the top and bottom lines. Our results this quarter were fueled by solid execution across many fronts, including category management, merchandise innovation, store operations, and continued progress with our strategic initiatives. In addition, we remained focused on disciplined cost control, which culminated in another quarter of strong earnings growth. Given our first-half performance and expectations for the remainder of the year, we are raising our full-year financial guidance.”
Moving Forward After Dollar General Soars…..
Dollar General’s business has sufficient momentum behind it that the deep discounter was able to raise its full-year guidance for 2019, showing that the value proposition offered by dollar stores overall and Dollar General in particular remains as vital as ever.
Dollar General raised their fiscal 2019 guidance despite the looming threat of tariffs. The company expressed their ability to mitigate, absorb, and offset the impact of the tariffs. Dollar General expects earnings to fall in the range of $6.45-$6.60 for the year, and raised their revenue guidance to an 8% Y/Y jump from its previously guided 7%.
For Q3, Consensus estimates call for the company's bottom line to increase 8.73% to $1.37 per share on the back of a 7.4% sales hike to $6.89 billion. The consumables segment is expected to climb 16% to $5.87 billion and home products are estimated to reel in $422 million for a 13.6% rally. Seasonal and apparel items are anticipated to pop 15.97% and 12%, respectively.
The company's strong same store sales are projected to continue in Q3 with a gain of 2.57%. Additionally, Dollar General is forecasted to add 249 new stores, bringing their total to 17,042. Looking ahead to their full fiscal year outlook, estimates predict earnings to climb 8.54% to $6.48 per share and sales to grow 7.41% to $27.52 billion.
Todd Vasos said, “Overall, we made solid progress on each of our key initiatives and believe we are well positioned to drive continued growth as we move ahead. Importantly, the strength of our second-quarter performance further validates our belief that we are pursuing the right strategies to create meaningful long-term shareholder value.”
Management seems very confident of continued operating leverage over the next few quarters. Even as sales have advanced in fiscal 2019, Dollar General has been able to hold both gross margin and operating margin steady. Therefore, sales increases are dropping to the bottom line, boosting net earnings -- an attractive profile for a consumer staples stock in the current market environment.
As Dollar General soars due to a great earnings result, it is clear that they have taken command of the deep-discount space and dedicated to grow its business broadly. Its management seem to be responding, and there's no reason to think it won't be able to conquer new heights from here.
What can you do?
In the previous article “Earnings Predictions for the Week Beginning August 26, 2019!” I recommended that you…..
…..consider this options trade…..
Buy the DG SEP 20 2019 140.000 CALL at approximately $3.50.
However, after Dollar General soars so much already, and that this option expires in three weeks, it may be prudent to take profits now, and then consider the following options trade…..
Buy the DG JAN 17 2020 165.000 CALL at approximately $5.30.
GREED CAN BE THE UNDOING OF A GOOD PROFIT!
If you are not a member and interested in being part of this profitable action just CLICK HERE.
AS ALWAYS THE DECISION IS YOURS!
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!