Dollar General’s higher profit tops expectations

GOODLETSVILLE, Tenn., Tue Dec 11, 2012 — Dollar General Corp. on Tuesday posted a bigger-than-expected increase in profit and said it remained cautious about the rest of the year despite an encouraging start to the holiday season.

The discount chain said customer confidence and spending was still under pressure and it faced challenges from competing chains.

While Dollar General’s latest quarter only ran through November 2, the chain said it was encouraged by results from the Thanksgiving weekend that came later in the month and the start of the holiday season.

The discount chain raised the lower end of its 2012 adjusted earnings forecast and slightly trimmed its sales view.

Profit rose to $207.7 million, or 62 cents per share, in the fiscal third quarter, from $171.2 million, or 50 cents, a year earlier.

Earnings rose to 63 cents per share, after adjusting for items such as expenses from a secondary offering and debt amendment fees, topping the analysts’ average target of 60 cents, according to Thomson Reuters I/B/E/S.

Shares of Dollar General rose 33 cents to $46.90 in premarket trading.

Dollar General profit rises to 42 cents per share for quarter

GOODLETTSVILLE, Tenn. ― Dollar General Corp. posted a bigger-than-expected rise in quarterly profit and raised the low end of its full-year forecast on Tuesday, as it worked to balance demand for low-priced goods with manufacturers’ push to raise prices.

The retailer earned $146 million, or 42 cents per share, in the fiscal second quarter that ended on July 29, up from $141 million, or 41 cents per share, a year earlier.

Earnings of 52 cents per share, excluding items, exceeded analysts’ average forecast of 48 cents, according to Thomson Reuters I/B/E/S.

Dollar General’s customers are buying an increasing proportion of lower-margin necessities as they cut back on discretionary purchases due to higher gas prices, continued high levels of unemployment and other economic concerns.

Sales of items such as candy, snacks and other food continued to increase at a higher rate than merchandise such as home, apparel and seasonal goods during the quarter.

For Dollar General, which prices most of its merchandise below $10, the weak economy is a double-edged sword. As lower-income shoppers seek low-priced food and other basic goods, a soft economy brings new customers into its stores and those of competitors such as Family Dollar Stores Inc.

Dollar General, which has more than 9,640 stores, more than any other chain in the United States, said sales rose 11.2 percent to $3.58 billion. Sales at stores open at least a year, or same-store sales, increased 5.9 percent.

Chains such as Dollar General need to keep prices low to retain customers, which is difficult when costs are rising and shoppers notice even minor price increases.

Shoppers buying more food and basic goods rather than discretionary items also pressures profitability, as those items generally carry a lower gross profit rate than other goods. At the same time, the prices Dollar General paid for goods rose due to higher commodity and fuel costs.

Gross profit dipped to 32.1 percent of sales from 32.2 percent of sales a year earlier. Over the first six months of the year, gross profit fell to 31.8 percent from 32.2 percent.

Dollar General now expects to earn $2.22 to $2.30 per share for its 53-week fiscal year, versus a prior forecast of $2.20 to $2.30 per share.

It expects sales to rise 12 percent to 14 percent, up from a prior forecast of 11 percent to 13 percent. Same-store sales are now expected to increase by 4 percent to 6 percent, versus an earlier forecast of 3 percent to 5 percent.

Dollar General is majority-owned by private equity firm Kohlberg Kravis Roberts & Co LP KKR.UL, which brought the company back to the public market in November 2009.

Private quity firm KKR’s lower earnings miss estimates, shares fall

Private equity firm KKR & Co. reported lower-than-expected second-quarter earnings on Wednesday as investment income declined and the value of its investments rose less than the previous year, sending its shares lower.

However, KKR, which has investments in companies including retailer Dollar General, hospital operator HCA and media ratings company Nielsen, said its private equity funds rose 4 percent in the quarter and 10 percent for the year to date.

KKR said while the value of its investments increased in value, it was less of a rise than a year earlier. KKR said the company’s fee earnings can be significantly influenced by when deals close, meaning that the numbers they report on a quarterly basis can be “lumpy.”

“In private equity, we continue to be very active on a global basis,” said Scott Nuttall, a partner and director at KKR who leads the company’s earnings calls. “Valuations are relatively attractive and the financing markets are open for our companies.”

Economic net income (ENI), a measure used by private equity firms to report earnings, was $315 million, down 27 percent from $433 million a year earlier.

ENI after tax per adjusted unit was 36 cents, down from 48 cents a year earlier. Analysts’ average forecast was 40 cents.

Second-quarter investment income was $239.8 million, down from $370.6 million a year earlier.

KKR shares were down 90 cents, or 6.4 percent, to $13.24 in early afternoon trading on the New York Stock Exchange.

By other metrics, KKR’s figures improved. Fee-related earnings were $76 million compared with $63 million the previous year. Earnings using general accepted accounting principles showed that net income was $39.6 million compared with $29.9 million a year earlier.

Assets under management totaled $61.9 billion, up from $54.4 billion a year earlier.

“We are in a very fortunate position,” said Nuttall. “We have long dated capital… In times like this, companies need capital. Many of the traditional providers are gone.”