Discount retail stores operator Dollar General (DG) reported its third-quarter results on Thursday morning before the start of trading, and good results led to a 6%-plus pop in DG stock.
A quick look at the numbers before we look at the charts:
- Dollar General earnings came to 72 cents per share, which beat the Street consensus of 70 cents.
- DG revenues missed, coming in at $4.38 billion, or roughly 80 million short.
- Gross profit increased by 8.3%, yet as a percentage of sales decreased by 61 basis points to 30.3% compared to the same period one year ago.
- On the sales front, DG increased its same-store sales by 4.4% year-over-year as both average transaction value and customer traffic increased. Same-store sales growth was particularly strong in seasonal and home product areas at the expense of apparel sales, which came in weaker due to an apparel inventories reduction program in more than 4,000 of its stores.
- Sales of consumable goods increased at a higher rate than non-consumables in the 2013 third quarter, an additional positive.
- The company announced it will buy back another $1 billion of DG stock, tacking onto its share repurchase program.
As a result of all the good news, DG stock was pushed higher on a big surge in volume. The day’s volume stood at more than 11 million, compared to the stock’s average daily volume closer to 3.5 million. Dollar General shares closed at fresh all-time highs.
DG stock, from a multiyear perspective, has had a great run and behaved equally well technically. From its November 2009 initial public offering, DG shares have risen well more than 160% as both sales and net income increased during economically difficult times.
In the second half of 2012 into January 2013, DG stock retraced close to 50% of its entire rally from its initial public offering into the July 2012 top. This retracement was a necessary price discovery journey, which ultimately led to the big rally we have witnessed in 2013. In September 2013, DG stock finally boomed past the July 2012 highs and spent the next three months consolidating above there in a technically constructive manner.
Thursday’s sharp rally finally led the stock to break out of this multimonth consolidation range, if so far only slightly so.
With the momentum picture well intact and the stock in a technically sound state both on the multiyear and closer-up time frames, barring any quick bearish reversal in coming days, DG stock looks to have room toward $63 in coming weeks.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.