Buyback Wednesdays – $2 Billion Additional Buyback Announced by Dollar General

Buyback activity continued to decline with only 7 companies announcing stock buybacks last week. Considering most companies announce buybacks when reporting earnings, this drop is expected. Salesforce (CRM) announced a $10 billion buyback, the most significant buyback in dollars. The buyback represents around 6% of its market cap at announcement. This is the company’s first-ever share repurchase program. Commenting on the company’s performance during the second quarter of fiscal 2023, Marc Benioff, Chair and Co-CEO of the company said,

“We had another strong quarter, with revenue of $7.7B growing 22% year-over-year and 26% in constant currency, showing yet again the durability of our business model. And, we’re thrilled to initiate our first-ever share repurchase program to continue to deliver incredible value to our shareholders on our path to $50 billion in revenue in FY26.”

Precision Drilling Corporation (PDS) topped our list this week after announcing a buyback of 1,148,771 shares, representing nearly 9% of its market cap at announcement. However, the one that grabbed our attention was the $2 billion additional buyback announcement on August 24, 2022 by Dollar General (DG), representing around 4% of its market cap. Dollar General, the U.S.-based discount retailer, operates 18,190 stores in 47 states. The company is prolific with opening new stores and in the second quarter of fiscal 2022, the company opened 227 new stores, remodeled 533 stores, and relocated 30 stores. This works out to opening two or more stores every single day of the quarter and remodeling 6 stores a day.

DG’s fiscal second-quarter earnings report show that the company exhibited strong performance with revenue growing 9% year-over-year to $9.43 billion. Same-store-sales increased 4.6%, which indicates the growth in revenue is not just from opening new stores. Earnings per share increased 10.8% to $2.98 compared to $2.69 in Q2, 2021. The company reported net income of $678 million for the second quarter of 2022, an increase of 6.4% compared to $637 million in the second quarter of 2021. These strong results can be attributed to prior buybacks, the opening of new stores, improved sales at remodeled stores and surprisingly an improvement in gross margin. Not only did the company report Q2 results that beat expectations, it increased its forecast for both revenue and same store sales.

DG has been constantly buying back its shares. Since March 2019, the company has announced $7 billion in buybacks including the recent $2 billion additional buyback. Since 2018, the company has bought back around 15% of its outstanding shares. In the second quarter of 2022, the company repurchased $349 million of its common stock at an average price of $233.36 per share. With the recent additional $2 billion, the company now has a total of $3 billion, or 5.6% of its market capitalization, allocated for future repurchases.

Dollar General – Shares Outstanding Data (source: InsideArbitrage database)

While DG has $15.17 billion of net debt on its balance sheet, more than $9 billion of that debt is attributed to capital leases. Operating cash flow of $2.5 billion during the last twelve months provides adequate coverage for their debt and leave enough money for buybacks and their $2.20 per share annual dividend (yield of 0.92% and payout ratio of just 19.32%).

Considering most dollar stores abandoned $1 price caps last year, DG has the ability to pass on higher costs to its customers. High inflation is also likely to drive more middle-class consumers to Dollar General. Considering the U.S. is getting saturated with stores, future growth could come from international expansion. Last December, the company indicated that it planned to dip its toes in international markets by opening 10 stores in Mexico in fiscal 2022.

Welcome to edition 22 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the largest buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap stocks with a market cap below $2 billion.

Top 5 Stock Buyback Announcements 

1. Precision Drilling Corporation (PDS): $63.05

On August 24, 2022, the Board of Directors of this drilling company approved a new share repurchase program authorizing the company to repurchase up to 1,148,771 shares of its class A common stock equal to nearly 8.5% of its market cap at announcement.

Market Cap: $932.63M Avg. Daily Volume (30 days): 64,265 Revenue (TTM): $952.68M
Net Income Margin (TTM): -10.91% ROE (TTM): -10.88%  Net Debt: $891.46M
P/E: 30.99 Forward P/E: 117.65 EV/EBIDTA (TTM): 13.29

2. Salesforce, Inc. (CRM): $159.67

On August 24, 2022, the Board of Directors of this customer relationship management services provider approved a new share repurchase program authorizing the company to repurchase up to $10 billion of its class A common stock equal to nearly 5.6% of its market cap at announcement.

Market Cap: $160.05B Avg. Daily Volume (30 days): 6,021,626 Revenue (TTM): $29.32B
Net Income Margin (TTM): 1.83% ROE (TTM): 0.93%  Net Debt: $786M
P/E: 317.75 Forward P/E: 35.09 EV/EBIDTA (TTM): 65.25

3. NV5 Global, Inc. (NVEE): $137.98

On August 29, 2022, the Board of Directors of this engineering and consulting solutions provider approved a new share repurchase program authorizing the company to repurchase up to $100 million of its class A common stock equal to nearly 4.6% of its market cap at announcement.

Market Cap: $2.16B Avg. Daily Volume (30 days): 70,224 Revenue (TTM): $766.99M
Net Income Margin (TTM): 7.03% ROE (TTM): 8.65%  Net Debt: $90.92M
P/E: 38.99 Forward P/E: 25.51 EV/EBIDTA (TTM): 17.88

4. Silicon Laboratories Inc. (SLAB): $129.41

On August 29, 2022, the Board of Directors of this semiconductor company approved an additional share repurchase program authorizing the company to repurchase up to $200 million of its class A common stock, equal to nearly 4.5% of its market cap at announcement.

Market Cap: $4.45B Avg. Daily Volume (30 days): 313,375 Revenue (TTM): $890.48M
Net Income Margin (TTM): 239.09% ROE (TTM): 2.18%  Net Cash: $949.13M
P/E: 160.54 Forward P/E: 36.36 EV/EBITDA: 29.29

5.  Silvercorp Metals Inc. (SVM): $2.29

On August 24, 2022, the Board of Directors of this mining company approved a new share repurchase program authorizing the company to repurchase up to 7,079,407 shares of its class A common stock, representing nearly 4% of its market cap at announcement.

Market Cap: $423.18M Avg. Daily Volume (30 days): 1,504,373 Revenue (TTM): $222.70M
Net Income Margin (TTM): 12.84% ROE (TTM): 6.92%  Net Cash: $214.71M
P/E: 15.06 Forward P/E: 15.15 EV/EBIDTA (TTM): 3.25

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