Dollar General sales soar as expansion continues apace

Dive Brief:

  • Dollar General on Thursday reported that fourth quarter net sales rose 13.7% to $6 billion compared to $5.3 billion in the year-ago quarter, with same-store sales rising 1%. Shares rose 4.4% Thursday morning as results beat expectations: Thomson Reuters I/B/E/S analysts had forecast earnings of $1.41 per share on revenue of $5.97 billion, according to Reuters

  • Dollar General's fiscal year net sales rose 7.9% to $22 billion, and fiscal year same-store sales Increased 0.9%. The discount retailer said it has earmarked about $70 million to increase store manager pay and training programs, among other initiatives.

  • Dollar General also said Thursday that Executive Vice President and Chief Merchandising Officer James W. Thorpe will retire effective April 15, and that the company is searching internally and externally for his replacement.

Dive Insight:

As noted by Dollar General itself in its earnings release Thursday, an extra week in Q4 2016 boosted results. Nevertheless, the retailer is holding its own against stiff competition in the discount space: Without that bonus week, sales growth would have reached 6.1%.

Dollar General, which is feeling increased competition from the likes of Target and Wal-Mart (with Wal-Mart in particular emphasizing its everyday low prices approach), also helped drive sales with the addition of 387 new stores last year, according to GlobalData Retail managing director Neil Saunders.

“More pleasing than overall sales is the comparable growth figure which, after moving into negative territory last quarter, shifted back onto reasonably solid positive ground this time around,” Saunders said in a note emailed to Retail Dive. “Although a 1% rise is some way below the more hefty increases Dollar General was posting a year ago, the group will be pleased to have held its own over the holiday period, in a market where price competition was much sharper, largely thanks to Wal-Mart focusing on value. Despite the uplift in same-store numbers, Dollar General was not immune to the weak footfall trends over the period, and suffered a continued decline in customer traffic.”

Price competition, plus greater sales of lower-margin goods, are eating into Dollar General's gross margin, which suffered a 19 basis point decline in the quarter. Those goods help get customers into stores, but the low margins will likely continue, Saunders said. Further pressure will come from the company’s plans to boost manager pay. “As much as these are necessary steps to consolidate its long-term position in the market, there is no doubt that they will weigh down on Dollar General’s profit over the coming fiscal year,” Saunders said.

In his statement Thursday, Dollar General CEO Todd Vasos touted the company’s plans to open some 1,000 new stores this year and also touted "significant investments" in compensation and training for store managers. “While these investments are expected to put pressure on our 2017 earnings, we believe they will strengthen our market share position over time and are positive steps to further support sustainable growth for our shareholders over the long term," Vasos said.

In an era when America is widely seen as over-stored, Saunders believes Dollar General’s expansion is nevertheless the smart move (especially its “DGX” smaller-format foray into more urban areas) because it competes with smaller local players as much as with big box retailers. “Although the cost base for these stores is somewhat higher, this should be offset by better volumes,” according to Saunders. “It also gives Dollar General access to new cities where it does not have a presence, as well as appealing to the lucrative millennial market. The rollout of this format will provide another growth trajectory for Dollar General in the coming years.”

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Top image credit: Dollar General