- Dollar General’s top-line sales rose 11.1% year over year to $9.5 billion in the third quarter, with comparable sales up 6.8%, according to a press release.
- Operating profit at the discounter was up 10.5% to $735.5 million, but new CEO Jeff Owen pointed to higher-than-expected distribution and transportation costs as weighing on earnings.
- Due to elevated costs, as well as pressure from sales mix, shrink and damages, the company significantly lowered its forecasts for profit growth during the fiscal year, from a high end of 14% to, now, 8%.
With top-line growth in double digits, there is little doubt that Dollar General is benefiting from a volatile environment for consumers, many of whom are seeking value wherever they can to combat inflation in essential goods.
Owen said in a release that the retailer has seen a “modest” increase in customer traffic as well market share gains in both consumable and non-consumable category sales. As for the protracted cost pressure, Owen said the company sees these as “largely temporary, and we are confident in our plans to drive greater supply chain efficiencies moving forward.”
The retailer’s earnings missed analyst estimates as unexpected costs ate into profits. And while operating profits on the whole rose, Telsey Advisory Group analyst pointed out that operating margin remained flat from last year, when skyrocketing freight and transportation costs were endemic in the industry.
Meanwhile, Dollar General’s sales reflected the current selling environment across much of retail. Comp sales in consumables — which on the whole carry lower margins — rose, while comps were down in apparel, seasonal and home products, according to the company. That shift in sales mix also weighed on the company’s margins.
Still, Dollar General’s position as one of the largest value players ought to benefit it as consumers buckle down for continued inflation and an expected recession.
“While Dollar General is facing pressures from elevated costs, we expect performance to be relatively solid as the year progresses, as consumers continue to increase reliance on Dollar General in this more challenging economic environment,” the Telsey analysts said in an emailed note, pointing to the retailer’s strong comps during the 2008-09 recession.
Neil Saunders, managing director of GlobalData, also pointed to new stores — of which Dollar General opened 268 in Q3 alone — and higher prices as elevating Dollar General’s sales, along with an influx of new customers seeking refuge in value prices. Some of those new shoppers are also visiting Dollar General for its proximity to their homes, as a way to save on gas costs, Saunders noted, pointing to his firm’s data.