Dollar General on Thursday said second quarter net sales rose 10.6% to $6.4 billion, up from $5.8 billion in the year-ago quarter, thanks to both new store and same-store sales, which rose 3.7%, and were modestly offset by the impact of store closures.
The comps rise was driven by increases in traffic and average transaction amount, with particular strength in consumables, seasonal and apparel categories, but partially offset by declines in home, according to a company press release. Net income in the quarter rose 6.3% to $407 million, from $295 million a year ago.
Gross profit as a percentage of net sales was 30.6% in the quarter down seven basis points from last year's 30.7%, mostly attributable to a greater proportion of sales coming from lower-margin consumables, but also by higher markdowns and increased transportation costs, the company said.
Dollar stores in general, and not just Dollar General, are likely benefiting from the U.S. economy's strengths and weaknesses.
High consumer confidence and other positive economic factors are driving spending for many retailers. But as lower-income consumers struggle, many continue to seek out discount retailers like dollar stores. Recent reports from the federal government that show the wage gap worsening and an uptick in consumer prices could exacerbate that.
Last week, the U.S. Bureau of Labor Statistics said the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in July on a seasonally adjusted basis after rising 0.1% percent in June. Over the last 12 months, the all items index rose 2.9% before seasonal adjustment. The annual increase in the so-called core CPI was 2.4%, the largest rise since September 2008, from 2.3% in June, according to the report.
Lower-income customers are also less likely to buy online, which also helps protect Dollar General and rivals that have a heavy brick-and-mortar focus.
"Continued strong growth demonstrated by both Dollar General and Dollar Tree in the second quarter demonstrates that the value proposition and convenience factor offered by dollar stores resonates well with consumers," Moody's Investor Service Vice President Mickey Chadha said in comments emailed to Retail Dive.