Freight costs weigh on Dollar General
Dollar General on Tuesday reported that third quarter net sales rose 8.7% to $6.4 billion, up from $5.9 billion in the year-ago quarter, thanks to "sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures," according to a company press release.
Same-store sales rose 2.8% from a year ago, driven by an increase in average transaction amount and positive results in the consumables, seasonal and home categories, partially offset by sales declines in apparel, the company said. Foot traffic was "essentially flat," according to the release.
Gross profit as a percentage of net sales in the quarter inched down 39 basis points to 29.5% from 29.9% a year ago. The decrease was primarily due to a change to inventory accounting, a greater proportion of sales from lower-profit consumables, higher markdowns and rising transportation costs. Those were partially offset by an improved rate of inventory shrink, the company said. Net income in the quarter rose to $334 million from $253 million a year ago, the company said.
In a statement on Tuesday, CEO Todd Vasos kept his focus on "strong top-line growth and remained focused on expense control," noting that the discount dollar retailer "achieved our highest two-year same-store-sales stack in 11 quarters."
But freight costs are weighing on the company as they are on other retailers, and the company lowered its guidance somewhat. For fiscal year 2018, Dollar General now expects net sales to grow about 9%, down from its previous expectation for 9% to 9.3%, and expects same-store sales to rise in the middle of its previous range of mid-to-high 2%, according to its release.
Wells Fargo analysts in comments emailed to Retail Dive called the retailer's third quarter "somewhat of a disappointment but certainly not terrible."
"Comps were solid, flow through was much better than what we have seen elsewhere in our coverage universe, and there was always a little 'too good to be true' aspect to how [Dollar General] was managing freight," analysts led by Edward Kelly wrote. "We remain optimistic around the 2019 outlook, as the company's low-income consumer should remain strong and freight pressures may be peaking."
The company on Tuesday reiterated plans for 900 new store openings, 1,000 store remodels and 100 relocations this year. Dollar General aims to execute on those projects by January 2020.
The company will record greater-than-anticipated expenses related to hurricanes in the second half of the year, according to CFO John Garratt. "Despite these challenges, we expect to deliver our 29th consecutive year of same-store-sales growth with strong net sales, [earnings per share] and cash flow growth," he said in the release.
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