UPDATE: March 15, 2019: Later on Thursday, in a conference call with analysts, CEO Todd Vasos said the company this year plans 975 new store openings, 1,000 remodels of "mature stores" and 100 relocations. Ten of the new stores will be smaller concepts aimed at serving younger customers, half the size of traditional locations, that the company has refined for two years, he said, according to a Seeking Alpha transcript. Also on Thursday, the retailer announced that Chief People Officer Bob Ravener is retiring as planned, and will step down May 27.
Dollar General Corp. on Thursday reported that fourth quarter net sales rose 8.5% to $6.6 billion, up from $6.1 billion in the year-ago quarter, with "positive sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures."
Same-store sales rose 4% year over year, driven by increases in average transaction amount and customer traffic, thanks at least in part to the early release of federal food assistance dollars, according to a company press release. The comp growth included growth in consumables, seasonal and home, partially offset by declines in apparel.
Net income in the quarter fell to $483 million from $712 million a year ago as gross profit, as a percentage of net sales, contracted to 31.2% from 32.1% the year before. The gross profit rate decline was attributable mostly to higher markdowns and more sales coming from lower-margin consumables sales, among other factors, the company said.
Investors punished Dollar General Thursday morning as earnings and guidance missed estimates as detailed by Investor's Business Daily. But in a statement, CEO Todd Vasos called 2018 "a great year" and said the discounter began 2019 "with a strong foundation for success."
Vasos also said that Dollar General is introducing two strategic initiatives, "DG Fresh" and "Fast Track." DG Fresh is focused on the selection of fresh and frozen products, is already operating in about 300 stores, while Fast Track "will enhance in-store labor productivity and customer convenience [and] is launching soon," he said.
Even without the advantageous release of federal SNAP benefits (food assistance to low-income consumers), Dollar General in the quarter took a higher share of its core shoppers' disposable income, according to research from GlobalData Retail.
That was due to its DG Fresh initiative, which GlobalData Retail Managing Director Neil Saunders said lifted average transaction values, as well as its ability to draw in shoppers for the holidays. "Our data show Dollar General achieved its highest ever shopper penetration for Christmas gifts, largely thanks to an enhanced line up of products which included brands like Lego," Saunders said in comments emailed to Retail Dive. "This no doubt allowed Dollar General to maximize the benefit from the demise of Toys R Us."
The dollar store may have dodged a bullet when in 2014 it lost out to Dollar Tree in a skirmish to acquire rival Family Dollar. Dollar Tree is now struggling with what to do with its Family Dollar stores and could end up shutting down nearly 400 of them while changing others over to its own banner — signs that the acquisition hasn't been easily integrated into its operations.
But Dollar General is also helping itself, not just against its dollar store rivals but also more traditional grocery stores, according to Saunders. "Overall, we remain impressed by Dollar General's ability to create a compelling and enhanced shopping experience. Admittedly, stores remain fairly basic, but they are well merchandised, have good stock levels, and categories like beauty and healthy food are being enhanced," Saunders said. "Our data shows that against some mainstream supermarkets, Dollar General is now rated higher for the quality of the general shopping experience – which is both a credit to its own initiatives and an indictment of the lack of investment from those other retailers."
Rising costs, especially wages and freight, which have especially hit low-margin businesses like Dollar General, will continue to challenge the company. But its Fast Track initiative will likely boost store productivity and its introduction of more of its own private label items will help protect margins, according to Saunders.