Dollar General Q1 Sales Shift Toward Consumables, Hurting Margins

For its fiscal 2013 first quarter ended May 3, Dollar General Corp. posted net income of $220 million, or 67 cents per diluted share, versus $213 million, or 63 cents per diluted share, in the 2012 period. Adjusted net income, excluding one-time charges, increased to $232 million versus $215 million in the 2012 first quarter, the company noted, while adjusted diluted EPS was 71 cents versus 63 cents in the year-earlier period.

Earnings per share missed a Zack’s consensus analyst estimate by a penny but matched a published Thomson Reuter’s estimate.

Comparable store sales gained 2.6% in the first quarter year over year with increases in customer traffic and average transaction amount both contributing, according to Dollar General. First quarter net sales advanced 8.5% to $4.23 billion. Consumables sales growth significantly outpaced increases in non-consumable categories, reflecting the impact of continued financial pressures on shoppers as well as unfavorable weather conditions in many of Dollar General’s geographic regions, the retailer asserted.

First quarter adjusted operating profit, excluding expenses resulting from secondary stock offerings, was $396 million, or 9.4% of sales, Dollar General stated, compared to $385 million, or 9.9% of sales, in the 2012 first quarter.

“For the quarter, we achieved same-store sales growth of 2.6% reflecting strong growth in our consumables categories offset by softer sales in seasonal and weather-sensitive categories,” said Rick Dreiling, Dollar General’s chairman and CEO. “Solid SG&A leverage helped to offset gross margin declines in the first quarter. We believe the continued strength in consumables is a sign of the underlying health of our business. We have updated our outlook for the year to reflect moderating sales growth and a lower expected gross profit rate than we previously anticipated. We are well positioned for our same-store sales growth to accelerate to four to five percent for the year as our key initiatives, such as the rollout of tobacco and Phase 5 planogram changes, continue to gain traction through the year. Sales of non-consumables are expected to remain challenging, and we anticipate a continued shift to lower margin items within consumables and higher inventory shrink.”

Dollar General reported that it plans to open 635 new stores, including 20 Dollar General Market stores and 40 Dollar General Plus stores, in 2013 while it remodels or relocates 550 stores. In addition, it expects a new Pennsylvania distribution center to become fully operational in the fiscal 2014 first quarter.


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