Dollar General Retains Shine in Retail Turmoil

Store improvements, wage gains by its core lower-income shoppers spurred sales

Source: Company's Website
Source: Company’s Website

Discount retailer Dollar General Corp. (NYSE: DG) announced its Q1 FY16 results on Thursday, May 26th, 2016. The Company’s Q1 FY16 consolidated net sales grew 7% to $5.27 billion compared to $4.92 billion in the comparable period last year. With 12,719 stores in 43 states as of April 29th, 2016, Dollar General is one among the largest discount retailers in the U.S.

Same-store sales during the quarter under review grew by 2.2% on account of higher customer traffic and average transaction amount. The Company’s same-store sales were driven by both the consumables category and certain non-consumables categories.

Dollar General’s sales in the Consumables category jumped 7.6% to $4,039.2 million, while the Seasonal category sales grew 6.4% to $623.9 million. Home products sales increased 6.5% to $322.8 million and Apparel category sales inched up 1.5% to $279.5 million. The net sales growth was also on account of higher revenue from new stores, which somewhat offset lower sales from closed stores.

Both Dollar General and its rival  Dollar Tree Inc. (NASDAQ: DLTR) have bucked the trend of disappointing sales and reported sales growth and higher traffic mainly because they cater to low-income consumers, whose wages improved by about 4%. Both discount retailers plan to expand their offerings of discretionary products such as seasonal party decorations, home goods, and beauty products. With the exception of online merchants like Inc. (NASDAQ: AMZN) and Wal-Mart Stores Inc. (NYSE: WMT), retailers such as Target Corp. (NYSE:TGT), Macy’s Inc. (NYSE: M), Costco Wholesale Corp. (NASDAQ: COST), The Kroger Co. (NYSE: KR), and Best Buy Co. Inc. (NYSE: BBY), have reported dismal sales in Q1 FY16 due to competition from online stores and softer demand for non-consumables.


Dollar General’s gross profit, as a percentage of sales, slightly increased to 30.6% in Q1 FY16 compared to 30.5% in the comparable period last year, due to higher initial inventory costs. The slight growth was partially offset by higher sales of consumables merchandise, which have a lower gross profit rate than non-consumables merchandise; increased inventory shrinkage; and higher markdowns. During Q1 FY16, the Company’s operating profit grew 12.3% to $480.7 million.

Selling, general and administrative expenses, as a percentage of sales, slightly decreased to 21.5% in Q1 FY16 compared to 21.8% in the year-ago quarter. The Company benefitted from lower utilities costs, administrative payroll, incentive compensation, travel expenses, workers’ compensation costs and advertising costs, as well as a higher volume of convenience fees associated with customer cash-back transactions. Partially offsetting these items were retail labor and occupancy costs, each of which increased at a rate greater than the increase in sales.

Finally, net income surged to $295 million, or $1.03 per diluted share, in Q1 FY16, compared to net income of $253 million, or $0.84 per diluted share, in the comparable quarter last year.

Store update

During Q1 FY16, Dollar General opened 249 new stores and remodeled or relocated 301 stores. For the full-year 2016, the Company plans to open 900 new stores and remodel or relocate 875 stores. For 2017, the Company intends to accelerate its square footage growth with plans to open about 1,000 stores and remodel or relocate about 900 stores. The Discount retailer is focusing on expanding its selection of perishable food, health and beauty care and party and stationery supplies, as it plans to grow from almost 13,000 locations to 20,000 stores by 2020.

Share Repurchases

In Q1 FY16, Dollar General repurchased 2.7 million shares of its common stock at an average price of $84.81 per share under its share repurchase program. Between December 2011 and the end of Q1 FY16, the Company repurchased 64.7 million shares of its common stock for a total cost of $3.8 billion, at an average price of $58.82 per share. The total remaining authorization for future repurchases was approximately $693 million at the end of Q1 FY16.

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