Dollar General Warns of Slower Sales Growth (#GotBitcoin?)
Dollar General Corp. on Thursday said same-store sales grew in the most recent quarter, but profit was less than expected as the retailer invests in lower prices and increases the portion of sales that come from less profitable products like food, sending shares lower. Dollar General Warns of Slower Sales Growth (#GotBitcoin?)
Discount retailer plans to introduce a new line of fresh-food items and is working to create a digital and e-commerce strategy that appeals to its core shoppers.
The Goodlettsville, Tenn., retailer anticipates same-store sales growth of 2.5% in 2019, below the 2.6% analysts polled by FactSet had anticipated. In fiscal 2018, same-store sales increased 3.2%.
Shares of Dollar General fell 8.5% on Thursday. Still, the retailer’s stock has gained 24% over the last 12 months.
Dollar General has been expanding its store footprint and working to become a bigger seller of food and home goods to grab more shoppers, and anticipates spending roughly $50 million this year on improvement projects.
The company said it would introduce a new line of fresh-food items to its shelves and add self-checkout options to its stores. It is also working to create a digital and e-commerce strategy that appeals to its core low-income shoppers, who aren’t likely to pay extra for speedy home delivery or may be more reliant on cash and government assistance debt cards for payment. Last year the retailer started testing an app that allows shoppers to scan products as they shop to keep a running total of the cost.
“We believe they are using the cart calculator to stay within their budgets,” said Dollar General Chief Executive Todd Vasos on a conference call. The company will expand the availability of the app and plans to test offer this year a service that allows shoppers to buy online and pickup items in stores, he said.
Like other retailers that lean on low-income shoppers for a significant portion of sales, Dollar General’s sales in the latest quarter got a boost when the U.S. government sent February checks to Supplemental Nutrition Assistance Program recipients in January to ensure payment amid the partial government shutdown. The company said the shift added 0.7% to its comparable sales.
Same-store sales for the quarter ended Feb. 1 climbed 4%, beating analysts’ estimates of 2.6%. Overall net sales rose 8.5% to $6.65 billion, above the consensus forecast of $6.61 billion.
Fourth-quarter sales grew fastest in the home category, while food and other consumable sales were also strong, said Mr. Vasos.
Meanwhile, sales at rival Dollar Tree Inc.’s Family Dollar chain have lagged behind, prompting Dollar Tree to close hundreds of Family Dollar stores and mark down the value of the chain.
Profit for Dollar General fell roughly 30% to $483.2 million, or $1.84 a share, down from $712.2 million, or $2.63 a share, a year earlier. Analysts polled by Refinitiv had estimated $1.88 a share. Profit was weighed by an income tax expense of $130.2 million for the quarter, compared with a tax benefit of $112.9 million in the same quarter last year.
The retailer expects adjusted earnings of $6:30 to $6.50 a share for the year, pulling just below analysts polled by FactSet’s estimates of $6.63. Meanwhile, it expects operating income growth between 4% and 6%. Net sales growth is projected to climb about 7%.
In Dollar Store Wars, Dollar Tree Needs a Trim
In its rivalry with Dollar General, Dollar Tree is being dragged down by a 2015 acquisition. The company needs to cut its losses and move on.
In America’s great dollar-store rivalry, Dollar Tree had been gaining favor over Dollar General, but the scale has been gradually tipping back to the latter.
Dollar Tree is being dragged down by Family Dollar, a chain of stores catering to low-income shoppers that it acquired in 2015. It has suffered from weak sales, poor product selection and unhappy workers, according to analysts. Meanwhile, Dollar General has continued beating expectations, even in a quarter when other retailers are struggling.
On Thursday, Dollar General reported first-quarter earnings of $1.48 a share, over expectations for $1.39 a share. Revenue grew 8.3% to $6.6 billion, while same-store sales rose 3.8%. The company reiterated its guidance for the fiscal year, including sales growth of 7% and earnings in the range of $6.30 to $6.50 a share. Investors sent the stock up 7%.
Things at Dollar Tree haven’t been quite so cheery. Activist investor Starboard Value LP has been pushing management to sell Family Dollar. On Thursday, the company reported adjusted first-quarter earnings of $1.14 a share, matching analysts’ forecasts, and revenue of $5.81 billion, up 4.6% from a year earlier. Pleased by results that weren’t as dismal as they could have been, investors sent the stock up nearly 4%. Yet the company also lowered guidance for its second quarter and fiscal year. It now expects earnings between 64 and 73 cents a share for the second quarter, well below analysts’ estimates of 99 cents a share.
To cut costs, the company is planning to close as many as 390 underperforming stores in the second quarter. That may improve margins, but it still leaves the problem of what to do with Family Dollar. Dollar Tree is unlikely to get back the $9 billion price it paid for the company—which at the time was equivalent to 11 times earnings before interest, taxes, depreciation and amortization. Nonetheless, it may be best for Dollar Tree to cut its losses and let it go.
In the meantime, investors keen on discount chains will continue to find a better bet at Dollar General.