Dollar General Bullish on Holiday as Q3 Profit, Sales Rise

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Goodlettsville, TN—Consumers looking to stretch their spending dollars helped Dollar General Corp. post today a 34% increase in its third quarter profit with comparable store sales, traffic and transaction size increasing.

For the quarter ended Oct 28, Dollar General reported a profit of $171.2 million, or 50 cents a share, up from $128.1 million or 37 cents a share, a year ago.

Total sales increased 11.5% to $3.6 billion, up from $3.2 billion a year ago. Comparable store sales rose 6.3%.

The results were better than analysts’ average estimate expecting earnings of 47 cents a share on sales of $3.57 billion.

Although Dollar General did not provide November sales data in its report, the company called them “strong” and also raised it full year earnings forecast.

‘Continued Weakness in Discretionary Spending’ Hurts Apparel Sales

“Dollar General delivered another great quarter, and we expect to continue to build upon our strong track record of delivering excellent results for our shareholders,” said Rick Dreiling, chairman/ceo. “Our same-store sales increased 6.3% in the third quarter, representing our third consecutive quarter of accelerating same-store sales growth and demonstrating our ability to balance the challenges of pricing and rising input costs.”

Gross margin declined to 31% from 31.4% a year ago, due to charges relating to as an inventory reserve, increases in transportation costs and more sales in consumables, which has a lower margin.

As high unemployment and rising gas and food prices have cut into many consumers’ budgets, Dollar General, which boasts merchandise under $10 retail, has focused more on groceries and other essentials. During the third quarter, Dollar General reported more shoppers visited it stores and the average transaction prices increase. Top performing categories included seasonal and home merchandise, “while apparel sales decreased, in part, due to continued weakness in discretionary spending by consumers,” the company said.

“For the holiday season and into 2012, we expect our customers to remain very interested in value and in ways to make their dollars go further,” Dreiling said. “November sales were strong. Our Thanksgiving week and Black Friday sales suggest that we are well positioned to meet our customers’ expectations.”

Given the holiday sales momentum, the company raised its full year forecast to $2.29 to $2.32 a share from its previous estimate for $2.22 to $2.30 a share. The company expects a 13% increase in total sales with comparable store sales rising about 5% in fourth quarter, 5.6% to 5.8% for its full year.

Analysts’ average estimate expects $1.82 a share for the full year earnings.

Study: Dollar Stores Now Outnumber Drug Stores

Dollar General, which has more than 9,000 stores, and its rivals are carving out an increasingly large retail channel. According to a new study released today by Colliers International, as the combined store count of the four major dollar store chains – Dollar General, Dollar Tree, Family Dollar, and 99 Cents Only – has surpassed that of the three biggest national drugstore chains–Walgreens, CVS, and Rite Aid.

In other news, Dollar General plans to spend $185 million of the $500 million authorized for share repurchases to buy shares from Buck Holdings LP, its controlling shareholder, during the fourth quarter. Buck Holdings is controlled by affiliates of KKR and Goldman Sachs & Co.



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