Dollar General Q2 Profit Jumps, Raises Forecast

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With its smaller format, no frills approach, Dollar General is garnering an increasing number of U.S. shoppers, including those looking for apparel and accessories bargains.

Goodlettsville, TN—The tepid U.S. economic recovery has put the squeeze on many retailers, but as consumers continue to look for ways to cut corners, dollar stores have increased their sales and influence.

Such was the case on Wednesday when the 10,000-unit-plus Dollar General reported a 47% jump in its second quarter profits and raised its full year forecast as a result.

For the quarter ended August 3, Dollar General reported a profit of $214.1 million, or 64 cents a share, compared with $146 million, or 42 cents a share, a year ago. Excluding items such as the early repayment of debt, per share earnings were 69 cents compared with 52 cents a year ago.

Total sales jumped 10% to $3.95 billion with comparable store sales rising 5.1%.

Analysts’ average estimate expected earnings of 64 cents a share on revenue of $3.96 billion.

Gross margin narrowed to 32% from 32.1% on a change in sales mix. Sales of consumables, which account for most of Dollar General’s sales, rose 12%. Seasonal products were up 6.8 and apparel/accessories were up 4.2%.

Selling, general and administrative expenses climbed 9.7%. Dollar General said the “volatility of the macroeconomic environment continues to pressure the consumer and impact the company’s cost of purchasing and delivering merchandise to its stores.”

“Dollar General had another strong quarter,” said CEO Rick Dreiling. “Our same store sales increase of 5.1% demonstrates the ongoing execution of the initiatives around our key operating priorities and is evidence of our continued importance to our customers.”

Looking ahead, Dollar General projected fiscal 2012 comparable store sales will increase 4% to 5%, up from its previous estimate for a 3% increase. Full year earnings are now projected to be between $2.77 to $2.86 a share, up from its previous forecast for $2.68 to $2.78. Analysts’ average estimate expects $2.81 a share.

Stellar Performance Despite Recession

Dollar General also unveiled plans to buy back an additional $500 million of its own stock. The company had just $15 million remaining on a previously authorized pledge to buy back $500 million.

Dollar General and other dollar stores have seen their sales and profits rise as consumers seek out their low prices and convenient, no frills small store formats.

The No. 2 chain, Family Dollar, with more than 7,000 stores in 45 states, reported a 5% comparable store sales growth in its third quarter, the 17th consecutive quarter of growth

Last month Dollar Tree also topped analysts’ earnings estimates.

Analysts say the smaller format, easy to navigate dollar stores have become increasingly popular, shaving off sales from big box retailers such as Walmart. Dollar General is viewed as a stellar performer in the category with comparable store sales projected ahead of rivals such as Dollar Tree and ahead of drugstore competitor Walgreens.

Dollar stores are expanding rapidly and according to Dollar General’s own market research in 2008 23% of shoppers said dollar stores weren’t for them. Now only 7% said the same thing.


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