Dollar General, Dollar Tree Post Higher Q2 Sales

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Dollar General, Dollar Tree Post Higher Q2 Sales

08/30/2018
Dollar General, Dollar Tree Post Higher Q2 Sales
According to CEO Todd Vaqsos, Dollar General's disciplined focus on cost control resulted in another quarter of significant earnings growth

Dollar General Corp. and Dollar Tree both reported solid second-quarter results, indicating that the dollar store channel still has room for growth.

At Dollar General, net sales rose 10.6 percent to $6.4 billion in the second quarter of 2018 ended Aug. 3, up from $5.8 billion in the year-ago period, which the company attributed to sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures. Same-store sales grew 3.7 percent from the second quarter of 2017, due to increases in average transaction amount and customer traffic. According to Dollar General, same-store sales growth was caused by positive results in the consumables, seasonal and apparel categories, partly offset by sales declines in the home category.

The retailer’s gross profit as a percentage of net sales was 30.6 percent in the second quarter of 2018, versus 30.7 percent last year, a decrease of seven basis points. Dollar General said this result was because of a greater proportion of sales coming from consumables, which generally have a lower gross profit rate than other product categories, sales of lower-margin products comprising a higher proportion of consumables sales, higher markdowns, and higher transportation costs. These factors were partly offset by an improved rate of inventory shrink and higher initial markups on inventory purchases.

The company reported net income of $407 million, or diluted EPS of $1.52, for the second quarter of 2018, from $295 million, or diluted EPS of $1.08, in year-ago period, an increase in diluted EPS of 40.7 percent.

“We delivered a strong second quarter and are proud of our team’s execution,” said Dollar General CEO Todd Vasos. “Our results this quarter were driven by contributions from our mature store base, as well as the robust performance of our new stores. In addition, we maintained our disciplined focus on cost control, which culminated in another quarter of significant earnings growth. At the same time, we also continued to invest in our strategic initiatives and made meaningful progress advancing against our goals. We are grateful to our approximately 134,000 employees throughout the company who continued to provide our customers with the value and convenience they have come to expect from Dollar General, and we are looking forward to a solid second half.”

For the 26-week period ended Aug. 3, Dollar General’s net sales rose 9.8 percent to $12.6 billion, compared with $11.4 billion in the comparable 2017 period, driven by sales contributions from new stores and same-store sales growth, modestly offset by the effect of store closures. Same-store sales edged up 2.9 percent from the 2017 26-week period, due to an increase in average transaction amount, partly offset by a decline in customer traffic. Same-store sales growth for the period was caused by positive results in the consumables and seasonal categories, partly offset by sales declines in the apparel and home categories.

Dollar General’s gross profit as a percentage of net sales was 30.6 percent in the 2018 26-week period, versus 30.5 percent last year, an increase of five basis points. The company attributed this mainly to higher initial markups on inventory purchases and an improved rate of inventory shrink, partly offset by more sales coming from consumables, which generally have a lower gross profit rate than other product categories, sales of lower-margin products comprising a higher proportion of consumables sales, and increased transportation costs.

The retailer logged net income of $772 million, or diluted earnings per share (EPS) of $2.88, for the 2018 26-week period, from $574 million, or diluted EPS of $2.09, in the year-ago period, an increase in diluted EPS of 37.8 percent.

During the 2018 26-week period, Dollar General opened 510 new stores, remodeled 643 and relocated 67.

As a result of its solid Q2 results, the company raised its financial guidance and store growth outlook for the 52-week fiscal year ending Feb. 1, 2019. For fiscal 2018, Dollar General now expects net sales growth to be in the range of 9 percent to 9.3 percent and its same-store sales growth outlook to be in the mid-to-high 2 percent range. Dollar General also reiterated its plans to open about 900 new stores, remodel 1,000 and relocate 100 in fiscal 2018.

Dollar General, Dollar Tree Post Higher Q2 Sales
Dollar Tree attributes its positive Q2 results in part to its ongoing renovation program

Tree of Life

Over at Dollar Tree, the growth was a little less dramatic, with consolidated net sales increasing 4.6 percent to $5.53 billion, from $5.28 billion in the year-ago period, while enterprise same-store sales rose 1.8 percent on a constant currency basis, or 1.9 percent when adjusted to include the impact of Canadian currency fluctuations. Same-store sales for the Dollar Tree banner grew 3.7 percent on a constant currency basis, or 3.8 percent when adjusted to include the impact of Canadian currency fluctuations. Same-store sales for the Family Dollar banner, however, were flat.

Gross profit edged up 2.2 percent to $1.66 billion in the second quarter of fiscal 2018, versus $1.63 billion last year. As a percent of sales, gross margin fell to 30.1 percent, compared with 30.8 percent in the prior year. Dollar Tree attributed the 70-basis-point decline primarily to increased domestic freight, shrink and distribution costs, partly offset by lower merchandise costs.

The company’s net income compared to the prior year’s second quarter grew $40.1 million to $273.9 million and diluted EPS rose 17.3 percent to $1.15, versus 98 cents in the year-ago period.

During the quarter, Dollar Tree opened 146 stores, expanded or relocated 13, and shuttered 26.

“I am proud of our team’s accomplishments in the second quarter,” noted Dollar Tree President and CEO Gary Philbin. “In addition to posting earnings near the top end of our guidance range, our Dollar Tree banner delivered increases in both traffic and ticket, and our Family Dollar banner’s same-store sales were flat compared to last year’s 1 percent increase. Importantly, Family Dollar’s consumables business was positive for the seventh consecutive quarter. Dollar Tree’s 3.7 percent comp was on top of last year’s 3.9 percent increase; and represented the fifth consecutive quarter of same-store sales growth exceeding 3.5 percent. We also celebrated the grand opening of our 15,000th store, and the opening of our 23rd U.S. distribution center. Both of these milestones call out the continued opportunities for growth across North America for our Dollar Tree and Family Dollar banners.”

For the first six months of fiscal 2018, Dollar Tree’s consolidated net sales grew 4.8 percent to $11.08 billion, from $10.57 billion last year. Enterprise same-store sales were up 1.6 percent on a constant currency basis, or 1.7 percent when adjusted to include the impact of Canadian currency fluctuations. Same-store sales for the Dollar Tree banner rose 3.9 percent, while they dipped o.5 percent for the Family Dollar banner.

Gross profit at the company increased 3.3 percent to $3.36 billion for the first six months of the fiscal year, versus $3.25 billion in the year-ago period. As a percent of sales, gross margin dropped 40 basis points to 30.4 percent, from 30.8 percent in the prior-year period.

Net income compared to the prior year’s second quarter rose slightly to $434.4 million and GAAP diluted EPS was $1.82 versus $1.83 last year. Excluding debt refinancing costs in the current year and the receivable impairment from the prior year, diluted earnings per share improved 18.8 percent to an adjusted $2.34, compared with an adjusted $1.97 in the year-ago period.

Dollar Tree adjusted its guidance on consolidated net sales for full-year fiscal 2018 to a range of $22.75 billion to $22.97 billion, compared with its previously expected range of $22.73 billion to $23.05 billion. The company based its revised estimate on a low single-digit increase in same-store sales and 3.4 percent square footage growth.

“Our Dollar Tree banner continues to perform at a high level and the impact of our initiatives continue to drive top-line revenue,” added Philbin. “Our efforts at Family Dollar continue to focus around delivering a better shopping experience, and we are pleased with the results of our renovation program to date. Our customers are responding to the assortment and layout, and we expect to exceed our store renovations target for this fiscal year. Together, the banners are focused to deliver increased value to long-term shareholders by continuing to grow and improve our business.”

Goodlettsville, Tenn.-based Dollar General operates 15,015 stores in 44 states. Chesapeake, Va.-based Dollar Tree operates 15,073 stores in 48 states and five Canadian provinces under the Dollar Tree, Family Dollar and Dollar Tree Canada banners.

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