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.