Dollar General ‘Not Satisfied’ With Q2 Results

CEO highlights supply chain execution improvements amid profit decreases

8/31/2023

Dollar General has plans in play to reduce its inventory growth rate and further strengthen its price position.

Dollar General shared a mixed bag of financial results for its second quarter, ended Aug. 4, punctuated by a net sales increase of 3.9% to $9.8 billion over Q2 last year, and a same-store sales decrease of 0.1%. Operating profit also decreased 24.2% to $692.3 million, and diluted earnings per share decreased 28.5% to $2.13.

Gross profit as a percentage of net sales was 31.1% in Q2, which reflected a decrease of 126 basis points. The decrease was primarily attributable to lower inventory markups and increased shrink, markdowns, and inventory damages, along with a greater proportion of sales coming from the consumables category.

“While we are not satisfied with our overall financial results, we made significant progress in the second quarter improving execution in our supply chain and our stores, as well as reducing our inventory growth rate and further strengthening our price position,” said CEO Jeff Owen.

“These actions were an important driver of improving customer traffic trends and growing total market share in the second quarter,” continued Owen. “In addition, we executed nearly 850 real estate projects during the quarter, further extending our reach and expanding our ability to serve both new and existing customers.”

During Q2, Dollar General opened 215 new stores, remodeled 614 stores and relocated 20 stores. Total additions to property and equipment in the 26-week period ended Aug. 4 were $768 million, including allocations for improvements, upgrades, remodels and relocations of existing stores; distribution and transportation-related projects; leasehold improvements, fixtures and equipment in new stores; and information systems upgrades and technology-related projects.

The company reports that it is taking actions to accelerate the pace of its inventory reduction efforts and making additional investments in targeted areas, including retail labor, to further elevate the in-store experience and better serve its customers. Dollar General expects an incremental operating profit headwind of up to $170 million in the second half of 2023 from these strategic actions and investments.

“We are pleased with the advancements we have made, and we are now taking further actions and making additional investments to accelerate our progress and ultimately serve our customers even better,” said Owen. “While these investments will pressure our 2023 results, we believe they will further strengthen our foundation as we move into 2024 and focus on driving sustainable growth and creating long-term shareholder value.”

In an effort to reflect softer sales trends and an increase in expected inventory shrink for the second half of 2023, Dollar General now expects net sales growth in the range of 1.3% to 3.3%; same-store sales growth in the range of a decline of approximately 1.0% to growth of 1.0%; and diluted EPS in the range of approximately $7.10 to $8.30, or a decline of 34% to 22% for the remainder of the year.

Earlier this month, and as part of its nationwide supply chain expansion plans, Dollar General opened its first ground-up dual distribution center combining the efficiencies of traditional and DG Fresh supply chain functionalities. The new facility in Blair, Neb., measures roughly 1 million square feet and will support more than 1,000 Dollar General stores at full capacity.

As of Aug. 4, Goodlettsville, Tenn.-based Dollar General operated 19,488 Dollar General, DG Market, DGX and pOpshelf stores across the United States and Mi Súper Dollar General stores in Mexico. The company is No. 16 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.