Dollar General Sees Gain, Loss From Weather in Q3

While Dollar General Corp. experienced an estimated 30- to 35-basis-point net benefit from hurricane-related sales during its third quarter of fiscal 2017, the company did end up taking a hit from the storms, in the form of an estimated 5-cent negative impact on its diluted earnings per share. Still, the dollar-store chain’s results were mainly good news.

“We are pleased with our overall third-quarter results, which include a strong same-store sales growth of 4.3 percent and increases in both average transaction amount and customer traffic over the 2016 third quarter,” said Dollar General CEO Todd Vasos. “During the quarter, we effectively balanced our same-store sales growth while achieving gross profit rate expansion and continuing our planned investments in the business.”

Dollar General’s net sales increased 11 percent to $5.90 billion in Q3, versus $5.32 billion in the year-ago period. Same-store sales rose 4.3 percent, which the retailer attributed to to increases in average transaction amount and customer traffic, including the estimated net benefit from hurricane-related sales.

According to Dollar General, comps lifts were spurred by positive results in the consumables, seasonal and apparel categories, partly offset by negative results in the home product category. Comps results in the three nonconsumables categories, when aggregated, were positive, the company noted, adding that the net sales increase was also positively affected by sales from new stores, modestly offset by sales from closed stores.

Dollar General’s gross profit, as a percentage of net sales, was 29.9 percent in the 2017 Q3, an eight-basis-point rise from the same period a year prior. The retailer attributed this increase mainly to higher initial inventory markups and an improved rate of inventory shrink. Partly offsetting these items were a greater proportion of sales of 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 higher transportation costs.

Dollar General’s net income was $253 million, or 93 cents per diluted share, in Q3, including the estimated 5-cent hurricane-related net negative impact, versus $235 million, or 84 cents per diluted share, last year, which similarly included an approximate 5-cent charge for the company’s Walmart Express store acquisition and disaster-related expenses.

Year-to-Date Highlights

For the 39-week period ended Nov. 3, Dollar General’s net sales grew 8.5 percent over the year-ago period to $17.3 billion. Same-store sales increased 2.6 percent, which the company said was because of increases in average transaction amount and customer traffic.

The retailer’s gross profit, as a percentage of net sales, was 30.3 percent during the 39-week period, a decline of 25 basis points from last year. Dollar General attributed the decrease to higher markdowns, mainly for promotional activities; a greater proportion of sales of consumables, which generally have a lower gross profit rate than other product categories; and sales of lower-margin products comprising a higher proportion of consumables sales. Partly offsetting these items, according to the company, were higher initial inventory markups and an improved rate of inventory shrink.

As noted earlier, the 2017 period reflected expenses related to the impact of the two hurricanes.

For the 2017 39-week period, Dollar General reported net income of $827 million, or $3.02 per diluted share, versus net income of $837 million, or $2.95 per diluted share, for the year-ago period. Included in diluted earnings per share for the 2017 39-week period was the aforementioned estimated hurricane-related net negative impact.

During the 2017 39-week period, the company opened 1,044 new stores and remodeled or relocated 719 stores. The new store growth includes the rebranding of 263 locations acquired in Dollar General’s 2017 Q2.

The company updated certain components of its fiscal 2017 guidance issued in August. These include the narrowing of its fiscal 2017 GAAP diluted earnings per share to $4.37 to $4.47, from its prior guidance range of $4.35 to $4.50 to include the estimated net negative hurricane-related impact on Q3 diluted earnings per share results. Additionally the company changed its forecast to fiscal 2017 net sales growth of about 7 percent, from a range of 5 percent to 7 percent; fiscal 2017 same-store sales growth of about 2.5 percent, from its prior expectation that same-store sales would fall at the upper end of the range of slightly positive to up 2 percent; and cap ex between $700 million and $750 million, from a range of $715 million to $765 million. Dollar General still plans to open about 1,285 new stores, as well as remodeling or relocating 760 locations, in fiscal 2017.

“We remain excited about the future for Dollar General,” noted Vasos. “For fiscal 2018, we have plans to execute approximately 2,000 real estate projects comprised of 900 new stores, 1,000 store remodels and 100 store relocations. We continue to believe that investing in the business through our high-return new store growth is the best use of our capital to help drive long-term shareholder value. Our new store growth is complemented with a significant increase in our store remodel program from fiscal 2017 that we view as an investment to enhance and consistently deliver on our brand promise to help our customers save time and money every day.”

In their recent quarterly financial results, both Ingles Markets and Publix Super Markets have noted hurricane-driven sales growth.

Goodlettsville, Tenn.-based Dollar General operates 14,321 stores in 44 states.