The New Year will again bring significant store expansion for Dollar General as the retailer continues to rollout its DG Fresh food offerings along with other merchandising initiatives.
The retailer, in announcing its third quarter earnings, said that it plans to open 1,050 stores in 2021, remodel 1,750 stores and relocate 100. Dollar General operates roughly 17,000 stores.
“We are excited to once again accelerate our real estate growth plans in fiscal year 2021,” said Jeff Owen, Dollar General’s chief operating officer. “Our portfolio of high-return real estate projects continues to be a top priority for capital allocation as we look to continue delivering long-term shareholder value. With a robust pipeline in place and plans to execute an average of nearly eight real estate projects per day in fiscal year 2021.”
CEO Todd Vasos also highlighted other initiatives that promise to play big roles for the retailer in 2021.
That includes the ongoing rollout of its newest retail store concept Popshelf, with the retailer's signature bright-yellow branding nowhere to be found. The company opened the first two Popshelf stores in Nashville this fall. According to Dollar General, the new banner aims to engage customers with a fun, affordable and stress-free shopping experience where they can find on-trend seasonal and home décor, health and beauty must-haves, home cleaning supplies, party goods, entertaining needs, and more — with approximately 95% of items priced at $5 or less.
“During the quarter, we also continued to make great progress advancing our key strategic initiatives, including the rollout of DG Pickup across nearly our entire store base, and the launch of our newest store format, Popshelf,” Vasos said. “In total, we executed 765 real estate projects, further laying and building the foundation for future growth. Overall, our ongoing operating priorities, coupled with our key strategic initiatives, position us well to continue delivering value and convenience for our customers, along with long-term sustainable growth and value for our shareholders.”
The expansion push also includes food.
"We are in the process of building, expanding or opening a number of distribution centers across our dry and DG Fresh networks. And while we expect these investments will enable us to drive even greater efficiencies going forward and further support future growth, these investments will pressure gross margin rates in Q4," said John Garratt, EVP and chief financial officer, during the post-earnings conference call with investors.
The retailer also is building out other infrastructure related to food retail.
"During the first three quarters, we added approximately 49,000 cooler doors across our store base," said Jeff Owen, chief operating officer. "In total, we expect to install more than 60,000 cooler doors this year, the majority of which will be in our higher capacity coolers, creating additional opportunities to drive higher on-shelf availability and deliver an even wider product selection."
He also talked about longer term DG Fresh planning.
"In addition, we recently began construction on our first ever ground up combination DG Fresh and dry distribution center in Blair, Nebraska," Owen said. "We anticipate this facility will be completed in early 2022 enabling us to drive even greater efficiencies as we move ahead. The team is also executing against additional opportunities to enhance gross margin, including further improvements in shrink as we continue to build on our success with electronic article surveillance."
Vasos offered more updates about DG Fresh.
"We plan and continue to believe DG Fresh could provide a potential path forward to expanding our produce offering to even more stores in the future," he said. "In total, we were self distributing to more than 13,000 stores from eight DG Fresh facilities at the end of Q3. We expect to capture benefits from this initiative in more than 14,000 stores from 10 facilities by the end of this year, and are well on track to complete our initial rollout across the chain in 2021."
The fresh clarity about 2021 came as Dollar General reported a strong Q3, with growth driven by consumables.
Net sales Increased 17.3% for Dollar General in the third quarter, reaching $8.2 billion, while same-store sales Increased 12.2%, driven by an increase in average transaction amount, partially offset by a decline in customer traffic.
The retailer said same-store sales increased in each of the consumables, seasonal, home products and apparel categories, with the largest percentage increase in the home products category. The retailer said it believes consumer behavior driven by COVID-19 had a significant positive effect on net sales and same-store sales.
Dollar General’s operating profit increased 57.3% to $773.1 million.
“I want to thank our associates for their tireless work over the past several months in helping our customers and communities impacted by the COVID-19 pandemic,” said Vasos. “To further demonstrate our appreciation and support, we plan to award a total of up to $75 million in appreciation bonuses to eligible frontline employees in Q4, which includes our recent announcement to double our initial plans for second-half bonuses by approximately $50 million, bringing the company’s full-year investment in employee appreciation bonuses to approximately $173 million.”
Gross profit as a percentage of net sales was 31.3% in the third quarter of 2020 compared to 29.5% in the third quarter of 2019, an increase of 178 basis points. This gross profit rate increase was primarily attributable to a reduction in markdowns as a percentage of net sales, higher initial markups on inventory purchases, a greater proportion of sales coming from the non-consumables product categories — which generally have a higher gross profit rate than the consumables product category — and a reduction in inventory shrink as a percentage of net sales.
These factors were partially offset by increased distribution and transportation costs, which were impacted by the COVID-19 pandemic in the form of increased volume and discretionary employee bonus expense. As a result of the significant increase in sales, the retailer said it believes consumer behavior driven by COVID-19 also had a significant positive effect on gross profit dollars.
For the 39-week period ended Oct. 30, net sales increased 23.0% to $25.3 billion. This net sales increase included positive sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures. Same-store sales increased 17.5% from the 2019 39-week period, driven by an increase in average transaction amount, partially offset by a decline in customer traffic. Operating profit for the 2020 39-week period grew 69.6%.