Dollar General Profit Tops Expectations

By Chelsey Dulaney 

Dollar General Corp. posted a better-than-expected 14% increase in profit in its first quarter as the discount retailer benefited from higher traffic and customer spending.

Sales growth came in narrowly below Wall Street expectations, but shares gained 2.9% in premarket trading as the company also backed its full-year outlook.

The results come just a day before Dollar General's operations chief, Todd Vasos, is set to assume the chief executive role, replacing retiring CEO Rick Dreiling.

Dollar General is also bracing for heightened competition as rivals Dollar Tree Inc. and Family Dollar Stores Inc. merge and is ramping up spending on labor this year. Dollar General has said it plans to increase the hours allocated to employees to help improve the quality of stores and draw in traffic as big-box retailers like Wal-Mart Stores Inc. and Target Corp. pick up traffic.

In the latest quarter, Dollar General's sales at existing locations grew 3.7%, owing to higher traffic and transaction amounts. The company said items like tobacco products, candy and apparel helped drive growth in the metric.

Analysts, however, had expected same-store sales to increase by 4.1%, according to Consensus Metrix.

Gross margin ticked up to 30.5% from 30% a year earlier amid higher initial prices and lower transportation costs.

Overall, Dollar General posted a profit of $253.2 million, or 84 cents a share, up from $222.4 million, or 72 cents a share, a year earlier.

Sales grew 8.8% to $4.92 billion.

Analysts polled by Thomson Reuters had projected earnings of 81 cents a share and revenue of $4.94 billion.

Write to Chelsey Dulaney at [e-mail]

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