Dollar General Profit Rises on Higher Sales

By Paul Ziobro 

Dollar General Corp.'s second-quarter profit rose 12.3% on higher sales across all categories as the discounter's low prices continue to attract more shoppers looking for quick shopping trips.

The Goodlettsville, Tenn.-based retailer's sales rose 7.9% to $5.1 billion, helped by hundreds of more stores and a 2.8% sales increase at existing locations. All categories posted growth, with the largest increases in area such as candy and snacks, tobacco products, perishables and seasonal items.

Six years after the Great Recession, Dollar General still finds itself picking up more customers drawn to lower prices for smaller sized items that are sold closer to their homes. Dollar General is continuing adding more items selling for $1 and $5, and says that half of shoppers are putting at least one $1 item into their shopping baskets on each trip.

Dollar General Chief Executive Todd Vasos, who replaced longtime CEO Rick Dreiling in June, said the chain's core of low-income shoppers is feeling a little better now, bolstered by an improving job market and lower gas prices. But those shoppers are still aren't spending more freely.

"It takes a little bit more time for her to let go of the purse strings a little bit more," Mr. Vasos said on Thursday's earnings call.

Still, Dollar General is experimenting with a new model in which it spends more on wages to better stock shelves while also reducing travel for some district managers so they can have more time with store managers. Early results of the test are promising and Dollar General plans to roll out the new labor model to about a third of the chain's more than 12,000 stores by the end of the fiscal year, which ends in January.

The investments come as Wal-Mart Stores Inc. and Target Corp. both have put a priority on improving in-stock levels at their stores, and are investing more on higher wages. Meanwhile, Dollar General may also see more competition in the dollar store space as two of its rivals, Dollar Tree Inc. and Family Dollar Stores Inc., have merged, creating a more formidable competitor.

Overall, Dollar General posted a profit of $282.3 million, up from $251.3 million a year earlier. Gross margin rose to 31.2% from 30.8% a year earlier amid higher inventory markups and lower transportation costs.

Dollar General backed its financial forecasts for the year, though said it now expects same-store sales growth to be closer to the lower end of its range of 3% to 3.5%. Shares fell 3.6% in recent trading to $73.94, trimming year-to-date gains to just 4.6%.

Chelsey Dulaney contributed to this article.

Write to Paul Ziobro at [e-mail]

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August 27, 2015 13:54 ET (17:54 GMT)

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