Dive brief:
- A month after opening its 20,000th store, Dollar General said during an earnings call Thursday that it plans to open 800 more new stores, remodel 1,500 locations and relocate 85 stores this year, 2,385 real estate projects in all.
- The news comes a day after archrival Dollar Tree Inc. said it plans to close about 600 of its Family Dollar locations this year and an additional 400 stores under the two banners in the next few years as they expire. lease contracts.
- New stores and same-store sales growth helped Dollar General’s full-year net sales rise 2.2% to $38.7 billion. Net income for the year declined 31% to $1.7 billion from $2.4 billion a year earlier. Same-store sales for the 4Q and the year were slightly above flat, driven by growth in consumables that was moderated by declines in home, seasonal and apparel.
Diving knowledge:
As Dollar Tree’s store fleet contracts, Dollar General continues to grow. The company recently celebrated the one-year anniversary of opening its first store in Mexico and plans to open up to 15 more in that country this year. The retailer is also expanding its Popshelf concept, with 30 Popshelf stores in the works this year, CEO Todd Vasos said during an earnings call.
However, because Popshelf’s core offering is mostly non-consumable items, that banner is more affected by a softer discretionary sales environment, Vasos said on the call. As a result, the company has been slow to grow Popshelf.
“We continue to believe that the Popshelf concept offers an opportunity for additional growth, but we are aware of the near-term pressures affecting non-consumable sales,” Vasos said.
Store growth outpaces similar levels last year. In fiscal 2023, Vasos said Dollar General moved into more than 3,000 real estate projects. This included 987 new stores, 129 relocations and 2,007 remodels.
The retailer expects stronger sales growth next year, with guidance calling for sales growth of between 6% and 6.7%. Although net sales in the fourth quarter of this year fell 3.4%, that was thanks to an accounting quirk. A 13-week quarter in 2023 compared with 14 weeks a year earlier is to blame for Dollar General’s poor sales numbers, Neil Saunders, CEO of GlobalData, said in emailed comments.
“When the additional sales from last year are removed, total sales grew by 6.9%. This is a robust growth rate that reverses the slowdown of the past two quarters,” Saunders said. “However, most of the increase remains driven by new store openings, with underlying comparable sales at a much weaker 0.7%.”
Despite the relatively strong results, Vasos said customers are still being hit by two years of inflation. As a result, this is driving consumers to trade up and is putting pressure on the retailer’s discretionary sales categories.
Still, analysts were mostly positive about the company’s holiday quarter and full-year performance. Dollar General’s top-line and bottom-line results for the fourth quarter beat expectations, Jefferies analysts led by Corey Tarlowe said in a note issued ahead of the retailer’s mid-morning earnings call.
“During the quarter, we are encouraged by positive traffic trends and market share gains. Looking ahead to 2024, [Dollar General] guided top-line growth and offset sales above expectations and [earnings per share] relatively in line with consensus,” analysts said.
Telsey Advisory Group analysts led by Joe Feldman characterized the first-quarter earnings outlook as soft. Dollar General expects same-store sales to rise 1.5% to 2% “but the business is expected to improve as we move into 2024,” Feldman said. “In 4Q23, we were encouraged to see market share gains as well as positive clearance and traffic, although we believe this could be helped in part by lower prices, higher markdowns and inventory clearance, as can see from a smoother margin profile.”
Saunders was bullish on Vasos’ return as CEO: Jeff Owen stepped down from the top spot in October less than a year after taking over from Vasos. Under Vasos, the retailer is executing a turnaround strategy and expanding its fresh produce and grocery offerings.
“Dollar General has already indicated that it intends to return to the basics of its operations and will invest more in front-line staff to improve the customer experience,” Saunders said. “We believe this is the right approach and that strengthening the store proposition will help facilitate customer acquisition, retention and spending.”
