A week after Dollar Tree released an upbeat earnings report fueled by a 1.7% same store sales jump and a nearly $90 million net income increase, rival Dollar General illustrated that joy is not universal throughout the discount sector.
In its Q3 earnings release, the discount retailer reported:
Same-store sales decreases of 0.1%, well below initial Wall Street estimates of a 0.8% boost;
Net sales increases of 5.0%;
A net income decrease, from $253 million to $235 million; and
Full-year earnings expected to come in at the “low end” of the initial 10% to 15% growth forecast range.
While Dollar General reported a decline in traffic, it did see an increase in average transaction amount. However, sales per square foot have continued their downward spiral, with the retailer experiencing a 1.6% year-over-year dip one quarter after seeing a 0.5% decline.
Todd Vasos, CEO of Dollar General, attributed the sales decrease to falling food prices and changes to SNAP food stamp program benefits, which will cut benefits in as many as 22 states by the end of 2016.
“The cuts in SNAP benefits have affected 56% of our store base — so we have started to lower prices as our consumers need us right now,” Vasos told analysts on a conference call. He indicated that comparable sales in many of the southern states affected were reduced by about one percentage point due to the cuts.
Dollar General also has reduced prices on approximately 450 items in 17% of its 13,000+ stores in Q3, in a move to counter Walmart’s aggressive discount pricing. These markdowns haven’t worked to Dollar General’s advantage, however, with gross profit margins falling slightly from 30.3% a year ago to 29.8%. When it comes down to it, promotions and inventory clearing efforts simply aren’t driving the traffic into Dollar General stores.
But with rival Dollar Tree still finding success even as it wades through the same issues, Dollar General is going to need to prioritize store productivity and focus on its products if it wants to find its groove again in 2017.
Despite the disheartening results and poor sales per square foot, Dollar General still expects to increase store square footage growth by 7.5% next year, with the opening of approximately 1,000 new stores by February 2018, in addition to remodeling or relocating 900 stores.