Although Placer.ai’s quarterly index for Q2 2023 found that store traffic for discount and dollar stores were up 4.7% year over year, Dollar General CEO Jeff Owen revealed that the company was “not satisfied” with overall financial results for its Q2, which ended August 3, 2023.
Dollar General reported a net sales increase of 3.9% to $9.8 billion, largely driven by positive sales contributions from new stores. These sales helped offset a 0.1% decrease in same-store sales, which was largely due to a decline in store traffic. Even though the retailer saw growth in the consumables category, sales across home, seasonal and apparel categories fell. The retailer also saw a staggering 24.2% drop in operating profit to $692.3 million.
Gross profit as a percentage of net sales was 31.1% in Q2 2023, down from 32.3% in Q2 2022. Executives attributed this decrease to “lower inventory markups and increased shrink, markdown and inventory damages, as well as a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories.”
Dollar General also saw operating profit decrease 24.2% from $913.4 million in Q2 2022 to $692.3 million in Q2 2023, while selling, general and administrative expenses as a percentage of net sales increased from 22.6% in Q2 2022 to 24.0% in the same period of 2023. Primary expenses were related to retail labor, utilities, depreciation and amortization, and rent.
As a result, Dollar General is revising its financial outlook: the retailer initially planned net sales growth in the range of 3.5% to 5.0%, but is now predicting a more conservative growth rate of 1.3% to 3.3%. In addition, the retailer is revising its planned same-store sales growth of 1.0% to 2.0% to a range of -1.0% to 1.0%.
New Store Projects Help Drive Market Penetration, Sales Growth
Despite the financial shortfall, Owen noted that Dollar General “made significant progress in the second quarter improving execution in our supply chain and our stores, as well as reducing our inventory growth rate and further strengthening our price position.” He explained that these actions were critical for “improving customer traffic trends and growing total market share in the second quarter.”
Dollar General also executed nearly 850 real estate projects during Q2 2023, “further extending our reach and expanding our ability to serve both new and existing customers,” Owen explained.
Dollar General plans to spend between $1.6 billion and $1.7 billion on new investments related to its strategic priorities. Among those investments are 3,110 real estate projects across the U.S., which include 990 new store openings, 2,000 remodels and 120 store relocations through the rest of the 2023 fiscal year.
The Company is taking certain actions to accelerate the pace of its inventory reduction efforts and making additional investments in targeted areas, such as retail labor, to further elevate the in-store experience and better serve its customers. Overall, the Company expects an incremental operating profit headwind of up to $170 million in the second half of 2023 from these strategic actions and investments.