DLTR Dollar Tree Inc

By Joshua Jamerson and Lisa Beilfuss 

Dollar General Corp. reported weaker-than-expected sales growth in its latest quarter, hurt by declining traffic, signaling that discount retailers are also vulnerable to the trend of dwindling consumer spending in brick-and-mortar stores.

Same-store sales increased 0.7%, compared with the 2.6% growth analysts were expecting, according to the consensus estimate from Consensus Metrix. Dollar General said an increase in average transaction amount was offset by declining traffic. Shares skidded 7.4% to $85 in premarket trading.

Dollar General's chief executive, Todd Vasos, said food deflation, a reduction in food stamp participation rates and benefit levels and a mild spring hurt the business. Mr. Vasos also said competition also intensified in some regions.

Like rival Dollar Tree Inc., Dollar General has benefited over the past year from rising wages among core customers, who in the second quarter saw their wages increase at the best clip since the recession. Sales and traffic had been up in the sector, in contrast to trends across the larger retail space, and both stocks had benefited.

Also Thursday morning, Dollar Tree's sales results came in below its expectations. Same-store sales increased 1.2%, compared with a 2.7% increase a year ago. Analysts, on average, expected 2.6% growth in the latest quarter. Dollar Tree shares fell 6% to $89.16 premarket.

Dollar General has been working to grow its footprint after last year losing out on a merger between rivals. The company bid to buy Family Dollar, which ultimately merged with Dollar Tree in a deal worth about $9 billion. Since then, Dollar General has said it would boost its store base by about 50%, targeting 20,000 shops by 2020.

As part of that plan, the company bought 41 Walmart Express shops last month across nearly a dozen states. Those locations, the company said, would add to a list of about 120 stores that offer some perishable food. As shoppers continue to move online, Dollar General has said it would add more fresh foods and health and beauty products to its aisles -- items that tend to boost traffic.

In all, Dollar General reported a profit of $306.5 million, or $1.08 a share, up from 282.3 million, or 95 cents a share, a year earlier. Revenue rose 5.8% to $5.39 billion in sales. Analysts projected $1.09 in per-share profit on $5.50 billion in sales, according to Thomson Reuters.

Meanwhile, Dollar Tree reported a profit of $170.2 million, or 72 cents a share, compared with a year-earlier loss of $98 million, or 46 cents a share. Revenue increased to $5 billion from $3.01 billion, helped by the acquisition. The company anticipated 66 cents to 72 cents a share in earnings, and revenue between $5.03 billion to $5.12 billion.

Write to Joshua Jamerson at joshua.jamerson@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

August 25, 2016 08:50 ET (12:50 GMT)

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