By Anna Prior
Dollar General Corp. used discounts in the latest quarter to
lure in customers that continued to feel the constrains of a
lackluster economy, as the discount retailer also faced increased
competition from bigger retail chains.
During the latest quarter, Dollar General said it significantly
increased the number of products available at $1 to $5 price points
and noted an increased number of markdowns, signs that indicate
that the company's core low-income shopper's wallet remains under
pressure.
"Today, more than ever, given the economic environment that has
lingered for quite some time, affordability has now become the
focus of our core customer," Chief Executive Rick Dreiling said on
the company's quarterly conference call.
However, shares of Dollar General rose 3.6% as the company
reiterated its full-year outlook and noted that sales trends began
to improve in April and have continued to gain momentum.
The company also noted that it repurchased $800 million worth of
stock in the latest quarter.
Dollar stores, like Dollar General, have generally benefited
from bargain-hungry consumers strained by a sluggish economic
recovery. However, small-format dollar stores have been cutting
prices as competition for lower-income shoppers intensifies.
In addition to competition from other traditional dollar stores,
Dollar General faces pressure from newer entrants to the
small-format market, including Wal-Mart Stores Inc.'s "Wal-Mart
Express" in recent years. Meanwhile, Target Corp. has said it would
begin testing a "TargetExpress" store format this year.
Dollar General has posted generally improving results
lately--albeit with tighter margins--as it has spent more in adding
better-known brands to its offerings while opening new stores.
Same-store sales again improved in the most recent period,
rising 1.5%, while customer traffic and average transaction amounts
also continued to grow. However, the company in March had said it
expected same-store sales growth of 2% to 3%.
The weaker-than-expected growth "reflected the challenges of
unfavorable winter weather, heightened competition and the current
economic environment," Mr. Dreiling said.
Overall, for the quarter ended May 2, the company reported
earnings of $222.4 million, or 72 cents a share, up from $220.1
million, or 67 cents a share, a year earlier. Excluding a loss
associated with restructuring the company's credit facility, and
other items, the year-earlier period's adjusted per-share earnings
were 71 cents.
Net sales climbed 6.8% to $4.52 billion.
The company in March had forecast earnings of 72 cents to 74
cents a share and total sales growth of 7% to 8%.
Gross margin narrowed to 30% from 30.6% as input costs rose
7.7%. The company said increased sales of lower margin consumables,
including tobacco and perishable products, and higher markdowns
weighed on margins.
Write to Anna Prior at anna.prior@wsj.com
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