Dive Brief:
- Dollar General on Thursday reported its first-quarter net sales rose 6.8% to $9.3 billion, up from $8.8 billion in the same quarter last year. But operating profit slid down 0.7% to $740.9 versus $746.2 million year over year. Net income fell 6.9% to $514.4 million versus $552.7 million last year.
- The company lowered its full-year guidance, citing a challenging macroeconomic environment that “is having a significant impact on customers’ spending levels and behaviors” The retailer now forecasts net sales of 3.5% to 5% down from 5.5% to 6%, and lower same-store growth and capital expenditures.
- Shareholders on Wednesday also voted to create an independent audit into worker safety. The Occupational Safety and Health Administration has hit Dollar General with $21 million in fines for worker safety violations since 2017.
Dive Insight:
Dollar General says same-store sales increased 1.6% in Q1 compared to a year ago, driven by an increase in average ticket amount but partially offset by a decrease in customer traffic. Same-store sales in Q1 included growth in consumables but was offset by declines in the seasonal, home and apparel categories.
“We continue to see signs of increasing financial strain on our customers as they seek affordable options, including increased reliance on private brands and items at or below the $1 price point,” CEO Jeff Owen told investors and analysts on a Q1 earnings call.
“Overall, we had softer than expected sales in the quarter, which we believe was primarily driven by deterioration in the macroeconomic environment, including headwinds from lower tax refunds than customers expected and reductions in SNAP benefits as well as unfavorable weather during the month of March and April,” Owen said on the call.
As part of the company’s plans to optimize its capital expenditures and focus on the core business, Owen said the company has decided to “moderate” its rollout of PopShelf concept stores through the end of this year. The retailer now plans to open about 90 stores, down from a target of about 150.
“We believe this is a prudent reduction based on the current environment,” Owen said.
Despite that pullback, Dollar General is still one of the largest retailers in the U.S. Owen said the company’s stores are within five miles of about 75% of the U.S. population. As of May 5, the company had 19,294 Dollar General, DG Market, DGX and Popshelf stores across the U.S., along with Mi Súper Dollar General stores in Mexico.
Dollar General said it opened 212 new stores in Q1, remodeled 582 and closed 22 stores.
“It's clear that DG's core customer came under increased pressure as the quarter progressed, but comps imply fairly poor volumes and share loss,” Wells Fargo analysts led by Edward Kelly said in a Thursday note. “This will probably be the weakest Q1 comp we see in the more defensive staples retail camp.” The Wells Fargo analysts also said it appears “recent supply chain issues and under-investment in labor is having an even bigger impact than feared.”
Analysts at Telsey Advisory Group, led by Joe Feldman, characterized Dollar General’s first-quarter performance as disappointing, citing “weak” comp sales, especially when compared to rival Dollar Tree, which reported first-quarter comps of 4.8%. “Dollar General's long-term growth should be driven by new stores and remodels and a number of initiatives, including the expansion of cooler doors, DG Fresh, Fast Track, and NCI,” Telsey’s analysts said.
Meanwhile, Dollar General workers and labor advocates are claiming a victory after shareholders voted to approve a worker safety and well-being audit. Workers and members of labor, social justice and faith-based organizations rallied and marched to the company’s headquarters in Tennessee during a shareholder meeting Wednesday.
“I’m one of the hundreds of thousands of Dollar General employees who come into work every day scared for our safety,” David Williams, a stocker at a New Orleans Dollar General, said in a statement to shareholders provided to Retail Dive. “This company has expanded so fast, and so recklessly, that on any given day, I might have to deal with a rat infestation, a door that won’t lock, or someone pointing a gun at me with no security to protect me. We know that the leaders of Dollar General are not looking out for the safety of workers.”
Workers and regulators say the retailer has repeatedly allowed safety hazards to persist in its stores, including allowing merchandise to block aisles, electrical panels and emergency exits. Employees also say they face criminal violence and that stores are often chronically understaffed, exacerbating the problems. OSHA has placed the company in its severe violator enforcement program.
In response to the staffing issues, Dollar General said last quarter that it plans to spend $100 million on its staffing and stores.
“We are awaiting the final report and will report the final results in a Form 8-K within the required period,” a Dollar General spokesperson said in response to questions about the shareholder-approved safety audit.
