Dive Brief:
-
Dollar General on Thursday said Q2 net sales rose 3.9% year over year to $9.8 billion, with store comps down 0.1%.
-
Net income plummeted 31% to $469 million. Gross margin contracted 126 basis points to 31%, due to lower markups; increases in shrink, markdowns and inventory damages; and sales of more consumables versus discretionary items, CFO Kelly Dilts told analysts.
-
The discounter lowered its full-year guidance, but its plan to open 990 new stores this year remains on track. Net sales growth is expected to reach 1.3% to 3.3%, down from 3.5% to 5%, with store comps expected to range between a 1% decline to 1% growth, down from 1% to 2% growth.
Dive Insight:
Dollar General is scrambling to recover amid signs it’s ceding share to rivals.
Telsey Advisory Group analysts led by Joe Feldman noted that Dollar General sales are underperforming compared to Walmart, Dollar Tree, Family Dollar, Five Below and others.
“We are disappointed by Dollar General’s 2Q23 performance and sharply lowered guidance (again), reflecting poor execution and ongoing investments,” they said in a Thursday client note. “In a tough macro environment, we had hoped Dollar General would gain market share, as it had in the past, but the results indicate this is not the case.”
Some higher-income customers are turning to Dollar General to stretch their budgets as they have in previous times of economic stress, according to GlobalData Managing Director Neil Saunders. But increased competition, including renewed price competition from Walmart in particular, is undermining that. Plus lower-income customers are even less able to spend on much beyond essentials as pandemic-era support has disappeared, he said.
The discounter joined other retailers in discussing the problem of shrink, which is inventory that is missing, stolen or somehow unaccounted for. While the company reported another $100 million in shrink loss since last quarter, Dilts said executives believe it’s “transitory.” To combat the problem, the company will reduce its inventory, improve store operations and take other measures, she said.
Inventory, up 3.4% from a year ago, needs to come down anyway, analysts said, with Wells Fargo calling out the company’s “bloated inventory position.” The problem is impairing the in-store experience, according to Saunders.
“While few consumers expect Dollar General to be a place of great inspiration, basic shopkeeping standards – such as not having aisles completely blocked by cages of merchandise, which are a function of excess inventory – are important,” he said in emailed comments. “In our view, Dollar General has started to fail on some of these things and much more effort is needed to revive shopkeeping standards. This is especially important as other chains like Aldi and Five Below – both of which have good store experiences – continue to grow.”
Dollar General CEO Jeff Owen pushed back against any notion of slowing the company’s ongoing expansion, which included 250 new stores, 614 remodels and 20 relocations in the second quarter alone.
“Our high return, low risk real estate model continues to serve us well as a core strength of the business,” he said.
