Dive Brief:

• Dollar General’s net sales rose nearly 18% in the fourth quarter to $10.2 billion, up from $8.7 billion year over year, the company said in a Thursday earnings report. Operating profit for the quarter rose 17.1% to $933.2 million, while net income rose 10.3% to $659.1 million.
• For the year, the discount retailer reported new store and same-store sales growth helped raise net sales 10.6% to $37.8 billion. Declines in apparel, home and seasonal sales were offset by gains in the consumables category.
• CEO Jeff Owen said a $100 million store-level investment will fund more store-level staffing and continue to attract and retail talent which, in turn, will improve customers’ in-store experience. That news comes as the company has faced state and federal scrutiny and fines for unsafe in-store working conditions.

Dive Insight:

Dollar General saw Q4 comp sales grow nearly 6%. Although that still fell below expectations, Owen said gains in consumables and an increase in average basket size helped the company’s overall performance.

Customer spending on Dollar General’s private brands represents 20% of the company’s total sales. Mirroring trends noted by other retailers, Dollar General said it’s drawing shoppers from income brackets above its core customer base.

Chief Financial Officer John Garratt said while the $100 million investment in staffing, which will come primarily in additional incremental labor hours “will pressure SG&A in 2023, we believe it is the right thing for the business and will drive stronger in-store execution, positioning us well to build on the momentum we have with our customers.”

A new CFO is expected to lead the company through the second half of the year. Garratt plans to retire in June.

Dollar General reported $1.6 billion in capital expenditures last year. About $589 million of that was invested in improvements, upgrades, remodeling or relocation of existing stores. The company also said it opened 1,039 stores last year. The company opened its 19,000th store in January, recently opened its first store in Mexico, and employs about 170,000 people.

Same-store sales are forecast to range from 4% to 6% for fiscal year 2023 according to the company’s latest guidance. This year, the retailer anticipates nearly $2 billion in capital expenditures. Momentum on real estate-related projects is also expected to continue, with 1,050 new store openings, 2,000 remodels and 120 relocation projects planned

“While we anticipate the first half of fiscal 2023 to be negatively impacted by ongoing sales mix pressures, higher shrink levels, increased damages, and higher interest expense, we are confident in our full-year plans,” Garratt said in an earnings announcement.

Owen on an earnings call described Dollar General as “an all-weather brand” that can serve customers “in any economic environment.” Garratt echoed that sentiment, noting that “we're continuing to see an increasingly economically strained customer, and we're seeing shopping behaviors indicative of this environment.”

Neil Saunders, managing director of GlobalData, described Dollar General’s results last quarter in non-consumables as mixed. In short, the numbers “suggest Dollar General is still having some difficulty in persuading shoppers who come in for food to buy other things,” Saunders said in emailed comments.

Saunders also said Dollar General should work “to entice consumers with some interesting displays and offers that wow them — much in the way that Five Below does. This will encourage higher-income shoppers to buy more and will serve the company well once lower-income shoppers are less affected by inflation.”

But analysts with Credit Suisse, led by Karen Short, said in a note that Dollar General’s FY23 outlook “remains blurry” due to various uncertainties. They include how the company’s core customers, who face ongoing economic pressures, will choose to spend; the possibility of investing in hourly pay beyond the company’s $100 million commitment, and performance in the non-consumables sector. 

On the upside, Credit Suisse said Dollar General’s bottom line may benefit from lower freight, an expansion of DG Wellbeing, the company’s healthcare products and mobile clinic initiative; and an ongoing expansion of its Popshelf concept.