Dollar General has posted an increase in sales for the second quarter, but the company management said they were not satisfied as the results missed their targets.
For the 13 weeks ended August 2, the discount store chain saw net sales increase 4.2 per cent to $10.2 billion, with same-store sales up a modest 0.5 per cent. The firm attributed the growth to the continued opening of new stores.
CEO Todd Vasos said the company made important progress on the ‘Back to Basics’ plan, but despite the improvement, the top-line results fell below expectations.
According to Neil Saunders, MD of GlobalData, the retailer has been facing problems with the continued decrease in spending power of its core customers.
“While some economic metrics are trending in the right direction, this good news has not yet reached the wallets of Dollar General customers who remain very constrained and cautious,” he explained.
Another issue is the intensifying competition in a market that is more focused on low prices, Saunders said. Dollar General will need to ensure its own prices remain very sharp to mitigate this, and it could mean some further short-term erosion in margins, the analyst elaborated.
On the bottom line, operating profit decreased 20.6 per cent to $550 million, and net income also dropped 20.2 per cent. This is because the slower sales growth came when the company was spending on refurbishments and remodels and investing more in prices, according to Saunders.
Although Dollar General remains in the black with $738 million of net income, this marks the second year in a row that profit has declined, the analyst added.
The company has downgraded its outlook to reflect the softer sales trends, with net sales expected to be up 4.7-5.3 per cent for the full year. Same-store sales are forecast to grow in the range of 1-1.6 per cent.
Saunders said he remains optimistic about Dollar General’s prospects, even if the short term is pressured. “The somewhat good news is that this performance is now more a function of market dynamics rather than of the internal stumbles and fumbles of the company,” he added.
