Dollar General Cautious; Says ‘Significant Sales Benefit’ From COVID Will Likely End

Dollar General, which operates the nation’s largest chain of 17,000 discount stores, said on Thursday (March 18) that the 20 percent COVID-fueled sales increase last year will probably not be repeated in 2021, and told investors that it sees revenues flat to down 2 percent.

The cautious guidance from the $45 billion Tennessee-based retailer came within the company’s latest quarterly and annual results for the period ending Jan. 29, reflecting the “challenging operating environment” that the entire industry has faced.

“[Dollar General] realized a significant sales benefit in the 2020 fiscal year as a result of COVID-19,” the company’s statement said, noting that “significant uncertainty continues to exist regarding the severity and duration of the pandemic, including its impact on the U.S. economy, consumer behavior and the company’s business.”

Given the “wide range of potential outcomes and ongoing uncertainty,” Dollar General said same-store sales would be down by 4 to 6 percent this year, and diluted earnings per share would fall 10-15 percent to a range of $8.80 to $9.50. By comparison, Dollar General’s just-ended 2020 earnings rose 60 percent to $10.62 per share.

Still Investing

Despite the slowing forecast, the company said it is forging ahead with its strategic initiatives. It plans to make $1 billion worth of capital expenditures this year, primarily on nearly 3,000 real estate projects, including 1,050 new store openings, 1,750 remodelings and 100 relocations.

“We continue to operate from a position of strength, and are excited about our plans for 2021 to continue delivering value and convenience for our customers, along with long-term sustainable growth and value for our shareholders,” said CEO Todd Vasos.

The 2021 construction plan follows a similar investment last year in which Dollar General completed 2,780 real estate projects, including the opening of the company’s 17,000th store while extending its milestone of 31 consecutive years of same-store sales growth.

“We believe the fundamentals of the business are strong, and we are confident in the team’s ability to execute on our robust plans for 2021,” said John Garratt, Dollar General’s chief financial officer, noting the long-term nature of the company’s strategic investments.

Q4 Trends

Dollar General said its latest quarterly results saw sales rise 18 percent to $8.4 billion, with a 13 percent gain in same-store sales driven by an increase in the average transaction amount, despite slower customer traffic.

At the same time, the company said that Q4 net income rose 20 percent to $642.7 million, due to a “reduction in markdowns as a percentage of net sales, higher initial markups on inventory purchases and a greater proportion of sales coming from the non-consumables product categories, which generally have a higher gross profit rate than the consumables.”

Dollar General also said that it faced increased transportation and distribution costs last quarter, as well as a $69 million discretionary employee bonus expense.

Dollar Store Competition

Two weeks ago, rival Dollar Tree, the country’s second-largest operator of discount stores, said it was also accelerating new store growth and renovations this year as it looks to boost sales and profits at its more than 15,000 locations.

In announcing its fourth-quarter and full-year financial results, the Virginia-based retailer said it plans to renovate 1,250 existing locations this year while adding an additional 600 new stores, including more of its “combo stores,” which put its Dollar Tree and Family Dollar brands under one roof.

“Compared to other Family Dollar stores located in small markets, these combination stores are delivering a same-store sales lift of greater than 20 percent on average,” the company’s statement said, adding that the tandem locations are “more productive, deliver higher gross margins and are better at leveraging store expenses.”

Dollar Tree said its Q4 diluted earnings per share rose 310 percent to $2.13 on consolidated sales of $6.7 billion for the three months ending Jan. 30. The company’s combined same-store sales rose 4.9 percent, with sales at Family Dollar stores rising 8.1 percent and its Dollar Tree brand posting a 2.4 percent increase in comparable store sales.

Valued at $25 billion, Dollar Tree is still about half the size of Dollar General, but its 38 percent gain in the market over the past year has far outpaced the 13 percent advance posted by its larger rival.