Discount retailer still sticking to lowered annual profit forecast
Discount retailer Dollar General posted better than expected numbers in the second quarter, highlighted by its efforts in cigarette sales and brand-name products attracting more customers. Despite the positive direction of the quarter, Dollar General is sticking to the lowered annual forecast it gave in June.
For the quarter, Dollar General saw total sales climb 11.3 percent to $4.39 billion, which beat the $4.36 million estimate of Wall Street analysts. The retailer also saw increases in same store sales, an important barometer of economic health, of just over 5 percent, beating analysts’ predictions of 4.2 percent. The company earned $245.5 million, or 75 cents per share, in the quarter ending August 2. This is up from $214.1 million, or 64 cents per share, in the same time period of 2012.
In June, Dollar General dropped its year-end profit forecast — along with other retailers, like Walmart — giving blame to moderate sales growth along with decreasing margins and extra penny-wise shoppers. In spite of beating Wall Street expectations and matching numbers posted from the same quarter last year, Dollar General will not adjust its annual prediction. “They're probably being somewhat cautious given the uncertainty in the economy,” said John Tomlinson, head of retail at ITG Investment Research. “Investors are cheering the results. It's a little bit of a relief rally.”
Dollar General has been increasing sales over the last several months with the addition of tobacco products to its available inventory. Cigarettes, candy, and snacks all drive sales upwards. However, these items give a thin profit margin, lowering the overall margin. “Much of the sales gain was driven by low margin products that continued to place pressure on the company's gross margin,” said BB&T Capital Markets analyst Anthony Chukumba.
During the first six months of 2013, Dollar General opened 375 new locations and either remodeled or relocated 377 stores. Moving forward, the company has plans to open 650 new locations, 15 more than originally forecasted. Also, the discount retailer will be remodeling or relocating 550 of its existing stores. With big plans for expansions during the remainder of 2013, it really does seem conservative for Dollar General to maintain its lowered annual profits prediction from early this summer.