Discount retailer Dollar General (DG 0.34%) reported mixed third-quarter earnings on Thursday, Dec. 5. Earnings per share of $0.89 fell short of the anticipated $0.94, reflecting a 29.4% drop compared to the previous year. Revenue reached $10.2 billion, surpassing expectations.
While sales performance offered a glimmer of optimism amidst adverse weather impacts, significant declines in profitability highlighted ongoing operational challenges. Overall, it was a disappointing quarter, showing resilience in sales but increased pressure on profits.
| Metric | Q3 2024 | Analysts' Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| EPS | $0.89 | $0.94 | $1.26 | (29.4%) |
| Revenue | $10.2 billion | $10.14 billion | $9.7 billion | 5% |
| Operating Profit | $323.8 million | N/A | $433.5 million | (25.3%) |
| Net Income | $196.5 million | N/A | $276.2 million | (28.9%) |
Source: Dollar General. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
Company Overview
Dollar General operates an extensive network of discount retail stores across the U.S. and Mexico. It focuses on providing low-price, essential goods to financially constrained customers, primarily in rural and underserved areas. Over recent periods, its business strategy has emphasized maintaining competitive pricing, strategic store expansion, and improving operational efficiencies. Success in this model relies on its ability to sustain a low-cost operating structure while expanding its footprint to capture more market share.
Recently, the company focused on projects that enhance customer experience, notably through continued store expansion and exploring new product formats, including its pOpshelf concept. It has also directed efforts towards achieving operational excellence, particularly in inventory and distribution management—a critical factor given the rising competition and economic constraints affecting its core customers.
Quarterly Highlights and Financial Performance
Third-quarter revenue rose 5%, supported by new store openings and enhanced same-store sales performance. Consumables, a crucial category generating significant sales, grew by 6.4% year over year, demonstrating the company's resilience in appealing to cost-sensitive customers. However, the seasonal, home products, and apparel segments saw declines, reflecting 2%, 7%, and 1.3% reductions, respectively.
Despite revenue gains, gross profit margins faced pressure, declining from 29% to 28.8%. This was attributed to heightened markdowns and inventory damage, partially offset by reduced transportation costs. Operating profit plummeted by 25.3% to $323.8 million due to increased selling, general, and administrative expenses. These expenses, rising to 25.7% of net sales, were primarily driven by hurricane-related costs, higher labor expenses, and depreciation, significantly impacting overall profitability.
Net income fell 28.9% year over year to $196.5 million, which paralleled the diluted EPS drop. The company acknowledged operational strains exacerbated by disruptive weather events, contributing to elevated expenses nearly across the board. During the quarter, it opened 617 new stores, further signaling its expansionary ambitions despite the immediate costs and pressures faced.
Forward Guidance and Strategic Outlook
Looking at the strategic and exceptional aspects, Dollar General unveiled its "Project Elevate," focusing on enhancing mature stores to boost customer experience and sales growth. The initiative aligns with its longer-term reinvestment strategy and robust real estate plans for 2025, which include opening 575 new U.S. locations and premiering 15 stores in Mexico. Notably, Dollar General forecasted insurance-related costs due to hurricane activity in its future financial guidance, illustrating a conservative and cautious stance.
For fiscal year 2024, Dollar General anticipates net sales growth of 4.8% to 5.1% and expects same-store sales to rise by 1.1% to 1.4%. The company has revised its full-year EPS guidance to account for hurricane-related expenses in the third quarter as well as the fourth quarter. Management detailed infrastructure investments, ongoing markdown activities to stimulate sales, and its commitment to maintaining competitive pricing in a swiftly evolving retail landscape.
Management emphasized its commitment to robust supply chain enhancement and cost optimization as integral parts of its long-term strategic aims. Upcoming store expansions remain a pivotal component of Dollar General’s growth plans, alongside its core focus on serving economically constrained customer bases. As outlined by CEO Todd Vasos, the company retains confidence in its long-range strategies, aiming for operational improvement and heightened customer satisfaction moving forward.
