Full-year guidance lowered to reflect softer sales

GOODLETTSVILLE, Tenn.— Dollar General Corp. today reported a 24.2% decline in operating profit for its fiscal second quarter. Same-store sales declined 0.1% in  the  13 weeks to August 4.

Contributions from newly opened stores drove a 3.9% increase in net sales from a year earlier, to $9.8 billion. 

“While we are not satisfied with our overall financial results, we made significant progress in the second quarter improving execution in our supply chain and our stores, as well as reducing our inventory growth rate and further strengthening our price position,” Jeff Owen, Dollar General’s chief executive officer, said in a statement. “These actions were an important driver of improving customer traffic trends and growing total market share in the second quarter. In addition, we executed nearly 850 real estate projects during the quarter, further extending our reach and expanding our ability to serve both new and existing customers.”

Dollar General attributed the dip in same-stress sales to a decline in customer traffic, partially offset by an increase in average transaction amount. Same-store sales declined in each of the home, seasonal, and apparel categories, partially offset by growth in the consumables category.

Total  merchandise inventories, at cost, were $7.5 billion as of August 4, up 3.4% on  a per-store basis compared to  the close of last year’s second quarter, the  company  said.

Dollar General opened 215 new stores, remodeled 614 stores, and relocated 20 stores during fiscal 2023’s second quarter.

For the  first half  of  fiscal  2023, Dollar General reported additions to property and equipment of $768 million, including approximately: $308 million for improvements, upgrades, remodels and relocations of existing stores; $229 million for distribution and transportation-related projects; $194 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores; and $23 million for information systems upgrades and technology-related projects.

Efforts to accelerate the pace of its inventory reduction are ongoing, the  company  said, and are targeted areas such as retail labor  to further elevate the in-store experience and better serve its customers.

Full-year guidance revised lower

Dollar General revised its  full-year outlook to reflect these strategic actions and investments, as well as softer sales trends and an increase in expected inventory shrink.

The company now expects net sales growth in the range of 1.3% to 3.3%, compared to its previous expectation of 3.5% to 5.0%; both of which include an anticipated negative impact of approximately two percentage points due to lapping the fiscal 2022 53rd week.

Management foresees same-store sales growth in the range of a decline of approximately 1.0% to growth of 1.0%, compared to its previous expectation of growth in the range of 1.0% to 2.0%.

The revision foresees diluted EPS in the range of approximately $7.10 to $8.30, or a decline of 34% to 22%, compared to its previous year-over-year change expectation of an approximate 8% decline to flat growth.

The revision also forecasts full-year capital expenditures, including those related to investments in the company’s strategic initiatives, in the range of $1.6 billion to $1.7 billion. On  tap are  3,110 real estate projects in the United States, including 990 new store openings, 2,000 remodels, and 120 store relocations.

The company’s guidance also continues to assume no share repurchases in 2023.

“We are pleased with the advancements we have made, and we are now taking further actions and making additional investments to accelerate our progress and ultimately serve our customers even better,” Owen said. “While these investments will pressure our 2023 results, we believe they will further strengthen our foundation as we move into 2024 and focus on driving sustainable growth and creating long-term shareholder value.”