Dollar General to open 1,050 stores in 2023; Q3 earnings fall amid higher costs

Dollar General storefront
Dollar General ended the quarter with 18,818 stores in 47 states.

Dollar General’s third-quarter sales rose 11.1% but costs took a bite out of the company’s earnings.

The discounter remains committed to expanding its footprint, with plans to execute approximately 3,170 U.S. real estate projects in fiscal year 2023 (ending Feb.2, 2024), including 1,050 new stores, 2,000 remodels, and 120 store relocations.  It also plans to open new stores in Mexico, with a goal of operating up to 35 stores in Mexico by the end of fiscal 2023.

Read More: Dollar General’s Popshelf concept on fast track for expansion]

Net income rose to $526.17 million, or $2.33 a share, in the quarter ended Oct. 28, from $487.03 million, or $2.08 a share, in the year-ago period. Analysts had expected earnings of $2.54 a share.

Revenue rose to 11.1% to $9.46 billion from $8.52 billion, missing estimates of $9.42 billion. Same-store sales increased 6.8%, driven primarily by an increase in average transaction amount, as well as a modest increase in customer traffic.

“Despite the cost pressures we experienced during the quarter, as well as challenges within our internal supply chain resulting in higher-than-anticipated distribution and transportation costs, our team was resilient and worked hard to deliver double-digit diluted EPS growth,” said Jeff Owen, who took the reins as Dollar General CEO at the beginning of November. “We believe the majority of these and other gross margin pressures are largely temporary, and we are confident in our plans to drive greater supply chain efficiencies moving forward."

Dollar General noted that, during the quarter, it experienced unanticipated delays in acquiring additional temporary warehouse space sufficient for its inventory needs, which caused inefficiencies within the company’s internal supply chain. 

“These challenges resulted in higher-than-anticipated supply chain costs, including fees incurred for delays in returning shipping containers, and higher transportation costs caused by the need to service stores from less-than-optimal distribution center alignments,” the company stated.

In July, Dollar General said it was expanding its supply chain infrastructure, with plans to build three new distribution centers 

As of October 28, 2022, Dollar General’s total merchandise inventories, at cost, were $7.1 billion compared to $5.3 billion as of October 29, 2021, an increase of 28.4% on a per-store basis. This increase primarily reflects the impact of product cost inflation, as well as a greater mix of higher-value products, particularly in the home and seasonal categories, the company said.

The retailer lowered its fourth-quarter earnings guidance to $3.15 to $3.30 a share, below Street estimates of $3.66 a share.

Dollar General operated 18,818 stores in 47 states as of October 28, 2022.

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