Consumables buoy Dollar General's record Q1 results

GOODLETTSVILLE, Tenn. — Dollar General reported record sales, operating profit and net income for the first quarter ended May 3, thanks to strong growth in its consumables categories.

The company reported net sales of $4.23 billion for the quarter, an increase of 8.5% from $3.9 billion in the prior year’s quarter. Same-store sales increased 2.6%, resulting from increases in both customer traffic and average transaction amount. Total sales increases in consumables significantly outpaced increases in the company’s non-consumable categories, reflecting the impact of continued financial pressures on consumers as well as unfavorable weather conditions in many of the company’s geographic regions.

The company’s gross profit, as a percentage of sales, was 31% in the 2013 first quarter, a decrease of 89 basis points from the 2012 first quarter. The gross profit rate was negatively affected by higher markdowns; a higher mix of consumables, which generally have lower gross profit rates; increased inventory shrinkage; and lower initial markups. These factors were partially offset by improved transportation efficiencies and other logistics initiatives, in addition to modestly lower fuel rates.

While the company’s gross profit was lower than it anticipated, its operational profit saw record growth. Dollar General’s operating profit for the quarter was $395 million, or 9.3% of sales, a 3% increase from $384 million, or 9.9% of sales, in the prior year’s quarter.

“For the quarter, we achieved same-store sales growth of 2.6% reflecting strong growth in our consumables categories offset by softer sales in seasonal and weather-sensitive categories,” said chairman and CEO Rick Dreiling. “We believe the continued strength in consumables is a sign of the underlying health of our business.”

The company’s net income was $220 million for the quarter, a 3.5% increase from $213 million in the prior year’s quarter. Adjusted net income — which excludes expenses relating to secondary offerings of the company’s stock in both the 2013 and 2012 periods, losses associated with restructuring the company’s credit facility in 2013, an amendment of the company’s revolving credit facility in 2012 and income tax effect of adjustments — was $232 million for the quarter, an 8% increase from $215 million in the prior year’s quarter.

“We have updated our outlook for the year to reflect moderating sales growth and a lower expected gross profit rate than we previously anticipated,” Dreiling added. “We are well positioned for our same-store sales growth to accelerate to 4 to 5% for the year as our key initiatives, such as the roll out of tobacco and Phase 5 planogram changes, continue to gain traction through the year. Sales of non-consumables are expected to remain challenging, and we anticipate a continued shift to lower margin items within consumables and higher inventory shrink. We believe that our customers’ dependence on our everyday low pricing and convenient locations has never been greater.”