More competition coming from Dollar General

If it seems like Dollar General stores are everywhere it’s because they are. And more keep coming presenting price sensitive shoppers with a viable alternative to Walmart.

At the mid-point of its fiscal year, Dollar General said it has opened 295 new stores and remodeled or relocated 416 others. It ended the second quarter on August 3 with 10,203 units and full year plans remain on track to open a total of 625 new stores, including 40 Dollar General Market stores. In addition, the company increased slightly plans to remodel or relocate approximately 575 stores, compared to an earlier estimate of 550 stores.

Meanwhile, same store sales at the company keep climbing, driven primarily by food and consumables and some other surprising merchandise categories. Sales increased 10.4% to $3.95 billion during the second quarter thanks to the combination of a 5.1% same store sales increase and the addition of new stores. Net income increased 47% to $214 million in the second quarter compared to $146 million the prior year and earnings per share increased 52% 64 cents, inline with analysts’ consensus estimated, compared to 42 cents the prior year.

"Our same-store sales increase of 5.1% demonstrates the ongoing execution of the initiatives around our key operating priorities and is evidence of our continued importance to our customers," said Dollar General chairman and CEO Rick Dreiling. "We are well positioned to continue to broaden our appeal to more customers and to provide them with convenience and everyday low prices they can depend on."

That sounds like something a Walmart executive might say, especially the part about shoppers depending on the company’s low prices. In fact, the product categories where Dollar General is seeing the fastest growth overlap considerably with Walmart’s offering.

For example, Dollar General said consumables sales continued to increase at a higher rate than non-consumables with the most significant growth related to changes in and further expansion of the company’s candy and snacks and perishable foods. Sales growth was also strong in the home and seasonal categories, as well as certain departments in apparel, including accessories and even sleepwear and intimates.

Buoyed by its second quarter performance, Dollar General narrowed the range of its anticipated full year same store sales growth to 4% to 5% from prior guidance that called for a 3% to 5% gain. The company also raised its full year earnings guidance to a range of $2.77 to $2.85 from a previous range of $2.68 to $2.78, due partly to a four cent a share benefit related to settlement of an income tax audit in the second quarter.

Gross margins and expenses at the company remain consistent. The gross margin rate of 32% was essentially flat with the prior year’s 32.1% figures and that was the case with expenses too which stood at 22.2% of sales in the second quarter compared to 22.3% the prior year.