GOODLETTSVILLE, Tenn. -- Dollar General here said last week it has been pleased with the performance of its first two Dollar General Market stores, which place a heavy emphasis on food offerings.
As previously reported, the company plans to open 20 more Dollar General Markets this year, most of them in the latter half of 2004. Also this year, the company plans to roll out perishable-foods coolers to 3,500 locations, which would increase perishables penetration to 80% of its stores.
The first two Market stores, which at about 17,000 square feet are more than double the size of its traditional stores, offer an expanded array of dry grocery items and a basic assortment of produce. Dollar General opened the test stores last year in the Tennessee towns of Hendersonville and Pleasant View.
"The productivity of these stores is significantly higher than our original model," said David Perdue, chairman and chief executive officer, in a conference call with analysts last week discussing earnings results for the fiscal year ended Jan. 30. "Both of them had a great holiday season."
The company did not provide more specific detail about the stores' performance. Perdue said capital expenditures for 2004 would double to $300 million, in part due to the addition of the larger Market stores, but also because of increased investments in technology and the supply chain infrastructure. The company plans to add about 675 traditional Dollar General stores in 2004, vs. 673 in 2003.
Meanwhile, the company also is seeking to roll out technology that would allow it to accept electronic benefit transfer cards for customers receiving government assistance. The rollout of EBT acceptance is contingent upon the company's addition of groceries to its stores.
"We have made a decision to make EBT available as fast as we can and in any store that qualifies," said Perdue. "We've got to have the food products in these cooler stores in order to qualify."
Dollar General also said its chief financial officer, James J. Hagan, would resign to pursue other interests. His departure comes as the company said it resolved an investigation by the Securities and Exchange Commission into its restatement of earnings for 1998 and 1999. Dollar General set aside $10 million to settle the investigation without admitting wrongdoing.
Hagan, who joined the company in 2001, said his departure was not related to the SEC investigation, except in that the resolution of the investigation created an opportunity for him to leave.
"I think this is a logical time for me to close out my service with Dollar General," he said in the conference call. "After 23 years of life in corporate America, I would like to take a break, and then I'd like to try something a little bit different, but I am not sure right now what that might be."
Dollar General reported a fourth-quarter net income of $102.8 million, a decline of about 5% from year-ago levels. Sales totaled $1.97 billion, up 12% over year-ago results. Comparable-store sales were up 3.3%. The company attributed the decline in profitability to the SEC payment and to increased markdowns.
Mark Miller, analyst, William Blair & Co., Chicago, said the markdowns were part of Dollar General's effort to clean out its inventory in anticipation of a workflow analysis by the company's new executive team. "We perceive that the new management likely wanted to start from a relatively clean slate as 2004 would be the first full year on its watch," he said.
Dollar General reported a 13.6% increase in net income for the year, to $301 million, on a 12.6% increase in sales, to $6.87 billion, compared with the year-ago results.
4TH-QUARTER RESULTS
Qtr Ended: 1/30/04; 1/31/03
Sales: $1.97 billion; $1.76 billion
Change: +11; .9%
Comp-store: +3.3%
Net income*: $103 million; $108 million
Change: -5%
Inc/Share: 30 cents; 32 cents
Year2003: 2002
Sales: $6.8 billion; $6.1 billion
Change: +12.6%
Comp-store: +4%
Net Income*: $301 million; $265 million
Change: +13.6%
Inc/share: 89 cents; 79 cents
* Net income for the 2003 fourth quarter and year included a $10 million penalty to settle an SEC investigation.
