GOODLETTSVILLE, Tenn. — Dollar General Corp. here last week said its second-quarter profits increased more than analysts had expected and that sales were ramping up.
The chain also increased its financial outlook for the year and discussed the addition of more consumables, including vitamins and supplements and alcoholic beverages.
“In the quarter, we were responsive to the ever-changing competitive environment while remaining true to our EDLP discipline,” said Rick Dreiling, chairman and chief executive officer, in a conference call with analysts. “We avoided sweeping reactionary moves and instead only made changes that were strategic and sensible. That approach paid off for us in the form of productive sales without unnecessary margin sacrifice. I believe we are well positioned to continue executing in this manner as we enter the second half of the year.”
Net income for the 13-week second quarter, which ended July 30, was up about 51%, to $141.2 million, on a sales gain of 10.8%, to $3.21 billion. Same-store sales were up 5.1%, driven in large part by consumables and including both increased visits and bigger baskets.
The company said its gross margins improved in the quarter in part because of benefits in improved sourcing, and also because of improvements in its private-label offering and increased penetration of private label. Gross profits were 32.2% of sales in the second quarter, a gain of 101 basis points over the year-ago result.
For the 26-week year-to-date period, net income of $277.2 million was up 57% over year-ago results, and sales increased 11.3%, to $6.3 billion, including a 5.9% increase in same-store sales.
Dreiling said sales accelerated during the final month of the second quarter, and that he “was encouraged” by sales growth so far in the third fiscal quarter.
Among the company's initiatives in consumables is the addition of shelf space to expand its offerings of Rexall-brand vitamins and related products, which Dollar General first introduced last year. This month the chain plans to add about 60 new Rexall products in the cough-and-cold and first-aid categories. In the fourth quarter, another 100 products are set to convert to the Rexall brand, Dreiling said.
“And we plan to further leverage the brand in 2011 as we introduce more new Rexall products that will include additional items in cough and cold and first aid with planned expansion into foot care, skin care and dental,” he added.
Dreiling also said the company would continue to expand the number of locations offering beer and wine. As of last week, the alcoholic beverages had been rolled out to 618 Dollar General locations.
“This is something that's a very methodical rollout for us,” Dreiling said. “We're pleased with the results. We're pleased with what it's doing with the basket in particular.”
The company also said it has launched a talent-development program to develop district managers internally, and is expanding the program to develop regional directors as well. The moves come as the company continues to ramp up new-store development, with 315 new stores opened so far this year and 600 planned for the full year. Capital expenditures were pegged at $350 million for the year. The chain currently has 9,113 stores in 35 states.
Dollar General increased its profit and sales guidance for the year, citing the strong results in the first half, but noted that it held little hope for overall economic recovery in the near term. Earnings per share are now expected to grow 28% to 33%, to a range of $1.68 to $1.74, up from previous projections of 24% to 29% growth. Sales are expected to grow 8.5% to 10.5%, and same-store sales are projected to increase 4% to 6% for the year.