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Dollar General Sees Trading Down Continue

GOODLETTSVILLE, Tenn. — Dollar General Corp. here said Monday it expects to reap ongoing benefits from its ability to serve economically challenged consumers.

Richard Dreiling
Richard Dreiling

"We’ve seen no erosion in what’s happening with the trade-down customer,” Richard W. Dreiling, chairman and chief executive officer, said. “That customer continues to be one of the segments that we continue to grow, so we’re very, very bullish about 2013.

“The shortfall in the income-tax refund is going to make its way back into the system sooner or later as we move through the year, and that’s a perfect example of how when times get tough, our customer needs us even more. And the fact the box is getting so much more viable means the trade-down opportunity continues. Part of the reason we’re so bullish is that it’s very probable things are going to be a little harder out there, so when you consider that, plus the convenience we offer, the EDLP pricing and the consistency, we’re there when they need us. And when they have a little more money, they have a little more to spend with us.”

For the fourth quarter that ended Feb. 1, net income rose 8.5% to $317.4 million, while sales were up 0.5% to $4.2 billion and same-store sales increased 3%. For the full year, net income was up 24.3% to $952.7 million, with sales climbing 8.2% to $16 billion and same-store sales rising 4.7%.

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Deborah Weinswig, managing director for Citi Research, New York, said the fourth-quarter results were above consensus estimates because of a boost in gross margins of 22 basis points, despite weaker same-store sales. The rational competitive environment also likely eased markdown pressures, she added.

John Heinbockel, managing director for Guggenheim Capital, New York, said fourth-quarter results reflected "a solid performance in a tough operating environment but not quite a blowout," noting that the 3% comp gain was below the 3.5% he expected — a function, he said, "of ongoing economic softness as well as a tough, weather-driven January comparison — a 9% gain last year."


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He said he expects first-quarter comps to slow to about 2.5% because of a difficult weather comparison and the impact of the payroll tax increase on discretionary spending, "though a re-acceleration beginning in the second quarter should further reestablish investor confidence in the sector."

Heinbockel said he does not expect dollar stores to hit a saturation point for another six to seven years.

Sales per average store reached a record $1.57 million, with sales per square foot up 3.4% to $216, compared with $209 in 2011, the company pointed out. Consumables sales grew in the high single digits in both unit sales and dollar share, the company said, with fourth-quarter sales primarily driven by consumables, “with perishables business continuing to be on fire and leading the way,” Dreiling noted.

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