Dollar General raises annual profit forecast as low prices pull in bargain hunters

The logo for Dollar General appears on a screen above a trading post, on the floor of the New York Stock Exchange, Thursday, July 13, 2023. (AP Photo/Richard Drew)

Dollar General raised its annual profit forecast after beating third-quarter earnings estimates on Thursday, banking on resilient demand at its discount stores, as well as its efforts to cut costs and reduce inventory-related damages.

Shares of the company, which also bumped up its full-year comparable sales forecast, rose about 10 per cent in early trading. The stock has risen about 45 per cent this year.

A day earlier, rival Dollar Tree also raised its annual profit forecast as dollar stores attract middle- and lower-income customers in the U.S. seeking cheaper alternatives and better seasonal deals amid economic uncertainty and worries over a sluggish labor market.

Dollar General’s focus on maintaining about 25 per cent of its offerings at or below the $1 price point to resonate with its core customers - households earning less than $35,000 annually - has also made the company a go-to destination.

“With our unique combination of value and convenience, we believe we are well-positioned to increase market share with customers across all income brackets,” said CEO Todd Vasos during the post-earnings call.

Dollar stores, like retail giant Walmart, are benefiting from robust demand for everything from groceries to home goods across income groups, especially higher-income households.

Dollar General projected annual earnings per share in the range of $6.30 to $6.50, compared with its earlier target of $5.80 to $6.30.

The company now expects annual same-store sales to grow in the range of 2.5% to 2.7%, compared with its prior forecast of 2.1% to 2.6%.

“The company is executing well and making progress on its transformation — transitioning to a mature retailer from a growth retailer...,” said Joseph Feldman, analyst with Telsey Advisory Group.

He highlighted the company’s decision to slow unit growth, increase its focus on in-store enhancements and improve in-store profitability through more effective management of operations and costs.

Dollar General earned a profit of $1.28 per share for the quarter ended October 31, compared with analysts’ estimates of 95 cents, according to data compiled by LSEG.

The company’s quarterly net sales of $10.65 billion edged past estimates of $10.64 billion.

---

Reporting by Anuja Bharat Mistry and Sanskriti Shekhar in Bengaluru; Editing by Sriraj Kalluvila