* 3rd-quarter adjusted profit 63 cents; Street view 60 cents
* Now sees 2012 EPS $2.82-$2.85, Street view $2.86
* Shares drop 5 percent, biggest loser in S&P 500
By Jessica Wohl
Dec 11 Dollar General Corp said on
Tuesday it remained cautious about the rest of the year, as
heightened competition in pricing and ramped-up advertising
could hurt sales and margins despite an encouraging start to the
The discount chain posted a bigger-than-expected increase in
quarterly profit and total sales in line with Wall Street
expectations. But sales at stores open at least a year rose less
than some analysts expected, and its profit forecast suggested
this quarter's profit will miss estimates.
Shares of Dollar General slid 5.1 percent to $44.20 after
falling to a session low of $43.53. The stock was the worst
performer in the S&P 500 index, which the company joined
less than two weeks ago. Rival Family Dollar Stores Inc
was doing as poorly, with a 5 percent drop.
Dollar General, which prices most of its merchandise below
$10, generally does well when economic concerns push those on
limited budgets to cut spending.
But competitors including Walmart have stepped up their
focus on items priced at $1 or less and have been advertising
heavily, putting pressure on stores such as Dollar General that
operate on much smaller ad budgets. Dollar General said it would
start to lower some prices and use more advertising.
Headlines about potential federal tax increases and spending
cuts after the start of the new year also appeared to be having
an effect, it said.
"I think the customer is fatigued, they're tired, they're
scared," Chairman and Chief Executive Rick Dreiling said on a
conference call. "Every time you turn on the television, there's
a bunch of guys in suit(s) who are frowning, telling you
that the world's going to go over the fiscal cliff."
The company is seeing a more pronounced paycheck cycle, with
strong sales when shoppers get paychecks and a drop at other
"We've actually coined a phrase here: there's more days than
there is dollars" for customers, Dreiling said.
Dollar General will follow Family Dollar's lead and start to
sell tobacco products, which should boost sales as its patrons
tend to use tobacco more often then consumers overall.
Even so, Dreiling admitted that usage is in decline in what
he calls a "dying category," and selling low-margin cigarettes
will pressure the chain's level of profitability in 2013.
While Dollar General's latest quarter only ran through Nov.
2, the chain said it was encouraged by results from the
Thanksgiving weekend and the start of the holiday season.
Profit rose to $207.7 million, or 62 cents per share, in the
fiscal third quarter, from $171.2 million, or 50 cents, a year
Earnings rose to 63 cents per share, after adjusting for
items such as expenses from a secondary offering and debt
amendment fees, topping the analysts' average target of 60
cents, according to Thomson Reuters I/B/E/S.
Sales jumped 10.3 percent to $3.96 billion, in line with
Sales at stores open at least a year, or same-store sales,
rose 4 percent. Sanford Bernstein analyst Colin McGranahan said
he looked for an increase of 4.5 percent, while BB&T Capital
Markets analyst Anthony Chukumba expected a 5 percent gain.
Chukumba said he was "a bit concerned" about the slowing
Same-store sales rose 6.3 percent in the third quarter of
last year and 5.1 percent in the second quarter of this year.
The latest increase was not as strong as the 5.4 percent
same-store sales increase at rival Family Dollar, but outpaced
recent growth of 1.5 percent at Wal-Mart Stores Inc's
Walmart U.S. chain and 1.6 percent at Dollar Tree Inc.
More shoppers visited Dollar General's stores during the
quarter and spent more, on average, than a year ago, it said.
Dollar General is now calling for a fiscal-year profit of
about $2.82 to $2.85 per share, versus a September forecast of
about $2.77 to $2.85 per share. Both outlooks included about 4
cents per share from the favorable resolution of tax audits in
the second quarter.
Analysts' average estimate is $2.86.
Dollar General now expects sales to rise by 8 percent to 8.5
percent this fiscal year, after an earlier forecast of 8 percent
to 9 percent growth. It expects same-store sales to rise 4.5
percent to 5 percent, versus a September forecast of 4 percent
to 5 percent.
For the current fourth quarter, it expects same-store sales
to rise 3 percent to 4 percent.
Fourth-quarter gross profit, as a percentage of sales, is
expected to be flat or modestly lower than a year ago, and would
lead to a modest decline in the gross profit rate for the year.