March 15, 2018 / 11:12 AM / 2 years ago

Dollar General's strong same-store sales suggest revamp paying off

(Reuters) - Dollar General Inc (DG.N) reported strong quarterly same-store sales and gave an upbeat profit forecast for 2018, suggesting that efforts to stock a wider variety of products and remodel stores were paying off.

FILE PHOTO: A sign is seen outside a Dollar General store in Chicago, Illinois, U.S. May 23, 2016. REUTERS/Jim Young/File Photo

The discount retailer also boosted its stock repurchase program by $1 billion and its cash dividend by 12 percent, helping send its shares up 5 percent on Thursday afternoon.

To drive sales, Goodlettsville, Tennessee-based Dollar General has been investing in revamping stores and lining its shelves with more private-label as well as health and beauty products.

In the fourth quarter ended Feb. 2, the company stocked more fresh produce by installing additional coolers, helping it reel in more customers. Dollar General plans to add over 20,000 more cooler doors across stores this year.

“We came out with very strong (same-store sales) in Q4, and that was primarily driven by our initiatives. And those initiatives will continue to carry on as we move into the first half of this year,” Chief Executive Todd Vasos said on a call with analysts.

Sales at Dollar General’s established stores rose 3.3 percent, easily topping analysts’ average estimate of a 2.7-percent increase, according to Thomson Reuters I/B/E/S. Net sales climbed 2 percent to $6.13 billion.

The company expects fiscal 2018 earnings of $5.95 to $6.15 per share. Analysts were expecting $5.60 per share.

Dollar General said it would enhance the customer experience by offering a wider range of products that will change throughout the year, a strategy called the “treasure hunt.”

Customers may feel the need to buy these products immediately because they may not be available the next day, an experience that e-commerce sites cannot replicate, said Moody’s Vice President Mickey Chadha.

Dollar General’s results were in contrast to lower-than-expected same-store sales from chief rival Dollar Tree Inc (DLTR.O).

Walmart (WMT.N), which competes with Dollar General and Dollar Tree for low-income customers, also reported weak sales in the fourth quarter, generally the strongest period of the year for retailers, thanks to the holiday shopping season.

Dollar General’s fourth-quarter net income jumped to $712.2 million from $414.2 million last year, helped by a $311 million gain from lower U.S. corporate tax rates.

Excluding one-time items, Dollar General earned $1.48 per share, matching analysts’ estimates.

The company will use the tax-related gain to buy back shares rather than raise employee wages, which it did last year.

Reporting by Uday Sampath in Bengaluru; Editing by Savio D'Souza and Sai Sachin Ravikumar

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