The performance of dollar store chains has been a mixed bag recently, with Dollar Tree (DLTR, Financial) experiencing a downturn due to disappointing earnings and future expectations. In contrast, Dollar General (DG, Financial) saw its shares dip by 6% after unveiling its Q4 (January) financial results. Despite the drop, Dollar General outperformed expectations in earnings per share (EPS) and revenue. Like its counterpart, Dollar General's EPS forecast for Q1 (April) fell short of analyst predictions, but its revenue outlook for FY25 was more optimistic.
Key points from Dollar General's report include:
- Dollar General broke a trend by surpassing EPS estimates significantly for the first time in eleven quarters, a welcome surprise following Dollar Tree's recent earnings miss.
- The company reported a modest increase in same-store sales of 0.7% in Q4, attributed to a nearly 4% rise in customer traffic. This growth was primarily driven by the consumables category, despite declines in home, seasonal, and apparel sales.
- Amid ongoing inflation, Dollar General noted a shift in consumer behavior towards more discretionary spending and an uptick in private brand sales. The company anticipates same-store sales growth of 2.0-2.7% for the new fiscal year, with Q1 expected to see a 1.5-2.0% increase.
- Gross margins declined to 29.5% in Q4 from 30.9% the previous year, impacted by various factors including increased shrink and inventory markdowns. Despite this, the company managed a significant EPS beat.
- The quarter marked Todd Vasos's return as CEO, focusing on core operations, supply chain efficiency, merchandising, and customer service improvements. Dollar General aims to streamline its product offerings to enhance productivity.
This quarter's results signify a promising start for CEO Todd Vasos's return, especially in light of Dollar Tree's recent struggles. The notable EPS beat and positive same-store sales guidance for Q1 highlight Dollar General's resilience. However, the broader challenges facing dollar stores, particularly due to inflation affecting their primary lower-income customer base, remain a concern. Dollar General's strategic direction under Vasos's leadership appears promising, but the company is bracing for macroeconomic headwinds in 2024.
