Dollar General’s full-year results, which marked the retailer’s 24th consecutive year of comparable store sales growth, came as further evidence of the continued strength of the US value channel.
For the 2013 fiscal year net sales surged 9.2% from $16bn (£9.6bn) to $17.5bn (£10.5bn). Comparable store sales increased 3.3% on higher traffic and transaction value.
Dollar General has attributed its growth to refinements in its merchandise mix - in particular an expanded assortment of consumable goods - sales growth of which outpaced that of non-consumables.
Tobacco, perishables and candy and snacks contributed to the majority of the rise. This is a trend across the discount channel as discounters attempt to take on supermarket and convenience store rivals. Expanding and enhancing such categories rounds out their grocery assortment, driving fill-in and immediate consumption trips. In short, it ensures customers come back more quickly.
However, for Dollar General this shift in the sales mix contributed to a lower gross margin year-on-year: 31.1% in 2013 versus 31.7% in 2012. Besides the changes in the mix, a higher rate of inventory shrink depressed gross margin. Investment in more consumables therefore presents a new challenge for the heavy discounters, who will need to keep an even closer watch on operating expenses to offset the margin pressure associated with the shift in the merchandise mix.
Nonetheless, Dollar General still managed to generate a healthy gain in net income, up 7.6% to $1.03bn (£618.7m) and forecasts for 2014 anticipate continued good fortune for the discount retailer. Dollar General expects increases in total sales in the range of 8% to 9% year-on-year and comparable store sales growth between 3% and 4%. It also intends to open about 700 new stores in 2014, demonstrating the continued potential for growth across the US value channel.
Despite the headwinds facing much of the US retail sector, Planet Retail believes the value channel and Dollar General specifically are well positioned to continue to generate a healthy pace of sales.
While caution is necessary to prevent margins taking too severe a hit, Dollar General’s efforts to improve store productivity and drive traffic with higher-turn merchandise such as tobacco and perishables should generate healthy top-line growth from the multitude of shoppers for whom the dollar channel is a first stop in their grocery journey.
No comments yet