GOODLETTSVILLE, Tenn. ― Dollar General Corp. posted a bigger-than-expected rise in quarterly profit and raised the low end of its full-year forecast on Tuesday, as it worked to balance demand for low-priced goods with manufacturers’ push to raise prices.
The retailer earned $146 million, or 42 cents per share, in the fiscal second quarter that ended on July 29, up from $141 million, or 41 cents per share, a year earlier.
Earnings of 52 cents per share, excluding items, exceeded analysts’ average forecast of 48 cents, according to Thomson Reuters I/B/E/S.
Dollar General’s customers are buying an increasing proportion of lower-margin necessities as they cut back on discretionary purchases due to higher gas prices, continued high levels of unemployment and other economic concerns.
Sales of items such as candy, snacks and other food continued to increase at a higher rate than merchandise such as home, apparel and seasonal goods during the quarter.
For Dollar General, which prices most of its merchandise below $10, the weak economy is a double-edged sword. As lower-income shoppers seek low-priced food and other basic goods, a soft economy brings new customers into its stores and those of competitors such as Family Dollar Stores Inc.
Dollar General, which has more than 9,640 stores, more than any other chain in the United States, said sales rose 11.2 percent to $3.58 billion. Sales at stores open at least a year, or same-store sales, increased 5.9 percent.
Chains such as Dollar General need to keep prices low to retain customers, which is difficult when costs are rising and shoppers notice even minor price increases.
Shoppers buying more food and basic goods rather than discretionary items also pressures profitability, as those items generally carry a lower gross profit rate than other goods. At the same time, the prices Dollar General paid for goods rose due to higher commodity and fuel costs.
Gross profit dipped to 32.1 percent of sales from 32.2 percent of sales a year earlier. Over the first six months of the year, gross profit fell to 31.8 percent from 32.2 percent.
Dollar General now expects to earn $2.22 to $2.30 per share for its 53-week fiscal year, versus a prior forecast of $2.20 to $2.30 per share.
It expects sales to rise 12 percent to 14 percent, up from a prior forecast of 11 percent to 13 percent. Same-store sales are now expected to increase by 4 percent to 6 percent, versus an earlier forecast of 3 percent to 5 percent.
Dollar General is majority-owned by private equity firm Kohlberg Kravis Roberts & Co LP KKR.UL, which brought the company back to the public market in November 2009.