By Kimberly Chin and Sarah Nassauer
Dollar General Corp. on Thursday said same-store sales grew in the most recent quarter, but profit was less than expected as the retailer invests in lower prices and increases the portion of sales that come from less profitable products like food.
The Goodlettsville, Tenn., retailer anticipates same-store sales growth of 2.5% in 2019, below the 2.6% analysts polled by FactSet had anticipated. In fiscal 2018, same-store sales increased 3.2%.
Shares of Dollar General fell 7.5% on Thursday. Still, the retailer's stock has gained 24% over the last 12 months.
Dollar General has been expanding its store footprint and working to become a bigger seller of food and home goods to grab more shoppers, and anticipates spending about $50 million this year on improvement projects.
The company said it would introduce a new line of fresh-food items to its shelves and add self-checkout options to its stores. It also is working to create a digital and e-commerce strategy that appeals to its core low-income shoppers, who aren't likely to pay extra for speedy home delivery or may be more reliant on cash and government-assistance debt cards for payment. Last year the retailer started testing an app that allows shoppers to scan products as they shop to keep a running total of the cost.
"We believe they are using the cart calculator to stay within their budgets," Dollar General Chief Executive Todd Vasos said on a conference call. The company will expand the availability of the app and plans to test this year a service that allows shoppers to buy online and pick up items in stores, he said.
Like other retailers that lean on low-income shoppers for a significant portion of sales, Dollar General's sales in the latest quarter got a boost when the U.S. government sent February checks to Supplemental Nutrition Assistance Program recipients in January to ensure payment amid the partial government shutdown. The company said the shift added 0.7% to its comparable sales.
Same-store sales for the quarter ended Feb. 1 climbed 4%, beating analysts' estimates of 2.6%. Overall net sales rose 8.5% to $6.65 billion, above the consensus forecast of $6.61 billion.
Fourth-quarter sales grew fastest in the home category, while food and other consumable sales were also strong, Mr. Vasos said.
Meanwhile, sales at rival Dollar Tree Inc.'s Family Dollar chain have lagged behind, prompting Dollar Tree to close hundreds of Family Dollar stores and mark down the value of the chain.
Profit for Dollar General fell about 30% to $483.2 million, or $1.84 a share, down from $712.2 million, or $2.63 a share, a year earlier. Analysts polled by Refinitiv had estimated $1.88 a share. Profit was weighed by an income-tax expense of $130.2 million for the quarter, compared with a tax benefit of $112.9 million in the same quarter last year.
The retailer expects adjusted earnings of $6:30 to $6.50 a share for the year, pulling just below analysts polled by FactSet's estimates of $6.63.
Meanwhile, it expects operating income growth between 4% and 6%. Net sales growth is projected to climb about 7%.
Write to Kimberly Chin at email@example.com and Sarah Nassauer at firstname.lastname@example.org