Dollar General adjusts home, expands consumables in 2Q to meet shoppers' demands

Goodlettsville, Tenn. - As Dollar General's shopper base increasingly demands consumable goods, from food through household products, the discount chain said it continues to devote more space and attention to these categories at the expense of its less-trafficked discretionary areas, especially home.

During Dollar General Corp.'s second-quarter earnings call this morning, ceo and chairman Richard Dreiling said the company has been altering its home business to better align its assortments closer to consumers' shopping preferences.

"Basically, it is all sku rationalization," he said. "As we looked at home, we've made changes in other areas that have affected the business piece by piece, and we've started eliminating unproductive skus. And that is what we did in [home] in the [second] quarter."

But Dreiling did not specify which types of home goods were omitted and which were kept on store shelves.

The company said consumables sales in the second quarter "continued to increase at a higher rate than non-consumables...with the most significant growth related to changes in and further expansion of the candy and snacks, packaged foods, and perishables offerings." Slower sales growth plagued not only the home area but also apparel and seasonal categories, which Dollar General said is attributed to the overall decline of discretionary spending by consumers.

Net income for the second quarter, ended July 29, grew by 3.5% to $146 million, or diluted earnings per share of 42 cents, compared to $141 million, or diluted EPS of $0.41. Excluding losses relating to the early repayment of long-term obligations of $58.1 million ($35.4 million, net of income taxes) in the quarter and $6.4 million ($3.9 million, net of income taxes) a year ago, net income for the second quarter increased 25% to $181 million, or diluted EPS of 52 cents, versus adjusted net income of $145 million, or 42 cents per diluted share in the 2010 second quarter.

Sales increased 11.2% to $3.58 billion in quarter compared to $3.21 billion a year ago, and same-store sales grew 5.9%, benefitting from gains in customer traffic and average transaction amount.

Year-to-date net income was up 4.31% to $303.01 million versus $277.2 million in the first half of 2010. Also in the 26-week period, total sales increased 11.1% to $7.03 billion and same-store sales were up 5.6%.

Dreiling said the retailer's same-store sales increases in both the quarter and first half of the year "demonstrates our ability to balance the challenges of pricing and rising input costs. Our customers are depending on us even more for the convenience and value we offer."

E-commerce remained a key effort during the second quarter, when the company continued to work on its map for a newly improved website - Set to launch on September 8, the new site will offer shoppers more than 1,000 products, including single items as well as larger quantities and even limited quantities of special buys.

The company noted that the volatility of the macroeconomic environment continues to pressure its consumers and impact Dollar General's cost of purchasing and delivering merchandise to its stores, and "management continues to closely monitor customers' responses to the economic and competitive climates."

As a result, Dreiling said the company is focused "in this period of economic uncertainty...on factors that we can control, and we still expect to deliver strong financial performance in 2011."

Given its favorable results to date this year, Dollar General is raising the low-end of its earnings guidance range reflecting expected same-store sales growth of 4% to 6%. For the 53-week fiscal year, the company now expects total sales growth of 12% to 14% and adjusted EPS of $2.22 to $2.30.


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