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GOODLETTSVILLE, Tenn. -– National discount chain Dollar General Corp. posted lower first-quarter profit yesterday, citing slower sales in home products and clothing, as well as rising fuel costs. The retailer's net sales were up 8.8 percent. Meanwhile the company said it plans to open 30 more of its food-heavy Dollar General Markets by the end of this year.
Net sales for the first quarter ended May 5 were $2.15 billion, an 8.8 percent increase over the same period last year. The increase in sales primarily reflects the opening of 527 net new stores since the end of the prior year first quarter. Same-store sales increased 1.6 percent in the quarter compared to an increase of 5.0 percent in year-ago period.
Net income for the quarter was $47.7 million, or 15 cents per share, compared to net income of $64.9 million, or 20 cents per share.
The company's gross profit rate to sales declined by 132 basis points due to a number of factors, including an increase in markdowns; a decrease in the markups on purchases during the period, primarily attributable to the continued shift to highly consumable products, which generally have lower average markups; lower sales (as a percentage of total sales) in the company's home products and basic clothing categories, which generally have higher average markups; an increase in the company's shrink rate; and higher transportation expenses primarily attributable to increased fuel costs. These factors were partially offset by higher average markups on the company's beginning inventory in the 2006 period as compared with the 2005 period.
Selling, general, and administrative expense increased to 23.4 percent of sales due to a number of factors, including increases in advertising costs; higher store occupancy costs; increased store labor costs in support of the advertising circular; and higher administrative labor costs. These increases were partially offset by $5.1 million of insurance recoveries relating to hurricane damages incurred in fiscal 2005 and resulting losses due to business interruption.
Dollar General said it anticipates second-quarter sales, gross profit, and earnings to continue to be challenging. The company cited high gasoline prices and higher interest rates and consumer debt levels, which continue to impact its customers' spending. However, it is optimistic with regard to its recent and anticipated merchandising and promotional initiatives, although time is needed for these new initiatives to have an impact on its earnings.
In 2006 the company plans to spend approximately $375 million on capital expenditures. Dollar General expects to open approximately 800 new traditional Dollar General stores and approximately 30 Dollar General Markets by year-end. The company is also testing a new store layout, which it expects to implement in many of the traditional stores remaining to be opened in fiscal 2006.
Dollar General operates 8,096 neighborhood stores.