Dollar General Eyes Product Productivity

GOODLETTSVILLE, Tenn. — Dollar General Corp. here said its goal over the next couple of years will involve maximizing product productivity.

According to Rick Dreiling, chairman and chief executive officer, the focus will be on SKUs "and really understanding their productivity. We're now getting into the process of evaluating not only the SKUs but also the categories we have in the store. For example, we've reduced the allocation of picture frames [over the past few years] to 8 feet from 12-to-16 feet, which has allowed us to add an additional category. The challenge for us now is where picture frames will be in another year or two and maybe getting ahead of the curve and doing something that's more productive."

Rick Dreiling

During a conference call with financial analysts, Dreiling also said Dollar General plans to maintain its EDLP approach, despite increased promotional activity from some competitors.

"When the market begins to get highly promotional, I think you're renting your sales rather than really driving people who are loyal to your operation," he explained. "So we'll do as we've always done — continue to focus heavily on EDLP, knowing that sooner or later the high promotional activity will run out of steam. But along the way, we're not afraid to throw a few prices out there to help drive our already good traffic."

Dreiling said the company is evaluating the benefits of adding gas stations at its Dollar General Markets after testing a fuel station at a single location in Alabama during the past three months. "It's pumping gas at a rate comparable to a convenience store," he said, "and we're very pleased with what we're seeing."

However, it's too soon to determine what the company will do going forward, he added.

Read more: Dollar General Gases Up

For the third quarter, which ended Nov. 1, net income was up 14% to $237.4 million, while sales were up 10.5% to $4.4 billion. Same-store sales rose 4.4%. For the 39-week period net income increased 10.7% to $702.9 million, while sales rose 10.1% to $13 billion and same-store sales were up 4%.

Dollar General raised its financial outlook for the year, projecting earnings per share in the range of $3.18 to $3.22, from the previous guidance of $3.15 to $3.22; with sales projected to increase between 10% and 10.5%, compared with earlier projections of 10% to 11%; and comps likely to increase in the range of 4% to 4.5%. Capital expenditures are projected in the range of $550 million to $600 million, down $25 million from the company's earlier guidance as it's been able to reduce the cost of new stores and remodels.

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Dreiling said both traffic and average ticket increased for the 23rd consecutive quarter, with perishables and the addition of tobacco products the primary reasons for traffic growth through the third quarter.

"We're in our sixth year on the perishables journey, and we've continued to comp in the double-digit range for six consecutive year," Dreiling noted. "Dealing with an outside vendor, our category management process is very rigorous, and we've actually evolved with what I would say would be the grocery channel in mass."

He said tobacco sales are bringing in incremental traffic. "When we started selling tobacco, one-third of cigarette sales were by themselves, one-third included a beverage or snack and one-third were part of a complete basket. We're now at the stage where 44% of tobacco purchases are going into the basket and cigarettes-only purchases have declined to 26%, so we're beginning to convert the cigarette customer into a shopper."

Dreiling also said Dollar General plans to authorize an additional $1 billion in share repurchases.

Read more: Dollar General Names Vasos COO, D’Arezzo CMO

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