Dollar General sees continued growth, as DG Fresh and cooler-door initiatives pay off

Dollar General Corp. today reported strong results for its 2019 fourth quarter and fiscal year ended Jan. 31, 2020, with same-store sales increasing 3.2% for the quarter and 3.9% for the fiscal year — the retailer’s 30th consecutive annual increase for same-store sales.

Fourth-quarter net sales increased 7.6% to $7.2 billion, with fiscal year net sales increasing by 8.3% to $27.8 billion. This net sales increase included positive sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures.

“We are very pleased with our fourth quarter results, capping off a strong year of performance across the company,” said Todd Vasos, Dollar General’s chief executive officer. “Our full-year results were highlighted by double-digit diluted EPS growth, as well as our 30th consecutive year of same-store sales growth. During the fourth quarter, we delivered a healthy 3.2% increase in same-store sales, as well as strong margin performance. In addition, we executed well across many fronts, including our operating priorities and strategic initiatives.

He continued, “Our value-and-convenience proposition continues to resonate with both new and existing customers, and our unique real estate footprint remains a competitive advantage. As we enter 2020 from a position of strength, we will continue to keep our core customer at the center of all we do, while remaining steadfast in our efforts to deliver long-term shareholder value.”

Related:More food in the mix at Dollar General

During an earnings call with analysts Thursday morning, Vasos took a moment to discuss the impact of the coronavirus outbreak on Dollar General. “As compared to some retailers, our direct imports sourcing exposure is relatively limited,” he noted, “although many of our domestic vendors also source from other countries. We have limited insight into the extent to which our business may be impacted by this outbreak and there are many unknowns, but we currently do not anticipate a material impact on fiscal 2020 results from anything that we have experienced to date. Of course, we are continuing to monitor the events closely.”

John W. Garrett, executive vice president and CFO, added, “At present, although we anticipate delays on certain goods originating in China, we do not anticipate a material impact on our business or fiscal 2020 financial results and have not taken any such impacts into account in our guidance.”

Like most retailers, Dollar General said it has seen a stock-up phenomenon happening over the last two weeks, accelerated into this week. “I’m really proud of our store teams with the additional volume, how they've taken care of our customers and our supply chain teams making sure that we have stock in the store for those customers that come in,” Vasos said. “It is our hope, as we move through this, we’re able to satisfy the customer need, as they continue to shop with us. We’re watching it closely as well because, like most stock-ups, there's always a backside to this, as we continue to move through the next few weeks with the hope that this virus will diminish over time, and obviously we’ll see the back end. But we’ll keep everybody posted as we move forward. Our goal internally here again is to ensure we deliver for our core consumer.”

Related:Dollar General shifting to self-distribution of fresh and frozen

Initiatives for 2020

For 2020, Dollar General expects to open 1,000 new stores, remodel 1,500 stores and relocate 80 stores, representing nearly 2,600 real estate projects in total, for an average of seven projects per day as the retailer continues to deploy capital in these high-return investments.

Turning to DG Fresh, which Vasos described as a “strategic multiphase shift to self-distribution of our frozen and refrigerated goods,” he noted that these goods currently represent approximately 8% of Dollar General’s total sales. “The primary objective of DG Fresh is to reduce product cost on our frozen and refrigerated items by removing the markup paid to third-party distributors, thereby enhancing gross margin,” Vasos said during the call. “And while, as expected, this cost of goods benefit was more than offset by initial startup costs and associated operating expenses in 2019, we continue to be very pleased with the product cost savings we are seeing. In fact, we expect DG Fresh will be accretive to operating margin in 2020 as the benefits begin to exceed associated expenses and grow in the years ahead as we continue to scale this transformational initiative.”

In total, Vasos said that Dollar General is currently self-distributing product to more than 6,000 stores from five DG Fresh facilities. “Our goal for 2020 is to capture benefits from DG Fresh in approximately 12,000 stores or about double the current store count from up to 10 facilities by year's end,” he said.

Dollar General’s cooler door expansion program continues to be its most impactful merchandising initiative, according to the company.

Dollar General’s cooler door expansion program continues to be its most impactful merchandising initiative, according to chief operating office Jeffery Carl Owen, who said during the call, “Importantly, in addition to being a great sales and traffic driver, the expansion of our cooler door footprint over the years has provided the scale necessary to enable DG Fresh. In turn, given our DG Fresh learnings and successes to date, we recently began incorporating higher-capacity coolers into our stores, creating additional opportunities to drive higher on-shelf availability and deliver a wider product selection.” Dollar General said it expects to further capitalize on these opportunities with plans to accelerate the growth of cooler doors in 2020.

“We are also accelerating the expansion of our produce offering,” said Owen, “which provides the top 20 items typically sold in traditional grocery stores and covers approximately 80% of the overall categories they carry. Our plans now consist of adding produce in approximately 400 stores this year, up from our previous goal of about 250 stores, bringing the total number of stores with produce to more than 1,000 by year-end. I'm very proud of the team's ability to execute such high volumes of successful real estate projects, and we are excited about the continued growth opportunities ahead.”

Dollar General is currently self-distributing product to more than 6,000 stores from five DG Fresh facilities.

The retailer is also focused on further enhancements to the Dollar General mobile app, which includes a shopping list feature, cart calculator in-app shopping and budgeting tool, and DG GO! mobile checkout now available in approximately 750 stores with plans for further expansion. “In 2019,we added 1.5 million users to our monthly active user base on our mobile app,” Owen said, “ending the year with 3.3 million monthly active users, an 83% increase over prior year. Importantly, we know digitally engaged customers check out with baskets twice as large as the company average.”

Dollar General also recently launched a pilot of DG Pickup, its online pickup in store offering. DG Pickup is currently available in approximately 30 stores and the retailer says it is well positioned to scale quickly, pending the outcome of the pilot results.

Dollar General, based in Goodlettsville, Tenn., operates 16,278 stores in 44 states.