EDLP Lifts Dollar General

JON SPRINGER

GOODLETTSVILLE, Tenn. — Saying its combination of convenience and everyday low prices resonates with recession-addled consumers, Dollar General last week posted increases in sales, earnings and gross margins during the company's fiscal first quarter.

The results stand in stark contrast to those at Wal-Mart Stores, which has blamed sluggish sales over a similar period in part on many of the same economic issues affecting the same lower-income shopper, and also disquiet theories that an improving economy might be hindering dollar-store sales growth.

Rick Dreiling, Dollar General's chairman and chief executive officer, answered analyst questions about this contrast by pointing out how current conditions play to Dollar General's strengths. Several times during a conference call discussing first-quarter results, he described how the company's EDLP strategy has served to reassure shoppers reeling from the economic slowdown.

“I think we have been there when our customers needed us most. Customers come into our stores, [and] they don't have to worry about what the price of Tide is going to be, or a pair of jeans, and they don't have to worry about buying it on sale,” he said. “And I think that's resonating, particularly in these difficult economic times.”

Asked about Wal-Mart's stated intentions of getting more competitive on pricing, Dreiling said, “During tough times it always gets competitive, it's been that way forever. There are a lot of great competitors out there doing a lot of great things. I can tell you that we understand our pricing across the country better than we ever have before, and if you look at our margin and our costs, you'll see we're better prepared to compete than ever before.”

Total sales improved 11.9% to $3.1 billion, with comparable-store sales increasing 6.7% for the period, which ended April 30, the discounter said. Net income of $136 million was up 64%, and gross margin as a percentage of sales improved 136 basis points to 32.1%, as improvements in merchandising, buying and sales mix lowered costs, while store traffic and average ticket increased.

Selection improvements through new planograms contributed to stronger sales, while increased penetration of private brands helped margins, the company reported. New stores opening with the latest design and category management, which Dreiling called a “customer-centric format,” were outperforming predecessors by 7%.

Dreiling said the company has begun the third phase of a program started in 2009 to standardize store shelving at 78 inches, allowing for expanded product offerings. This phase focuses on health and beauty and home items; previous resets of Dollar General's food and party supply sections have helped deliver better comp performances, he said.

The company opened 155 new stores during the quarter and plans to open 500 stores during the fiscal year.