Dollar General pulls back on financial forecast after mixed Q3

Dollar General continues to feel the effects of a financially strained consumer, as the discount retailer announced mixed third-quarter results on Thursday.

Shoppers are showing signs that they are still struggling with their budgets. Dollar General CEO Todd Vasos said during the call that business in the third quarter tailed off during the final week of the month, and more customers are turning to the store’s Value Valley section, where the $1 offerings outperformed the rest of the store by 600 basis points.

A softer third-quarter performance led Dollar General to lower its expectations for the full fiscal year.

Dollar General’s stock price dropped over 3.5% on Thursday morning.

For the full fiscal year, Dollar General is now projecting net sales growth in the range of about 4.8% to 5.1%, a slight decrease from the initial expectation of approximately 4.7% to 5.3%. Same-store sales growth will fall in the range of about 1.1% to 1.4%, down from the previous expectation of 1% to 1.6%.

The tone was different during Dollar Tree’s third quarter earnings call on Wednesday. Dollar General’s top competitor snapped a slump by beating third quarter market expectations on both profit and sales. 

“[The consumer] is buying the discretionary items; it’s just that she’s being very selective when she does, and she’s buying them very close to need,” Vasos said during the call. “Our offering is solid for the holiday, and while there’s a lot of selling left, we’re optimistic about what the consumer will start to spend as we get a little closer.”

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Hurricanes also played a role in Dollar General’s quieter third-quarter performance. Vasos said they impacted the bottom line by over $30 million and will cost the discount retailer an additional $10 million in Q4.

 For the third quarter, net sales for the Goodlettsville, Tenn.-based retailer increased 5% year over year to $10.2 billion, and same-store sales rose 1.3%. The average transaction amount increased 1.1% year over year, and customer traffic increased 0.3%. Same-store sales also included growth in the consumables category.

Gross profit as a percentage of net sales was 28.8% in Q3, compared to 29% a year ago, marking a decrease of 18 basis points. Operating profit decreased 25.3% year over year to $323.8 million, and net income was $196.5 million, a decrease of 28.9% compared to Q3 2023.

“While we continue to operate in an environment where our core customer is financially constrained, we delivered same-store sales near the top end of our expectations for the quarter,” Vasos said.

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Dollar General also announced a new strategy to refresh existing stores without spending on full remodels. Called Project Elevate, the goal is to bolster performance in portions of the mature store base that are not yet old enough to be part of the full remodel pipeline. These projects will include nearly all of the same assortment updates as full remodels, other than cooler expansion and the addition of produce. Some of the features of Project Elevate include optimizations and expansions across the store, as well as updated adjacencies and physical asset refreshes in the most prominent customer-facing areas of the store.

The goal is to drive first-year comparable sales lifts in these stores in the range of about 3% to 5%.

“We believe our customers will respond very favorably to these updates in their local stores and ultimately believe that this will enhance both the associate and customer experience in our mature stores while also driving incremental sales growth in our new stores,” Vasos said.

Dollar General plans to execute about 4,885 real estate projects in 2025, including 575 new store openings, 2,000 full remodels, and an additional 2,250 Project Elevate remodels.

In addition, more than 80% of new stores will follow the 8,500-square-foot format to allow for more room for additional cooler space, more health and beauty products, and fresh produce. All 45 relocations planned for 2025 will be to either 8,500-square-foot or 9,500-square-foot spaces.

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In 2024, DG is on target for 730 new store openings, 1,620 remodels, and 85 store relocations. 

Dollar General also began testing same-day home delivery in approximately 16,000 stores during the third quarter through a partnership with DoorDash.

“We are quickly learning and refining our process, and over time, we believe we can offer delivery through the DG app in the same number of stores as our DoorDash offering, which we expect to continue expanding,” Vasos said.

The discount retailer also opened distribution centers in Colorado and Arkansas, and both are shipping to stores. The Arkansas facility features an automated system that utilizes advanced technology to store and retrieve products.

“We believe automation in these facilities … can drive even greater inventory and order accuracy to further enhance the way we serve our stores,” Vasos said.