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Dollar General bullish on year with tobacco rollout

GOODLETTSVILLE, Tenn. — Dollar General increased net sales by 8.5% to $4.2 billion for its first quarter ended May 3, the dollar operator reported Tuesday. 

“For the quarter, we achieved same-store sales growth of 2.6%, reflecting strong growth in our consumables categories offset by softer sales in seasonal and weather-sensitive categories,” stated Rick Dreiling, Dollar General’s chairman and CEO. “We believe the continued strength in consumables is a sign of the underlying health of our business.”

Dollar General is in the process of introducing tobacco across its store base, a factor expected to drive traffic and basket value. "At the store level the most significant initiative implemented has been our aggressive rollout of tobacco products. We are on track to have tobacco rolled out to essentially all of our stores before the end of the second quarter," Dreiling told analysts. "As of today we have tobacco in approximately 10,000 of our stores, which is quite an achievement when considering the amount of work involved." In addition to refixturing the front end, each location has to secure a license to sell tobacco and train employees on sales restrictions. "In addition, we have reconfigured the front end of the store to facilitate the sale of tobacco, including the addition of more impulse items," Dreiling said. As of now, two-thirds of Dollar General's tobacco customers have an additional item in the marketbasket. "The average basket with tobacco and additional items is currently above $17," Dreiling noted. "We expect the percentage of baskets with tobacco will continue to ramp up over the next several months." 

Dollar General updated its outlook to reflect moderating sales growth and a lower expected gross profit rate than the company had previously anticipated. “We are well-positioned for our same-store sales growth to accelerate ton 4% to 5% for the year as our key initiatives — such as the rollout of tobacco and Phase 5 planogram changes — continue to gain traction through the year," Dreiling added. 

The Phase 5 program is an initiative to optimize shelf space across 3,000 legacy stores that had not been remodeled to Dollar General's "customer centric" format. Dollar General successfully completed the fixturing and reorganization of 2,800 stores within that group for the quarter. Those stores have realized a comparable sales lift of 100 basis points on average, Dreiling said. 

"Additionally, across the rest of the store base, the implementation of new planograms increased more than 30% year-over-year as we advanced the timing of our planogram changes into the first quarter of this year to better align with our category-management plans and new product introductions," Dreiling said. "Specifically, we made more than 600,000 planogram changes across our store base in the first quarter." During the 2013 first quarter, the company opened 165 new stores, including 10 Dollar General Markets and eight Dollar General Plus format. The dollar store operator remodeled or relocated 207 stores, including 44 Dollar General Plus. At the end of the first quarter, Dollar General's footprint extended across 40 states with 10,662 stores. "Well on our way of our next milestone of 11,000 stores," Dreiling said. 

"Sales of nonconsumables are expected to remain challenging, and we anticipate a continued shift to lower margin items within consumables and higher inventory shrink," Dreiling continued. "We believe that our customers’ dependence on our everyday low pricing and convenient locations has never been greater.” For the 2013 fiscal year, Dollar General expects total sales to increase 10% to 11% over the 2012 fiscal year. 

Total sales increases in consumables significantly outpaced increases in the company’s nonconsumable categories, reflecting the impact of continued financial pressures on consumers, as well as unfavorable weather conditions in many of the Dollar General's geographic regions, the company noted.

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