Despite facing the headwinds of cost pressures and challenges within its internal supply chain, Dollar General reported strong sales growth in Q3, which ended Oct. 28, 2022.
“We are thankful to our team for their continued dedication to serving others, particularly in a challenging economic and operating environment,” said Jeff Owen, Dollar General’s CEO. “We are pleased with our strong sales growth in the quarter, as well as a modest increase in customer traffic and continued share gains in both consumable and non-consumable product sales, all of which we believe are a testament to the strength of the value and convenience proposition we offer our customers.”
“Despite the cost pressures we experienced during the quarter, as well as challenges within our internal supply chain resulting in higher-than-anticipated distribution and transportation costs, our team was resilient and worked hard to deliver double-digit diluted EPS growth," Owen continued. "We believe the majority of these and other gross margin pressures are largely temporary, and we are confident in our plans to drive greater supply chain efficiencies moving forward.”
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Owen said that Dollar General continued to make progress on its strategic initiatives and operating priorities during the quarter, including executing nearly 800 real estate projects.
"Looking ahead, we are pleased to announce today that we plan to execute approximately 3,170 real estate projects in the United States in fiscal year 2023, including approximately 1,050 new stores," he said. "We are excited about our plans to extend our ability to serve more customers, and believe we are well-positioned to continue delivering long-term sustainable growth and value for our shareholders.”
Dollar General’s net sales increased 11.1% to $9.5 billion in the third quarter of 2022 compared to $8.5 billion in the third quarter of 2021. The net sales increase were primarily driven by positive sales contributions from new stores and growth in same-store sales, partially offset by the impact of store closures, Dollar General said.
Same-store sales increased 6.8% compared to the third quarter of 2021, driven primarily by an increase in average transaction amount, as well as a modest increase in customer traffic. Same-store sales in the third quarter of 2022 included growth in the consumables category, partially offset by declines in each of the apparel, seasonal, and home products categories, the company said.
Gross profit as a percentage of net sales was 30.5% in the third quarter of 2022 compared to 30.8% in the third quarter of 2021, a decrease of 27 basis points. This gross profit rate decrease was primarily attributable to an increased LIFO provision, which was driven higher by product costs; a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories; and increases in distribution costs, markdowns, inventory shrink and damages; partially offset by higher inventory markups, Dollar General said.
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Operating profit for the third quarter of 2022 increased 10.5% to $735.5 million compared to $665.6 million in the third quarter of 2021.
The company reported net income of $526.2 million for the third quarter of 2022, an increase of 8% compared to $487 million in the third quarter of 2021. Diluted EPS increased 12% to $2.33 for the third quarter of 2022 compared to diluted EPS of $2.08 in the third quarter of 2021.
During the third quarter, the company experienced unanticipated delays in acquiring additional temporary warehouse space sufficient for its inventory needs, which caused inefficiencies within the company’s internal supply chain. These challenges resulted in higher-than-anticipated supply chain costs, including fees incurred for delays in returning shipping containers and higher transportation costs caused by the need to service stores from less-than-optimal distribution center alignments, Dollar General said.
"As a result of these greater-than-anticipated gross margin pressures, which we believe are temporary but will continue to a lesser degree through the fourth quarter of 2022, as well as those related to sales mix, inventory shrink and damages, the company is updating its diluted EPS guidance for the 53-week fiscal year ending Feb. 3, 2023 from that which was issued on August 25, 2022," Dollar General said.
Additionally, the company is narrowing its expectations for same-store sales growth and capital expenditures within the previously guided ranges, and is reiterating the remainder of its financial guidance for fiscal year 2022 from that which was issued on Aug. 25, 2022. The company also is providing guidance for same-store sales growth and diluted EPS for the fourth of quarter of fiscal year 2022.
Dollar General now expects the following:
- Same-store sales growth of approximately 6% to 7% for the fourth quarter of fiscal year 2022, which would result in growth toward the upper end of its previously expected range of 4% to 4.5% for fiscal year 2022;
- Diluted EPS in the range of $3.15 to $3.30 for the fourth quarter of fiscal year 2022, which would result in growth in the range of approximately 7% to 8% for fiscal year 2022 compared to its previous expectation in the range of approximately 12% to 14% for fiscal year 2022.