Food-stamp cuts contribute to Dollar General’s woes in Q3
Reductions in food-stamp benefits and falling grocery prices took a toll on Dollar General Corp.’s third-quarter performance which came in below expectations and included an unexpected drop in same-store sales.
The company reported a profit of $235 million, or $0.84 per diluted share, in the quarter, compared to net income of $253 million, or $0.86 per diluted share, in the year ago period. Its profit included a charge of about 5 cents per share for store relocation costs and disaster-related expenses.
Net sales edged up 0.5% to $5.32 billion, compared to $5.07 billion last year.
Same-store sales decreased 0.1%, primarily due to a decline in traffic partially offset by an increase in average transaction amount. Same-store sales were driven by positive results in the consumables category offset by negative results in the seasonal, apparel and home products categories
“The challenging retail environment that we experienced in the 2016 second quarter continued into the third quarter, contributing to weakness in our same-store sales and our financial performance,” said Todd Vasos, Dollar General’s CEO. “In the 2016 third quarter, we invested in gross margin with the goal of driving traffic and sales over time. Many of these actions are gaining traction with our core customers, and we are encouraged by the early results. As expected, the full benefit on our same-store sales will not be immediate.”
Vasos said the chain was challenged by average unit retail price deflation and reductions in SNAP (Supplemental Nutrition Assistance Program) benefits in the third quarter as compared to the same period last year. Among the states that implemented SNAP changes this year were Florida, Georgia, Alabama and Tennessee, all of which have a high concentration of Dollar General stores.
“We continue to believe that our business model is strong given our value proposition to our consumers,” Vasos said. “We are investing in accelerated new store growth with excellent returns, as well as the infrastructure to support this growth, while continuing to return cash to shareholders."