Dive Brief:
- Dollar General’s comparable sales fell 1.4% in the fourth quarter and 2.8% for fiscal 2021 as the discounter lapped a year of extreme growth amid the pandemic in 2020.
- New stores helped the retailer’s total sales grow, with net sales up 2.8% in Q4 and 1.4% for the full year. Over the year, Dollar General opened 1,050 new stores.
- As Dollar General eyes more sales and market share, the retailer reiterated plans to add another 1,110 new stores to its already massive portfolio of over 18,000 stores.
Dive Insight:
Even with its comps decline over 2021, that metric remained 11.3% above 2019 levels, a sign that Dollar General has held on to most of the gains it made during 2020, when it became a go-to shop for consumers stock up and consolidate trips during the pandemic.
The company’s gross profit as a percentage of sales fell by more than a percentage point in the fourth quarter, with transportation, distribution and product costs taking a toll. On a conference call, Dollar General Chief Financial Officer John Garratt said that supply chain costs were a $100 million “headwind to gross margin” during the period.
The months ahead could prove challenging as well. Garratt said in the release that “we anticipate a challenging first quarter due to elevated cost pressures, ongoing supply chain disruptions” on top of tough comparisons as the retailer laps a year where consumers had stimulus cash to support spending. For Q1, the company expects comps to decline by up to 2%.
Even with all that, Garratt said that “we are confident in our full year plan” and the prospects for sales and earnings growth.
Inflation brings opportunities for Dollar General along with higher supply and distribution costs. Price-conscious consumers may seek out discounters for relief.
On a conference call, CEO Todd Vasos said the retailer’s prices remain inside of historical ranges. He also touted the company’s products priced at $1 or less, which the chief said accounted for 20% of Dollar General’s assortment. Moreover, the company is looking for ways to expand the $1 portion of its assortment, Vasos said.
“Like most retailers, Dollar General is facing pressures in the near-term from lapping the US government stimulus and elevated costs,” Telsey Advisory Group analysts led by Joe Feldman said in a research note. “That said, it appears the business should improve as the year progresses.”
As Dollar General looks to further expand and gain share, it has quickly been growing its new concept, Popshelf. The banner, launched in 2020, targets suburban shoppers with a “treasure hunt” style experience for price points $5 and under. Chief Operating Officer Jeff Owen said that the company added 55 stand-alone Popshelf stores last year and an additional 25 shop-in-shops.
For 2022, the retailer is looking to triple the number of stand-alone Popshelfs and double its store-within-a-store versions.
The company is also looking to expand its nascent international business, with plans to open 10 stores in Mexico during the year.
