Effects of the COVID-19 pandemic shook up the year-over-year first-quarter comparisons for Dollar General, resulting in higher profits from lower sales.
An element that emerges from Dollar General’s first quarter earnings announcement on May 27 is a bigger role for housewares and home-related general merchandise.
Dollar General posted net income of $677.7 million, or $2.82 per diluted share, versus $650.4 million, or $2.56 per diluted share, in the 2020 first quarter.
At the same time, comparable sales decreased 4.6% in the quarter year over year, the company reported, driven by a decline in customer traffic partially offset by an increase in average transaction amount. Home, Seasonal and Apparel department comps saw strength as Consumables comps slipped. Dollar General concluded that government stimulus payments had a positive effect on sales in its non-consumable product categories.
On a two-year basis, comparable sales look different. According to Dollar General, comps on a two-year stack basis, taking the sum of the first quarter 2021 same store sales decrease and the increase that occurred in the year-previous period, and comps increased 17.1%.
Net sales for the quarter were $8.4 billion versus $8.45 billion in the year-before period.
A number of factors influenced the first-quarter numbers. Gross profit, for example, increased to 32.8% from 30.7% in the year earlier quarter, Dollar General indicated, based on several factors including higher initial markups on inventory purchases, a reduction in markdowns as a percentage of net sales and a greater proportion of sales coming from more profitable non-consumables product categories as well as a reduction in inventory shrink as a percentage of net sales. Higher transportation costs partially offset the positive factors as supply and logistics challenges have become more prominent across the marketplace.
Just about any Dollar General year-over-year comparison has been complicated by COVID. So, the operating profit reported for the 2021 first quarter increased to $908.9 million compared to $866.8 million in the year-earlier period. However, the first quarter in the year earlier included about $80 million of incremental investments the company made in response to the COVID-19 pandemic, Dollar General related primarily driven by $60 million in frontline employee appreciation bonuses and measures taken to protect the safety of employees and customers.
Dollar General remains aggressive in its growth strategy. The retailer opened new and refurbished stores, coronavirus or no, including those in its recently developed pOpshelf format.
“During the first quarter, we executed more than 800 real estate projects, including new store openings in our pOpshelf and larger footprint Dollar General formats,” Todd Vasos, the company’s CEO, said in a conference call. “In addition, we remained focused on serving our customers, while further advancing our key strategic initiatives. Looking ahead, we are excited about our plans and believe we are well-positioned to continue delivering long-term sustainable growth and value for our shareholders.”
Dollar General enjoyed a strong start to the fiscal year, Zain Akbari, a Morningstar analyst, observed in a research note. He pointed out that both general merchandise and consumables initiatives Dollar General has rolled out provide the prospect of gains, including DG Fresh, a program that features self-distributed food products that can generate better margins than has been typical of the company’s edible items and aims to expand assortment and provide healthier items.
“While fiscal 2021 should be marked by a return to normalcy as the pandemic’s effects ebb, the firm’s longer-term initiatives should deliver lasting benefits. In particular, we are encouraged that Dollar General has accelerated its non-consumable and DG Fresh initiatives. The former should allow Dollar General to capture additional sales from a lineup more lucrative than its core consumables portfolio, while the latter has enabled a more comprehensive assortment of traffic-driving fresh and frozen items with greater efficiency,” Akbari pointed out.
Among its various efforts, Dollar General is advancing its NCI, or non-consumables initiative, a program that features home-oriented merchandise and was available at over 7,300 Dollar General stores at the end of the first quarter Q1.
“We remain on track to expand this offering to a total of more than 11,000 stores by year-end, including over 2,100 stores in our light version, which incorporates a vast majority of the NCI assortment, but through a more streamlined approach,” Jeff Owen, Dollar General COO, said in the company’s first quarter conference call, as transcribed by Seeking Alpha, “We’re especially pleased with the strong sales and margin performance we continue to see across our NCI product categories. Notably, this performance is contributing to an incremental comp sales increase in non-consumable sales of 8% in our NCI stores. And 3% in our NCI like stores as compared to stores without the NCI offering. Given our strong performance to-date, coupled with the added flexibility of a more streamlined approach, our plans now include completing the rollout of NCI across nearly all of the chain by year-end 2022.”
