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12/03/2020

Private label remains a priority at Dollar General

The new year will again bring significant store expansion for Dollar General as the retailer continues to roll out its DG Fresh food offerings — which include store brands — and promote other merchandising initiatives.

The retailer didn’t share specifics but said its private brands remain a sales-driving initiative and a “priority,” as it continues to rebrand six lines. It also said it introduced two new brands this year. Going forward they will continue to rebrand some lines, expand on others and add new lines. The retailer hinted at these rebranding initiatives in March such as a rebranding of Clover Valley, its highest-selling private label that garnered more than $1 billion in sales in 2019. 

In announcing its third-quarter earnings, the retailer also said that it plans to open 1,050 stores in 2021, remodel 1,750 stores and relocate 100. Dollar General operates roughly 17,000 stores.

“We are excited to once again accelerate our real estate growth plans in fiscal year 2021,” said Jeff Owen, Dollar General’s chief operating officer. “Our portfolio of high-return real estate projects continues to be a top priority for capital allocation as we look to continue delivering long-term shareholder value. With a robust pipeline in place and plans to execute an average of nearly eight real estate projects per day in fiscal year 2021.”

Yet again non-consumables outperformed its consumables business, per the call, setting its 10th straight year of year-over-year comparable sales growth in the nonconsumables category.

New Initiatives
CEO Todd Vasos also highlighted other initiatives that promise to play big roles for the retailer in 2021.

Popshelf interior

That includes the ongoing rollout of its newest retail store concept Popshelf, with the retailer's signature bright-yellow branding nowhere to be found. The company opened the first two Popshelf stores in Nashville this fall. According to Dollar General, the new banner aims to engage customers with a fun, affordable and stress-free shopping experience where they can find on-trend seasonal and home décor, health and beauty must-haves, home cleaning supplies, party goods, entertaining needs, and more — with approximately 95% of items priced at $5 or less.

“During the quarter, we also continued to make great progress advancing our key strategic initiatives, including the rollout of DG Pickup across nearly our entire store base, and the launch of our newest store format, Popshelf,” Vasos said. “In total, we executed 765 real estate projects, further laying and building the foundation for future growth. Overall, our ongoing operating priorities, coupled with our key strategic initiatives, position us well to continue delivering value and convenience for our customers, along with long-term sustainable growth and value for our shareholders.”

Consumables Growth
The fresh clarity about 2021 came as Dollar General reported a strong Q3, with growth driven by consumables.

Net sales Increased 17.3% for Dollar General in the third quarter, reaching $8.2 billion, while same-store sales Increased 12.2%, driven by an increase in average transaction amount, partially offset by a decline in customer traffic.

The retailer said same-store sales increased in each of the consumables, seasonal, home products and apparel categories, with the largest percentage increase in the home products category. The retailer said it believes consumer behavior driven by COVID-19 had a significant positive effect on net sales and same-store sales.

Dollar General’s operating profit increased 57.3% to $773.1 million.

“I want to thank our associates for their tireless work over the past several months in helping our customers and communities impacted by the COVID-19 pandemic,” said Vasos. “To further demonstrate our appreciation and support, we plan to award a total of up to $75 million in appreciation bonuses to eligible frontline employees in Q4, which includes our recent announcement to double our initial plans for second-half bonuses by approximately $50 million, bringing the company’s full-year investment in employee appreciation bonuses to approximately $173 million.”

Gross profit as a percentage of net sales was 31.3% in the third quarter of 2020 compared to 29.5% in the third quarter of 2019, an increase of 178 basis points. This gross profit rate increase was primarily attributable to a reduction in markdowns as a percentage of net sales, higher initial markups on inventory purchases, a greater proportion of sales coming from the non-consumables product categories — which generally have a higher gross profit rate than the consumables product category — and a reduction in inventory shrink as a percentage of net sales.

These factors were partially offset by increased distribution and transportation costs, which were impacted by the COVID-19 pandemic in the form of increased volume and discretionary employee bonus expense. As a result of the significant increase in sales, the retailer said it believes consumer behavior driven by COVID-19 also had a significant positive effect on gross profit dollars.

For the 39-week period ended Oct. 30, net sales increased 23.0% to $25.3 billion. This net sales increase included positive sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures. Same-store sales increased 17.5% from the 2019 39-week period, driven by an increase in average transaction amount, partially offset by a decline in customer traffic. Operating profit for the 2020 39-week period grew 69.6%.