Dollar General says core clothing sales are "encouraging"

Dollar General says core clothing sales are "encouraging"

A slowdown in discretionary spending might have weighed on third quarter apparel sales at Dollar General, but the discount retailer says it has been buoyed by demand for core basics.

Describing apparel sales as "disappointing" during the three months to 28 October, chairman and CEO Rick Dreiling said there had been "pronounced softness" in non-core and hanging apparel, "especially in ladies."

Demand for discretionary lines has, not surprisingly, been hurt by the economy.

"High unemployment and underemployment, higher year-over-year gasoline prices, tightened credit requirements, continued weakness in the housing markets and uncertainty in the financial and political arenas continued to impact the consumer's discretionary spending," Dreiling noted.

But there are bright spots too. Speaking on a call with analysts yesterday (5 December) he said sales of core men's and boys' lines, infants and toddlers, accessories and shoes were "encouraging."

"We believe that repositioning our merchandise with greater space allocation to infants and toddlers and men's and boys' is the right move for the longer term."

Other clothing categories that are faring better include "less discretionary" items that shoppers need rather than want - like socks and underwear but not a brand new pair of jeans or a fancy hanging item.

"The core non-consumable items are starting to do pretty good again," Dreiling explained, adding  that "staying with the basic things is going to attract every customer. Everybody has got to have socks, everybody has got to have T-shirts. By staying focused on that I actually think we might be broadening our appeal."

He added: "I think a lot of the more fashionable things in apparel are not going to get any better until we see a major change in the macroeconomic environment out there."

Looking ahead, the discount retailer also hopes to make savings and take costs out of the business through shifts in its overseas sourcing efforts.

Not only by moving into new geographies in countries it already buys from - different areas of China, for example, like the north and more western provinces - but also new countries. The firm is now sourcing denim shirts out of Kenya and bandanas out of Pakistan and plans to get "broader and broader as we move forward in this effort."

With its core customers firmly focused on necessities like food, snacks, health and beauty products, Dollar General was able to book a 34% jump in third quarter profit to $171m. Higher customer traffic at its 9,813 stores, couple with a rise in average transaction, helped lift sales by 11.5% to $3.60bn, while same-store sales were up 6.3%.