US: Strong Q2 at Dollar General despite slow apparel sales
- Q2 net income rose 3.5% to $146m from $141m
- Sales rose 11.2% to $3.58bn
- Same-store sales increased 5.9%
Second quarter profit at Dollar General Corporation has risen by 3.5%, but the discount retailer said it saw slower sales of products like basic apparel items as shoppers cut back on discretionary spending.
Revenues in the three months to 29 July were driven by lower-margin consumables like food and snacks, with a fall in home, apparel and seasonal sales contributing to a slight drop in margins. Gross profit, as a percentage of sales, slipped 11 basis points to 32.1% from 32.2%, with higher commodity costs, including cotton, also having an impact.
Even so, the retailer said these factors were "substantially offset by increased pricing, lower markdowns, improved inventory shrinkage and lower distribution centre costs."
"Dollar General delivered strong results for the second quarter," said Rick Dreiling, chairman and chief executive officer.
"Our same-store sales increase of 5.9% in the quarter represents acceleration from the first quarter and demonstrates our ability to balance the challenges of pricing and rising input costs. Our customers are depending on us even more for the convenience and value we offer."
On a conference call with analysts he stressed the continuing importance of basic non-consumable categories like apparel, which he said are "contributing significantly to our profit growth even as customers continue to limit their discretionary spending."
He added: "We are seeing some encouraging results in several areas including children's apparel [and] men's work wear," which has been overhauled to focus on work shirts, jeans, work boots, and pocketed T-shirts.
Looking ahead, the retailer said despite ongoing economic uncertainty it still expects to deliver strong financial performance in 2011 - and raised the low-end of its guidance range to forecast earnings of between $2.22 and $2.30 per share. The full year same-store sales outlook has been lifted to 4% to 6%.
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