A Dollar General storefront. The retailer on Thursday confirmed it’s planning to remove self-checkout from most of its stores. Permission granted by Dollar General
Reporter
Source: www.retaildive.com, May 2024

Despite a 6% Q1 net sales rise and performance that beat analyst expectations, shrink remains a significant headwind, CEO says.

Dive Brief:

  • Dollar General CEO Todd Vasos said Thursday that the company plans to remove self-checkout from “the vast majority of stores” as part of larger overall shrink reduction efforts that include changes in supply chain and merchandising. Dollar General has already removed self-checkouts from 12,000 of its more than 20,000 stores, Vasos said.
  • The discount retailer also said it plans to increase the number of store remodels but reduce planned store openings for fiscal year 2024. Dollar General said it now expects to open 730 new stores — down from 800 previously planned. It also plans 1,620 remodels, up from 1,500. It’s maintaining plans to relocate 85 stores.
  • Dollar General’s first quarter net sales rose 6.1% year over year to $9.9 billion, driven by sales contributions from new stores and growth in same-store sales, the company said in a Thursday earnings announcement. Net income fell 29.4% to $363.3 million from $514.4 million a year ago, while same-store sales rose 2.4% for Q1 year over year.

Dive Insight:

Vasos said self checkout will remain in a limited number of higher volume stores. He added that the shift away from self checkout will drive increased customer engagement and should position the company to begin reducing shrink in the second half of 2024 with a material impact expected in 2025.

“Shrink continues to be the most significant headwind in our business,” Vasos said.

In addition to cutting self-checkouts, Vasos said the company’s supply chain teams are also addressing shrink on other fronts that include ensuring deliveries are on time and made in full. He said Dollar General is also focusing on delivering a more consistent front end staffing presence and removing high-shrink SKUs.

A focus on reducing store manager turnover is also part of Dollar General’s shrink reduction initiatives. Vasos said the company is seeing year over year reductions in turnover in all levels within its retail operations, including regional director, district manager, store managers, assistant store managers and sales associates.

Despite the shrink-related concerns, Dollar General’s Q1 performance beat analyst expectations, driven by better than expected sales, traffic and upside to the operating margin, analysts with Telsey Advisory Group led by Joe Feldman said. The consumables comp was positively offset by negative comps in home, seasonal and apparel, Feldman said.

Vasos also said during an earnings call that softness in discretionary categories reflects the continued spending pressure consumers are currently experiencing. Consumers “continue to be very value oriented in their shopping behavior, which we see manifested in accelerated share growth in private brands sales as well as increased engagement with items at or below the $1 price point,” Vasos said. “Importantly, we continue to do well with our core customers while growing with middle and higher income trading customers from adjacent cohorts.”

Dollar General’s first quarter beat is “evidence that more defensively positioned consumable heavy models are positioned to navigate a softer, low-income backdrop,” Wells Fargo analysts led by Edward Kelly said in a note.  Wells Fargo’s analysts said Dollar General’s “challenged performance” last year offers room for improvement. The retailer’s Q1 performance “suggests the company is on track for some improvement.”

However, “while we are disappointed to hear management admit in the release to experiencing shrink and mix headwinds greater than initially expected coming into the year, the margin didn’t miss,” Wells Fargo said.

Neil Saunders, managing director of GlobalData, echoed that sentiment, describing 2023 as a “torrid” year for the retailer that saw Dollar General stumble across several areas as comparable sales slipped into negative territory. But the first quarter appears to be starting on a more positive note.

“Dollar General remains a nicely profitable company and is generating a reasonable return,” Saunders said. “However, we believe profit growth will remain subdued for the balance of this year as investments continue. In our view, Dollar General has made the right determination that sales and customer share must be protected in the short term, even if that comes at the expense of some margin.”

For Q2, the company’s outlook is for same-store sales growth in the low 2% range. Dollar General reiterated its full-year guidance with net sales growth ranging from 6% to 6.7% and same-store sales growth ranging from 2% to 2.7%.