Shoppers continue to be cautious about buying groceries, but Dollar General announced strong first-quarter financial earnings on Thursday.
Net sales for the Goodlettsville, Tenn.-based discount retailer increased 6.1% year over year to $9.9 billion, while same-store sales went up 2.4%.
Wall Street, however, did not carry the same enthusiasm as Dollar General’s stock price dropped over 8% after the earnings update.
Dollar General CEO Todd Vasos said the retailer’s customers were still feeling the effects of food inflation even though prices did start going down during the first quarter. Shoppers were spending a lot of dollars on private-label brands, Vasos said, while also taking full advantage of promotions. Dollar General has also been able to retain its customer base, as well as attract new additions.
“We are pleased with our start to 2024, including top and bottom-line results that exceeded our expectations in the first quarter,” Vasos said. “These results were driven by strong customer traffic growth and market share gains during the quarter.”
Gross profit as a percentage of net sales was 30.2% in Q1 compared to 31.6% a year ago, a decrease of 145 basis points. The gross profit rate decrease was primarily attributable to increased shrink and inventory markdowns, a greater proportion of sales coming from the consumables category, and lower inventory markups.
Operating profit dropped 26.3% to $546.1 million compared to $740.9 million in Q1 2023.
Dollar General reported net income of $363.3 million for the first quarter of 2024, a year-over-year decrease of 29.4%.
To cut down on theft, Dollar General continues to eliminate self-checkout areas in stores, a promise made during the last earnings call. Vasos, however, admitted that shrink inventory was higher in the first quarter than the company anticipated.
Vasos also talked about the retailer’s Back to Basics strategy, which continues to progress well. Back to Basics focuses on three key areas: driving operational excellence, better serving customers, and creating long-term value for shareholders. Vasos continued to use a football analogy to describe where Dollar General was in terms of strategy implementation. In the fourth quarter of 2023, DG was at its own 20-yard line. Now, Vasos said they were at the 50-yard line, and in some areas, they were past the halfway mark.
During the first quarter of 2024, Dollar General opened 197 new stores, remodeled 463 stores, and relocated 21 stores.
The company has pivoted when it comes to store openings and remodels. Remodels have increased to 1,620 locations for the year, while new store openings have been cut to 730.
With strong financials over the opening quarter Dollar General is confident about its initial projections of net sales growth in the range of 6% to 6.7% for the 52-week fiscal year. Same-store sales growth is expected to be in the 2.0% to 2.7% range.
Vasos said during the call that the company expects the second half of 2024 to be strong.
Dollar General operates 19,882 locations in the U.S. as of April 29, according to ScrapeHero.