Dollar General Disappoints

GOODLETTSVILLE, TN-Discounting, higher transportation costs and inventory problems impacted Dollar General Corp.’s fourth quarter 2005 earnings. Although the discounter achieved a sales increase of 12.9% to $2.48 billion and increased profit nearly 10%, the performance still fell short of Wall Street’s expectations, sending the chain’s stock down nearly 3% to $17.67 per share.

For the fourth quarter fiscal 2005, the chain posted profit of $145.3 million, or 46 cents per share, compared to $133.9 million, or 41 cents per share, in the fourth quarter of fiscal 2004. Analysts were expecting a per-share profit of 49 cents, according to Thomson First Call.

The chain attributed the increase in sales to new stores and one additional week in the reporting period. However, the increased sales were offset by a 1.6% decrease in same-store sales and a decreased gross profit. During the quarter, gross profit was $730.9 million or 29.5%, versus $660 million, or 30% of sales, in the prior year quarter. The decrease in the gross profit rate is primarily attributable to increased markdowns to reduce older inventory levels; lower mark-ups on receipts in the quarter; higher transportation expenses primarily attributable to increased fuel costs; and increased inventory shrink.

For the entire fiscal year, net sales were $8.58 billion, an increase of 12% compared to fiscal 2004, and same-store sales increased 2%. Net income for fiscal 2005 was also up to $350.2 million, or $1.08 per share, from $344.2 million, or $1.04 per share, in fiscal 2004. Gross profit fell to $2.46 billion, or 28.7% of net sales, compared with $2.26 billion, or 29.5% of net sales, in 2004.

This year, the chain expects diluted earnings per share between $1.14 and $1.21 for fiscal 2006. Dollar General execs said in a statement that the company “anticipates the first half of fiscal 2006 to be more difficult than the latter half due to the time needed for new merchandising initiatives to have an impact, in addition to a comparison to higher same-store sales in the first half of 2005.”

In 2006, Dollar General plans to spend approximately $375 million on capital expenditures including the opening of at least 800 new traditional Dollar General stores. The chain ended fiscal 2005 with 7,320 stores in operation compared to 6,700 at the end of 2004. It opened 734 stores during the year and closed 125, which including 41 closures due to hurricane damage.