More trip trouble courtesy of Dollar General
Shoppers in many markets have to drive past one of Dollar General’s more than 10,000 stores before they get to their local Walmart, a situation that will intensify in 2013.
Dollar General is opening stores so fast its store count sometimes changes multiple times throughout the day. It surpassed 10,000 units earlier this year and by the end of the company third quarter on November 2, it had opened 479 out of 625 stores planned for 2012. Next year, 635 new units are planned and by the end of next year the company’s store count will be in the vicinity of 11,000 stores.
While Dollar General’s rapidly expanding store base and strong consumables offering creates the potential for Walmart to lose traffic, Dollar General’s third quarter revealed some slippage in its own performance. Dollar General has seen its same store sales decelerate in recent quarters with the third quarter up only 4%. That figure was within a previously narrowed forecast range, but it was well below the prior year increase of 6.3% and also marked a sequential deceleration from the 5.1% comp increase in the second quarter. A similar situation is shaping up for the fourth quarter where Dollar General’s same store sales forecast range of 3% to 4% could represent further sequential deceleration from the third quarter and would be well below the prior year’s fourth quarter comp increase of 6.5%.
Lost sales momentum aside, a blend of increased customer traffic and average transaction size allowed the company to produce earnings per share of 62 cents that were two cents better than analysts forecast. Total sales increased 10.3% to nearly $4 billion and profits increased 21.6% to $208 million.
However, those gains were made possible by actions that could cause the company problems over time. For example, the modest comp increase was offset by tight expense control with ongoing benefits of a workforce management system and a decrease in incentive compensation cited as key drivers. That combination is potentially troubling from a longer term standpoint because Dollar General’s expansive network of small stores are already thinly staffed, which suggests there is little room for a workforce management system to extract further productivity gains without negatively affecting customer service, turnover and shrink levels. In addition, the fact that incentive compensation declined can’t be good for morale and doesn’t create a favorable environment in which to recruit, retain and engage front line employees needed to facilitate Dollar General’s march toward a possible 20,000 stores.