Basics buoy 3Q at Dollar General

Home Textiles Today Staff -- Home Textiles Today, 12/5/2011 1:35:49 PM

Goodlettsville, Tenn. - Although discretionary categories have lagged lately at Dollar General, the discount chain found a sweet spot in fashion towels and bedding during its third quarter.

Rick Dreiling, chairman and ceo, said during Dollar General's earnings call this morning that in the home department, bedding and bath towels performed well - especially fashion-color towels - thanks to a recently implemented strategy.

"Part of our strategy is that we need to turn our non-consumables more frequently," he said. "Our customer comes in once a week or once every two weeks, and she needs to see something different [in our stores]. And so [new fashion home products] are starting to turn a little faster."

New collections of bath towels represent an example of a faster-turning category recently, he explained, as "we're fashion relevant there in terms of color."

The new beer and wine selection that recently began rolling out to stores represents another discretionary category starting to make strides. To date, about 40% of Dollar General 9,813 stores offer beer and wine, "and when beer and wine are in the basket, those stores have about a 1% higher comp."

For the most part, Dollar General's core customers remain focused on necessities, as third quarter results showed.

"Non-consumables that are less discretionary are doing much better," Dreiling said, citing that socks, underwear, and plain pocket Tees and better off in sales than jeans.

"I would not attribute this to the warmer weather," he added. "It is an example of a discretionary purchase our customer can hold back on. More fashionable things in apparel won't get better until we see a change in macro-economics out there."

Dollar General said its consumables sales continued to increase at a higher rate than non-consumables in the quarter.

For the third quarter ended October 28, net income jumped 34% to $171 million, or 50 cents per share.

Sales climbed 11.5% to $3.60 billion, and same-store sales increased 6.3%, representing Dollar General's third consecutive quarter of accelerating same-store sales growth "and demonstrating our ability to balance the challenges of pricing and rising input costs," Dreiling said.

Contributing to the comp increase were gains in customer traffic and average transaction.

Year to date, the company reported a 17% net income increase to $474 million, or EPS of $1.37. Sales rose 11.2% to $10.62 billion, including an increase in same-store sales of 5.9%.

Based on its third results, Dollar General is raising its full year adjusted earnings per share guidance to the range of $2.29 to $2.32.