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Bad weather not slowing Dollar General growth

An unrelenting Dollar General continues to push forward with plans to open 700 stores this year despite reporting weak financial results and a 1.3% same-store sales increase for the fourth quarter.

Sales during Dollar General’s fourth quarter ended Dec. 31, increased 6.8% to nearly $4.5 billion and were driven mainly by the addition of new locations as same-store sales increased just 1.3%. The comp increase was due to growth in customer traffic and average transaction amount with tobacco and perishables singled out as key contributors, according to the company. However, growth in those categories negatively affected the company’s gross margins as did an increase in the shrink rate, which caused gross margins to decline to 31.9% from 32.5%. Expenses were essentially flat with the prior year at 20% of sales.

Profits in the fourth quarter increased 1.6% to $322 million or $1.01 a share, compared to a profit of $317 million, or 97 cents a share, in the fourth quarter the prior year.

“Sales in the fourth quarter were impacted by severe winter weather, including many days with significant store closures, an aggressive competitive retail landscape and our customers’ uncertainty about spending in the current economic environment,” Dollar General chairman and CEO Rick Dreiling said. “In spite of these headwinds, both customer traffic and average ticket increased in our same-stores in the fourth quarter. In addition, we controlled our expenses well and successfully managed the business to deliver a gross margin rate that was better than we anticipated. Although some of the severe weather impact has continued into the first quarter, we are pleased with our sales performance on days when weather is more normalized.”

The impact of weather can be seen in Dollar General’s expectation for a first quarter same-store sales increase in the range of 2% to 3%, compared to a 2.6% comp increase in the first quarter of 2013. For the full year, the company expects sales to increase in the range of 8% to 9% and same store sales to rise between 3% and 4%, which implies an acceleration of comp growth later in the year. Earnings per share are expected to range from $3.45 a share to $3.55.

The key contributor to those results will be the company’s breakneck pace of expansion which calls for 700 new stores as part of a $450 million to $500 million capital expenditure program. The new store construction program, the most ambitious in the retail industry, follows a record year of square footage expansion in 2013.

“Among our other many accomplishments for the year, we successfully opened 650 new stores, ending the year with 11,132 stores serving customers in 40 states,” Dreiling said. “Dollar General is a strong and growing business with high return store growth opportunities that we intend to capture. While we remain cautious on the current operating environment and the many challenges our customer is facing in 2014, we have a business model that generates significant cash flow, putting us in a position to invest in these growth opportunities, while continuing to return cash to shareholders through share repurchases.”

Dollar General will come close to surpassing $20 billion in annual sales this year if its same-store sales and expansion goals are realized. Last year, the company’s sales increased 9.2% to $17.5 billion from $16 billion and full-year same-store sales increased 3.3%. As in the fourth quarter, those results were driven by an increase in customer traffic and average transaction size and strength in categories such as tobacco, perishables, candy and snacks.

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