Goodlettsville-based Dollar General Corp. reported Wednesday that sales jumped 12.4 percent during its third quarter, as more consumers shopped at discount stores in a bid to save money.
"Consumers are more cash and credit constrained than ever before so consumers are buying basic needs at dollar stores and discount stores," said Burt P. Flickinger III, managing director of New York-based Strategic Resource Group.
From Wal-Mart to Fred's, many discount chains are seeing a boost in sales as a deteriorating economy, volatile stock market and rising unemployment push consumers to trade down from department stores and shop with discounters, analysts said.
Dollar General's third-quarter revenues grew to $2.6 billion, compared with $2.3 billion a year ago. Sales at stores open at least 13 months increased 10.6 percent in the quarter, according to the company.
Dollar General officials said on a conference call with investors on Wednesday that lower gas prices have helped boost business.
"The fact that gasoline is down, it's putting more discretionary spend" in the consumer's pocket, said Rick Dreiling, chairman and CEO. Dollar General has made other changes to its stores, including increasing inventory to keep pace with higher sales volumes and adding more private label or store brands.
"Dollar General's private label brands give consumers significant savings, at the same time it gives Dollar General higher profit margins," Flickinger said. In general, profit margins on private label merchandise can be 30 percent to 50 percent higher than on national brands, he said.
3rd quarter losses were $7.3 millionSales at discount outlets have "certainly been counter to what most of retail has been going through," said David Magee, managing director of SunTrust Robinson Humphrey, adding that he expects results to stay strong through the first half of 2009.
Despite its sales boost, though, Dollar General reported a net loss of $7.3 million for the quarter, due in large part to a $34.5 million pre-tax cost related to a proposed settlement of seven class-action lawsuits linked to the company's sale to private equity firm Kohlberg Kravis Roberts & Co. last year.
Shareholder complaints alleged that Dollar General's directors engaged in "self-dealing" by agreeing to recommend the sale at an "unfairly low" price, according to documents filed with the U.S. Securities and Exchange Commission.
"The company has determined that the agreement in principle is beneficial in order to avoid costly and time consuming litigation," Dollar General said in explaining the proposed settlement.
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