Dive Brief:
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Dollar General Thursday said Q3 net sales rose 5% year over year to $10.2 billion as comparable sales rose 1.3%. Inventory declined 7% on a per-store basis. Net income fell nearly 29% to $196.5 million.
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Gross margin contracted by 18 basis points to 28.8%, due to markdowns, inventory damages and higher consumables sales, partly offset by higher markups, lower shrink and lower inventory costs. The shrink improvement contributed 29 basis points and beat the retailer’s expectations, Chief Financial Officer Kelly Dilts told analysts.
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Hurricanes, which forced temporary store closures, took a toll in the period and into Q4, leading Dollar General to lower its full-year guidance. The retailer now expects net sales to rise about 4.8% to 5.1%, down from about 4.7% to 5.3%, with comps up about 1.1% to 1.4%, compared to its previous expectation for 1% to 1.6%.
Dive Insight:
Dollar General joins other retailers in changing its tune around shrink.
Shrink, which includes inventory loss for all kinds of reasons, including theft, damage and bookkeeping errors, has been a hot topic in recent years, despite the fact that, according to research from the National Retail Federation, there has been remarkable consistency in shrink rates industrywide. The group this year ended its annual shrink report.
Several retailers, including Dollar General, have highlighted their shrink problems in recent years, however. As recently as May, Dollar General CEO Todd Vasos called shrink “the most significant headwind in our business,” and Dilts said Thursday that “shrink rates as a percentage of sales continue to be higher than we would like to see in our stores.”
But the downturn in shrink bested the retailer’s expectations, she also said.
“We are making progress as we work to get closer to pre-pandemic levels, and believe our actions are having a positive impact,” she said.
She didn’t specify which actions those are, but the company this year decided to drastically reduce self-checkout in its effort to combat shrink. In the fourth quarter and throughout next year, improvements in shrink should be a tailwind for the retailer’s results, including as a “big contributor to gross margin,” she said.
“Shrink is really a continuous improvement journey,” Dilts said. “Just as a reminder, because of the long tail, it does take a full year for us to get the full impact of any actions that we take to show up in the financial statements, just because, as we take inventory through the year, that's when we'll get the benefit of that.”
