Dollar General benefits as more customers walk in for small buys

Thu Mar 10, 2016 12:44pm EST
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By Sruthi Ramakrishnan

(Reuters) - Discount retailer Dollar General Corp (DG.N: Quote) reported higher-than-expected growth in quarterly sales at established stores as more customers visited its outlets and they spent more on items such as snacks, tobacco and home products.

Shares of the company, which also forecast full-year same-store sales growth largely above analysts' estimates, rose as much as 9.4 percent to a record high of $82.27 in noon trading on Thursday. Larger rival Dollar Tree Inc's (DLTR.O: Quote) shares gained as much as 5 percent.

Dollar General's sales at stores open at least 13 months rose 2.2 percent in the fourth quarter as lower gas prices and rising wages encourage consumers to loosen their purse strings.

This growth was stronger than the 1.9 percent analysts on average had expected, according to research firm Consensus Metrix.

Dollar General's performance was in sharp contrast to that of Wal-Mart Stores Inc (WMT.N: Quote), which reported lower-than-expected comparable sales for the holiday quarter last month, hurt by a strong dollar and low prices for grocery products.

Customers prefer Dollar General's stores to Wal-Mart's "supercenters" for small purchases, mainly due to the smaller size and convenient locations of the discount retailer's outlets, Edward Jones analyst Brian Yarbrough said.

"They've (Dollar General) shown the consumer we are convenient, our prices are competitive with the Walmarts of the world, much better priced than the drugstores, that's where you've seen them take a lot of (market) share," he said.

Dollar General plans to open 80 smaller format stores this year in addition to the 30 it already operates, to better tap densely populated areas and rural locations, Chief Executive Todd Vasos said on a post-earnings conference call.   Continued...

The sign outside the Dollar General store in Westminster, Colorado is pictured December 4, 2014. REUTERS/Rick Wilking