March 10, 2016 / 12:06 PM / a year ago

Dollar General benefits as more customers walk in for small buys

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

(Reuters) - Discount retailer Dollar General Corp (DG.N) 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) 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), 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.

Overall, the retailer plans to open about 900 stores by January 2017.

Dollar General forecast full-year same-store sales growth of 2-4 percent, largely above the 2.8 percent analysts on average were expecting.

The company also raised its quarterly dividend to 25 cents per share from 22 cents, and said it would buy back about $1 billion in shares in fiscal 2016.

Dollar General's net income rose about 6 percent to $376.2 million, or $1.30 per share, in the quarter ended Jan. 29, beating the average analyst estimate of $1.26 per share, according to Thomson Reuters I/B/E/S.

Net sales increased 7 percent to $5.29 billion, but came slightly below the average estimate.

Dollar General's shares were up 8.9 percent at $81.88, while Dollar Tree's shares were up 2.9 percent at $78.97.

Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Kirti Pandey

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