Dollar General sticks to spending plan, keeps profit forecast unchanged

Dollar General stuck to a plan for hefty investments in its store network, as it marginally increased its full-year outlook for sales on Thursday but kept profit forecast unchanged for the second quarter in a row.

The company has been spending to open new stores, remodel existing ones and add more products to its shelves to better compete with Walmart and newer rivals such as German discounters Aldi and Lidl.

“We view the lack of a bottom-line increase (in the forecast) as likely more aggressive plans by management to invest upside back in the business,” Oppenheimer analyst Rupesh Parikh said.

Dollar General’s shares, up more than 38 percent in the past year, slipped 2 percent in premarket trading as the company also said quarterly margins were hit by higher sales of low-margin products and freight costs.

Rival Dollar Tree also blamed high transportation costs as it posted lower margins, while its comparable store sales missed estimates, sending its shares down more than 5 percent.

Dollar General reiterated its annual profit target of $5.95 to $6.15 per share, the mid point of which was slightly below the average estimate of $6.06, according to Thomson Reuters. The company now expects full year sales to rise 9 percent to 9.3 percent versus its prior forecast of about 9 percent.

Its quarterly gross profit as a portion of sales slipped 7 basis points.

For Dollar Tree, still struggling weakness in its Family Dollar business, the margin decline was more severe – dropping by 70 basis points during the quarter.

The company also cut top end of its profit forecast but raised the lower end. Dollar stores have taken a hit as shoppers are spending more at traditional big-box retailers such as Walmart and Target, as a strong job market and lower taxes put more money in the hand of shoppers.

Dollar General’s same-store sales rose 3.7 percent in the second quarter ended Aug. 3, topping estimates of a 2.83 percent rise.

Excluding items, Dollar General earned $1.52 per share, beating analysts’ expectation of $1.49. Dollar Tree earned $1.15 per share, in line with expectations.

Quarterly sales of both companies topped expectations.lion from $5.83 billion.