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Dollar General Disappoints

GOODLETTSVILLE, TN-The discounter posts increases in sales and net income, but it's not enough to satisfy Wall Street.

By Jennifer D. Duell | Updated on March 22, 2006

GOODLETTSVILLE, TN-Discounting, higher transportation costs and inventory problems impacted Dollar General Corp.’s fourth quarter 2005 earnings. Although the discounter achieved a sales increase of 12.9% to $2.48 billion and increased profit nearly 10%, the performance still fell short of Wall Street’s expectations, sending the chain’s stock down nearly 3% to $17.67 per share.

For the fourth quarter fiscal 2005, the chain posted profit of $145.3 million, or 46 cents per share, compared to $133.9 million, or 41 cents per share, in the fourth quarter of fiscal 2004. Analysts were expecting a per-share profit of 49 cents, according to Thomson First Call.

The chain attributed the increase in sales to new stores and one additional week in the reporting period. However, the increased sales were offset by a 1.6% decrease in same-store sales and a decreased gross profit. During the quarter, gross profit was $730.9 million or 29.5%, versus $660 million, or 30% of sales, in the prior year quarter. The decrease in the gross profit rate is primarily attributable to increased markdowns to reduce older inventory levels; lower mark-ups on receipts in the quarter; higher transportation expenses primarily attributable to increased fuel costs; and increased inventory shrink.

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