Dollar General will speed up store openings after its failed Family Dollar bid

March 12, 2015, 12:41 PM UTC
A Dollar General Corp. Store Ahead Of Earnings Figures
Shopping carts sit outside a Dollar General Corp. store in Princeton, Illinois, U.S., on Wednesday, March 11, 2015. Dollar General Corp. is scheduled to release earnings on March 12. Photographer: Daniel Acker/Bloomberg via Getty Images
Photograph by Daniel Acker — Bloomberg/Getty Images

Dollar General (DG) may have failed in January to snag smaller rival Family Dollar (FDO) with a rejected $9 billion takeover bid, but the discount chain is moving full steam ahead with its growth plan.

The low-priced retailer, which sells items for the most part costing less than $10, on Thursday forecast another year of strong sales growth, even with the U.S. consumer enjoying higher spending power thanks to low gas prices and a much better job market. Dollar General plans to open hundreds more stores in 2015 and accelerate the pace of store openings next year.

Dollar General also announced the retirement of its finance chief, David Tehle, a key architect of the retailer’s buyout in 2007 by private equity firms and return to the public markets in 2009.

Here are some of the key details from the company’s earnings report.

Speeding up pace of store openings.

Dollar General benefited from the Great Recession as many Wal-Mart (WMT) shoppers traded down to buy items for cheaper and to save on gas. By January 2015, Dollar General had 11,789 stores across the United States compared with 8,877 just five years ago. Last year, Dollar General added 6% to its total square footage, and said it would add about the same this year in the form of 730 stores, and step that up in 2016 to 7% more square footage.

If Dollar General had prevailed over Dollar Tree (DLTR) in bagging Family Dollar, it may have had to sell off as many as 4,000 of its stores, according to some media reports.

More sales growth ahead in 2015.

During the key holiday quarter, Dollar General’s comparable sales — which strip out the impact of store openings or closings in the preceding year — rose 4.9%, suggesting that improving business at Wal-Mart is not yet biting into its growth. Total sales rose 9.9%, contributing to an 8% jump for the whole year. While conventional wisdom would suggest the improving economy should lead to shoppers trading back up, Dollar General forecast total sales would potentially grow even faster in 2015, rising as much as 9%

More cigarette sales mean lower profit margins.

Dollar General’s adjusted profit only rose 3% to $1.07 billion, a modest clip compared to its sales growth. Part of that is because Dollar General sold more tobacco products, which have lower gross margins than the average for the retailer, in 2014, following CVS Health’s (CVS) decision to ban such items last year.

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