Is Dollar General struggling? Q4 results reveal major profit drop amid store closures

Dollar General Corporation reported a mixed financial performance for the fourth quarter of fiscal 2024, with net sales rising by 4.5% to $10.3 billion while profits saw a steep decline. The discount retailer, known for catering to lower-income consumers, posted a 52.5% drop in diluted earnings per share (EPS), which fell to $0.87 from $1.83 in the same period last year. The decline was driven by an impairment charge of $0.81 per share linked to store closures and restructuring efforts under the store portfolio optimization review.

Despite these setbacks, Dollar General remains optimistic about its long-term growth, citing a strategic focus on cost efficiencies, customer engagement, and real estate expansion.

Q4 2024 Financial Performance: Mixed Results Amid Challenges

Dollar General’s same-store sales growth for the quarter stood at 1.2%, driven entirely by an increase in spending on essential items like food and personal care products. However, discretionary categories, including home decor, apparel, and seasonal merchandise, saw a decline, reflecting continued financial strain among consumers.

CEO Todd Vasos noted that inflation remains a major pressure point for Dollar General’s core customers, many of whom report worsening financial situations. “Many of our customers report they only have enough money for basic essentials, with some noting that they have had to sacrifice even on necessities,” Vasos stated.

The company’s gross profit margin slipped slightly to 29.4% from 29.5% a year earlier, largely due to increased markdowns, inventory damage, and rising distribution costs. Operating profit for the quarter dropped by 49.2% to $294.2 million, reflecting the significant impact of impairment charges related to store closures and restructuring.

Store Closures and Optimization Strategy

In an effort to streamline operations, Dollar General has initiated a store portfolio optimization review, which involves evaluating store performance, expected future returns, and market conditions. As a result, the company announced plans to close 96 Dollar General locations and 45 pOpshelf stores, with an additional six pOpshelf stores set for conversion into Dollar General locations in the first quarter of fiscal 2025.

This restructuring comes as the retailer aims to refine its store network while maintaining a strong foothold in the discount retail space. While store closures represent less than 1% of the company’s total locations, they underscore the retailer’s struggle to balance expansion with profitability.

Vasos emphasized that the move aligns with Dollar General’s “Back to Basics” strategy, which aims to enhance customer experience and operational efficiency.

Full-Year Performance: A Year of Growth and Challenges

For the full fiscal year, net sales increased by 5% to $40.6 billion, with same-store sales rising by 1.4%. The consumables category continued to be the primary driver of sales, while discretionary spending remained weak.

Despite revenue growth, operating profit fell 29.9% to $1.7 billion, largely due to higher costs associated with retail labor, store maintenance, and restructuring. Diluted EPS for the year declined by 32.3% to $5.11, compared to $7.55 in fiscal 2023.

Total merchandise inventory stood at $6.7 billion, a 6.9% decrease on a per-store basis. The company also invested $1.3 billion in capital expenditures, funding new store openings, store remodels, and technology upgrades.

Looking Ahead: Fiscal 2025 Outlook and Growth Strategy

Dollar General has set cautious yet ambitious financial targets for fiscal 2025, projecting:

• Net sales growth between 3.4% and 4.4%
• Same-store sales growth between 1.2% and 2.2%
• Diluted EPS between $5.10 and $5.80
• Capital expenditures between $1.3 billion and $1.4 billion

As part of its expansion plans, the company intends to execute nearly 4,885 real estate projects, including the opening of 575 new U.S. stores and up to 15 stores in Mexico, while remodeling over 4,000 locations.

CFO Kelly Dilts reiterated the company’s commitment to long-term growth, stating that investments in store modernization and customer engagement will help Dollar General meet its updated long-term financial framework, which includes a projected annual sales growth of 3.5% to 4% and an operating margin target of 6% to 7% by 2028-2029.

Stock Performance and Market Sentiment

Dollar General’s stock has seen volatility in response to its Q4 results and restructuring strategy. While the market reacted cautiously to the retailer’s lower-than-expected earnings, investors remain optimistic about its long-term growth potential. Analysts have pointed to the company’s efforts to streamline operations and improve customer engagement as positive indicators, but concerns linger over continued inflationary pressures and shifting consumer spending habits.

As the discount retailer navigates these challenges, its success will largely depend on its ability to strike a balance between affordability, expansion, and operational efficiency in a tough economic climate.