DLTR Dollar Tree Inc

By Aisha Al-Muslim 

Dollar General Corp. is betting that more food options, including fresh produce, will boost its revenue and traffic as it looks to expand its presence in food deserts in rural and metro areas.

In its fiscal 2019, which starts Feb. 2, the discount retailer plans to open 975 new stores, remodel 1,000 stores and relocate 100 stores, the company said Tuesday. That is 75 more store openings than expected in fiscal 2018.

Dollar General Chief Executive Todd Vasos said during a conference call with analysts Tuesday that the company is eyeing various setups as part of its expansion because customers' needs vary.

"We intentionally develop these additional formats to be able to move into certain demographics across the U.S. where a one-size-fits-all mentality is really not the way to be productive and to make the most of your real estate portfolio," he said.

For instance, Mr. Vasos said the company can "drive a tremendous amount of traffic" by opening stores that offer refrigerated products and produce in food deserts, areas where access to affordable and healthier food options is limited.

The company expects to add produce to about 200 of these remodeled stores. Currently, Dollar General has about 425 stores that carry produce.

About half of the remodels will be in what the company describes as its "traditional plus" format -- a traditional store in terms of size, but with more cooler space.

Mr. Vasos added there is still an opportunity to add 12,000 to 13,000 stores in the continental U.S.

Out of the anticipated new stores, the company plans to open about 10 locations that are about half the size of a traditional Dollar General store and have a product selection that is "tailored to vertical living customers" in more densely populated areas in some key cities across the U.S., Mr. Vasos said. The company currently has three of the smaller format stores.

The store growth outlook comes as Dollar General reported on Tuesday a higher profit for its third quarter that were in line with analysts' expectations. The company reported net sales rose 8.7% to $6.42 billion and same-store sales grew 2.8%, both beating analysts' estimates.

Higher same-store sales during the third quarter were driven by an increase in average transaction amount and sales in the consumables, seasonal and home categories, partially offering sales declines in the apparel category.

Overall, Dollar General's results were better than its competitor Dollar Tree Inc. Last week, Dollar Tree Inc., which owns both the Dollar Tree and Family Dollar chains, said sales rose 4.2% to $5.54 billion in its latest quarter, but weaker sales at existing Family Dollar stores dragged down the company's otherwise strong performance.

Same-store sales rose 2.3% at Dollar Tree, but sales at stores open at least a year under the Family Dollar banner fell 0.4%.

Since Dollar Tree bought Family Dollar more than three years ago, Dollar Tree has been working to renovate Family Dollar stores. The company plans to finish around 500 Family Dollar renovations this fiscal year, at least 1,000 next year, and another 1,000 the following year. The company also plans to close some Family Dollar stores, but the number wasn't disclosed.

For fiscal 2018, Dollar General guided net sales of about 9%, compared with its previous range of 9% to 9.3%. The company also said it expects same-store sales growth to be in the middle of the previous range of mid-to-high 2%. It also lowered its range expectations for earnings per share to $5.85 to $6.05 for the fiscal year, from its previous forecast of $5.95 to $6.15, to reflect a 9-cent hit due to the weather events, ongoing transportation cost pressures and year-to-date results.

The stock fell 6.9% to $104.04 in trading Tuesday. Shares are up nearly 15% in the past 12 months.

Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com

(END) Dow Jones Newswires

December 04, 2018 16:20 ET (21:20 GMT)

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