Dollar General (DG - News) continued to add higher-end bargain hunters to its core clientele in the first quarter, as the discounter late Monday reported better-than expected earnings and sales growth.
The dollar store chain's profit rose 31% to 63 cents a share, beating analyst views by 3 cents. Sales rose 13% to $3.9 billion, above estimates of $3.8 billion. That did snap a recent trend of accelerating EPS and sales growth.
Dollar General raised its 2012 profit guidance by 3 cents — reflecting its Q1 beat — to $2.68 to $2.78 a share. Analysts expected $2.77 before the report.
Big Share Offering The retailer also announced a secondary offering of 25 million shares by existing holders, including Goldman Sachs (GS - News) and buyout giant KKR (KKR - News). Dollar General will get none of the proceeds.
Company shares fell 2.5% in late trading. But the stock, like that of many other discounters, remains near record highs despite the general market correction.
Same-store sales rose 6.7% vs. a year earlier. That's the "fifth consecutive quarter of accelerating improvement," CEO Rick Dreiling said in a statement.
The retailer's same-store sales outpaced other dollar stores'. Family Dollar (FDO - News) reported a 4.5% gain and Dollar Tree (DLTR - News) 2.6%.
Dollar General's comps rose on higher traffic and average transactions. Customers making $75,000 or more per year continue to be the largest growing segment. These shoppers have been trading down, with few returning to higher-end stores — three years after the lackluster economic expansion began.
"Typically post-recession consumers are still very value oriented. They are given a better shopping experience at Dollar General so we haven't seen any real trading up," said Joan Storms, a retail analyst at Wedbush Securities.
Dollar General also keeps increasing the number of private label goods offered, which are cheaper than branded items.
Gross profit remained flat at 31.5% as higher markups and improved distribution were offset by increased apparel markdowns and a higher demand for lower-margin consumables.
Dollar General did see gains in toddler and infant clothing.
Two new distribution centers helped cut transportation costs even as the price of diesel rose.
Warmer weather helped sales as lower heating bills left more money in people's pockets to spend, the retailer said.
