Dollar General profit beats despite sluggish consumer spending

By Sruthi Ramakrishnan

(Reuters) - Dollar General Corp (NYSE: DG) reported a smaller-than-expected rise in same-store sales as its core customer base spent less, but the No.2 U.S. discount retailer by store count managed to eke out higher profits by keeping a tight lid on costs.

Shares of the company, which also raised its share buyback program by $1 billion, were up 2.5 percent to $66.98 on Thursday.

"Comparing DG's print to the rest of retail – eh, it was pretty good," Sterne Agee CRT analyst Charles Grom wrote in a note.

A pullback in customer spending and warmer-than-usual weather has reduced sales at a number of retailers such as Macy's Inc (NYSE: M) and Nordstrom Inc (NYSE: JWN) leading them to cut forecasts for the full year.

U.S. consumer spending rose just 0.1 percent each in September and October as consumers chose to save more, according to the Commerce Department.

"Our core consumer is still struggling as she continues to face rising costs in major expenditure categories like rent and healthcare with no real income growth," Dollar General's Chief Executive Todd Vasos said on a conference call.

The company's same-store sales rose 2.3 percent in the third quarter. Analysts had expected growth of 2.7 percent.

The company has been trying to cut costs by adopting "zero-based budgeting" - wherein companies plan expenses for a period from scratch instead of basing their budgets on previous data - to cut costs.

It also reduced about 255 corporate positions, and said it was planning to speed up square footage growth at its stores and open 900 new stores in 2016.

Larger rival Dollar Tree Inc (NASDAQ: DLTR) reported better-than-expected quarterly sales last week, but missed on profit.

Dollar General's net sales rose 7.3 percent to $5.07 billion in the quarter ended Oct. 30, but missed the average analyst estimate.

The retailer also cut its full-year same-store sales growth forecast to 2.5-2.8 percent from 3.0-3.5 percent.

Dollar General also said it expected sales to grow about 8 percent in the year ending January, compared with its previous forecast of 8-9 percent growth.

Its net income rose 7.2 percent to $253.3 million, or 86 cents per share in the quarter. Excluding items, Dollar General earned 88 cents per share, beating analysts' expectations by 1 cent.

The company also named interim Chief Financial Officer John Garratt permanently to the post.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Shounak Dasgupta and Kirti Pandey)

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