Dollar General forecasts tepid full-year profit as costs surge

December 2, 2021 7:02 AM EST

FILE PHOTO: A person exits a Dollar General store in Mount Rainier, Maryland, U.S., June 1, 2021. REUTERS/Erin Scott/File Photo

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By Mehr Bedi

(Reuters) -Dollar General Corp on Thursday forecast annual sales and profit largely below expectations as the discount retailer battles higher costs triggered by the pandemic.

Spiraling freight costs, shipping delays and other supply-chain snarls at a time when labor and raw materials are getting costlier have pinched profit outlooks at dollar stores that already operate on razor-thin margins.

Rival Dollar Tree Inc also forecast holiday-quarter profit below expectations last week and raised its pricing point to $1.25 for most items at its namesake stores to boost margins.

Dollar General, which typically sells products for $10 or less, announced a target of about 1,000 new pOpshelf stores, aimed at wealthier customers who enjoy a treasure-hunting experience, by the end of fiscal 2025.

The Goodlettsville, Tennessee-based company also announced plans for an international expansion for the first time, saying it expects to open up to 10 stores in Mexico by the end of fiscal 2022.

Dollar General narrowed its fiscal 2021 sales growth forecast to between 1% and 1.5%, the midpoint of which was below expectations.

Its full-year earnings forecast of $9.90 to $10.20 per share was also largely below analysts' average estimate of $10.20, according to Refintiv IBES data.

Evercore ISI analyst Micheal Montani said while Dollar General was doing what is right for its lower income consumer by investing in wages and maintaining pricing, the higher costs would squeeze already low margins and these costs would be "tangible" for investors in the near term.

Shares of Dollar General were down about 1.3% in morning trading.

Net sales rose to $8.52 billion in the third quarter ended Oct. 29, marginally above analysts' expectations, from $8.20 billion a year earlier.

(Reporting by Mehr Bedi in Bengaluru; Editing by Shinjini Ganguli)

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