Dollar General Still Has a Shrink Problem

Shrink is Dollar General Corp.’s biggest headwind.

“Shrink continues to be the most significant headwind in our business, and we are deploying an end-to-end approach to shrink reduction across the organization, including efforts in our supply chain, merchandising, and within our stores,” Dollar General CEO Todd Vasos told investors during a conference call Thursday after the retailer posted first-quarter results.

He said the supply chain teams have been focused on making sure deliveries are on time and in full, as well as having merchants reduce the amount of inventory carried in stores.

Vasos said in March that it was make changes to its self-checkout strategy. That included the conversion of some self-checkout registers to assisted-operated options in 9,000 doors and limiting transactions to five items or less for those locations that still offer the self-checkout option. Vasos also said at the time that the company plans to remove self-checkout from more than 300 of its highest shrink stores. And the retailer was adjusting its assortment mix, such as removing high-shrink items from its high-shrink stores.

The conversions in those 9,000 stores were completed during the first quarter, Vasos said. But because of the ongoing shrink challenge, the company converted another 3,000 away from self-checkout in May, bringing the total conversions to 12,000. Self-checkout had been an option in more than 14,000 locations.

Vasos said the move to take away the option at more doors will better position the company in its shrink reduction efforts in the “back half of 2024 with a more material positive impact in 2025.” The dollar store retailer will still keep the option at some stores, but they will be limited in number and mostly at “higher volume and low-shrink locations.”

Vasos said the company has been “getting positive customer feedback across the board” on the self-checkout change in the initial 9,000 stores, and that the indication is the consumers like having interaction “at the front of the store.” That positive reaction gave Dollar General the confidence to transition from self-checkout to assisted-operated lanes in the additional 3,000 locations, Vasos said.

Shrink has been a problem for many retailers. Walmart in April quietly removed self-checkout lanes from some stores, noting that it was to better the consumer experience. The discounter declined to say whether shoplifting or retail crime played a role in the decision. Target said in March that it was rolling out Express Self-Checkout, but was limiting the option to shoppers buying 10 or fewer items. Moreover, shrink also contributed to the demise of Dollar General competitor 99 Cents Only Stores.

Aside from its shrink problems, the back to basics turnaround plan at Dollar General was fueled by consumables in the first quarter, offset by declines in apparel and home.

“We believe the softness in sales in the discretionary category during Q1 is a reflection of the continued pressure our core customers feel on their spending,” Vasos said, adding that consumers were “very value-oriented in their shopping behavior” that included a focus on shopping for private brands.

He also said the quarter included an increase in shoppers from the middle- and higher-income levels. The dollar store’s value proposition presents a “significant opportunity for ongoing growth among a wide range of customers,” he noted.

“Looking ahead, we expect value to continue to be the most important consideration for customers in multiple income ranges,” Vasos said. “We know that our customers need us even more when they face economic challenges, and we are well positioned to help them stretch their dollar.”

Net income for the three months ended May 3 fell 29.4 percent to $363.3 million, or $1.65 a diluted share, from $514.4 million, or $2.34, a year ago. Net sales climbed 6.1 percent to $9.91 billion from $9.34 billion, on a 2.4 percent increase in same-store sales.

For the second quarter ending Aug. 2, Dollar General expects same-store sales growth in the low 2 percent range, and diluted earnings per share in the range of $1.70 to $1.85.

Chief financial officer Kelly Dilts said the company will raise the number of remodels to 1,620 locations versus the prior estimate of 1,500 remodeled stores. And with more remodels on the horizon, the company also is reducing the number of store openings to 730 from the expectation of 800 new doors. Dollar General still expects to relocate 85 stores.