Dive Brief:

• Dollar General reported a net sales increase of 8.9% to $7 billion in the third financial quarter, according to a company press release. The increase was attributed to positive contributions from new stores and growth in same-store sales.
• Same-store sales increased 4.6%, driven by a boost in transaction amount and customer traffic. CEO Todd Vasos said on an earnings call the company saw its best quarter of traffic and same-store sales in nearly five years.
• Dollar General said its net income for Q3 was $365.6 million, compared to $334.1 million the year prior. The company has raised its full-year financial guidance following the results.

Dive Insight:

Some of Dollar General's success in Q3 can be attributed to its DG Fresh initiative, one of four core strategies for the company. DG Fresh is intended to enhance the company's gross margin by shipping its own frozen and refrigerated foods. The category represents about 8% of the company’s sales, Vasos said.

At the end of Q3, Dollar General was self-distributing to about 4,900 stores from four DG Fresh facilities, and Vasos said he expects they’ll distribute to 5,500 stores by the end of the year — up from the company’s initial 5,000 store estimate. 

Vasos noted on the earnings call that Dollar General will begin shipping out of its fifth DG Fresh facility as early as the end of the fiscal year. Progress on the DG Fresh initiative has positioned the company well, and he expects it will be accretive to the gross margin and operating profit rate next year.

Separate from the DG Fresh strategy, the retailer has also increased its focus on fresh produce in stores. Dollar General added produce to 65 stores in Q3, bringing the total number of stores carrying produce to 600. About 250 more stores will add produce in 2020. 

Dollar General has put more emphasis on grocery categories as it sees continued growth in consumables. With more than 16,000 stores across the U.S., Dollar General’s shift to fresh food is a challenge for many grocers, especially those that don’t operate as discounters or specialty stores. 

Offering a more robust grocery assortment should help boost sales and margins over a multi-year period, according to an analyst note from R5 capital. The note also pointed to the company’s plans to expand its private-label offerings, an on-trend move that will further resonate given the popularity of private brands in grocery.