Cuts to the federal Supplemental Nutrition Assistance Program (SNAP) — what used to be called “food stamps” — contributed to a slight drop in same-store sales for Dollar General (NYSE: DG) in the third quarter, the discount retailer said in its earnings release Thursday.
On the positive side, net sales increased 5% to $5.32 billion in Q3. Sames-store sales, however, dropped by 0.1%, which the company blamed on a decline in traffic that was partially offset by an increase in the chain’s average transaction value.
CEO Todd Vasos said in the earnings release that he expects the company to fix its same-store sales issue, but that the efforts it’s undertaking won’t have an immediate impact. And then, there’s the matter of the cuts to SNAP benefits.
“We saw an acceleration in headwinds from average unit retail price deflation and reductions in SNAP benefits in the 2016 third quarter as compared to the 2016 second quarter,” he said. We are focused on efforts to drive traffic in our stores and to control the factors we can control as we look to overcome the issues impacting our results, many of which we believe are macroeconomic and transitory in nature.”
The full year is still on track
Dollar General noted in the earnings release that it has not revised its full-year outlook. The company still expects earnings per share to come in at the low end of its forecast range of 10% to 15% growth.
So far, through three quarters of 2016, Dollar General has grown sales by 5.9% over the comparable 2015 period to $15.98 billion. And, despite the Q3 drop, same-store sales are up by 0.9% for that period, driven by an increase in average transaction amount.
What happens next for Dollar General?
Perhaps more than most retailers, the company’s future profits depend upon what kind of changes to entitlement programs for the poor come from the incoming Republican government in Washington, D.C. That’s a major unknown that makes any predictions much beyond Q4 far less reliable.
Still, despite these bumps in the road and future uncertainty, Dollar General remains committed to its long-term growth model. The company noted that it still expects to grow by 10% to 15% each year even if “in any given year, one or more key drivers of the model may be outside of the annual targets outlined” in the model.
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