The former largest US discount retailer, Dollar General Corp. (NYSE: DG), plans to gear up spending on labor in fiscal year 2015 (FY15) and opening new retail stores, after being unsuccessful in toppling the merger deal between Dollar Tree, Inc. and Family Dollar Stores, Inc.
The retailer wants to improve the quality of its 11,800 retail stores by increasing the working hours of its employees. It opened 700 retail stores last year and plans to open 730 more this year, which shows a total square footage growth of 6%. For 2016, the retailer wants to increase the growth by 7%.
The Tennessee-based discount store said that its capital expenditure for FY15 will be in between $500-550 million. However, lower-than-expected guidance for 1QFY15 led to shares of Dollar General trading slight lower, than its closing on Thursday, in early trading today.
It expects earnings per share (EPS) in the range of $3.85-3.95, which is lower than the Streets forecast of $3.99 EPS.
Low-Wage Labor Market Shrinking
Dollar General expects a shrinking low-wage labor market, following Wal-Mart Stores, Inc. announcement last month to increase the hourly wage rate for its employees. The retailer has taken initiatives to improve the efficiency of work at its retail stores and plans to enhance its new labor plan in 2015.
The announcement by Wal-Mart has spurred companies likes TJX Companies Inc., and Marshalls and HomeGood to push up the hourly wage rates. In February, TJX announced its plans to increase wage rates as much as Wal-Mart did. However, there are companies like Target Corporation that believe maintaining a wage rate as high as Wal-Marts isnt wise.
In terms of what were paying, we feel pretty comfortable, Dollar General CEO Richard Dreiling said in a statement. Were going to continue to monitor the landscape and well assess or make any adjustments that we need to make.
Mr. Dreiling also said that full-time workers receive more wages compared to the federal minimum wage per hour of $7.25. Part-time workers get $7.25 per hour for the first five months, whose wages are increased to $9 per share from the sixth month.
Dollar General posted net earnings of $335.4 million ($1.17 per share) in 4QFY14, compared to $322.2 ($1.01 per share) in 4QFY14. Net revenues jumped 9.9% year-on-year to $4.94 billion. The Street expected EPS of $1.17 with $4.95 revenue.
Same-store revenue of the retailer climbed 4.9% YoY during the quarter, which is in-line with analyst estimates at the research firm, Consensus Metrix.