Dollar General (NYSE: DG) has launched a new program that will help the chain restructure its smallest stores for maximum productivity. The "lifecycle remodeling" program takes these small stores, which are undersized by Dollar General's current standards, and remodels them instead of relocating them to a larger space.
The stores in the lifecycle program are between 5,700 square feet and 6,500 sq. ft., compared with 7,200 square feet at a conventional Dollar General store and 16,000 sq. ft. at a Dollar General Market.
Rick Dreiling, chairman and CEO, told investors on an earnings call Thursday that rather than look for new, larger and more expensive locations for the stores, the company has been able to save money by carefully narrowing down the product assortment to items that are most productive.
"It's costing us about 30 percent less to remodel them, and they're generating a return that's 25 percent to 40 percent higher," Dreiling said.
Overall, Dollar General is focused on cutting back its product assortment in larger stores, too.
"We actually believe we can do more in 2014, with less SKUs. We have examined a lot of categories, and have discovered there are categories we can expand, and categories that we are going to contract," said Dreiling.
Dollar General also plans to optimize category management and make more efficient use of labor in 2014, Dreiling said.
Dollar General operates over 10,000 stores in 40 U.S. states. The company disappointed Wall Street on Thursday by posting a lighter-than-expected 1.5 percent rise in fourth-quarter profits. Revenue rose 7 percent to $4.49 billion, trailing expectations of $4.62 billion. Same-store sales increased 1.3 percent, while gross margins shrank to 31.9 percent from 32.5 percent.
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