Dollar General tries to drive a turnaround after safety violations

Dollar General has gotten hit by steep fines for safety violations, slammed on late-night TV and even overruled by its own shareholders.

On Thursday, CEO Todd Vasos laid out on an earnings call with investors the discounter’s plans to try to turn around both the company’s performance and its public relations problems. He said the retailer will put more workers in the front of its stores, slow down new store openings, take underperforming items off shelves and step up efforts to keep merchandise in stock.

It marked the first earnings call since Vasos took the helm again. He was brought out of retirement in October, after his successor Jeff Owen got ousted less than a year into the job.

At the time, the board’s chairman, Michael Calbert, said in a news release that the company needed the leadership change “to restore stability and confidence.”

On the call Thursday, Vasos said, “We have some hard work yet ahead of us, but we know what to do. We’ve done it before and we are absolutely set on doing it again, as quickly as possible.”

Here’s what the retailer reported for the three-month period that ended Nov. 3 compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: $1.26 vs. $1.19 expected
• Revenue: $9.69 billion vs $9.64 billion expected

In the fiscal third quarter, Dollar General’s net income fell to $276.2 million, or $1.26 per share, from $526.2 million, or $2.33 per share, in the year-ago period. Net sales rose from $9.46 billion a year ago.

Dollar General may have topped Wall Street’s fiscal third-quarter expectations, but it has had a tough year. The company is the fastest-growing retailer by store count, but its sales have slowed, its stock price has slumped and its reputation has gotten hurt by federal scrutiny over work conditions.

Shares of Dollar General closed Wednesday at $133.92, down by about 46% so far this year. The company has far underperformed the 18% gains of the S&P 500.

Dollar General has racked up more than $21 million in fines from the federal Occupational Safety and Health Administration for having blocked fire exits, dangerous levels of clutter and more. This spring, shareholders voted for a resolution that called for an independent, third-party audit into worker safety, a move that the company opposed.

Its labor issues have garnered broader attention. On a recent episode of HBO’s “Last Week Tonight with John Oliver,” the comedian ridiculed Dollar General and its rival, Dollar Tree. He called out the companies for violations cited by OSHA, including rat infestations in warehouses and dangerously messy store aisles, and for complaints by workers on social media, such as staffing a store with a single worker.

Dollar General’s company-specific challenges have been exacerbated by inflation, since shoppers have been buying fewer discretionary items and even looking for ways to save on necessities.

For the full year, the company anticipates same-store sales, a metric used to take out the impact of new stores or stores under renovation, will range from a decline of about 1% to flat.

Vasos on Thursday said the company “looked at every element of our business that touches our consumer” before coming up with plans to straighten up its stores and turn around its business. He stressed retail fundamentals and used the phrase “back to the basics” 10 times on an hourlong earnings call.

One change that shoppers may notice, Vasos said, is more employees in the front of its stores. The company previously announced $150 million in additional investment in store labor hours this year.

He said the company has relied too much on self-checkout, which should be “a secondary checkout vehicle, not a primary.”

Bringing down high turnover of store managers and keeping items in stock are priorities, too, Vasos said. “The amount of out-of-stocks we have in our store are probably some of the largest that I’ve seen in the 15-plus years I’ve been here,” he said.

Over the past two weeks, he said the company has already seen some improvements as it devotes more time to inventory management at the store level.

Vasos said Dollar General will whittle down the items it sells. It currently has between 11,000 and 12,000 different items at each store, he said, but it plans to take out “a meaningful number” to help with managing inventory and reduce levels of shrink, a term used to describe inventory losses from theft or damage to items.

For example, he said, it may drop one or two of the variants of mayonnaise that it has on the shelf today.

In the next fiscal year, Vasos said Dollar General plans to open 800 stores, remodel 1,500 stores and relocate 85 stores, which is a smaller number than in recent years. Vasos said the company reduced its real estate plans to focus on its current stores and to reduce costs, since construction projects have become pricier.

Don’t miss these stories from CNBC PRO: