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Dollar General Corporation Reports Strong Second Quarter 2018 Financial Results

Aug 30,2018

Dollar General Corporation Reports Strong Second Quarter 2018 Financial Results

Raises Net Sales and Same-Store Sales Guidance for Fiscal Year2018;Reiterates Fiscal Year EPS Outlook

GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)--Aug. 30, 2018-- Dollar General Corporation (NYSE: DG) today reported financial results for its fiscal year 2018 second quarter (13 weeks) ended August 3, 2018.

  • Net Sales Increased 10.6%; Same-Store Sales Increased 3.7%
  • Diluted Earnings Per Share (“EPS”) Increased 40.7% to $1.52
  • Cash Flows From Operations Increased 39.6% to $1.1 billion
  • $277 Million Returned to Shareholders through Share Repurchases and Cash Dividends
  • Board of Directors Declares Third Quarter 2018 Cash Dividend of $0.29 per share

“We delivered a strong second quarter and are proud of our team’s execution,” said Todd Vasos, Dollar General’s chief executive officer. “Our results this quarter were driven by contributions from our mature store base, as well as the robust performance of our new stores. In addition, we maintained our disciplined focus on cost control, which culminated in another quarter of significant earnings growth. At the same time, we also continued to invest in our strategic initiatives and made meaningful progress advancing against our goals. We are grateful to our approximately 134,000 employees throughout the company who continued to provide our customers with the value and convenience they have come to expect from Dollar General, and we are looking forward to a solid second half.”

Second Quarter 2018 Highlights

Net sales increased 10.6% to $6.4 billion in the second quarter of 2018 compared to $5.8 billion in the second quarter of 2017. The net sales increase in the second quarter of 2018 was positively affected by the sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures. Same-store sales increased 3.7% from the second quarter of 2017, driven by increases in average transaction amount and customer traffic. Growth in same-store sales was driven by positive results in the consumables, seasonal and apparel categories, partially offset by sales declines in the home category.

Gross profit as a percentage of net sales was 30.6% in the second quarter of 2018 compared to 30.7% in the second quarter of 2017, a decrease of seven basis points. This gross profit rate decrease was primarily attributable to a greater proportion of sales coming from consumables, which generally have a lower gross profit rate than other product categories, sales of lower margin products comprising a higher proportion of consumables sales, higher markdowns, and increased transportation costs. These factors were partially offset by an improved rate of inventory shrink and higher initial markups on inventory purchases.

Selling, general and administrative expenses (“SG&A”) as a percentage of net sales were 22.2% in the second quarter of 2018 compared to 22.3% in the second quarter of 2017, a decrease of eight basis points. This SG&A decrease as a percentage of net sales was primarily attributable to lower repairs and maintenance expenses, a reduction in lease termination expenses, lower fixed asset impairment costs, and a reduction in retail labor expenses as a percent of sales. These factors were partially offset by an increase in professional fees, higher incentive compensation expenses, and increased costs to support certain loss prevention initiatives.

The effective income tax rate in the second quarter of 2018 was 21.5% compared to 37.2% in the second quarter of 2017. The effective income tax rate for the second quarter of 2018 was lower than the second quarter of 2017 primarily due to the federal tax law changes contained in the Tax Cuts and Jobs Act (“TCJA”) enacted in December 2017, including the change in the federal income tax rate to 21% in the 2018 period compared to 35% in the 2017 period.

The Company reported net income of $407 million, or diluted EPS of $1.52, for the second quarter of 2018 compared to net income of $295 million, or diluted EPS of $1.08, in the second quarter of 2017, an increase in diluted EPS of 40.7%. Diluted EPS for the second quarter of 2017 included an approximate $0.02 charge primarily for the lease termination costs related to the acquisition of the Dollar Express store locations.

26-Week Period Highlights

For the 2018 26-week period ended August 3, 2018, net sales increased 9.8% to $12.6 billion, compared to $11.4 billion in the comparable 2017 period. The net sales increase in the 2018 period was positively affected by the sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures. Same-store sales increased 2.9% from the 2017 26-week period, driven by an increase in average transaction amount, partially offset by a decline in customer traffic. Growth in same-store sales for the period was driven by positive results in the consumables and seasonal categories, partially offset by sales declines in the apparel and home categories.

Gross profit as a percentage of net sales was 30.6% in the 2018 26-week period, compared to 30.5% in the comparable 2017 period, an increase of five basis points. The gross profit rate increase in the 2018 period was primarily attributable to higher initial markups on inventory purchases and an improved rate of inventory shrink. These factors were partially offset by a greater proportion of sales coming from consumables, which generally have a lower gross profit rate than other product categories, sales of lower margin products comprising a higher proportion of consumables sales, and increased transportation costs.

SG&A as a percentage of net sales was 22.3% in the 2018 26-week period compared to 22.1% in the comparable 2017 period, an increase of 26 basis points. This SG&A increase in the 2018 period as a percentage of net sales was primarily attributable to increased occupancy costs, utilities and professional fees, each of which increased at a rate greater than the increase in net sales. These factors were partially offset by reduced repairs and maintenance and lease termination expenses as a percentage of sales.

The effective income tax rate in the 2018 26-week period was 21.6% compared to 37.2% in the comparable 2017 period. The effective income tax rate was lower in the 2018 period primarily due to the federal tax law changes contained in the TCJA, including the change in the federal income tax rate to 21% in the 2018 period compared to 35% in the 2017 period.

The Company reported net income of $772 million, or diluted EPS of $2.88, for the 2018 26-week period, compared to net income of $574 million, or diluted EPS of $2.09, in the comparable 2017 period, an increase in diluted EPS of 37.8%. Diluted EPS for the 2017 26-week period included an approximate $0.02 charge primarily for the lease termination costs related to the acquisition of the Dollar Express store locations.

Merchandise Inventories

As of August 3, 2018, total merchandise inventories, at cost, were $3.90 billion compared to $3.46 billion as of August 4, 2017, an increase of approximately 3.9% on a per store basis.

Capital Expenditures

Total additions to property and equipment in the 2018 26-week period were $371 million, including approximately: $147 million for improvements, upgrades, remodels and relocations of existing stores; $113 million for distribution and transportation related projects; $81 million for new leased stores, primarily for leasehold improvements, fixtures and equipment; and $24 million for information systems upgrades and technology-related projects. During the 2018 26-week period, the Company opened 510 new stores, remodeled 643 stores and relocated 67 stores.

Share Repurchases

The Company repurchased $200 million of its common stock, or 2.1 million shares, under its share repurchase program in the second quarter of 2018, at an average price of $95.17 per share. From the inception of the share repurchase program in December 2011 through the end of the second quarter of 2018, the Company has repurchased 85.1 million shares of its common stock at an average price of $64.58 per share, for a total cost of $5.5 billion. The total remaining authorization for future repurchases was approximately $1.0 billion at the end of the second quarter of 2018. Under the authorization, purchases may be made in the open market or in privately negotiated transactions from time to time subject to market and other conditions. The authorization has no expiration date.

Dividend

On August 28, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.29 per share on the Company’s common stock, payable on or before October 23, 2018 to shareholders of record on October 9, 2018. While the Board of Directors intends to continue regular cash dividends, the declaration and amount of future dividends are subject to the sole discretion of the Board and will depend upon, among other things, the Company’s results of operations, cash requirements, financial condition, contractual restrictions, and other factors the Board may deem relevant in its sole discretion.

Fiscal Year 2018 Financial Guidance and Store Growth Outlook

The Company previously issued financial guidance and store growth outlook, in each case for the 52-week fiscal year ending February 1, 2019 (“fiscal year 2018”), on May 31, 2018. The Company is updating such prior guidance in full, as detailed below.

For the fiscal year 2018, the Company now expects net sales growth to be in the range of 9% to 9.3%. The Company is also raising its fiscal year 2018 same-store sales growth outlook to the mid-to-high two percent range. The Company continues to expect its fiscal year 2018 operating margin rate to be relatively unchanged compared with the fiscal year 2017 operating margin rate.

The Company is reiterating its diluted EPS guidance of $5.95 to $6.15 for fiscal year 2018. This diluted EPS guidance now assumes an effective tax rate at the lower end of the 22% to 23% range that the Company previously provided.

The Company continues to anticipate a cash benefit of approximately $300 million in fiscal 2018 as a result of the TCJA.

In addition, the Company continues to expect share repurchases for fiscal year 2018 to be approximately $850 million, and capital expenditures for fiscal year 2018 to be in the range of $725 million to $800 million.

The Company is also reiterating its plans to open approximately 900 new stores, remodel 1,000 stores and relocate 100 stores in fiscal year 2018.

Conference Call Information

The Company will hold a conference call on Thursday, August 30, 2018, at 9:00 a.m. CT/10:00 a.m. ET, hosted by Todd Vasos, chief executive officer, and John Garratt, chief financial officer. To participate via telephone, please call (877) 868-1301 at least 10 minutes before the conference call is scheduled to begin. The conference ID is 6591008. There will also be a live webcast of the call available at investor.dollargeneral.com under “News & Events, Events & Presentations.” A replay of the conference call will be available through Thursday, September 13, 2018, and will be accessible online or by calling (855) 859-2056. The conference ID for the replay is 6591008.

Forward-Looking Statements

This press release contains forward-looking information within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act. Forward-looking statements include those regarding the Company’s outlook, plans and intentions including, but not limited to, statements made within the quotations of Mr. Vasos and in the sections entitled “Fiscal Year 2018 Financial Guidance and Store Growth Outlook,” “Share Repurchases,” and “Dividend”. A reader can identify forward-looking statements because they are not limited to historical fact or they use words such as “outlook,” “may,” “will,” “should,” “could,” “would,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “assume,” “forecast,” “confident,” “opportunities,” “goal,” “prospect,” “positioned,” “intend,” “committed,” “continue,” ”future,” ”guidance,” “years ahead,” “looking ahead,” “looking forward,” “going forward,” “focused on,” “subject to,” or “will likely result,” and similar expressions that concern the Company’s strategy, plans, intentions or beliefs about future occurrences or results. These matters involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from that which the Company expected. Many of these statements are derived from the Company’s operating budgets and forecasts as of the date of this release, which are based on many detailed assumptions that the Company believes are reasonable. However, it is very difficult to predict the effect of known factors on the Company’s future results, and the Company cannot anticipate all factors that could affect future results that may be important to an investor. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. Important factors that could cause actual results to differ materially from the expectations expressed in or implied by such forward-looking statements include, but are not limited to:

  • economic conditions and other economic factors, including but not limited to employment levels, credit availability and spending patterns, inflation, commodity prices, fuel prices, interest rates, measures that create barriers to or increase the costs associated with international trade (including increased import duties or tariffs), and healthcare and housing costs, and their effect on, as applicable, consumer demand, customer traffic, customer disposable income, our ability to execute our strategic initiatives, our cost of goods sold, our SG&A expenses and real estate costs;
  • failure to successfully execute the Company’s strategies and initiatives, including those relating to merchandising, marketing, real estate and new store development, digital, sourcing, shrink, private brand, inventory management, distribution and transportation, store operations, store formats, budgeting and expense reduction, and technology;
  • failure to open, relocate and remodel stores profitably and on schedule, as well as failure of the Company’s new store base to achieve sales and operating levels consistent with the Company’s expectations;
  • effective response to competitive pressures and changes in the competitive environment and the geographic and product markets where the Company operates, including, but not limited to, pricing, the creation of a more convenient customer online and in-store shopping experience, and consolidation;
  • levels of inventory shrinkage;
  • failure to successfully manage inventory balances;
  • failure to maintain the security of information that the Company holds, whether as a result of cybersecurity attacks or otherwise;
  • disruptions, unanticipated or unusual expenses or operational failures in the Company’s supply chain including, without limitation, a decrease in transportation capacity for overseas shipments, increases in transportation costs (including increased fuel costs and carrier rates or driver wages), work stoppages or other labor disruptions that could impede the receipt of or delivery of merchandise, or delays in constructing or opening new distribution centers;
  • risks and challenges associated with sourcing merchandise from suppliers, including, but not limited to, those related to international trade;
  • unfavorable publicity or consumer perception of the Company’s products, including, but not limited to, related product liability;
  • risks and challenges associated with the Company’s private brands, including, but not limited to, the Company’s level of success in improving its gross profit rate;
  • the impact of changes in or noncompliance with governmental laws and regulations (including, but not limited to, environmental compliance, product safety or labeling, food safety, information security and privacy, and labor and employment laws, as well as tax laws, the interpretation of existing tax laws, or the Company’s failure to sustain its reporting positions negatively affecting the Company’s tax rate) and developments in or outcomes of private actions, class actions, administrative proceedings, regulatory actions or other litigation;
  • incurrence of material uninsured losses, excessive insurance costs or accident costs;
  • natural disasters, unusual weather conditions (whether or not caused by climate change), pandemic outbreaks, terrorist acts and geo-political events;
  • damage or interruption to the Company’s information systems or failure of technology initiatives to deliver desired or timely results;
  • ability to attract, train and retain qualified employees, while controlling labor costs and other labor issues;
  • loss of key personnel, inability to hire additional qualified personnel or disruption of executive management as a result of retirements or transitions;
  • seasonality of the Company’s business;
  • deterioration in market conditions, including market disruptions, limited liquidity and interest rate fluctuations, or a lowering of the Company’s credit ratings;
  • new accounting guidance, or changes in the interpretation or application of existing guidance, such as changes to guidance related to leases;
  • the factors disclosed under “Risk Factors” in the Company’s most recent Annual Report on Form 10-K; and
  • such other factors as may be discussed or identified in this press release.

 

All forward-looking statements are qualified in their entirety by these and other cautionary statements that the Company makes from time to time in its SEC filings and public communications. The Company cannot assure the reader that it will realize the results or developments the Company anticipates or, even if substantially realized, that they will result in the consequences or affect the Company or its operations in the way the Company expects. Forward-looking statements speak only as of the date made. The Company undertakes no obligation, and specifically disclaims any duty, to update or revise any forward-looking statements to reflect events or circumstances arising after the date on which they were made, except as otherwise required by law. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, the Company.

About Dollar General Corporation

Dollar General Corporation has been delivering value to shoppers for over 75 years. Dollar General helps shoppers Save time. Save money. Every day!® by offering products that are frequently used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, housewares and seasonal items at everyday low prices in convenient neighborhood locations. Dollar General operated 15,015 stores in 44 states as of August 3, 2018. In addition to high-quality private brands, Dollar General sells products from America's most-trusted manufacturers such as Clorox, Energizer, Procter & Gamble, Hanes, Coca-Cola, Mars, Unilever, Nestle, Kimberly-Clark, Kellogg's, General Mills, and PepsiCo. Learn more about Dollar General at www.dollargeneral.com.

             
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
             
    (Unaudited)    
    August 3   August 4   February 2
    2018   2017   2018
ASSETS            
Current assets:            
Cash and cash equivalents   $ 265,288     $ 214,173     $ 267,441  
Merchandise inventories     3,896,432       3,463,004       3,609,025  
Income taxes receivable     68,353       44,255       108,265  
Prepaid expenses and other current assets     287,753       258,559       263,121  
Total current assets     4,517,826       3,979,991       4,247,852  
Net property and equipment     2,857,274       2,574,816       2,701,282  
Goodwill     4,338,589       4,338,589       4,338,589  
Other intangible assets, net     1,200,322       1,200,537       1,200,428  
Other assets, net     29,938       26,891       28,760  
Total assets   $ 12,943,949     $ 12,120,824     $ 12,516,911  
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities:            
Current portion of long-term obligations   $ 1,909     $ 401,402     $ 401,345  
Accounts payable     2,294,996       1,880,668       2,009,771  
Accrued expenses and other     611,389       521,027       549,658  
Income taxes payable     7,250       3,658       4,104  
Total current liabilities     2,915,544       2,806,755       2,964,878  
Long-term obligations     2,776,811       2,683,105       2,604,613  
Deferred income taxes     569,690       659,844       515,702  
Other liabilities     302,962       284,025       305,944  
Total liabilities     6,565,007       6,433,729       6,391,137  
             
Commitments and contingencies            
             
Shareholders' equity:            
Preferred stock     -       -       -  
Common stock     232,340       239,101       235,141  
Additional paid-in capital     3,222,233       3,166,518       3,196,462  
Retained earnings     2,928,064       2,286,060       2,698,352  
Accumulated other comprehensive loss     (3,695 )     (4,584 )     (4,181 )
Total shareholders' equity     6,378,942       5,687,095       6,125,774  
Total liabilities and shareholders' equity   $ 12,943,949     $ 12,120,824     $ 12,516,911  
             

 

                 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
                     
    For the Quarter Ended
    August 3   % of Net   August 4   % of Net
    2018   Sales   2017   Sales
Net sales   $ 6,443,309   100.00 %   $ 5,828,305   100.00 %
Cost of goods sold     4,468,436   69.35       4,037,783   69.28  
Gross profit     1,974,873   30.65       1,790,522   30.72  
Selling, general and administrative expenses     1,429,397   22.18       1,297,376   22.26  
Operating profit     545,476   8.47       493,146   8.46  
Interest expense     25,451   0.39       23,748   0.41  
Other (income) expense     1,019   0.02       -   0.00  
Income before income taxes     519,006   8.05       469,398   8.05  
Income tax expense (benefit)     111,769   1.73       174,615   3.00  
Net income   $ 407,237   6.32 %   $ 294,783   5.06 %
                     
Earnings per share:                    
Basic   $ 1.53         $ 1.08      
Diluted   $ 1.52         $ 1.08      
Weighted average shares outstanding:                    
Basic     266,457           273,690      
Diluted     267,226           274,132      
                     
                     
    For the 26 Weeks Ended
    August 3   % of Net   August 4   % of Net
    2018   Sales   2017   Sales
Net sales   $ 12,557,772   100.00 %   $ 11,437,930   100.00 %
Cost of goods sold     8,720,650   69.44       7,948,425   69.49  
Gross profit     3,837,122   30.56       3,489,505   30.51  
Selling, general and administrative expenses     2,801,462   22.31       2,522,564   22.05  
Operating profit     1,035,660   8.25       966,941   8.45  
Interest expense     50,224   0.40       48,752   0.43  
Other (income) expense     1,019   0.01       3,502   0.03  
Income before income taxes     984,417   7.84       914,687   8.00  
Income tax expense     212,328   1.69       340,415   2.98  
Net income   $ 772,089   6.15 %   $ 574,272   5.02 %
                     
Earnings per share:                    
Basic   $ 2.89         $ 2.09      
Diluted   $ 2.88         $ 2.09      
Weighted average shares outstanding:                    
Basic     267,362           274,191      
Diluted     268,180           274,674      
                     

 

         
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
         
    For the 26 Weeks Ended
    August 3   August 4
    2018   2017
Cash flows from operating activities:        
Net income   $ 772,089     $ 574,272  

Adjustments to reconcile net income to net cash from operating activities:

       
Depreciation and amortization     221,511       197,616  
Deferred income taxes     12,500       6,750  
Loss on debt retirement     1,019       3,502  
Noncash share-based compensation     21,779       16,839  
Other noncash (gains) and losses     12,120       11,359  
Change in operating assets and liabilities:        
Merchandise inventories     (292,934 )     (205,385 )
Prepaid expenses and other current assets     (25,727 )     (43,240 )
Accounts payable     270,862       292,074  
Accrued expenses and other liabilities     61,096       26,751  
Income taxes     43,058       (92,940 )
Other     (84 )     (1,368 )
Net cash provided by (used in) operating activities     1,097,289       786,230  
         
Cash flows from investing activities:        
Purchases of property and equipment     (370,968 )     (314,050 )
Proceeds from sales of property and equipment     1,349       343  
Net cash provided by (used in) investing activities     (369,619 )     (313,707 )
         
Cash flows from financing activities:        
Issuance of long-term obligations     499,495       599,556  
Repayments of long-term obligations     (575,664 )     (750,584 )
Net increase (decrease) in commercial paper outstanding     (149,400 )     25,000  
Costs associated with issuance and retirement of debt     (4,384 )     (9,524 )
Repurchases of common stock     (349,538 )     (163,736 )
Payments of cash dividends     (154,708 )     (142,339 )
Other equity and related transactions     4,376       (4,638 )
Net cash provided by (used in) financing activities     (729,823 )     (446,265 )
         
Net increase (decrease) in cash and cash equivalents     (2,153 )     26,258  
Cash and cash equivalents, beginning of period     267,441       187,915  
Cash and cash equivalents, end of period   $ 265,288     $ 214,173  
         
Supplemental cash flow information:        
Cash paid for:        
Interest   $ 45,538     $ 41,356  
Income taxes   $ 156,796     $ 425,278  
Supplemental schedule of non-cash investing and financing activities:        

Purchases of property and equipment awaiting processing for payment, included in Accounts payable

  $ 77,541     $ 69,912  
         

 

             
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
             
             
Sales by Category (in thousands)
             
    For the Quarter Ended    
    August 3   August 4    
    2018   2017   % Change
Consumables   $ 4,988,063   $ 4,484,359     11.2 %
Seasonal     792,513     717,993     10.4 %
Home products     345,161     327,648     5.3 %
Apparel     317,572     298,305     6.5 %
Net sales   $ 6,443,309   $ 5,828,305     10.6 %
             
             
    For the 26 Weeks Ended    
    August 3   August 4    
    2018   2017   % Change
Consumables   $ 9,760,451   $ 8,799,872     10.9 %
Seasonal     1,483,544     1,380,631     7.5 %
Home products     699,794     660,798     5.9 %
Apparel     613,983     596,629     2.9 %
Net sales   $ 12,557,772   $ 11,437,930     9.8 %
             
             
             
             
Store Activity
             
        For the 26 Weeks Ended
        August 3   August 4
        2018   2017
             
Beginning store count         14,534     13,320  
New store openings         510     574  
Store closings         (29 )   (29 )
Net new stores         481     545  
Ending store count         15,015     13,865  
Total selling square footage (000's)         111,210     103,029  
Growth rate (square footage)         7.9 %   7.2 %
             

 

Source: Dollar General Corporation

Dollar General Corporation
Investor Contacts:
Jennifer Beugelmans, 615-855-5537
or
Kevin Walker, 615-855-4954
or
Media Contacts:
Crystal Ghassemi, 615-855-5210