Dollar General Corporation Reports Strong Second Quarter 2018 Financial Results
Thu, 30 Aug 2018
Raises
- 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
Second Quarter 2018 Highlights
Net sales increased 10.6% to
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
The Company reported net income of
26-Week Period Highlights
For the 2018 26-week period ended
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
Merchandise Inventories
As of
Capital Expenditures
Total additions to property and equipment in the 2018 26-week period
were
Share Repurchases
The Company repurchased
Dividend
On
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
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
The Company continues to anticipate a cash benefit of approximately
In addition, the Company continues to expect share repurchases for
fiscal year 2018 to be approximately
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
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
- 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
About
| DOLLAR GENERAL CORPORATION AND SUBSIDIARIES | ||||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||||
| (In thousands) | ||||||||||||
| (Unaudited) | ||||||||||||
|
|
|
|
||||||||||
| 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 | |||||||||
|
|
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 | ||||||||||||
|
|
% of Net |
|
% 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 | ||||||||||||
|
|
% of Net |
|
% 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 | ||||||||
|
|
|
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| 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 | ||||||||||
|
|
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|||||||||
| 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 | ||||||||||
|
|
|
|||||||||
| 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 | ||||||||||
|
|
|
|||||||||
| 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 | % | ||||||
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