Dollar General Corporation Reports Third Quarter 2018 Financial Results
Tue, 04 Dec 2018
Updates Fiscal 2018 Guidance
Announces Fiscal 2019 Real Estate Growth Plan
- Net Sales Increased 8.7%; Same-Store Sales Increased 2.8%
-
Diluted Earnings Per Share (“EPS”) Increased 35.5% to
$1.26 , including an estimated$0.05 net-negative impact from hurricane-related expenses and greater-than-anticipated other disaster-related expenses -
Cash Flows From Operations Increased 32.5% to
$1.5 billion -
$374 Million Returned to Shareholders through Share Repurchases and Cash Dividends -
Board of Directors Declares Fourth Quarter 2018 Cash Dividend of
$0.29 per share
“During the third quarter, we delivered strong operating performance and
financial results,” said
Third Quarter 2018 Highlights
Net sales increased 8.7% to
Gross profit as a percentage of net sales was 29.5% in the third quarter of 2018 compared to 29.9% in the third quarter of 2017, a decrease of 39 basis points. This gross profit rate decrease was primarily attributable to an increase in the LIFO provision, a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories, sales of lower margin products comprising a higher proportion of sales within the consumables category, higher markdowns, and increased transportation costs. These factors were partially offset by an improved rate of inventory shrink.
Selling, general and administrative expenses (“SG&A”) as a percentage of
net sales were 22.6% in the third quarter of 2018 compared to 22.9% in
the third quarter of 2017, a decrease of 21 basis points. This SG&A
decrease as a percentage of net sales was primarily attributable to
reductions in incentive compensation expenses, advertising and supplies
expenses, and lower repairs and maintenance expenses as a percentage of
sales, partially offset by increased depreciation expenses. SG&A for the
third quarter of 2018 included an estimated
Operating profit for the third quarter of 2018 grew 5.9% to
The effective income tax rate in the third quarter of 2018 was 20.0%
compared to 35.8% in the third quarter of 2017. The effective income tax
rate for the third quarter of 2018 was lower than the third 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
39-Week Period Highlights
For the 39-week period ended
Gross profit as a percentage of net sales was 30.2% in the 39-week period of 2018 compared to 30.3% in the comparable 2017 period, a decrease of 10 basis points. This gross profit rate decrease was primarily attributable to a greater portion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories, sales of lower margin products comprising a higher proportion of sales within the consumables category, increased transportation costs and higher markdowns. These factors were partially offset by an improved rate of inventory shrink and higher initial markups on inventory purchases.
SG&A as a percentage of net sales was 22.4% in the 39-week period of 2018 compared to 22.3% in the comparable 2017 period, an increase of 9 basis points. This SG&A increase in the 2018 period as a percentage of net sales was primarily attributable to increases in utilities expenses, depreciation expenses, occupancy costs and professional fees, each of which increased at a rate faster than the increase in net sales, partially offset by a reduction in repairs and maintenance expenses, as a percentage of sales. As noted above, the 2017 and 2018 periods include hurricane-related expenses, and the 2018 period also includes greater-than-anticipated other disaster-related expenses. The 2017 period also included incremental expenses, primarily for lease termination costs, related to the acquisition of Dollar Express store locations in the second quarter of 2017.
Operating profit for the 39-week period of 2018 grew 6.7% to
The effective income tax rate in the 39-week period of 2018 was 21.1% compared to 36.8% 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 a federal income tax rate of 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 39-week period
were
Share Repurchases
The Company repurchased
Dividend
On
Fiscal Year 2018 Financial Guidance and Store Growth Outlook
“As a result of the third quarter hurricanes and other disasters, we
will record greater-than-anticipated expenses in the second half of
2018,” said
The Company is updating its financial guidance for the fiscal year
ending
- For fiscal year 2018, the Company expects net sales growth to be approximately 9.0%, compared to the previous range of 9% to 9.3%, and expects same-store sales growth to be in the middle of the previous range of mid-to-high two percent.
- The Company expects its fiscal year 2018 operating margin rate to be modestly below the fiscal year 2017 operating margin rate. This compares to the previous guidance of a relatively unchanged operating margin rate in fiscal year 2018 compared with fiscal year 2017.
-
The Company expects its fiscal year 2018 diluted EPS to be
$5.85 to$6.05 , compared to its previous diluted EPS guidance range of$5.95 to$6.15 . This diluted EPS guidance assumes an effective tax rate in the range of 21% to 22%, compared with 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 year 2018 as a result of the TCJA. -
In addition, the Company expects share repurchases for fiscal year
2018 to be a minimum of
$850 million , and is narrowing its expectations for capital expenditures for fiscal year 2018 to a range of$725 million to$775 million , compared to its previous range of$725 million to$800 million .
The Company is also reiterating its plans to execute approximately 2,000 real estate projects, including 900 new store openings, 1,000 mature store remodels, and 100 store relocations.
Fiscal Year 2019 Store Growth Outlook
For the 52-week fiscal year ending
“We remain very excited about our future real estate growth
opportunities,” continued
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 in the sections entitled “Third Quarter 2018 Highlights,” “Fiscal Year 2018 Financial Guidance and Store Growth Outlook,” “Fiscal Year 2019 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
About
| DOLLAR GENERAL CORPORATION AND SUBSIDIARIES | ||||||||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||||||||
| (In thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
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||||||||||||||
| 2018 | 2017 | 2018 | ||||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 260,688 | $ | 226,192 | $ | 267,441 | ||||||||||
| Merchandise inventories | 3,979,105 | 3,597,195 | 3,609,025 | |||||||||||||
| Income taxes receivable | 114,647 | 99,678 | 108,265 | |||||||||||||
| Prepaid expenses and other current assets | 275,904 | 230,269 | 263,121 | |||||||||||||
| Total current assets | 4,630,344 | 4,153,334 | 4,247,852 | |||||||||||||
| Net property and equipment | 2,921,943 | 2,654,936 | 2,701,282 | |||||||||||||
|
|
4,338,589 | 4,338,589 | 4,338,589 | |||||||||||||
| Other intangible assets, net | 1,200,270 | 1,200,481 | 1,200,428 | |||||||||||||
| Other assets, net | 29,875 | 27,416 | 28,760 | |||||||||||||
| Total assets | $ | 13,121,021 | $ | 12,374,756 | $ | 12,516,911 | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Current portion of long-term obligations | $ | 1,929 | $ | 401,532 | $ | 401,345 | ||||||||||
| Accounts payable | 2,336,772 | 1,978,032 | 2,009,771 | |||||||||||||
| Accrued expenses and other | 638,644 | 553,596 | 549,658 | |||||||||||||
| Income taxes payable | 4,837 | 4,646 | 4,104 | |||||||||||||
| Total current liabilities | 2,982,182 | 2,937,806 | 2,964,878 | |||||||||||||
| Long-term obligations | 2,902,439 | 2,719,568 | 2,604,613 | |||||||||||||
| Deferred income taxes | 583,066 | 690,795 | 515,702 | |||||||||||||
| Other liabilities | 297,446 | 282,432 | 305,944 | |||||||||||||
| Total liabilities | 6,765,133 | 6,630,601 | 6,391,137 | |||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Shareholders' equity: | ||||||||||||||||
| Preferred stock | - | - | - | |||||||||||||
| Common stock | 230,022 | 237,598 | 235,141 | |||||||||||||
| Additional paid-in capital | 3,239,170 | 3,176,406 | 3,196,462 | |||||||||||||
| Retained earnings | 2,890,147 | 2,334,534 | 2,698,352 | |||||||||||||
| Accumulated other comprehensive loss | (3,451 | ) | (4,383 | ) | (4,181 | ) | ||||||||||
| Total shareholders' equity | 6,355,888 | 5,744,155 | 6,125,774 | |||||||||||||
| Total liabilities and shareholders' equity | $ | 13,121,021 | $ | 12,374,756 | $ | 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 | $ | 6,417,462 | 100.00 | % | $ | 5,903,606 | 100.00 | % | |||||||||
| Cost of goods sold | 4,522,403 | 70.47 | 4,137,150 | 70.08 | |||||||||||||
| Gross profit | 1,895,059 | 29.53 | 1,766,456 | 29.92 | |||||||||||||
| Selling, general and administrative expenses | 1,452,916 | 22.64 | 1,349,025 | 22.85 | |||||||||||||
| Operating profit | 442,143 | 6.89 | 417,431 | 7.07 | |||||||||||||
| Interest expense | 24,586 | 0.38 | 23,995 | 0.41 | |||||||||||||
| Income before income taxes | 417,557 | 6.51 | 393,436 | 6.66 | |||||||||||||
| Income tax expense | 83,415 | 1.30 | 140,903 | 2.39 | |||||||||||||
| Net income | $ | 334,142 | 5.21 | % | $ | 252,533 | 4.28 | % | |||||||||
| Earnings per share: | |||||||||||||||||
| Basic | $ | 1.26 | $ | 0.93 | |||||||||||||
| Diluted | $ | 1.26 | $ | 0.93 | |||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||
| Basic | 264,490 | 272,319 | |||||||||||||||
| Diluted | 265,522 | 272,881 | |||||||||||||||
| For the 39 Weeks Ended | |||||||||||||||||
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|
% of Net |
|
% of Net | ||||||||||||||
| 2018 | Sales | 2017 | Sales | ||||||||||||||
| Net sales | $ | 18,975,234 | 100.00 | % | $ | 17,341,536 | 100.00 | % | |||||||||
| Cost of goods sold | 13,243,053 | 69.79 | 12,085,575 | 69.69 | |||||||||||||
| Gross profit | 5,732,181 | 30.21 | 5,255,961 | 30.31 | |||||||||||||
| Selling, general and administrative expenses | 4,254,378 | 22.42 | 3,871,589 | 22.33 | |||||||||||||
| Operating profit | 1,477,803 | 7.79 | 1,384,372 | 7.98 | |||||||||||||
| Interest expense | 74,810 | 0.39 | 72,747 | 0.42 | |||||||||||||
| Other (income) expense | 1,019 | 0.01 | 3,502 | 0.02 | |||||||||||||
| Income before income taxes | 1,401,974 | 7.39 | 1,308,123 | 7.54 | |||||||||||||
| Income tax expense | 295,743 | 1.56 | 481,318 | 2.78 | |||||||||||||
| Net income | $ | 1,106,231 | 5.83 | % | $ | 826,805 | 4.77 | % | |||||||||
| Earnings per share: | |||||||||||||||||
| Basic | $ | 4.15 | $ | 3.02 | |||||||||||||
| Diluted | $ | 4.14 | $ | 3.02 | |||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||
| Basic | 266,404 | 273,567 | |||||||||||||||
| Diluted | 267,294 | 274,076 | |||||||||||||||
| DOLLAR GENERAL CORPORATION AND SUBSIDIARIES | |||||||||||
| Condensed Consolidated Statements of Cash Flows | |||||||||||
| (In thousands) | |||||||||||
| (Unaudited) | |||||||||||
| For the 39 Weeks Ended | |||||||||||
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| 2018 | 2017 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 1,106,231 | $ | 826,805 | |||||||
|
Adjustments to reconcile net income to net cash from operating activities: |
|||||||||||
| Depreciation and amortization | 336,363 | 298,571 | |||||||||
| Deferred income taxes | 25,790 | 37,573 | |||||||||
| Loss on debt retirement | 1,019 | 3,502 | |||||||||
| Noncash share-based compensation | 31,191 | 24,948 | |||||||||
| Other noncash (gains) and losses | 26,623 | 12,787 | |||||||||
| Change in operating assets and liabilities: | |||||||||||
| Merchandise inventories | (388,113 | ) | (340,090 | ) | |||||||
| Prepaid expenses and other current assets | (13,559 | ) | (15,198 | ) | |||||||
| Accounts payable | 310,552 | 384,101 | |||||||||
| Accrued expenses and other liabilities | 84,008 | 58,901 | |||||||||
| Income taxes | (5,649 | ) | (147,375 | ) | |||||||
| Other | (339 | ) | (1,645 | ) | |||||||
| Net cash provided by (used in) operating activities | 1,514,117 | 1,142,880 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | (550,916 | ) | (488,616 | ) | |||||||
| Proceeds from sales of property and equipment | 1,835 | 1,005 | |||||||||
| Net cash provided by (used in) investing activities | (549,081 | ) | (487,611 | ) | |||||||
| Cash flows from financing activities: | |||||||||||
| Issuance of long-term obligations | 499,495 | 599,556 | |||||||||
| Repayments of long-term obligations | (576,977 | ) | (751,927 | ) | |||||||
| Net increase (decrease) in commercial paper outstanding | (23,200 | ) | 59,400 | ||||||||
| Costs associated with issuance and retirement of debt | (4,384 | ) | (9,524 | ) | |||||||
| Repurchases of common stock | (647,502 | ) | (298,735 | ) | |||||||
| Payments of cash dividends | (231,228 | ) | (212,934 | ) | |||||||
| Other equity and related transactions | 12,007 | (2,828 | ) | ||||||||
| Net cash provided by (used in) financing activities | (971,789 | ) | (616,992 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | (6,753 | ) | 38,277 | ||||||||
| Cash and cash equivalents, beginning of period | 267,441 | 187,915 | |||||||||
| Cash and cash equivalents, end of period | $ | 260,688 | $ | 226,192 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | 95,429 | $ | 85,143 | |||||||
| Income taxes | $ | 275,689 | $ | 592,945 | |||||||
| Supplemental schedule of non-cash investing and financing activities: | |||||||||||
|
Purchases of property and equipment awaiting processing for payment, included in Accounts payable |
$ | 79,627 | $ | 75,249 | |||||||
| 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 | $ | 5,058,839 | $ | 4,625,401 | 9.4 | % | ||||||||
| Seasonal | 687,640 | 636,519 | 8.0 | % | ||||||||||
| Home products | 371,833 | 346,339 | 7.4 | % | ||||||||||
| Apparel | 299,150 | 295,347 | 1.3 | % | ||||||||||
| Net sales | $ | 6,417,462 | $ | 5,903,606 | 8.7 | % | ||||||||
| For the 39 Weeks Ended | ||||||||||||||
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|
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| 2018 | 2017 | % Change | ||||||||||||
| Consumables | $ | 14,819,290 | $ | 13,425,273 | 10.4 | % | ||||||||
| Seasonal | 2,171,184 | 2,017,150 | 7.6 | % | ||||||||||
| Home products | 1,071,627 | 1,007,137 | 6.4 | % | ||||||||||
| Apparel | 913,133 | 891,976 | 2.4 | % | ||||||||||
| Net sales | $ | 18,975,234 | $ | 17,341,536 | 9.4 | % | ||||||||
| Store Activity | ||||||||||||||
| For the 39 Weeks Ended | ||||||||||||||
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| 2018 | 2017 | |||||||||||||
| Beginning store count | 14,534 | 13,320 | ||||||||||||
| New store openings | 750 | 1,044 | ||||||||||||
| Store closings | (57 | ) | (43 | ) | ||||||||||
| Net new stores | 693 | 1,001 | ||||||||||||
| Ending store count | 15,227 | 14,321 | ||||||||||||
| Total selling square footage (000's) | 112,734 | 106,349 | ||||||||||||
| Growth rate (square footage) | 6.0 | % | 8.4 | % | ||||||||||
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