Dollar General Corporation Reports Third Quarter 2016 Financial Results
Thu, 01 Dec 2016
- Net Sales Increased 5.0%; Same-Store Sales Decreased 0.1%
-
Diluted Earnings Per Share of
$0.84 , Including Approximately$0.05 Charge for Store Relocation Costs and Disaster-Related Expenses - Cash From Operations Increased 39% Year to Date Through the Third Quarter
-
$892 Million of Capital Returned to Shareholders Year to Date Through the Third Quarter -
2016 Full Year Diluted EPS Growth Forecasts at the Low End of the
Company’s
Long-Term Growth Model Range of 10 Percent to 15 Percent
“The challenging retail environment that we experienced in the 2016
second quarter continued into the third quarter, contributing to
weakness in our same-store sales and our financial performance. In the
2016 third quarter, we invested in gross margin with the goal of driving
traffic and sales over time. Many of these actions are gaining traction
with our core customers, and we are encouraged by the early results. As
expected, the full benefit on our same-store sales will not be
immediate. In addition, we saw an acceleration in headwinds from average
unit retail price deflation and reductions in SNAP benefits in the 2016
third quarter as compared to the 2016 second quarter. We are focused on
efforts to drive traffic in our stores and to control the factors we can
control as we look to overcome the issues impacting our results, many of
which we believe are macroeconomic and transitory in nature,” said
“We continue to believe that our business model is strong given our value proposition to our consumers. We are investing in accelerated new store growth with excellent returns, as well as the infrastructure to support this growth, while continuing to return cash to shareholders."
Third Quarter Highlights
The Company reported net income of
Net sales increased 5.0 percent to
Gross profit, as a percentage of net sales, was 29.8 percent in the 2016 third quarter, a decrease of 49 basis points from the 2015 third quarter. The gross profit rate decrease was primarily attributable to higher markdowns, driven mainly by inventory clearance and promotional activities, a greater proportion of sales of consumables, and increased inventory shrink, partially offset by higher initial inventory markups.
Selling, general and administrative expense (“SG&A”), as a percentage of
net sales, was 22.5 percent in the 2016 third quarter compared to 22.0
percent in the 2015 third quarter, an increase of 48 basis points. The
SG&A increase was primarily attributable to increased retail labor and
occupancy costs. The 2016 third quarter also included charges of
The effective income tax rate was 36.2 percent for the 2016 third
quarter compared to a rate of 37.0 percent for the 2015 third quarter.
The effective income tax rate was lower in the 2016 third quarter due
primarily to the recognition of additional amounts of the Work
Opportunity Tax Credit (“WOTC”) in the 2016 third quarter. The
39-Week Period Results
For the 39-week period ended
Gross profit increased by 5.6 percent and, as a percentage of net sales, decreased by 10 basis points to 30.6 percent in the 2016 39-week period compared to the comparable 2015 period. The majority of the gross profit rate decrease in the 2016 period as compared to the 2015 period was due to higher markdowns, driven mainly by promotional activities and inventory clearance, a greater proportion of sales of consumables, and increased inventory shrink, partially offset by higher inventory initial markups and lower transportation costs, partially attributable to lower fuel rates.
SG&A rounded to 21.9 percent of net sales in both the 2016 and 2015
periods, increasing by 5 basis points in the 2016 period. The SG&A
increase was primarily attributable to increased retail labor and
occupancy costs. As noted above, the 2016 period included lease
termination and other expenses related to the acquired Walmart Express
stores and disaster-related expenses. Partially offsetting these items
were reductions in administrative payroll costs, incentive compensation,
and advertising costs. The 2015 period reflects expenses of
The effective income tax rate for the 2016 period was 36.1 percent
compared to a rate of 37.6 percent for the 2015 period. The effective
income tax rate was lower in the 2016 period due primarily to the
recognition of additional amounts of the WOTC and the Company’s early
adoption of an amended accounting standard for employee share-based
payments. The
For the 2016 39-week period, the Company reported net income of
Merchandise Inventories
As of
Capital Expenditures
Total additions to property and equipment in the 39-week period ended
Share Repurchases
During the 2016 third quarter, the Company repurchased 2.9 million
shares of its common stock under its share repurchase program at an
average price of
Dividend
On
Financial Outlook
On
As stated in the
The Company continues to use the long-term growth model outlined in its
Conference Call Information
The Company will hold a conference call on
Forward-Looking Statements
This press release contains forward-looking information, including
statements regarding the Company’s outlook, plans and intentions,
including, but not limited to, statements made within the quotations of
- economic conditions, including their effect on employment levels, consumer demand, customer traffic, disposable income, credit availability and spending patterns, inflation, deflation, commodity prices, fuel prices, interest rates, exchange rate fluctuations and the cost of goods;
- failure to successfully execute the Company’s strategies and initiatives, including those relating to merchandising, sourcing, customer segmentation, shrink, private brand, distribution and transportation, store operations, store formats, budgeting and expense reduction, and real estate;
- 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;
- levels of inventory shrinkage;
- effective response to competitive pressures and changes in the competitive environment and the markets where the Company operates, including consolidation;
- the Company’s level of success in gaining and maintaining broad market acceptance of its private brands;
- 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 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 and food safety claims;
- the impact of changes in or noncompliance with governmental laws and regulations (including, but not limited to, environmental compliance, product safety, 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;
- natural disasters, unusual weather conditions, 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 and retain qualified employees, while controlling labor costs (including effects of regulatory changes related to overtime exemption under Fair Labor Standards Act if implemented) and other labor issues;
- the Company’s loss of key personnel, inability to hire additional qualified personnel or disruption of executive management as a result of retirements or transitions;
- failure to successfully manage inventory balances;
- seasonality of the Company’s business;
- incurrence of material uninsured losses, excessive insurance costs or accident costs;
- failure to maintain the security of information that the Company holds, whether as a result of a data security breach or otherwise;
- 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 lease accounting guidance, revenue recognition and intra-company transfers;
- 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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2016 | 2015 | 2016 | |||||||||||||
ASSETS | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents | $ | 200,236 | $ | 182,514 | $ | 157,947 | |||||||||
Merchandise inventories | 3,488,247 | 3,101,908 | 3,074,153 | ||||||||||||
Income taxes receivable | 54,586 | 11,877 | 6,843 | ||||||||||||
Prepaid expenses and other current assets | 225,443 | 192,476 | 193,467 | ||||||||||||
Total current assets | 3,968,512 | 3,488,775 | 3,432,410 | ||||||||||||
Net property and equipment | 2,388,463 | 2,237,068 | 2,264,062 | ||||||||||||
|
4,338,589 | 4,338,589 | 4,338,589 | ||||||||||||
Other intangible assets, net | 1,200,734 | 1,201,110 | 1,200,994 | ||||||||||||
Other assets, net | 20,778 | 22,751 | 21,830 | ||||||||||||
Total assets | $ | 11,917,076 | $ | 11,288,293 | $ | 11,257,885 | |||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||
Current liabilities: | |||||||||||||||
Current portion of long-term obligations | $ | 501,480 | $ | 1,358 | $ | 1,379 | |||||||||
Accounts payable | 1,948,111 | 1,470,107 | 1,494,225 | ||||||||||||
Accrued expenses and other | 504,427 | 473,528 | 467,122 | ||||||||||||
Income taxes payable | 5,721 | 30,462 | 32,870 | ||||||||||||
Total current liabilities | 2,959,739 | 1,975,455 | 1,995,596 | ||||||||||||
Long-term obligations | 2,673,210 | 3,105,332 | 2,969,175 | ||||||||||||
Deferred income taxes | 637,135 | 584,366 | 639,955 | ||||||||||||
Other liabilities | 285,140 | 279,547 | 275,283 | ||||||||||||
Total liabilities | 6,555,224 | 5,944,700 | 5,880,009 | ||||||||||||
Commitments and contingencies | |||||||||||||||
Shareholders' equity: | |||||||||||||||
Preferred stock | - | - | - | ||||||||||||
Common stock | 244,457 | 254,697 | 250,855 | ||||||||||||
Additional paid-in capital | 3,144,632 | 3,095,790 | 3,107,283 | ||||||||||||
Retained earnings | 1,977,969 | 1,999,119 | 2,025,545 | ||||||||||||
Accumulated other comprehensive loss | (5,206 | ) | (6,013 | ) | (5,807 | ) | |||||||||
Total shareholders' equity | 5,361,852 | 5,343,593 | 5,377,876 | ||||||||||||
Total liabilities and shareholders' equity | $ | 11,917,076 | $ | 11,288,293 | $ | 11,257,885 | |||||||||
Note: Certain financial disclosures relating to prior periods have been reclassified to conform to the current year presentation where applicable. |
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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES | ||||||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
For the Quarter (13 Weeks) Ended | ||||||||||||||||
|
% of Net |
|
% of Net | |||||||||||||
2016 | Sales | 2015 | Sales | |||||||||||||
Net sales | $ | 5,320,029 | 100.00 | % | $ | 5,067,048 | 100.00 | % | ||||||||
Cost of goods sold | 3,732,519 | 70.16 | 3,530,086 | 69.67 | ||||||||||||
Gross profit | 1,587,510 | 29.84 | 1,536,962 | 30.33 | ||||||||||||
Selling, general and administrative expenses | 1,194,519 | 22.45 | 1,113,103 | 21.97 | ||||||||||||
Operating profit | 392,991 | 7.39 | 423,859 | 8.37 | ||||||||||||
Interest expense | 23,877 | 0.45 | 21,394 | 0.42 | ||||||||||||
Other (income) expense | - | 0.00 | 326 | 0.01 | ||||||||||||
Income before income taxes | 369,114 | 6.94 | 402,139 | 7.94 | ||||||||||||
Income tax expense | 133,799 | 2.52 | 148,818 | 2.94 | ||||||||||||
Net income | $ | 235,315 | 4.42 | % | $ | 253,321 | 5.00 | % | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.84 | $ | 0.87 | ||||||||||||
Diluted | $ | 0.84 | $ | 0.86 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 280,441 | 292,037 | ||||||||||||||
Diluted | 281,283 | 292,904 | ||||||||||||||
For the 39 Weeks Ended | ||||||||||||||||
|
% of Net |
|
% of Net | |||||||||||||
2016 | Sales | 2015 | Sales | |||||||||||||
Net sales | $ | 15,977,352 | 100.00 | % | $ | 15,081,624 | 100.00 | % | ||||||||
Cost of goods sold | 11,095,461 | 69.44 | 10,457,802 | 69.34 | ||||||||||||
Gross profit | 4,881,891 | 30.56 | 4,623,822 | 30.66 | ||||||||||||
Selling, general and administrative expenses | 3,499,060 | 21.90 | 3,295,957 | 21.85 | ||||||||||||
Operating profit | 1,382,831 | 8.65 | 1,327,865 | 8.80 | ||||||||||||
Interest expense | 72,310 | 0.45 | 63,669 | 0.42 | ||||||||||||
Other (income) expense | - | 0.00 | 326 | 0.00 | ||||||||||||
Income before income taxes | 1,310,521 | 8.20 | 1,263,870 | 8.38 | ||||||||||||
Income tax expense | 473,564 | 2.96 | 474,965 | 3.15 | ||||||||||||
Net income | $ | 836,957 | 5.24 | % | $ | 788,905 | 5.23 | % | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 2.96 | $ | 2.66 | ||||||||||||
Diluted | $ | 2.95 | $ | 2.65 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 283,152 | 296,307 | ||||||||||||||
Diluted | 284,126 | 297,174 | ||||||||||||||
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES | ||||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||||
(In thousands) | ||||||||||
(Unaudited) | ||||||||||
For the 39 Weeks Ended | ||||||||||
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2016 | 2015 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 836,957 | $ | 788,905 | ||||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||||
Depreciation and amortization | 282,386 | 263,287 | ||||||||
Deferred income taxes | (3,207 | ) | (59,026 | ) | ||||||
Loss on debt retirement, net | - | 326 | ||||||||
Noncash share-based compensation | 27,676 | 28,890 | ||||||||
Other noncash (gains) and losses | 1,935 | 7,130 | ||||||||
Change in operating assets and liabilities: | ||||||||||
Merchandise inventories | (405,456 | ) | (317,273 | ) | ||||||
Prepaid expenses and other current assets | (30,471 | ) | (24,242 | ) | ||||||
Accounts payable | 439,259 | 75,880 | ||||||||
Accrued expenses and other liabilities | 50,683 | 58,701 | ||||||||
Income taxes | (74,892 | ) | (12,246 | ) | ||||||
Other | (456 | ) | (1,220 | ) | ||||||
Net cash provided by (used in) operating activities | 1,124,414 | 809,112 | ||||||||
Cash flows from investing activities: | ||||||||||
Purchases of property and equipment | (405,899 | ) | (386,886 | ) | ||||||
Proceeds from sales of property and equipment | 4,333 | 813 | ||||||||
Net cash provided by (used in) investing activities | (401,566 | ) | (386,073 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Issuance of long-term obligations | - | 499,220 | ||||||||
Repayments of long-term obligations | (1,302 | ) | (502,120 | ) | ||||||
Net increase in commercial paper outstanding | 453,000 | - | ||||||||
Borrowings under revolving credit facilities | 1,584,000 | 1,302,100 | ||||||||
Repayments of borrowings under revolving credit facilities | (1,835,000 | ) | (914,100 | ) | ||||||
Debt issuance costs | - | (7,011 | ) | |||||||
Repurchases of common stock | (679,416 | ) | (1,009,411 | ) | ||||||
Payments of cash dividends | (212,249 | ) | (195,169 | ) | ||||||
Other equity and related transactions | 10,408 | 6,143 | ||||||||
Net cash provided by (used in) financing activities | (680,559 | ) | (820,348 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 42,289 | (397,309 | ) | |||||||
Cash and cash equivalents, beginning of period | 157,947 | 579,823 | ||||||||
Cash and cash equivalents, end of period | $ | 200,236 | $ | 182,514 | ||||||
Supplemental cash flow information: | ||||||||||
Cash paid for: | ||||||||||
Interest | $ | 68,258 | $ | 63,125 | ||||||
Income taxes | $ | 552,259 | $ | 548,445 | ||||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||||
Purchases of property and equipment awaiting processing for payment, included in Accounts payable |
$ | 46,647 | $ | 37,659 | ||||||
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES | |||||||||||||
Selected Additional Information | |||||||||||||
(Unaudited) | |||||||||||||
Sales by Category (in thousands) | |||||||||||||
For the Quarter (13 Weeks) Ended | |||||||||||||
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2016 | 2015 | % Change | |||||||||||
Consumables | $ | 4,137,748 | $ | 3,921,663 | 5.5 | % | |||||||
Seasonal | 575,912 | 555,862 | 3.6 | % | |||||||||
Home products | 329,715 | 317,963 | 3.7 | % | |||||||||
Apparel | 276,654 | 271,560 | 1.9 | % | |||||||||
Net sales | $ | 5,320,029 | $ | 5,067,048 | 5.0 | % | |||||||
For the 39 Weeks Ended | |||||||||||||
|
|
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2016 | 2015 | % Change | |||||||||||
Consumables | $ | 12,293,395 | $ | 11,543,276 | 6.5 | % | |||||||
Seasonal | 1,873,715 | 1,784,680 | 5.0 | % | |||||||||
Home products | 968,161 | 925,292 | 4.6 | % | |||||||||
Apparel | 842,081 | 828,376 | 1.7 | % | |||||||||
Net sales | $ | 15,977,352 | $ | 15,081,624 | 5.9 | % | |||||||
Store Activity |
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For the 39 Weeks Ended | |||||||||||||
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|
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2016 | 2015 | ||||||||||||
Beginning store count | 12,483 | 11,789 | |||||||||||
New store openings | 768 | 634 | |||||||||||
Store closings | (46 | ) | (27 | ) | |||||||||
Net new stores | 722 | 607 | |||||||||||
Ending store count | 13,205 | 12,396 | |||||||||||
Total selling square footage (000's) | 98,093 | 91,818 | |||||||||||
Growth rate (square footage) | 6.8 | % | 6.0 | % | |||||||||
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