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.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 29, 2022

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number: 001-11421

DOLLAR GENERAL CORPORATION

(Exact name of Registrant as specified in its charter)

TENNESSEE

    

61-0502302

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

100 MISSION RIDGE

GOODLETTSVILLE, TN 37072

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (615) 855-4000

Former name, former address and former fiscal year, if changed since last report: Not Applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.875 per share

DG

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes  No 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The Registrant had 225,571,729 shares of common stock outstanding on August 19, 2022.

TABLE OF CONTENTS

Part I

Financial Information

Item 1. Financial Statements

2

Condensed Consolidated Balance Sheets

2

Condensed Consolidated Statements of Income

3

Condensed Consolidated Statements of Comprehensive Income

4

Condensed Consolidated Statements of Shareholders’ Equity

5

Condensed Consolidated Statement of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

Report of Independent Registered Public Accounting Firm

12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3. Quantitative and Qualitative Disclosures About Market Risk

22

Item 4. Controls and Procedures

22

Part II

Other Information

Item 1. Legal Proceedings

23

Item 1A. Risk Factors

23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 6. Exhibits

23

Cautionary Disclosure Regarding Forward-Looking Statements

24

Exhibit Index

26

Signature

28

1

PART I—FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

    

July 29,

    

January 28,

 

2022

2022

 

ASSETS

Current assets:

Cash and cash equivalents

$

326,263

$

344,829

Merchandise inventories

 

6,935,856

 

5,614,325

Income taxes receivable

93,283

97,394

Prepaid expenses and other current assets

 

327,490

 

247,295

Total current assets

 

7,682,892

 

6,303,843

Net property and equipment

 

4,648,187

 

4,346,127

Operating lease assets

10,319,225

10,092,930

Goodwill

 

4,338,589

 

4,338,589

Other intangible assets, net

 

1,199,700

 

1,199,750

Other assets, net

 

50,663

 

46,132

Total assets

$

28,239,256

$

26,327,371

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term obligations

$

900,635

$

Current portion of operating lease liabilities

1,231,064

1,183,559

Accounts payable

 

4,358,388

 

3,738,604

Accrued expenses and other

 

1,069,926

 

1,049,139

Income taxes payable

 

6,773

 

8,055

Total current liabilities

 

7,566,786

 

5,979,357

Long-term obligations

 

4,290,700

 

4,172,068

Long-term operating lease liabilities

9,070,328

8,890,709

Deferred income taxes

 

906,846

 

825,254

Other liabilities

 

216,105

 

197,997

Commitments and contingencies

Shareholders’ equity:

Preferred stock

 

Common stock

 

197,372

 

201,265

Additional paid-in capital

 

3,627,987

 

3,587,914

Retained earnings

 

2,364,098

 

2,473,999

Accumulated other comprehensive loss

 

(966)

 

(1,192)

Total shareholders’ equity

 

6,188,491

 

6,261,986

Total liabilities and shareholders' equity

$

28,239,256

$

26,327,371

See notes to condensed consolidated financial statements.

2

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

For the 13 weeks ended

For the 26 weeks ended

    

July 29,

    

July 30,

    

July 29,

    

July 30,

 

2022

2021

2022

2021

Net sales

$

9,425,713

$

8,650,198

$

18,177,065

$

17,051,162

Cost of goods sold

 

6,377,490

 

5,912,539

 

12,390,479

 

11,557,835

Gross profit

 

3,048,223

 

2,737,659

 

5,786,586

 

5,493,327

Selling, general and administrative expenses

 

2,134,797

 

1,888,091

 

4,127,003

 

3,734,909

Operating profit

 

913,426

 

849,568

 

1,659,583

 

1,758,418

Interest expense

 

43,098

 

39,430

 

82,774

 

79,822

Income before income taxes

 

870,328

 

810,138

 

1,576,809

 

1,678,596

Income tax expense

 

192,298

 

173,119

 

346,122

 

363,828

Net income

$

678,030

$

637,019

$

1,230,687

$

1,314,768

Earnings per share:

Basic

$

3.00

$

2.71

$

5.41

$

5.55

Diluted

$

2.98

$

2.69

$

5.39

$

5.52

Weighted average shares outstanding:

Basic

 

226,299

 

234,924

 

227,388

 

236,736

Diluted

227,456

236,406

228,533

238,354

Dividends per share

$

0.55

$

0.42

$

1.10

$

0.84

See notes to condensed consolidated financial statements.

3

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

For the 13 weeks ended

For the 26 weeks ended

July 29,

July 30,

July 29,

July 30,

2022

    

2021

    

2022

    

2021

Net income

$

678,030

$

637,019

    

$

1,230,687

$

1,314,768

Unrealized net gain (loss) on hedged transactions and currency translation, net of related income tax expense (benefit) of $86, $86, $173, and $173, respectively

 

36

 

243

    

 

226

 

485

Comprehensive income

$

678,066

$

637,262

    

$

1,230,913

$

1,315,253

See notes to condensed consolidated financial statements.

4

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)

    

    

    

    

    

Accumulated

    

Common

Additional

Other

Stock

Common

Paid-in

Retained

Comprehensive

Shares

Stock

Capital

Earnings

Loss

Total

Balances, April 29, 2022

 

226,997

$

198,623

$

3,606,414

$

2,157,589

$

(1,002)

$

5,961,624

Net income

 

 

 

 

678,030

 

 

678,030

Dividends paid, $0.55 per common share

(124,206)

(124,206)

Unrealized net gain (loss) on hedged transactions and currency translation

 

 

 

 

 

36

 

36

Share-based compensation expense

 

 

 

15,148

 

 

 

15,148

Repurchases of common stock

 

(1,494)

 

(1,308)

 

 

(347,315)

 

 

(348,623)

Other equity and related transactions

 

64

 

57

 

6,425

 

 

 

6,482

Balances, July 29, 2022

 

225,567

$

197,372

$

3,627,987

$

2,364,098

$

(966)

$

6,188,491

Balances, April 30, 2021

 

236,205

$

206,680

$

3,457,160

$

2,588,006

$

(1,921)

$

6,249,925

Net income

 

 

 

 

637,019

 

 

637,019

Dividends paid, $0.42 per common share

(98,304)

(98,304)

Unrealized net gain (loss) on hedged transactions

 

 

 

 

 

243

 

243

Share-based compensation expense

 

 

 

16,370

 

 

 

16,370

Repurchases of common stock

 

(3,309)

 

(2,896)

 

 

(696,900)

 

 

(699,796)

Other equity and related transactions

 

409

 

358

 

31,320

 

 

 

31,678

Balances, July 30, 2021

 

233,305

$

204,142

$

3,504,850

$

2,429,821

$

(1,678)

$

6,137,135

Balances, January 28, 2022

 

230,016

$

201,265

$

3,587,914

$

2,473,999

$

(1,192)

$

6,261,986

Net income

 

 

 

 

1,230,687

 

 

1,230,687

Dividends paid, $1.10 per common share

(249,468)

(249,468)

Unrealized net gain (loss) on hedged transactions and currency translation

 

 

 

 

 

226

 

226

Share-based compensation expense

 

 

 

42,093

 

 

 

42,093

Repurchases of common stock

 

(4,886)

 

(4,276)

 

 

(1,091,120)

 

 

(1,095,396)

Other equity and related transactions

 

437

 

383

 

(2,020)

 

 

 

(1,637)

Balances, July 29, 2022

 

225,567

$

197,372

$

3,627,987

$

2,364,098

$

(966)

$

6,188,491

Balances, January 29, 2021

 

240,785

$

210,687

$

3,446,612

$

3,006,102

$

(2,163)

$

6,661,238

Net income

 

 

 

 

1,314,768

 

 

1,314,768

Dividends paid, $0.84 per common share

(198,136)

(198,136)

Unrealized net gain (loss) on hedged transactions

 

 

 

 

 

485

 

485

Share-based compensation expense

 

 

 

39,903

 

 

 

39,903

Repurchases of common stock

 

(8,268)

 

(7,235)

 

 

(1,692,913)

 

 

(1,700,148)

Other equity and related transactions

 

788

 

690

 

18,335

 

 

 

19,025

Balances, July 30, 2021

 

233,305

$

204,142

$

3,504,850

$

2,429,821

$

(1,678)

$

6,137,135

See notes to condensed consolidated financial statements.

5

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

For the 26 weeks ended

 

    

July 29,

    

July 30,

 

2022

2021

 

Cash flows from operating activities:

Net income

$

1,230,687

$

1,314,768

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

Depreciation and amortization

 

349,722

 

312,682

Deferred income taxes

 

81,419

 

70,755

Noncash share-based compensation

 

42,093

 

39,903

Other noncash (gains) and losses

 

214,128

 

51,036

Change in operating assets and liabilities:

Merchandise inventories

 

(1,528,744)

 

(80,038)

Prepaid expenses and other current assets

 

(87,244)

 

(72,072)

Accounts payable

 

622,346

 

(245,382)

Accrued expenses and other liabilities

 

22,389

 

(25,479)

Income taxes

 

2,829

 

(44,080)

Other

 

(1,609)

 

(4,549)

Net cash provided by (used in) operating activities

 

948,016

 

1,317,544

Cash flows from investing activities:

Purchases of property and equipment

 

(658,784)

 

(518,466)

Proceeds from sales of property and equipment

 

2,166

 

1,805

Net cash provided by (used in) investing activities

 

(656,618)

 

(516,661)

Cash flows from financing activities:

Repayments of long-term obligations

 

(4,696)

 

(2,936)

Net increase (decrease) in commercial paper outstanding

1,041,233

18,400

Repurchases of common stock

 

(1,095,396)

 

(1,700,148)

Payments of cash dividends

(249,462)

(198,107)

Other equity and related transactions

 

(1,643)

 

18,997

Net cash provided by (used in) financing activities

 

(309,964)

 

(1,863,794)

Net increase (decrease) in cash and cash equivalents

 

(18,566)

 

(1,062,911)

Cash and cash equivalents, beginning of period

 

344,829

 

1,376,577

Cash and cash equivalents, end of period

$

326,263

$

313,666

Supplemental noncash investing and financing activities:

Right of use assets obtained in exchange for new operating lease liabilities

$

843,900

$

893,773

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

$

139,023

$

119,336

See notes to condensed consolidated financial statements.

6

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of Dollar General Corporation (which individually or together with its subsidiaries, as the context requires, is referred to as the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Such financial statements consequently do not include all of the disclosures normally required by U.S. GAAP for annual financial statements or those normally made in the Company’s Annual Report on Form 10-K, including the condensed consolidated balance sheet as of January 28, 2022 which was derived from the audited consolidated financial statements at that date. Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2022 for additional information.

The Company’s fiscal year ends on the Friday closest to January 31. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. The Company’s 2022 fiscal year is scheduled to be a 53-week accounting period ending on February 3, 2023, and the 2021 fiscal year was a 52-week accounting period that ended on January 28, 2022.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Company’s customary accounting practices. In management’s opinion, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the consolidated financial position as of July 29, 2022 and results of operations for the 13-week and 26-week accounting periods ended July 29, 2022 and July 30, 2021 have been made.

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Because the Company’s business is moderately seasonal, the results for interim periods are not necessarily indicative of the results to be expected for the entire year. In addition, the effect of the COVID-19 pandemic on consumer behavior beginning in the first quarter of 2020 resulted in a departure from seasonal norms experienced in recent years and may continue to disrupt the historical quarterly cadence of the Company’s results of operations for an unknown period of time.

The Company uses the last-in, first-out (“LIFO”) method of valuing inventory. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, sales for the year and the expected rate of inflation or deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation. The Company recorded a LIFO provision of $144.4 million and $36.0 million in the respective 13-week periods, and $205.8 million and $48.2 million in the respective 26-week periods, ended July 29, 2022 and July 30, 2021. In addition, ongoing estimates of inventory shrinkage and initial markups and markdowns are included in the interim cost of goods sold calculation.

In March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards updates pertaining to reference rate reform. This collective guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of LIBOR, related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance is effective for all entities as of March 12, 2020 and must be adopted by December 31, 2022. The Company does not expect the adoption of this guidance to have a material impact on its consolidated results of operations, financial position or cash flows.

7

2.

Earnings per share

Earnings per share is computed as follows (in thousands, except per share data):

13 Weeks Ended July 29, 2022

13 Weeks Ended July 30, 2021

   

    

Weighted

   

  

  

   

Weighted

   

 

Net

Average

Per Share

Net

Average

Per Share

Income

Shares

Amount

Income

Shares

Amount

Basic earnings per share

$

678,030

 

226,299

$

3.00

$

637,019

 

234,924

$

2.71

Effect of dilutive share-based awards

 

1,157

 

1,482

Diluted earnings per share

$

678,030

 

227,456

$

2.98

$

637,019

 

236,406

$

2.69

26 Weeks Ended July 29, 2022

26 Weeks Ended July 30, 2021

    

Weighted

   

  

  

   

Weighted

   

Net

Average

Per Share

Net

Average

Per Share

Income

Shares

Amount

Income

Shares

Amount

Basic earnings per share

$

1,230,687

 

227,388

$

5.41

$

1,314,768

 

236,736

$

5.55

Effect of dilutive share-based awards

 

1,145

 

1,618

Diluted earnings per share

$

1,230,687

 

228,533

$

5.39

$

1,314,768

 

238,354

$

5.52

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined based on the dilutive effect of share-based awards using the treasury stock method.

Share-based awards that were outstanding at the end of the respective periods but were not included in the computation of diluted earnings per share because the effect of exercising such awards would be antidilutive, were approximately 0.1 million in each of the respective 13-week periods and 26-week periods, ended July 29, 2022 and July 30, 2021.

3.

Income taxes

Under the accounting standards for income taxes, the asset and liability method is used for computing the future income tax consequences of events that have been recognized in the Company’s consolidated financial statements or income tax returns.

Income tax reserves are determined using the methodology established by accounting standards for income taxes which require companies to assess each income tax position taken using the following two-step approach. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position.

The Company’s 2017 and earlier tax years are not open for further examination by the Internal Revenue Service (“IRS”). The IRS, at its discretion, may choose to examine the Company’s 2018 through 2020 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, with few exceptions, the Company’s 2018 and later tax years remain open for examination by the various state taxing authorities.

As of July 29, 2022, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $6.2 million, $0.3 million and $0.0 million, respectively, for a total of $6.5 million. This total amount is reflected in noncurrent other liabilities in the condensed consolidated balance sheet.

The Company’s reserve for uncertain tax positions is expected to be reduced by $1.7 million in the coming twelve months as a result of expiring statutes of limitations. As of July 29, 2022, approximately $6.2 million of the reserve for uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

The effective income tax rates for the 13-week and 26-week periods ended July 29, 2022 were 22.1% and 22.0% respectively, compared to rates of 21.4% and 21.7% for the 13-week and 26-week periods ended July 30, 2021.

8

The income tax rates for the 13-week and 26-week periods in 2022 were higher than the comparable 13-week and 26-week periods in 2021 primarily due to a reduced benefit from stock-based compensation partially offset by a lower effective state income tax rate in the 2022 periods when compared to the 2021 periods.

4.Leases

As of July 29, 2022, the Company’s primary leasing activities were real estate leases for most of its retail store locations and certain of its distribution facilities. Substantially all of the Company’s leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the condensed consolidated balance sheets. Finance lease assets are included in net property and equipment, and finance lease liabilities are included in long-term obligations, in the condensed consolidated balance sheets. At July 29, 2022, the weighted-average remaining lease term for the Company’s operating leases was 9.7 years, and the weighted average discount rate for such leases was 3.8%. Operating lease costs are reflected as selling, general and administrative costs in the condensed consolidated statements of income. For the 26-week periods ended July 29, 2022 and July 30, 2021, such costs were $787.0 million and $730.0 million, respectively. Cash paid for amounts included in the measurement of operating lease liabilities of $794.7 million and $735.8 million, respectively, were reflected in cash flows from operating activities in the condensed consolidated statements of cash flows for the 26-week periods ended July 29, 2022 and July 30, 2021.

5.

Current and long-term obligations

Current and long-term obligations consist of the following:

    

July 29,

    

January 28,

 

(In thousands)

2022

2022

 

Revolving Facility

$

$

3.250% Senior Notes due April 15, 2023 (net of discount of $184 and $319)

 

899,816

 

899,681

4.150% Senior Notes due November 1, 2025 (net of discount of $291 and $332)

499,709

499,668

3.875% Senior Notes due April 15, 2027 (net of discount of $229 and $251)

599,771

599,749

4.125% Senior Notes due May 1, 2028 (net of discount of $312 and $336)

499,688

499,664

3.500% Senior Notes due April 3, 2030 (net of discount of $535 and $564)

969,097

988,990

4.125% Senior Notes due April 3, 2050 (net of discount of $4,812 and $4,857)

495,188

495,143

Unsecured commercial paper notes

1,095,533

54,300

Other

155,257

159,525

Debt issuance costs, net

 

(22,724)

 

(24,652)

$

5,191,335

$

4,172,068

Less: current portion

 

(900,635)

 

Long-term portion

$

4,290,700

$

4,172,068

The Company’s credit agreement provides for a $2.0 billion senior unsecured revolving credit facility (the “Revolving Facility”) of which up to $100.0 million is available for letters of credit and is scheduled to mature on December 2, 2026.

Borrowings under the Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at the Company’s option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The credit agreement governing the Revolving Facility includes customary LIBOR replacement provisions. The applicable interest rate margin for borrowings as of July 29, 2022 was 1.015% for LIBOR borrowings and 0.015% for base-rate borrowings. The Company is also required to pay a facility fee, payable on any used and unused commitment amounts of the Revolving Facility, and customary fees on letters of credit issued under the Revolving Facility. As of July 29, 2022, the facility fee rate was 0.11%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Revolving Facility are subject to adjustment from time to time based on the Company’s long-term senior unsecured debt ratings.

The Revolving Facility contains a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional liens; sell all or substantially all of the Company’s assets; consummate certain fundamental changes or change in the Company’s lines of business; and incur additional subsidiary indebtedness. The Revolving Facility also contains financial covenants which require the

9

maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of July 29, 2022, the Company was in compliance with all such covenants. The Revolving Facility also contains customary events of default.

As of July 29, 2022, the Company had no outstanding borrowings, $1.3 million of outstanding letters of credit, and approximately $2.0 billion of borrowing availability under the Revolving Facility that, due to the Company’s intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $0.7 billion. In addition, as of July 29, 2022, the Company had outstanding letters of credit of $45.9 million which were issued pursuant to separate agreements.

As of July 29, 2022, the Company had a commercial paper program under which the Company may issue unsecured commercial paper notes (the “CP Notes”) from time to time in an aggregate amount not to exceed $2.0 billion outstanding at any time. The CP Notes may have maturities of up to 364 days from the date of issue and rank equal in right of payment with all of the Company’s other unsecured and unsubordinated indebtedness. The Company intends to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time. As of July 29, 2022, the Company’s condensed consolidated balance sheet reflected outstanding unsecured CP Notes of $1.1 billion, which had a weighted average borrowing rate of 2.23%. CP Notes totaling $192.0 million and $181.0 million at July 29, 2022 and January 28, 2022, respectively, were held by a wholly-owned subsidiary of the Company and are therefore not reflected in the condensed consolidated balance sheets.

6.

Assets and liabilities measured at fair value

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The Company does not have any fair value measurements categorized within Level 3 as of July 29, 2022.

The following table presents the Company’s liabilities required to be measured at fair value as of July 29, 2022, aggregated by the level in the fair value hierarchy within which those measurements are classified.

    

Quoted Prices

    

    

    

 

in Active

Markets

Significant

for Identical

Other

Significant

Total Fair

Assets and

Observable

Unobservable

Value at

Liabilities

Inputs

Inputs

July 29,

(In thousands)

(Level 1)

(Level 2)

(Level 3)

2022

Liabilities:

Long-term obligations (a)

$

3,912,130

$

1,250,791

$

$

5,162,921

Deferred compensation (b)

 

45,081

 

 

 

45,081

(a)Included in the condensed consolidated balance sheet at book value as current portion of long-term obligations of $900,635 and long-term obligations of $4,290,700.
(b)Reflected at fair value in the condensed consolidated balance sheet as accrued expenses and other current liabilities of $2,390 and noncurrent Other liabilities of $42,691.

7.Commitments and contingencies

Legal proceedings

From time to time, the Company is a party to various legal matters in the ordinary course of its business, including actions by employees, consumers, suppliers, government agencies, or others. The Company has recorded accruals with respect to these matters, where appropriate, which are reflected in the Company’s condensed consolidated financial statements. For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made.

10

Based on information currently available, the Company believes that its pending legal matters, both individually and in the aggregate, will be resolved without a material adverse effect on the Company’s consolidated financial statements as a whole. However, litigation and other legal matters involve an element of uncertainty.  Adverse decisions and settlements, including any required changes to the Company’s business, or other developments in such matters could affect the consolidated operating results in future periods or result in liability or other amounts material to the Company’s annual consolidated financial statements.

8.

Segment reporting

The Company manages its business on the basis of one reportable operating segment. As of July 29, 2022, all of the Company’s retail store operations were located within the United States. Certain product sourcing and other operations are located outside the United States, which collectively are not material with regard to assets, results of operations or otherwise to the consolidated financial statements. The following net sales data is presented in accordance with accounting standards related to disclosures about segments of an enterprise.

13 Weeks Ended

26 Weeks Ended

July 29,

July 30,

July 29,

July 30,

(in thousands)

    

2022

    

2021

    

2022

    

2021

 

Classes of similar products:

Consumables

$

7,475,839

$

6,612,950

$

14,436,340

$

12,991,085

Seasonal

 

1,086,904

 

1,090,311

 

2,048,282

 

2,140,693

Home products

 

559,766

 

561,190

 

1,099,588

 

1,132,505

Apparel

 

303,204

 

385,747

 

592,855

 

786,879

Net sales

$

9,425,713

$

8,650,198

$

18,177,065

$

17,051,162

9.

Common stock transactions

On August 29, 2012, the Company’s Board of Directors (the “Board”) authorized a common stock repurchase program, which the Board has since increased on several occasions. On August 24, 2022, the Board authorized a $2.0 billion increase to the existing common stock repurchase program, bringing the cumulative total to $16.0 billion authorized under the program since its inception in 2012. The repurchase authorization has no expiration date and allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions. The timing, manner and number of shares repurchased will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under any applicable debt agreements and other factors. Repurchases under the program may be funded from available cash or borrowings, including under the Revolving Facility and issuance of CP Notes discussed in further detail in Note 5, or otherwise.

Pursuant to its common stock repurchase program, during the 26-week periods ended July 29, 2022 and July 30, 2021, the Company repurchased in the open market approximately 4.9 million shares of its common stock at a total cost of $1.1 billion and approximately 8.3 million shares of its common stock at a total cost of $1.7 billion, respectively.

The Company paid a cash dividend of $0.55 per share during each of the first and second quarters of 2022. On August 23, 2022, the Board declared a quarterly cash dividend of $0.55 per share, which is payable on or before October 18, 2022 to shareholders of record on October 4, 2022. The amount and declaration of future cash dividends is 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 that the Board may deem relevant in its sole discretion.

11

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Dollar General Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Dollar General Corporation and subsidiaries (the Company) as of July 29, 2022, the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity for the thirteen and twenty-six week periods ended July 29, 2022 and July 30, 2021, the condensed consolidated statement of cash flows for the twenty-six week periods ended July 29, 2022 and July 30, 2021, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of January 28, 2022, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 18, 2022, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 28, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Nashville, Tennessee

August 25, 2022

12

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

General

This discussion and analysis is based on, should be read with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2022. It also should be read in conjunction with the disclosure under “Cautionary Disclosure Regarding Forward-Looking Statements” in this report.

Executive Overview

We are the largest discount retailer in the United States by number of stores, with 18,566 stores located in 47 states as of July 29, 2022, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States. We offer a broad selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products and pet supplies, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel. Our merchandise includes national brands from leading manufacturers, as well as our own private brand selections with prices at substantial discounts to national brands. We offer our customers these national brand and private brand products at everyday low prices (typically $10 or less) in our convenient small-box locations.

We believe our convenient store formats, locations, and broad selection of high-quality products at compelling values have driven our substantial growth and financial success over the years and through a variety of economic cycles. We are mindful that the majority of our customers are value-conscious, and many have low and/or fixed incomes. As a result, we are intensely focused on helping our customers make the most of their spending dollars. Our core customers are often among the first to be affected by negative or uncertain economic conditions and among the last to feel the effects of improving economic conditions, particularly when trends are inconsistent and of an uncertain duration. The primary macroeconomic factors that affect our core customers include unemployment and underemployment rates, wage growth, changes in U.S. and global trade policy, and changes to certain government assistance programs, such as the Supplemental Nutrition Assistance Program (“SNAP”), unemployment benefits, and economic stimulus payments. Additionally, our customers are impacted by increases in those expenses that generally comprise a large portion of their household budgets, such as rent, healthcare, and fuel prices, as well as cost inflation in frequently purchased household products (including food), such as that which we have continued to experience as further discussed below. Finally, significant unseasonable or unusual weather patterns can impact customer shopping behaviors.

We remain committed to our long-term operating priorities as we consistently strive to improve our performance while retaining our customer-centric focus. These priorities include: 1) driving profitable sales growth, 2) capturing growth opportunities, 3) enhancing our position as a low-cost operator, and 4) investing in our diverse teams through development, empowerment and inclusion.

We seek to drive profitable sales growth through initiatives aimed at increasing customer traffic and average transaction amount. As we work to provide everyday low prices and meet our customers’ affordability needs, we remain focused on enhancing our margins through pricing and markdown optimization, effective category management, inventory shrink reduction initiatives, private brands penetration, distribution and transportation efficiencies, and global sourcing. Several of our strategic and other sales-driving initiatives are also designed to capture growth opportunities and are discussed in more detail below.

Historically, sales in our consumables category, which tend to have lower gross margins, have been the key drivers of net sales and customer traffic, while sales in our non-consumables categories, which tend to have higher gross margins, have contributed to more profitable sales growth and an increase in average transaction amount. Prior to 2020, our sales mix had continued to shift toward consumables, and, within consumables, toward lower margin departments such as perishables. This trend did not occur in 2020 or the first quarter of 2021, as we saw a significant increase in demand in many non-consumable products, including home, seasonal and apparel, resulting in an overall significant mix shift into non-consumable categories during those periods. Beginning in the second quarter of 2021 and continuing thereafter, we began to see reversion toward the historical mix trends. We continue to expect sales mix challenges to

13

persist as the mix trend reversion toward consumables has returned to, and now exceeds, pre-pandemic levels. Several of our initiatives, including certain of those discussed below, are intended to address these mix challenges; however, there can be no assurances that these efforts will be successful.

In the first half of 2022, we saw continued growth in average transaction amount, which was driven primarily by inflation, and, to a lesser degree, our merchandising efforts. In the second quarter of 2022, we experienced slightly positive customer traffic. In addition, although we believe our sales in recent periods were negatively impacted by the global and domestic supply chain challenges and disruptions discussed further below, primarily in the form of lower merchandise in-stock levels in our stores, we have seen some improvement in our in-stock levels in each of the first and second quarters of 2022. However, these supply chain challenges are ongoing, and there can be no assurance that we will continue to experience improvements in in-stock levels or when in-stock levels will return to historical pre-pandemic levels.

We continue to implement and invest in certain strategic initiatives that we believe will help drive profitable sales growth, both with new and existing customers, and capture long-term growth opportunities. Such opportunities include providing our customers with additional shopping access points and even greater convenience by leveraging and developing digital tools and technology, such as our Dollar General app, which contains a variety of tools to enhance the in-store shopping experience. Additionally, we launched a partnership with a third party delivery service during 2021, which was available in more than 13,300 of our stores at the end of the second quarter of 2022, and we continue to grow our DG Media Network, which is our platform for connecting brand partners with our customers to drive even greater value for each.

Further, our non-consumables initiative, which offers a new, differentiated and limited assortment that will change throughout the year, continues to contribute to improved overall sales and gross margin performance in stores where it has been deployed. We have significantly expanded the number of stores with either the full or the “lite” version of our non-consumables initiative offering, and plan to complete the rollout in the vast majority of our Dollar General stores by the end of 2022.

Additionally, we are continuing to grow the footprint of pOpshelf, a unique retail concept that incorporates certain of the lessons learned from the non-consumables initiative in a differentiated format that is focused on categories such as seasonal and home décor, health and beauty, home cleaning supplies, and party and entertainment goods. At the end of the second quarter of 2022, we operated 80 standalone pOpshelf locations and 32 pOpshelf store-within-a-store concepts within existing Dollar General Market stores. Our goal is to operate approximately 150 pOpshelf locations, as well as approximately 40 pOpshelf store-within-a-store concepts, by the end of 2022. We believe this concept represents a significant growth opportunity and are targeting approximately 1,000 pOpshelf stores by the end of 2025.

Our “DG Fresh” initiative, a self-distribution model for frozen and refrigerated products that is designed to reduce product costs, enhance item assortment, improve our in-stock position, and enhance sales, has positively contributed to our sales performance since we completed the initial rollout in the second quarter of 2021, driven by higher in-stock levels and the introduction of new products in select stores. In addition, DG Fresh has benefitted gross profit through improved initial markups on inventory purchases, which were partially offset by increased distribution and transportation costs. DG Fresh now wholly or partially serves essentially all stores across the chain, and we expect the overall net benefit to our financial results to continue throughout 2022. Moving forward, we plan to focus on additional optimization of the distribution footprint and product assortment within DG Fresh to further drive profitable sales growth.

To support our other operating priorities, we remain focused on capturing growth opportunities. In the first half of 2022, we opened 466 new stores, remodeled 1,065 stores, and relocated 62 stores. As a result of ongoing delays in permitting and receipt of construction materials, our new store openings are expected to be in the range of 1,010 to 1,060 (including planned pOpshelf stores and our first stores in Mexico) in 2022. As a result of the revised new store plans, we now plan to remodel approximately 1,795 stores, and relocate approximately 125 stores, for a total in the range of 2,930 to 2,980 real estate projects in 2022. We expect stores in Mexico, which will represent our first store locations outside the United States, to open in the fourth quarter of 2022.

We continue to innovate within our channel and utilize the most productive of our various Dollar General store formats based on the specific market opportunity. We expect store format innovation to allow us to capture additional growth opportunities within our existing markets. We are now using two larger format stores (approximately 8,500

14

square feet and 9,500 square feet, respectively), and expect the 8,500 square foot format, along with our existing Dollar General Plus format of a similar size, to become our base prototypes for the majority of new stores, replacing our traditional 7,300 square foot format and higher-cooler count Dollar General Traditional Plus format. The larger formats allow for expanded high-capacity-cooler counts; an extended queue line; and a broader product assortment, including the non-consumable initiative, a larger health and beauty section, and produce in select stores. We continue to incorporate lessons learned from our various store formats and layouts into our existing store base. These lessons contribute to innovation in developing new formats, with a goal of driving increased customer traffic, average transaction amount, same-store sales and overall store productivity.

We have established a position as a low-cost operator, always seeking ways to reduce or control costs that do not affect our customers’ shopping experiences. We plan to continue enhancing this position over time while employing ongoing cost discipline to reduce certain expenses as a percentage of sales. Nonetheless, we seek to maintain flexibility to invest in the business as necessary to enhance our long-term competitiveness and profitability.

We are continuing to deploy “Fast Track,” an initiative aimed at further enhancing our convenience proposition and in-stock position as well as increasing labor efficiencies within our stores. The completed first phase of Fast Track involved sorting process optimization within our non-refrigerated distribution centers, as well as increased shelf-ready packaging, to allow for greater store-level stocking efficiencies, while the ongoing second phase involves adding a self-checkout option, which we plan to have in up to 11,000 of our stores by the end of 2022. These and the other strategic initiatives discussed above have required and will require us to incur upfront expenses for which there may not be an immediate return in terms of sales or enhanced profitability.

To further optimize our cost structure and facilitate greater operational control within our supply chain, we plan to double the size of our private tractor fleet in 2022. We had more than 1,100 tractors in our fleet at the end of the second quarter of 2022, and our goal is to have more than 1,400 tractors in the fleet by the end of 2022.

Certain of our operating expenses, such as wage rates and occupancy costs, have continued to increase in recent years, due primarily to market forces, including labor availability, increases in minimum wage rates and increases in property rents. Further federal, state and/or local minimum wage increases could have a material negative impact on our operating expenses, although the magnitude and timing of such impact is uncertain. In addition, we have experienced challenges such as increased costs and disruptions in our business as a result of various global events, including the COVID-19 pandemic and its associated impacts. Such challenges include incremental transportation, distribution, and payroll costs, as well as supply chain disruptions. We continue to experience materially higher supply chain costs and, in some instances, shipping delays, as a result of shipping capacity shortages, port congestion and industry labor shortages. We expect continued inflationary pressures due to higher input costs and that higher fuel prices will continue to affect us as well as our vendors and customers, resulting in higher commodity, transportation and other costs, including product costs, all of which may result in continued pressure to our operating results, and their extent and duration are unknown. To the extent that these inflationary pressures result in a recessionary environment, we may experience adverse effects on our business, results of operations and cash flows. While we expect some challenges to persist, certain of our initiatives and plans are intended to help offset these challenges; however, they are somewhat dependent on the scale and timing of the increased costs, among other factors. There can be no assurance that our mitigation efforts will be successful. Moreover, recent increases in market interest rates could have a material negative impact on our interest expense, both with respect to the credit agreement governing our Revolving Facility and new issuances of commercial paper notes or other indebtedness.

Our diverse teams are a competitive advantage, and we proactively seek ways to continue investing in their development. Our goal is to create an environment that attracts, develops, and retains talented personnel, particularly at the store manager level, because employees who are promoted from within our company generally have longer tenures and are greater contributors to improvements in our financial performance.

To further enhance shareholder returns, we repurchased shares of our common stock and paid quarterly cash dividends in the first half of 2022. We expect to continue our share repurchase activity and to pay quarterly cash dividends for the foreseeable future, subject to Board discretion and approval.

We utilize key performance indicators (“KPIs”) in the management of our business. Our KPIs include same-store sales, average sales per square foot, and inventory turnover. Same-store sales are calculated based upon our stores that were open at least 13 full fiscal months and remain open at the end of the reporting period. We include stores that

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have been remodeled, expanded or relocated in our same-store sales calculation. Changes in same-store sales are calculated based on the comparable 52 calendar weeks in the current and prior years. The method of calculating same-store sales varies across the retail industry. As a result, our calculation of same-store sales is not necessarily comparable to similarly titled measures reported by other companies. Average sales per square foot is calculated based on total sales for the preceding 12 months as of the ending date of the reporting period divided by the average selling square footage during the period, including the end of the fiscal year, the beginning of the fiscal year, and the end of each of our three interim fiscal quarters. Inventory turnover is calculated based on total cost of goods sold for the preceding four quarters divided by the average inventory balance as of the ending date of the reporting period, including the end of the fiscal year, the beginning of the fiscal year, and the end of each of our three interim fiscal quarters. Each of these measures is commonly used by investors in retail companies to measure the health of the business. We use these measures to maximize profitability and for decisions about the allocation of resources.

Highlights of our 2022 second quarter results of operations, compared to the 2021 second quarter, and our financial condition at July 29, 2022, are set forth below. Basis points amounts referred to below are equal to 0.01% as a percentage of net sales.

Net sales increased 9.0% to $9.43 billion driven by new stores and sales in same-stores, which increased 4.6%. Average sales per square foot for all stores over the 52-week period ended July 29, 2022 was $263.

Gross profit, as a percentage of net sales, was 32.3% in the 2022 period and 31.6% in the 2021 period, an increase of 69 basis points, primarily reflecting higher inventory markups.

SG&A expense, as a percentage of net sales, was 22.6% in the 2022 period compared to 21.8% in the 2021 period, an increase of 82 basis points, primarily due to higher retail labor and repairs and maintenance costs as a percentage of net sales.

Operating profit increased 7.5% to $913.4 million in the 2022 period compared to $849.6 million in the 2021 period.

Interest expense increased by $3.7 million in the 2022 period driven by higher average borrowings.

The effective income tax rate for the 2022 period was 22.1% compared to a rate of 21.4% for the 2021 period, primarily due to a reduced benefit from stock-based compensation partially offset by a lower effective state income tax rate.

Net income was $678.0 million, or $2.98 per diluted share, in the 2022 period compared to net income of $637.0 million, or $2.69 per diluted share, in the 2021 period.

Highlights of the year-to-date period of 2022 include:

Cash generated from operating activities was $948.0 million for the 2022 period, a decrease of $369.5 million, or 28.0%, from the comparable 2021 period due primarily to increased inventory purchases.

Total cash dividends of $249.5 million, or $1.10 per share, were paid during the 2022 period, compared to $198.1 million, or $0.84 per share, in the comparable 2021 period.

Inventory turnover was 4.1 times on a rolling four-quarter basis. On a per store basis, inventories at July 29, 2022 increased by 25.1% compared to the balances at July 30, 2021.

The above discussion is a summary only. Readers should refer to the detailed discussion of our results of operations below in the current year period as compared with the prior year period as well as our financial condition at July 29, 2022.

Results of Operations

Accounting Periods. We utilize a 52-53 week fiscal year convention that ends on the Friday nearest to January 31. The following text contains references to years 2022 and 2021, which represent the 53-week fiscal year

16

ending February 3, 2023 and the 52-week fiscal year ended January 28, 2022, respectively. References to the second quarter accounting periods for 2022 and 2021 contained herein refer to the 13-week accounting periods ended July 29, 2022 and July 30, 2021, respectively.

Seasonality. The nature of our business is somewhat seasonal. Primarily because of sales of Christmas-related merchandise, operating profit in our fourth quarter (November, December and January) has historically been higher than operating profit in each of the first three quarters of the fiscal year. Expenses, and to a greater extent operating profit, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods. Consumer behavior driven by the COVID-19 pandemic and the U.S. government’s response thereto, including economic stimulus legislation, has resulted in a departure from seasonal norms we have experienced in recent years and may continue to disrupt the historical quarterly cadence of our results of operations for an unknown period of time.

The following table contains results of operations data for the second 13-week periods and the 26-week periods of 2022 and 2021, and the dollar and percentage variances among those periods:

13 Weeks Ended

2022 vs. 2021

26 Weeks Ended

2022 vs. 2021

 

(amounts in millions, except

    

July 29,

    

July 30,

    

Amount

    

%

    

July 29,

    

July 30,

    

Amount

    

%

 

per share amounts)

2022

2021

Change

Change

2022

2021

Change

Change

 

Net sales by category:

Consumables

$

7,475.8

$

6,613.0

$

862.9

13.0

%  

$

14,436.3

 

$

12,991.1

 

$

1,445.3

 

11.1

%

% of net sales

 

79.31

%  

 

76.45

%  

 

79.42

%  

76.19

%  

Seasonal

 

1,086.9

 

1,090.3

 

(3.4)

(0.3)

 

2,048.3

2,140.7

 

(92.4)

 

(4.3)

% of net sales

 

11.53

%  

 

12.60

%  

 

11.27

%  

12.55

%  

Home products

 

559.8

 

561.2

 

(1.4)

(0.3)

 

1,099.6

1,132.5

 

(32.9)

 

(2.9)

% of net sales

 

5.94

%  

 

6.49

%  

 

6.05

%  

6.64

%  

Apparel

 

303.2

 

385.7

 

(82.5)

(21.4)

 

592.9

786.9

 

(194.0)

 

(24.7)

% of net sales

 

3.22

%  

 

4.46

%  

 

3.26

%  

4.61

%  

Net sales

$

9,425.7

$

8,650.2

$

775.5

9.0

%  

$

18,177.1

$

17,051.2

$

1,125.9

 

6.6

%

Cost of goods sold

 

6,377.5

 

5,912.5

 

465.0

7.9

 

12,390.5

11,557.8

 

832.6

 

7.2

% of net sales

 

67.66

%  

 

68.35

%  

 

68.17

%  

67.78

%  

Gross profit

 

3,048.2

 

2,737.7

 

310.6

11.3

 

5,786.6

5,493.3

 

293.3

 

5.3

% of net sales

 

32.34

%  

 

31.65

%  

 

31.83

%  

32.22

%  

Selling, general and administrative expenses

 

2,134.8

 

1,888.1

 

246.7

13.1

 

4,127.0

3,734.9

 

392.1

 

10.5

% of net sales

 

22.65

%  

 

21.83

%  

 

22.70

%  

21.90

%  

Operating profit

 

913.4

 

849.6

 

63.9

7.5

 

1,659.6

1,758.4

 

(98.8)

 

(5.6)

% of net sales

 

9.69

%  

 

9.82

%  

 

9.13

%  

10.31

%  

Interest expense

 

43.1

 

39.4

 

3.7

9.3

 

82.8

79.8

 

3.0

 

3.7

% of net sales

 

0.46

%  

 

0.46

%  

 

0.46

%  

0.47

%  

Income before income taxes

 

870.3

 

810.1

 

60.2

7.4

 

1,576.8

1,678.6

 

(101.8)

 

(6.1)

% of net sales

 

9.23

%  

 

9.37

%  

 

8.67

%  

9.84

%  

Income tax expense

 

192.3

 

173.1

 

19.2

11.1

 

346.1

363.8

 

(17.7)

 

(4.9)

% of net sales

 

2.04

%  

 

2.00

%  

 

1.90

%  

2.13

%  

Net income

$

678.0

$

637.0

$

41.0

6.4

%  

$

1,230.7

$

1,314.8

$

(84.1)

 

(6.4)

%

% of net sales

 

7.19

%  

 

7.36

%  

 

6.77

%  

7.71

%  

Diluted earnings per share

$

2.98

$

2.69

$

0.29

10.8

%  

$

5.39

$

5.52

$

(0.13)

 

(2.4)

%

13 WEEKS ENDED JULY 29, 2022 AND JULY 30, 2021

Net Sales. The net sales increase in the 2022 period was primarily due to sales from new stores, as well as a same-store sales increase of 4.6% compared to the 2021 period, partially offset by the impact of store closures. For the 2022 period, there were 17,397 same-stores which accounted for sales of $9.0 billion. The increase in same-store sales primarily reflects an increase in average transaction amount driven by higher average item retail prices which was partially offset by a decline in items per transaction, as well as a slight increase in customer traffic. Same-store sales increased in the consumables category, and declined in the apparel, home products and seasonal categories.

Gross Profit. For the 2022 period, gross profit increased by 11.3%, and as a percentage of net sales increased by 69 basis points to 32.3%, compared to the 2021 period, driven primarily by higher inventory markups which were partially offset by an increased LIFO provision. Our consumables category generally has a lower gross profit rate than

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our other product categories. In the current period, consumables sales increased at a greater rate than non-consumables sales, which also partially offset the increase in the gross profit rate in the current period, along with increased markdowns, increased transportation costs, increased distribution costs, and an increase in inventory damages.

Selling, General & Administrative Expenses (“SG&A”). SG&A was 22.6% as a percentage of net sales in the 2022 period compared to 21.8% in the comparable 2021 period, an increase of 82 basis points. The primary expenses that were a greater percentage of net sales in the current year period were retail labor, repairs and maintenance, utilities and payroll taxes.

Interest Expense. Interest expense increased by $3.7 million to $43.1 million in the 2022 period primarily due to higher outstanding borrowings.

Income Taxes. The effective income tax rate for the 2022 period was 22.1% compared to a rate of 21.4% for the 2021 period which represents a net increase of 0.7 percentage points. The tax rate for the 2022 period was higher than the comparable 2021 period primarily due to a reduced benefit from stock-based compensation partially offset by a lower effective state income tax rate in the 2022 period when compared to the 2021 period.

26 WEEKS ENDED JULY 29, 2022 AND JULY 30, 2021

Net Sales. The net sales increase in the 2022 period was primarily due to sales from new stores, as well as a same-store sales increase of 2.3% compared to the 2021 period, partially offset by the impact of store closures. For the 2022 period, there were 17,397 same-stores which accounted for sales of $17.3 billion. The increase in same-store sales reflects an increase in average transaction amount driven by higher average item retail prices which was partially offset by a decline in items per transaction and a slight decline in customer traffic. Same-store sales increased in the consumables category, and declined in the apparel, seasonal and home products categories.

Gross Profit. For the 2022 period, gross profit increased by 5.3%, and as a percentage of net sales decreased by 39 basis points to 31.8%, compared to the 2021 period. An increased LIFO provision, consumables sales increasing at a greater rate than non-consumables sales in the current year period, increased transportation costs, increased markdowns, higher distribution costs and increased inventory damages each contributed to the decrease in the gross profit rate. These factors were partially offset by higher inventory markups.

Selling, General & Administrative Expenses. SG&A was 22.7% as a percentage of net sales in the 2022 period compared to 21.9% in the comparable 2021 period, an increase of 80 basis points. The primary expenses that were a higher percentage of net sales in the current year period were retail labor, utilities, repairs and maintenance, store occupancy costs, and depreciation and amortization, partially offset by reductions in incentive compensation and winter storm related disaster expenses.

Interest Expense. Interest expense increased by $3.0 million to $82.8 million in the 2022 period primarily due to higher outstanding debt balances.

Income Taxes. The effective income tax rate for the 2022 period was 22.0% compared to a rate of 21.7% for the 2021 period which represents a net increase of 0.3 percentage points. The tax rate for the 2022 period was higher than the comparable 2021 period primarily due to reduced benefit from stock-based compensation partially offset by a lower effective state income tax rate in the 2022 period when compared to the 2021 period.

Liquidity and Capital Resources

At July 29, 2022, we had a $2.0 billion unsecured revolving credit agreement (the “Revolving Facility”), $4.0 billion aggregate principal amount of outstanding senior notes, and a commercial paper program that may provide borrowing availability in the form of commercial paper notes (“CP Notes”) of up to $2.0 billion. At July 29, 2022, we had total consolidated outstanding long-term obligations, including current portion, of $5.2 billion. All of our material borrowing arrangements are described in greater detail below. Our borrowing availability under the Revolving Facility may be effectively limited by our CP Notes as further described below.

We believe our cash flow from operations and existing cash balances, combined with availability under the Revolving Facility, the CP Notes and access to the debt markets, will provide sufficient liquidity to fund our current

18

obligations, projected working capital requirements, capital spending, anticipated dividend payments and share repurchases for a period that includes the next twelve months as well as the next several years. However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control. Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations.

For the remainder of fiscal 2022, we anticipate potential combined borrowings under the Revolving Facility and our CP Notes to be a maximum of approximately $1.5 billion outstanding at any one time.

Revolving Credit Facility

Our Revolving Facility consists of a $2.0 billion senior unsecured revolving credit facility of which up to $100.0 million is available for the issuance of letters of credit and which is scheduled to mature on December 2, 2026.

Borrowings under the Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at our option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The credit agreement governing the Revolving Facility includes customary LIBOR replacement provisions. The applicable interest rate margin for borrowings as of July 29, 2022 was 1.015% for LIBOR borrowings and 0.015% for base-rate borrowings. We must also pay a facility fee, payable on any used and unused commitment amounts of the Revolving Facility, and customary fees on letters of credit issued under the Revolving Facility. As of July 29, 2022, the facility fee rate was 0.11%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Revolving Facility are subject to adjustment from time to time based on our long-term senior unsecured debt ratings.

The Revolving Facility contains a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, our (including our subsidiaries’) ability to: incur additional liens; sell all or substantially all of our assets; consummate certain fundamental changes or change in our lines of business; and incur additional subsidiary indebtedness. The Revolving Facility also contains financial covenants that require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of July 29, 2022, we were in compliance with all such covenants. The Revolving Facility also contains customary events of default.

As of July 29, 2022, under the Revolving Facility, we had no outstanding borrowings, outstanding letters of credit of $1.3 million, and borrowing availability of approximately $2.0 billion that, due to our intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $0.7 billion at July 29, 2022. In addition, as of July 29, 2022 we had outstanding letters of credit of $45.9 million which were issued pursuant to separate agreements.

Commercial Paper

We may issue the CP Notes from time to time in an aggregate amount not to exceed $2.0 billion outstanding at any time. The CP Notes may have maturities of up to 364 days from the date of issue and rank equal in right of payment with all of our other unsecured and unsubordinated indebtedness. We intend to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time. As of July 29, 2022, our condensed consolidated balance sheet reflected outstanding unsecured CP Notes of $1.1 billion, which had a weighted average borrowing rate of 2.23%. CP Notes totaling $192.0 million were held by a wholly-owned subsidiary and are therefore not reflected on the condensed consolidated balance sheet at July 29, 2022. We expect that short-term interest rates will continue to increase during the remainder of 2022 and, as a result of anticipated higher borrowings, including our increased use of CP Notes and higher short-term interest rates, that interest expense for 2022 will notably increase as compared to 2021.

Senior Notes

In April 2013 we issued $900.0 million aggregate principal amount of 3.25% senior notes due 2023 (the “2023 Senior Notes”) at a discount of $2.4 million, which are scheduled to mature on April 15, 2023. In October 2015 we issued $500.0 million aggregate principal amount of 4.150% senior notes due 2025 (the “2025 Senior Notes”) at a discount of $0.8 million, which are scheduled to mature on November 1, 2025. In April 2017 we issued $600.0 million aggregate principal amount of 3.875% senior notes due 2027 (the “2027 Senior Notes”) at a discount of $0.4 million, which are scheduled to mature on April 15, 2027. In April 2018 we issued $500.0 million aggregate principal amount of

19

4.125% senior notes due 2028 (the “2028 Senior Notes”) at a discount of $0.5 million, which are scheduled to mature on May 1, 2028. In April 2020 we issued $1.0 billion aggregate principal amount of 3.5% senior notes due 2030 (the “2030 Senior Notes”) at a discount of $0.7 million, which are scheduled to mature on April 3, 2030, and $500.0 million aggregate principal amount of 4.125% senior notes due 2050 (the “2050 Senior Notes”) at a discount of $5.0 million, which are scheduled to mature on April 3, 2050. Collectively, the 2023 Senior Notes, 2025 Senior Notes, 2027 Senior Notes, 2028 Senior Notes, 2030 Senior Notes and 2050 Senior Notes comprise the “Senior Notes”, each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the “Senior Indenture”). Interest on the 2023 Senior Notes and the 2027 Senior Notes is payable in cash on April 15 and October 15 of each year. Interest on the 2025 and 2028 Senior Notes is payable in cash on May 1 and November 1 of each year. Interest on the 2030 and 2050 Senior Notes is payable in cash on April 3 and October 3 of each year.

We may redeem some or all of the Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is defined in the Senior Indenture, each holder of our Senior Notes has the right to require us to repurchase some or all of such holder’s Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

The Senior Indenture contains covenants limiting, among other things, our ability (subject to certain exceptions) to consolidate, merge, or sell or otherwise dispose of all or substantially all of our assets; and our ability and the ability of our subsidiaries to incur or guarantee indebtedness secured by liens on any shares of voting stock of significant subsidiaries.

The Senior Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on our Senior Notes to become or to be declared due and payable, as applicable.

Current Financial Condition / Recent Developments

Our inventory balance represented approximately 56% of our total assets exclusive of operating lease assets, goodwill and other intangible assets as of July 29, 2022. Our ability to effectively manage our inventory balances can have a significant impact on our cash flows from operations during a given fiscal year. Inventory purchases are often somewhat seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise. Efficient management of our inventory has been and continues to be an area of focus for us.

From time to time, we are involved in various legal matters as discussed in Note 7 to the unaudited condensed consolidated financial statements, some of which could potentially result in material cash payments. Adverse developments in these matters could materially and adversely affect our liquidity.

Our senior unsecured debt is rated “Baa2,” by Moody’s with a stable outlook and “BBB” by Standard & Poor’s with a stable outlook, and our commercial paper program is rated “P-2” by Moody’s and “A-2” by Standard and Poor’s. Our current credit ratings, as well as future rating agency actions, could (i) impact our ability to finance our operations on satisfactory terms; (ii) affect our financing costs; and (iii) affect our insurance premiums and collateral requirements necessary for our self-insured programs. There can be no assurance that we will maintain or improve our current credit ratings.

Unless otherwise noted, all references to the 2022 and 2021 periods in the discussion of cash flows from operating, investing and financing activities below refer to the 26-week periods ended July 29, 2022 and July 30, 2021, respectively.

Cash flows from operating activities.  Cash flows from operating activities were $948.0 million in the 2022 period, which represents a $369.5 million decrease compared to the 2021 period. Changes in merchandise inventories, resulted in a $1.5 billion decrease in the 2022 period as compared to a decrease of $80.0 million in the 2021 period, representing a significant contributor to the reduction in cash flows from operating activities as further discussed below. Changes in accounts payable resulted in a $622.3 million increase in the 2022 period compared to a $245.4 million decrease in the 2021 period, due primarily to the timing of inventory purchases, receipts and payments. Changes in accrued expenses and other liabilities resulted in a $22.4 million increase in the 2022 period compared to a $25.5 million decrease in the 2021 period. Net income decreased $84.1 million in the 2022 period compared to the 2021 period.

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Changes in income taxes in the 2022 period compared to the 2021 period are primarily due to lower accruals for income taxes due to lower pre-tax earnings and the timing of payments for income taxes.

On an ongoing basis, we closely monitor and manage our inventory balances, and they may fluctuate from period to period based on new store openings, the timing of purchases, and other factors. Total merchandise inventories increased by 24% in the 2022 period and increased by 1% in the 2021 period, with changes in our four inventory categories as follows: consumables increased by 16% compared to a 1% increase; seasonal increased 37% compared to a 1% decrease; home products increased by 51% compared to a 14% increase; and apparel was unchanged compared to a 15% decrease.

Cash flows from investing activities. Significant components of property and equipment purchases in the 2022 period included the following approximate amounts: $255 million for improvements, upgrades, remodels and relocations of existing stores; $210 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores; $157 million for distribution and transportation-related capital expenditures; and $22 million for information systems upgrades and technology-related projects. The timing of new, remodeled and relocated store openings along with other factors may affect the relationship between such openings and the related property and equipment purchases in any given period. During the 2022 period, we opened 466 new stores and remodeled or relocated 1,127 stores.

Significant components of property and equipment purchases in the 2021 period included the following approximate amounts: $248 million for improvements, upgrades, remodels and relocations of existing stores; $126 million for distribution and transportation-related capital expenditures; $125 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores; and $19 million for information systems upgrades and technology-related projects. During the 2021 period, we opened 530 new stores and remodeled or relocated 1,078 stores.

Capital expenditures for 2022 are currently projected to be in the range of $1.4 billion to $1.5 billion. Such projection is higher than in recent years due in part to inflationary pressure on commodity prices affecting certain of our capital costs. We anticipate funding 2022 capital requirements with a combination of some or all of the following: existing cash balances, cash flows from operations, availability under our Revolving Facility and/or the issuance of additional CP Notes. We plan to continue to invest in store growth through the development of new stores and the remodel or relocation of existing stores. Capital expenditures in 2022 are anticipated to support our store growth as well as our remodel and relocation initiatives, including capital outlays for leasehold improvements, fixtures and equipment; the construction of new stores; costs to support and enhance our supply chain initiatives including new and existing distribution center facilities and our private fleet; technology and other strategic initiatives; as well as routine and ongoing capital requirements.

Cash flows from financing activities. Net commercial paper borrowings increased by $1.0 billion in the 2022 period and increased by $18.4 million in the 2021 period. Also during the 2022 and 2021 periods, we repurchased 4.9 million and 8.3 million shares of our common stock at a total cost of $1.1 billion and $1.7 billion, respectively, and paid cash dividends of $249.5 million and $198.1 million, respectively.

Share Repurchase Program

As of July 29, 2022 our common stock repurchase program had a total remaining authorization of approximately $1.03 billion. Effective August 24, 2022, our Board of Directors authorized a $2.0 billion increase to such program which resulted in a total remaining authorization of approximately $3.03 billion under the program at such date. The authorization allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions. The timing, manner and number of shares repurchased will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under our debt agreements and other factors. The repurchase program has no expiration date and may be modified or terminated from time to time at the discretion of our Board of Directors. For more about our share repurchase program, see Note 9 to the condensed consolidated financial statements contained in Part I, Item 1 of this report and Part II, Item 2 of this report.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes to the disclosures relating to this item from those set forth in our Annual Report on Form 10-K for the fiscal year ended January 28, 2022.

ITEM 4.

CONTROLS AND PROCEDURES.

(a)Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the quarter ended July 29, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

The information contained in Note 7 to the unaudited condensed consolidated financial statements under the heading “Legal proceedings” contained in Part I, Item 1 of this report is incorporated herein by this reference.

ITEM 1A.

RISK FACTORS.

There have been no material changes to the disclosures relating to this item from those set forth in our Annual Report on Form 10-K for the fiscal year ended January 28, 2022.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table contains information regarding purchases of our common stock made during the quarter ended July 29, 2022 by or on behalf of Dollar General or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act:

Issuer Purchases of Equity Securities

    

    

    

Total Number

    

Approximate

 

of Shares

Dollar Value

 

Purchased

of Shares that May

 

Total Number

Average

as Part of Publicly

Yet Be Purchased

 

of Shares

Price Paid

Announced Plans

Under the Plans

 

Period

Purchased

per Share

or Programs(a)

or Programs(a)

 

04/30/22-05/31/22

 

89,014

$

224.68

 

89,014

$

1,362,872,000

06/01/22-06/30/22

 

1,137,221

$

230.96

 

1,137,221

$

1,100,218,000

07/01/22-07/29/22

 

267,700

$

246.43

 

267,700

$

1,034,250,000

Total