Dollar General Corporation Reports First Quarter 2017 Financial Results

GOODLETTSVILLE, Tenn. (BUSINESS WIRE), June 01, 2017 - Dollar General Corporation (NYSE: DG) today reported financial results for its 2017 first quarter (13 weeks) ended May 5, 2017.

“For the first quarter of 2017, I am pleased with our earnings results which reflect solid management of the business in a difficult retail environment as we overcame our most challenging comparisons from the prior year. Our same-store sales improved as we moved past the delay in income tax refunds and the timing shift of the later Easter holiday. We continue to execute on our focused strategy and implement our operating initiatives which we believe will improve customer traffic and transactions,” said Todd Vasos, Dollar General’s chief executive officer.

First Quarter 2017 Financial Highlights

Net sales increased 6.5 percent to $5.61 billion in the 2017 first quarter compared to $5.27 billion in the 2016 first quarter. Same-store sales in the 2017 first quarter increased 0.7 percent over the 2016 first quarter primarily due to an increase in average transaction amount, partially offset by a decline in traffic. Same-store sales were driven by positive results in the consumables and apparel categories, partially offset by negative results in the home and seasonal categories. The net sales increase was also positively affected by sales from new stores, partially offset by sales from closed stores.

Gross profit, as a percentage of net sales, was 30.3 percent in the 2017 first quarter compared to 30.6 percent in the 2016 first quarter, a decrease of 34 basis points. The gross profit rate decrease was primarily attributable to higher markdowns, primarily for inventory clearance and promotional activities, a greater proportion of sales of consumables, which tend to have a lower gross profit rate as compared to non-consumables, and the mix within consumables. Partially offsetting these items were higher initial inventory markups.

Selling, general and administrative expense (“SG&A”), as a percentage of net sales was 21.8 percent in the 2017 first quarter compared to 21.5 percent in the 2016 first quarter, an increase of 34 basis points as a percentage of net sales. The SG&A increase was primarily attributable to increased labor costs, primarily as a result of the Company’s investment in store manager compensation, and occupancy costs, which increased at a rate greater than the increase in net sales. Partially offsetting these costs were a reduction in advertising costs and lower waste management costs resulting from the Company’s recycling efforts.

The Company’s net income and diluted earnings per share (“EPS”) for the 2017 first quarter were $279 million and $1.02, respectively, compared to net income and diluted EPS of $295 million and $1.03, respectively, in the 2016 first quarter. Diluted EPS for the 2017 first quarter includes a charge of approximately $0.01 related to the early retirement of long-term obligations.

The effective income tax rate in the 2017 first quarter was 37.2 percent compared to 35.4 percent in the 2016 first quarter. The effective income tax rate was higher in the 2017 first quarter due primarily to the recognition of a tax benefit of approximately $9.0 million or $0.03 per diluted share in the 2016 quarter associated with stock-based compensation that did not reoccur in the 2017 quarter.

Merchandise Inventories

As of May 5, 2017, total merchandise inventories, at cost, were $3.30 billion compared to $3.07 billion as of April 29, 2016, an increase of 0.5 percent on a per-store basis.

Capital Expenditures

Total additions to property and equipment in the 2017 first quarter were $144 million, including: $54 million for distribution and transportation-related capital expenditures; $50 million for improvements, upgrades, remodels and relocations of existing stores; and $35 million related to new leased stores, primarily for leasehold improvements, fixtures and equipment.

During the 2017 first quarter, the Company opened 293 new stores and remodeled or relocated 301 stores.

Share Repurchases

The Company repurchased $89 million, or 1.3 million shares, under its share repurchase program in the first quarter of 2017, at an average price of $70.86 per share. Since December 2011 through the end of the first quarter of 2017, the Company has repurchased 75.6 million shares of its common stock at a total cost of $4.7 billion, at an average price of $61.57 per share. The total remaining authorization for future repurchases was approximately $845 million at the end of the 2017 first quarter. The authorization has no expiration date.

Dividend

On May 31, 2017, the Board of Directors declared a regular quarterly cash dividend of $0.26 per share on the Company’s common stock. The second quarter dividend will be payable on July 25, 2017 to shareholders of record at the close of business on July 11, 2017.

Acquisition

In April 2017, the Federal Trade Commission approved the Company’s proposed purchase of 322 store locations in 36 states from a small-box multi-price point retailer. The transaction is expected to close during June 2017, subject to customary closing conditions. The store sites are anticipated to be converted to the Dollar General banner by the end of November 2017. The acquisition of these sites is expected to be incremental to the Company’s 2017 new store growth by approximately 290 new stores over the prior guidance of 1,000 new stores for fiscal 2017.

The Company anticipates sales from the acquired sites to impact fiscal 2017 (as defined below in “Financial Outlook”) net sales by approximately 100 basis points. The Company anticipates the acquisition will be modestly accretive to EPS for the fiscal year. An estimated $0.02 per diluted share charge is forecasted in the second quarter primarily related to lease termination costs for a small number of overlapping store locations, as well as ancillary costs related to the pending store locations.

No assurances can be given that the transaction will be closed or will be closed within the expected timeframe or that the store sites will be converted to the Dollar General banner within the timeframe anticipated. Any failure to close the transaction or a delay in such closing or in the conversion of the store sites to the Dollar General banner would impact the financial estimates and store count outlined above.

Financial Outlook

For the 52-week fiscal year ending February 2, 2018 (“fiscal 2017”), and including the anticipated closing of the transaction discussed above under “Acquisition,” GAAP diluted EPS is forecasted to remain consistent with the prior guidance range of $4.25 to $4.50. Assuming such transaction is consummated as planned and the store sites are converted to the Dollar General banner on the expected timeframe, as detailed above, the Company’s net sales are forecasted to increase by approximately five to seven percent as compared with the prior guidance range of four to six percent and capital expenditures for fiscal 2017 are expected to be in the range of $715 million to $765 million as compared with the prior guidance range of $650 million to $700 million. The Company’s same-store sales growth is unchanged from the prior guidance range of slightly positive to an increase of two percent.

Share repurchases for fiscal 2017 continue to be forecasted to be approximately $450 million.

For fiscal 2017, assuming the closing of the acquisition as discussed above, the Company plans to open approximately 1,290 new stores in addition to remodeling or relocating 760 stores and to reduce the Company’s total projects for remodels and relocations by 140 to allow for organizational capacity to execute the incremental new store growth anticipated to result from the pending acquisition.

Conference Call Information

The Company will hold a conference call on Thursday, June 1, 2017 at 9:00 a.m. CT/10:00 a.m. ET, hosted by Todd Vasos, chief executive officer and John Garratt, chief financial officer. If you wish to participate, please call (855) 576-2641 at least 10 minutes before the conference call is scheduled to begin. The conference ID is 14434844. The call will also be broadcast live online at www.dollargeneral.com under “Investor Information, Conference Calls and Investor Events.” A replay of the conference call will be available through Thursday, June 15, 2017, and will be accessible online or by calling (855) 859-2056. The conference ID for the replay is 14434844.

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

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

About Dollar General Corporation

Dollar General Corporation has been delivering value to shoppers for over 75 years. Dollar General helps shoppers Save time. Save money. Every day!® by offering products that are frequently used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, housewares and seasonal items at low everyday prices in convenient neighborhood locations. With 13,601 stores in 44 states as of May 5, 2017, Dollar General is among the largest discount retailers in the United States. In addition to high quality private brands, Dollar General sells products from America's most-trusted brands such as Procter & Gamble, Kimberly-Clark, Unilever, Kellogg's, General Mills, Nabisco, Hanes, PepsiCo and Coca-Cola. Learn more about Dollar General at www.dollargeneral.com.

             
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
                   
      (Unaudited)      
      May 5     April 29     February 3
      2017     2016     2017
ASSETS                  
Current assets:                  
Cash and cash equivalents     $ 205,977       $ 187,687       $ 187,915  
Merchandise inventories       3,300,082         3,072,063         3,258,785  
Income taxes receivable       10,492         6,827         11,050  
Prepaid expenses and other current assets       232,398         210,769         220,021  
Total current assets       3,748,949         3,477,346         3,677,771  
Net property and equipment       2,487,292         2,278,081         2,434,456  
Goodwill       4,338,589         4,338,589         4,338,589  
Other intangible assets, net       1,200,597         1,200,904         1,200,659  
Other assets, net       20,928         21,464         20,823  
Total assets     $ 11,796,355       $ 11,316,384       $ 11,672,298  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Current liabilities:                  
Current portion of long-term obligations     $ 401,188       $ 1,526       $ 500,950  
Accounts payable       1,622,776         1,447,223         1,557,596  
Accrued expenses and other       459,105         440,697         500,866  
Income taxes payable       208,972         122,148         63,393  
Total current liabilities       2,692,041         2,011,594         2,622,805  
Long-term obligations       2,632,090         2,989,663         2,710,576  
Deferred income taxes       662,485         647,626         652,841  
Other liabilities       280,858         279,118         279,782  
Total liabilities       6,267,474         5,928,001         6,266,004  
                   
Commitments and contingencies                  
                   
Shareholders' equity:                  
Preferred stock       -         -         -  
Common stock       239,947         249,096         240,811  
Additional paid-in capital       3,157,322         3,124,110         3,154,606  
Retained earnings       2,136,401         2,020,784         2,015,867  
Accumulated other comprehensive loss       (4,789 )       (5,607 )       (4,990 )
Total shareholders' equity       5,528,881         5,388,383         5,406,294  
Total liabilities and shareholders' equity     $ 11,796,355       $ 11,316,384       $ 11,672,298  

 

                   
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
                         
      For the Quarter Ended
      May 5     % of Net     April 29     % of Net
      2017     Sales     2016     Sales
Net sales     $ 5,609,625     100.00 %     $ 5,265,432     100.00 %
Cost of goods sold       3,910,642     69.71         3,652,818     69.37  
Gross profit       1,698,983     30.29         1,612,614     30.63  
Selling, general and administrative expenses       1,225,188     21.84         1,131,871     21.50  
Operating profit       473,795     8.45         480,743     9.13  
Interest expense       25,004     0.45         24,081     0.46  
Other (income) expense       3,502     0.06         -     0.00  
Income before income taxes       445,289     7.94         456,662     8.67  
Income tax expense       165,800     2.96         161,538     3.07  
Net income     $ 279,489     4.98 %     $ 295,124     5.60 %
                         
Earnings per share:                        
Basic     $ 1.02           $ 1.03      
Diluted     $ 1.02           $ 1.03      
Weighted average shares outstanding:                        
Basic       274,692             285,886      
Diluted       275,215             286,978      

 

             
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
             
      For the 13 Weeks Ended
      May 5     April 29
      2017     2016
Cash flows from operating activities:            
Net income     $ 279,489       $ 295,124  

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

           
Depreciation and amortization       98,586         92,324  
Deferred income taxes       9,516         7,541  
Loss on debt retirement, net       3,502         -  
Noncash share-based compensation       8,932         10,253  
Other noncash (gains) and losses       2,122         (440 )
Change in operating assets and liabilities:            
Merchandise inventories       (42,456 )       3,476  
Prepaid expenses and other current assets       (12,342 )       (16,676 )
Accounts payable       56,630         (55,267 )
Accrued expenses and other liabilities       (39,511 )       (21,416 )
Income taxes       146,137         89,294  
Other       (143 )       (260 )
Net cash provided by (used in) operating activities       510,462         403,953  
             
Cash flows from investing activities:            
Purchases of property and equipment       (143,519 )       (98,968 )
Proceeds from sales of property and equipment       131         323  
Net cash provided by (used in) investing activities       (143,388 )       (98,645 )
             
Cash flows from financing activities:            
Issuance of long-term obligations       599,556         -  
Repayments of long-term obligations       (750,275 )       (497 )
Net increase (decrease) in commercial paper outstanding       (22,800 )       -  
Borrowings under revolving credit facilities       -         751,000  
Repayments of borrowings under revolving credit facilities       -         (731,000 )
Costs associated with issuance and retirement of debt       (9,460 )       -  
Repurchases of common stock       (88,755 )       (230,961 )
Payments of cash dividends       (71,294 )       (71,308 )
Other equity and related transactions       (5,984 )       7,198  
Net cash provided by (used in) financing activities       (349,012 )       (275,568 )
             
Net increase (decrease) in cash and cash equivalents       18,062         29,740  
Cash and cash equivalents, beginning of period       187,915         157,947  
Cash and cash equivalents, end of period     $ 205,977       $ 187,687  
             
Supplemental cash flow information:            
Cash paid for:            
Interest     $ 37,917       $ 21,477  
Income taxes     $ 8,837       $ 64,520  
Supplemental schedule of non-cash investing and financing activities:            

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

    $ 47,464       $ 40,285  

 

             
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
                   
                   
Sales by Category (in thousands)
                   
      For the Quarter Ended      
      May 5   April 29      
      2017   2016     % Change  
Consumables     $ 4,315,513     $ 4,039,197       6.8 %
Seasonal       662,638       623,850       6.2 %
Home products       333,150       322,848       3.2 %
Apparel       298,324       279,537       6.7 %
Net sales     $ 5,609,625     $ 5,265,432       6.5 %
                   
                   
                   
                   
                   
Store Activity
                   
            For the Quarter Ended
            May 5     April 29
            2017     2016
                   
Beginning store count             13,320       12,483  
New store openings             293       249  
Store closings             (12 )     (13 )
Net new stores             281       236  
Ending store count             13,601       12,719  
Total selling square footage (000's)             101,065       94,262  
Growth rate (square footage)             7.2 %     6.2 %