Dollar General Reports Fourth Quarter and Fiscal 2016 Financial Results; Company Provides Financial Guidance for Fiscal 2017

GOODLETTSVILLE, Tenn. (BUSINESS WIRE), March 16, 2017 - Dollar General Corporation (NYSE: DG) today reported financial results for its fiscal 2016 fourth quarter (14 weeks) and fiscal year (53 weeks) ended February 3, 2017.

Note: Dollar General’s fiscal 2016 and 2016 fourth quarter results contain an additional, non-comparable week, or the "53rd" week, when compared to fiscal 2015 and 2015 fourth quarter results, which included 13 weeks and 52 weeks, respectively, and fiscal 2017 guidance which includes 52 weeks. By definition, the Company's same-store sales growth calculations do not include the non-comparable 53rd week in the 2016 periods. Unless stated otherwise, financial metrics discussed in this release such as operating income, net income and earnings per share (“EPS”) are calculated in accordance with generally accepted accounting principles (“GAAP”) and therefore include the 53rd week.

Key Fiscal 2016 Highlights

“We are pleased with our fourth quarter 2016 financial results, and believe that during the quarter many of our initiatives continued to gain traction. For the year, we effectively managed through what proved to be a challenging retail environment to deliver same-store sales growth of 0.9% and diluted earnings per share growth of 12%, while returning nearly $1.3 billion to shareholders through the combination of share repurchases and dividends,” said Todd Vasos, Dollar General’s chief executive officer.

“Dollar General is well-positioned to serve our customers with value and convenience given our plans to open approximately 1,000 new stores in 2017. To strengthen our position for the long term, we are making significant investments, primarily in compensation and training for our store managers given the critical role this position plays in our customer experience, as well as strategic initiatives. While these investments are expected to put pressure on our 2017 earnings, we believe they will strengthen our market share position over time and are positive steps to further support sustainable growth for our shareholders over the long term.”

Fourth Quarter 2016 Highlights

The Company’s net income and diluted EPS for the 2016 fourth quarter were $414 million and $1.49, respectively, compared to net income and diluted EPS of $376 million and $1.30, respectively, in the 2015 fourth quarter.

Net sales increased 13.7 percent to $6.0 billion in the 2016 fourth quarter compared to $5.3 billion in the 2015 fourth quarter. Net sales for the 53rd week of 2016 were $398.7 million. Same-store sales increased 1.0 percent from the 2015 fourth quarter primarily due to an increase in average transaction amount, partially offset by a slight decline in traffic that moderated from the second and third quarters. Same-store sales were driven by positive results in the consumables and home products categories, partially offset by negative results in the seasonal and apparel categories. The net sales increase was positively affected by sales from new stores, modestly offset by sales from closed stores.

The Company’s gross profit, as a percentage of sales, was 31.6 percent in the 2016 fourth quarter compared to 31.8 percent in the 2015 fourth quarter, a decrease of 19 basis points. The gross profit rate decrease was primarily attributable to higher markdowns, driven mainly by promotional activities and inventory clearance, and a greater proportion of sales of consumables. Partially offsetting these items were higher initial inventory markups.

Selling, general and administrative expenses (“SG&A”) were $1.22 billion in the 2016 fourth quarter, compared to $1.07 billion in the 2015 fourth quarter, an increase of 6 basis points as a percentage of sales. The SG&A increase was primarily attributable to increased retail labor costs which increased at a rate greater than the increase in net sales. Partially offsetting these costs were a reduction in incentive compensation expenses and administrative payroll costs which were essentially unchanged. In addition, during the fourth quarter of 2016, the Company recorded a reduction in SG&A of $4.5 million due to the sale or assignment of leases for 12 store locations that previously were closed in connection with the acquisition of former Walmart Express store locations.

The effective income tax rate in the 2016 fourth quarter was 36.8 percent compared to 36.1 percent in the 2015 fourth quarter. The effective income tax rate for the 2016 fourth quarter was higher than the 2015 quarter due primarily to the one-time benefit recorded in the 2015 fourth quarter related to the retroactive extension of federal jobs tax credit programs to the 2015 tax year (principally the Work Opportunity Tax Credit). For the first time in several years, these tax credits were not retroactively renewed in the Company’s fourth quarter but instead were available throughout fiscal 2016 and thus already reflected in the Company’s income tax rate for the first three quarters of fiscal 2016.

Full Year 2016 Financial Results

Full year 2016 net sales increased 7.9 percent to $22.0 billion compared to net sales of $20.4 billion in 2015. Same-store sales increased 0.9 percent, primarily due to an increase in average transaction amount accompanied by traffic that was essentially unchanged as compared to the prior year. Same-store sales were driven by positive results in the consumables and home products categories partially offset by negative results in the apparel and seasonal categories.

The Company’s gross profit rate was 30.8 percent of sales in 2016 compared to 31.0 percent in 2015, a decrease of 11 basis points. The gross profit rate decrease was primarily attributable to higher markdowns, driven mainly by promotional activities and inventory clearance, a greater proportion of sales of consumables, and increased inventory shrink, partially offset by higher initial inventory markups and lower transportation costs.

Full year SG&A was 21.5 percent of sales in 2016 compared to 21.4 percent in 2015, an increase of 3 basis points. The SG&A increase was primarily attributable to retail labor costs which increased at a rate greater than the increase in net sales, partially offset by reductions in administrative payroll costs, incentive compensation expenses and advertising costs. The 2016 results also reflect an increase in disaster-related expenses of $12.2 million over 2015, much of which was hurricane-related.

The effective income tax rate for 2016 was 36.3 percent compared to a rate of 37.1 percent for 2015. The effective income tax rate was lower in 2016 due to the adoption of an amended accounting standard related to employee share-based payments requiring the recognition of excess tax benefits in the income statement rather than in the balance sheet, as reported in prior years.

The Company reported net income of $1.25 billion, or diluted EPS of $4.43, for fiscal year 2016 compared to net income of $1.17 billion, or diluted EPS of $3.95, for fiscal year 2015, an increase in diluted EPS of 12.2 percent. The increase in diluted EPS includes an estimated impact of the 53rd week of approximately two percentage points.

Merchandise Inventories

As of February 3, 2017, total merchandise inventories, at cost, were $3.26 billion compared to $3.07 billion as of January 29, 2016, a decrease of approximately 0.7 percent on a per store basis.

Capital Expenditures

Total additions to property and equipment during fiscal 2016 were $560 million, including approximately: $201 million for distribution and transportation related projects; $168 million for improvements, upgrades, remodels and relocations of existing stores; $120 million for new leased stores, primarily for leasehold improvements; $38 million for stores purchased or built by the Company; and $26 million for information systems upgrades and technology-related projects. During 2016, the Company opened 900 new stores and remodeled or relocated 906 stores.

Share Repurchases

The Company repurchased $990 million, or 12.4 million shares, under its share repurchase program in 2016, at an average price of $80.17 per share. Since December 2011 through the end of fiscal 2016, the Company has repurchased 74.4 million shares of its common stock at a total cost of $4.6 billion, at an average price of $61.41 per share. The total remaining authorization for future repurchases was approximately $930 million at the end of the 2016 fiscal year. The authorization has no expiration date.

Dividend

On March 15, 2017, the Board of Directors approved an increase of four percent in its quarterly cash dividend to shareholders. The first quarter dividend of $0.26 per share will be payable on April 25, 2017 to shareholders of record of the Company’s common stock on April 11, 2017. While the Board of Directors intends to continue regular cash dividends, the declaration and amount of future dividends are subject to the Board’s discretion.

Fiscal 2017 Guidance

For the 52-week fiscal year ending February 2, 2018 (“fiscal 2017”), the Company expects its fiscal 2017 net sales to increase four to six percent with same-store sales growth to be slightly positive to up two percent and diluted EPS to be in the range of $4.25 to $4.50.

The Company's fiscal 2017 net sales guidance includes an anticipated negative impact of approximately 2 percentage points due to lapping the 2016 53rd week. The Company’s fiscal 2017 diluted EPS guidance includes an anticipated negative impact totaling approximately $0.34 per share, lowering the fiscal 2017 EPS growth rate by approximately 8 percentage points as follows:

Share repurchases for fiscal 2017 are expected to be approximately $450 million. The Company plans to open approximately 1,000 new stores and relocate or remodel 900 stores in fiscal 2017. Capital expenditures for fiscal 2017 are expected to be in the range of $650 to $700 million.

The information in this “Fiscal 2017 Guidance” section of this press release constitutes the only guidance issued by the Company with respect to its fiscal 2017 performance, operating results or financial condition. The Company undertakes no obligation, and specifically disclaims any duty, to update any of the information set forth in this section except as may be required by law.

Long-Term Growth Model

The Company’s fiscal 2017 financial guidance contemplates results that do not fall within the ranges contained in its long-term growth model that was announced on March 10, 2016. The Company expects to continue to use the long-term growth model internally to assess and benchmark its results and strategic plans; however, the Company does not intend to discuss fiscal 2017 guidance or results in the context of the long-term growth model.

Over the longer term, the Company’s goal is to grow diluted EPS at a 10 percent or higher rate on an adjusted basis. GAAP EPS may include the impact of certain discrete items, which may be excluded in calculating adjusted EPS. In the past these discrete items have included restructuring costs, legal settlements and certain other items that are discretely managed. The Company is not currently aware of any such discrete items.

Conference Call Information

The Company will hold a conference call on Thursday, March 16, 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 46410117. 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, March 30, 2017, and will be accessible online or by calling (855) 859-2056. The conference ID for the replay is 46410117.

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 “Fiscal 2017 Guidance” and “Long-Term Growth Model”. A reader can identify forward-looking statements because they are not limited to historical fact or they use words such as “outlook,” “may,” “should,” “could,” “will,” “believe,” “anticipate,” “plan,” “intend,” “expect,” “estimate,” “forecast,” “confident,” “goal,” “opportunities,” “prospect,” “positioned,” “committed,” or “continue,” 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 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 or as set forth under “Fiscal 2017 Guidance” herein. 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 13,320 stores in 43 states as of February 3, 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
Consolidated Balance Sheets
(In thousands)
             
      (Unaudited)      
      February 3     January 29
      2017     2016
ASSETS            
Current assets:            
Cash and cash equivalents     $ 187,915       $ 157,947  
Merchandise inventories       3,258,785         3,074,153  
Income taxes receivable       11,050         6,843  
Prepaid expenses and other current assets       220,021         193,467  
Total current assets       3,677,771         3,432,410  
Net property and equipment       2,434,456         2,264,062  
Goodwill       4,338,589         4,338,589  
Other intangible assets, net       1,200,659         1,200,994  
Other assets, net       20,823         21,830  
Total assets     $ 11,672,298       $ 11,257,885  
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities:            
Current portion of long-term obligations     $ 500,950       $ 1,379  
Accounts payable       1,557,596         1,494,225  
Accrued expenses and other       500,866         467,122  
Income taxes payable       63,393         32,870  
Total current liabilities       2,622,805         1,995,596  
Long-term obligations       2,710,576         2,969,175  
Deferred income taxes       652,841         639,955  
Other liabilities       279,782         275,283  
Total liabilities       6,266,004         5,880,009  
             
Commitments and contingencies            
             
Shareholders' equity:            
Preferred stock       -         -  
Common stock       240,811         250,855  
Additional paid-in capital       3,154,606         3,107,283  
Retained earnings       2,015,867         2,025,545  
Accumulated other comprehensive loss       (4,990 )       (5,807 )
Total shareholders' equity       5,406,294         5,377,876  
Total liabilities and shareholders' equity     $ 11,672,298       $ 11,257,885  
             

 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
                         
      For the Quarter Ended
      (14 Weeks)     (13 Weeks)
      February 3     % of Net     January 29     % of Net
      2017     Sales     2016     Sales
Net sales     $ 6,009,246     100.00 %     $ 5,286,938     100.00 %
Cost of goods sold       4,108,499     68.37         3,604,669     68.18  
Gross profit       1,900,747     31.63         1,682,269     31.82  
Selling, general and administrative expenses       1,220,129     20.30         1,069,840     20.24  
Operating profit       680,618     11.33         612,429     11.58  
Interest expense       25,511     0.42         23,275     0.44  
Income before income taxes       655,107     10.90         589,154     11.14  
Income tax expense       240,931     4.01         212,979     4.03  
Net income     $ 414,176     6.89 %     $ 376,175     7.12 %
                         
Earnings per share:                        
Basic     $ 1.50           $ 1.30      
Diluted     $ 1.49           $ 1.30      
Weighted average shares outstanding:                        
Basic       276,204             288,401      
Diluted       277,059             289,322      
                         
                         
      For the Year Ended
      (53 Weeks)     (52 Weeks)
      February 3     % of Net     January 29     % of Net
      2017     Sales     2016     Sales
Net sales     $ 21,986,598     100.00 %     $ 20,368,562     100.00 %
Cost of goods sold       15,203,960     69.15         14,062,471     69.04  
Gross profit       6,782,638     30.85         6,306,091     30.96  
Selling, general and administrative expenses       4,719,189     21.46         4,365,797     21.43  
Operating profit       2,063,449     9.39         1,940,294     9.53  
Interest expense       97,821     0.44         86,944     0.43  
Other (income) expense       -     0.00         326     0.00  
Income before income taxes       1,965,628     8.94         1,853,024     9.10  
Income tax expense       714,495     3.25         687,944     3.38  
Net income     $ 1,251,133     5.69 %     $ 1,165,080     5.72 %
                         
Earnings per share:                        
Basic     $ 4.45           $ 3.96      
Diluted     $ 4.43           $ 3.95      
Weighted average shares outstanding:                        
Basic       281,317             294,330      
Diluted       282,261             295,211      
                         

 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
           
    For the Year Ended
    (53 Weeks)     (52 Weeks)
    February 3     January 29
    2017     2016
Cash flows from operating activities:          
Net income   $ 1,251,133       $ 1,165,080  

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

         
Depreciation and amortization     379,931         352,431  
Deferred income taxes     12,359         12,126  
Loss on debt retirement, net     -         326  
Noncash share-based compensation     36,967         38,547  
Other noncash (gains) and losses     (3,625 )       7,797  
Change in operating assets and liabilities:          
Merchandise inventories     (171,908 )       (290,001 )
Prepaid expenses and other current assets     (25,046 )       (24,626 )
Accounts payable     56,477         105,637  
Accrued expenses and other liabilities     42,937         44,949  
Income taxes     26,316         (19,675 )
Other     (500 )       (905 )
Net cash provided by (used in) operating activities     1,605,041         1,391,686  
           
Cash flows from investing activities:          
Purchases of property and equipment     (560,296 )       (504,806 )
Proceeds from sales of property and equipment     9,360         1,423  
Net cash provided by (used in) investing activities     (550,936 )       (503,383 )
           
Cash flows from financing activities:          
Issuance of long-term obligations     -         499,220  
Repayments of long-term obligations     (3,138 )       (502,401 )
Net increase in commercial paper outstanding     490,500         -  
Borrowings under revolving credit facilities     1,584,000         2,034,100  
Repayments of borrowings under revolving credit facilities     (1,835,000 )       (1,783,100 )
Debt issuance costs     -         (6,991 )
Repurchases of common stock     (990,474 )       (1,299,613 )
Payments of cash dividends     (281,135 )       (258,328 )
Other equity and related transactions     11,110         6,934  
Net cash provided by (used in) financing activities     (1,024,137 )       (1,310,179 )
           
Net increase (decrease) in cash and cash equivalents     29,968         (421,876 )
Cash and cash equivalents, beginning of period     157,947         579,823  
Cash and cash equivalents, end of period   $ 187,915       $ 157,947  
           
Supplemental cash flow information:          
Cash paid for:          
Interest   $ 92,952       $ 76,354  
Income taxes   $ 679,633       $ 697,357  
Supplemental schedule of non-cash investing and financing activities:          

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

  $ 38,914       $ 32,020  
           

 

       
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
                   
                   

Sales by Category (in thousands)

                   
      For the Quarter Ended      
      (14 Weeks)     (13 Weeks)      
      February 3     January 29      
        2017       2016       % Change  
Consumables     $ 4,505,486     $ 3,914,335       15.1 %
Seasonal       800,604       738,021       8.5 %
Home products       405,236       364,131       11.3 %
Apparel       297,920       270,451       10.2 %
Net sales     $ 6,009,246     $ 5,286,938       13.7 %
                   
                   
      For the Year Ended      
      (53 Weeks)     (52 Weeks)      
      February 3     January 29      
        2017       2016       % Change  
Consumables     $ 16,798,881     $ 15,457,611       8.7 %
Seasonal       2,674,319       2,522,701       6.0 %
Home products       1,373,397       1,289,423       6.5 %
Apparel       1,140,001       1,098,827       3.7 %
Net sales     $ 21,986,598     $ 20,368,562       7.9 %
                   
                   
                   
Store Activity
(Unaudited)
                   
            For the Year Ended
            (53 Weeks)     (52 Weeks)
            February 3     January 29
            2017     2016
                   
Beginning store count             12,483       11,789  
New store openings             900       730  
Store closings             (63 )     (36 )
Net new stores             837       694  
Ending store count             13,320       12,483  
Total selling square footage (000's)             98,943       92,477  
Growth rate (square footage)             7.0 %     6.0 %