Dollar General Corporation (NYSE: DG) is proud to serve as America’s neighborhood general store. Founded in 1939, Dollar General lives its mission of Serving Others every day by providing access to affordable products and services for its customers, career opportunities for its employees, and literacy and education support for its hometown communities. As of August 4, 2023, the company’s 19,488 Dollar General, DG Market, DGX and pOpshelf stores across the United States and Mi Súper Dollar General stores in Mexico provide everyday essentials including food, health and wellness products, cleaning and laundry supplies, self-care and beauty items, and seasonal décor from our high-quality private brands alongside many of the world’s most trusted brands such as Coca Cola, PepsiCo/Frito-Lay, General Mills, Hershey, J.M. Smucker, Kraft, Mars, Nestlé, Procter & Gamble and Unilever. Learn more at DollarGeneral.com.
Dollar General Corporation Reports First Quarter 2008 Financial Results
June 16, 2008
Same Store Sales Increased 5.4%
Gross Margin Expanded 102 Basis Points to 28.8%
SG&A as Percentage of Sales Decreased 115 Basis Points Versus Year
Ago Period
Achieved Net Income of $5.9 Million
Adjusted EBITDA Increased 28% Versus Year Ago Period
GOODLETTSVILLE, Tenn., Jun 16, 2008 (BUSINESS WIRE) -- Dollar General Corporation today announced financial results for the 13-week first quarter ended May 2, 2008.
Sales for the quarter were $2.40 billion compared to $2.28 billion in the first quarter of fiscal 2007. Same store sales increased 5.4 percent on top of a 2.4 percent same store sales increase in the first quarter of 2007.
First quarter gross profit increased by $60.0 million and, as a percentage of sales, increased 102 basis points to 28.8 percent from 27.8 percent in the same period of the prior year. As a percentage of sales, the gross profit rate increased in the 2008 period compared with the 2007 period due to a number of factors, including lower markdowns and decreases in shrink and damages. The impact of significantly higher fuel costs were partially offset by logistics efficiencies and other cost savings in the supply chain.
As a percentage of sales, selling, general and administrative expense ("SG&A") decreased 115 basis points to 24.2 percent in the 2008 quarter from 25.4 percent in the 2007 quarter. SG&A as a percentage of sales, after excluding certain expenses from each period, improved 44 basis points in the first quarter of 2008 from the prior year. Such excluded expenses in 2008 totaled $20.3 million, comprised of amortization of leasehold intangibles capitalized in connection with purchase accounting ($10.3 million), severance and related costs ($6.8 million) and other expenses relating to the Company's new ownership, including monitoring, consulting and legal fees ($3.2 million). Such excluded expenses in 2007 totaled $35.6 million related to strategic inventory clearance activities and real estate initiatives, including lease contract termination costs, incremental store labor and other expenses associated with the closing of 153 stores in the 2007 quarter ($29.3 million) and legal and consulting expenses associated with the proposed Merger ($5.6 million).
Interest income for the quarter, which consists primarily of interest on short-term investments, decreased by approximately $1.6 million from the prior year, and interest expense increased by $94.7 million, resulting from interest on long-term obligations incurred to finance the Merger.
The effective income tax rate for the 2008 first quarter was 44.5% or 11.9% higher than the rate of 32.6% for the 2007 quarter. The rate increase is due principally to the reduction in income tax reserves during the 2007 period related to income tax audits that did not recur in the 2008 period and to the unfavorable impact on the effective tax rate of a relatively fixed expense (principally income tax related interest expense) being divided by a decreased level of income before tax to determine the effective tax rate.
For the quarter, the Company reported net income of $5.9 million compared to net income of $34.9 million in the first quarter of 2007. EBITDA (earnings before interest, income taxes, depreciation and amortization) in 2008 increased by $62.9 million to $168.8 million. Adjusted EBITDA, as defined in the Company's credit agreements and calculated in the attached schedule, increased $39.8 million, or 28 percent, in 2008 over the first quarter of fiscal 2007.
"We are pleased with Dollar General's operating and financial performance during the first quarter," said Rick Dreiling, Chief Executive Officer. "During the quarter, we achieved solid same store sales growth, gross margin expansion and SG&A leverage, resulting in significant improvement in operating profit and EBITDA. We believe we are benefiting from current economic conditions which are encouraging customers to seek shopping alternatives that offer quality products at everyday low prices. We also believe our recently announced operating priorities are beginning to take hold and have accelerated the Company's progress and business improvements."
Merchandise Inventories
As of May 2, 2008, total merchandise inventories, at cost, were $1.32 billion compared to $1.44 billion as of May 4, 2007, a decrease of $127 million, or approximately 9 percent in total and 10 percent on an average per-store basis. The decrease in inventories was primarily driven by the Company's elimination of packaway inventories and improved inventory management practices.
Long-Term Obligations
As of May 2, 2008, outstanding long-term obligations, including the current portion, were $4.18 billion, including $2.30 billion outstanding under a senior secured term loan facility. There were no borrowings under the Company's asset-based revolving credit facility. As of June 16, 2008, the Company has no outstanding borrowings under its asset-based revolving credit facility, with excess availability of $857 million. The ratio of long-term obligations to Adjusted EBITDA as of May 2, 2008, as calculated on the attached schedule, decreased to 5.8 times from 7.1 times since the closing of the Merger transaction in July 2007.
Cash Flow
For the first quarter, the Company generated $151.6 million of cash from operating activities versus $29.3 million in fiscal 2007, resulting from the impact of the Company's strong operating results and working capital changes. During the quarter, the Company repaid $102.5 million of borrowings under its revolving credit facility and made total interest payments on borrowings of $45.6 million. In addition, the Company made income tax payments in the quarter, including interest, of $2.2 million.
Basis of Accounting
The Company was acquired on July 6, 2007 through a merger accounted for as a reverse acquisition ("Merger"). Although the Company continued as the same legal entity after the Merger, the accompanying financial statements are presented for the "Predecessor" and "Successor" as a result of the Company applying purchase accounting and a new basis of accounting beginning on July 7, 2007, which affects the comparability of amounts before and after the Merger.
Company Outlook
Based on current visibility and business trends, including a same store sales increase of 9.3 percent in May, the Company remains committed to productive sales growth, expense management, and gross margin expansion in 2008. The Company plans to open approximately 200 new Dollar General stores and to relocate or remodel approximately 400 stores during the year. Dollar General also continues to expect capital expenditures of approximately $200 million to $220 million, primarily related to the opening of new stores as well as the remodel and relocation of existing stores and other special initiatives.
"We are cautiously optimistic about the prospects for Dollar General in 2008," said Mr. Dreiling. "We recognize that the challenging economic environment is having an impact on retailing in general and consumer spending patterns. While we are monitoring market trends closely, we are intently focused on what is within our control. We are providing customers value-priced quality products, improved customer service and convenient locations, and we believe our proven business model leaves Dollar General well-positioned to capitalize on any opportunities that arise."
Conference Call Information
The Company will hold a conference call on Tuesday, June 17, 2008 at 9:00 a.m. CDT/10:00 a.m. EDT, hosted by Rick Dreiling, Chief Executive Officer, and David Tehle, Chief Financial Officer. If you wish to participate, please call (866) 710-0179 at least 10 minutes before the conference call is scheduled to begin. The pass code for the conference call is "Dollar General." 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 Tuesday, July 1, 2008 and will be accessible online or by calling (334) 323-7226. The pass code for the replay is 75709798.
About Dollar General Corporation
Dollar General is the largest discount retailer in the United States by number of stores with more than 8,200 neighborhood stores located in 35 states. Dollar General helps shoppers Save Time. Save Money. Every Day.(R) by offering national branded items that are frequently used and replenished such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, house wares and seasonal items at everyday low prices in convenient neighborhood stores. Dollar General is among the largest retailers of top-quality products made by America's most trusted manufacturers such as Procter & Gamble, Kimberly Clark, Unilever, Kellogg's, General Mills, Nabisco, and Fruit of the Loom. The Company store support center is located in Goodlettsville, Tennessee. Dollar General's Web site can be reached at www.dollargeneral.com.
Forward-Looking Statements
This press release contains forward-looking information, such as the information in the section entitled "Company Outlook." The words "believe," "anticipate," "project," "plan," "schedule," "expect," "estimate," "objective," "forecast," "goal," "intend," "committed," "will likely result," or "will continue" and similar expressions generally identify forward-looking statements. These matters involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from that expressed or implied by these forward-looking statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate and, therefore, actual results may differ materially from those projected by, or implied in, the forward-looking statements. Factors that may result in actual results differing from such forward-looking information include, but are not limited to, those set forth in the Company's Annual Report on Form 10-K filed with the SEC on March 28, 2008, and other factors set forth in this press release.
Forward-looking statements speak only as of the date made. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they were made. 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.
Non-GAAP Disclosure
Certain information provided in this press release or to be discussed during the June 17th conference call has not been derived in accordance with generally accepted accounting principles ("GAAP"), including EBITDA and Adjusted EBITDA. Reconciliations to net income of EBITDA and Adjusted EBITDA used in this press release are provided in the accompanying table.
EBITDA and Adjusted EBITDA are not measures of financial performance or condition, liquidity or profitability, and should not be considered as an alternative to (1) net income, operating income or any other performance measures determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements and replacement of fixed assets. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. The Company believes that the presentation of EBITDA and Adjusted EBITDA is appropriate to provide additional information about the calculation of a material financial ratio in the Company's credit facilities. Adjusted EBITDA is a material component of that ratio. Management from time to time uses EBITDA and Adjusted EBITDA, as well as other measures, as additional financial metrics to supplement net income and cash flow in its evaluation of the Company's financial results. For more discussion regarding the financial ratio in the Company's credit facilities, the reasons management believes these non-GAAP measures are useful to investors, and the limitations of these non-GAAP measures, please see the Company's Annual Report on Form 10-K filed with the SEC on March 28, 2008.
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
Successor Predecessor
------------------------ -----------
May 2, February 1, May 4,
2008 2008 2007
----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 115,904 $ 100,209 $ 204,417
Short-term investments 48,571 19,611 27,371
Merchandise inventories 1,317,097 1,288,661 1,444,313
Income taxes receivable 33,813 32,501 14,624
Deferred income taxes 15,247 17,297 37,860
Prepaid expenses and other
current assets 64,508 59,465 57,572
------------------------------- ----------- ----------- -----------
Total current assets 1,595,140 1,517,744 1,786,157
------------------------------- ----------- ----------- -----------
Property and equipment, at cost 1,412,673 1,389,563 2,445,133
Less: accumulated depreciation
and amortization 162,103 115,318 1,232,935
------------------------------- ----------- ----------- -----------
Net property and equipment 1,250,570 1,274,245 1,212,198
------------------------------- ----------- ----------- -----------
Goodwill 4,344,930 4,344,930 2,337
------------------------------- ----------- ----------- -----------
Intangible assets, net 1,359,090 1,370,557 86
------------------------------- ----------- ----------- -----------
Deferred income taxes - - 12,418
------------------------------- ----------- ----------- -----------
Other assets, net 113,269 148,955 61,113
------------------------------- ----------- ----------- -----------
Total assets $8,662,999 $8,656,431 $3,074,309
=============================== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
obligations $ 2,830 $ 3,246 $ 7,186
Accounts payable 592,071 551,040 484,949
Accrued expenses and other 356,915 300,956 258,090
Income taxes payable 2,924 2,999 48
------------------------------- ----------- ----------- -----------
Total current liabilities 954,740 858,241 750,273
------------------------------- ----------- ----------- -----------
Long-term obligations 4,176,121 4,278,756 260,373
------------------------------- ----------- ----------- -----------
Deferred income taxes 490,035 486,725 -
------------------------------- ----------- ----------- -----------
Other non-current liabilities 302,384 319,714 266,886
------------------------------- ----------- ----------- -----------
Total liabilities 5,923,280 5,943,436 1,277,532
------------------------------- ----------- ----------- -----------
Redeemable common stock 9,112 9,122 -
------------------------------- ----------- ----------- -----------
Shareholders' equity:
Preferred stock - - -
Common stock 277,740 277,741 157,298
Additional paid-in capital 2,482,409 2,480,062 525,830
Retained earnings
(accumulated deficit) 1,097 (4,818) 1,114,170
Accumulated other
comprehensive loss (30,639) (49,112) (941)
Other shareholders' equity - - 420
------------------------------- ----------- ----------- -----------
Total shareholders' equity 2,730,607 2,703,873 1,796,777
------------------------------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $8,662,999 $8,656,431 $3,074,309
=============================== =========== =========== ===========
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
(Unaudited)
Successor Predecessor
--------------------- ---------------------
For the Quarter (13 Weeks) Ended
--------------------------------------------
May 2, % of Net May 4, % of Net
2008 Sales 2007 Sales
----------- -------- ----------- --------
Net sales $2,403,498 100.00% $2,275,267 100.00%
Cost of goods sold 1,710,421 71.16 1,642,207 72.18
------------------------ ----------- -------- ----------- --------
Gross profit 693,077 28.84 633,060 27.82
Selling, general and
administrative 582,504 24.24 577,692 25.39
------------------------ ----------- -------- ----------- --------
Operating profit 110,573 4.60 55,368 2.43
Interest income (957) (0.04) (2,573) (0.11)
Interest expense 100,871 4.20 6,167 0.27
------------------------ ----------- -------- ----------- --------
Income before income
taxes 10,659 0.44 51,774 2.28
Income taxes 4,743 0.20 16,899 0.74
------------------------ ----------- -------- ----------- --------
Net income $ 5,916 0.25% $ 34,875 1.53%
======================== =========== ======== =========== ========
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Successor Predecessor
--------------- ---------------
For the Quarter (13 Weeks) Ended
--------------------------------
May 2, May 4,
2008 2007
--------------- ---------------
Cash flows from operating
activities:
Net income $ 5,916 $ 34,875
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 61,406 50,451
Deferred income taxes (5,600) (4,948)
Noncash share-based compensation 2,346 3,469
Tax benefit from stock option
exercises - (3,529)
Change in operating assets and
liabilities:
Merchandise inventories (28,436) (11,977)
Prepaid expenses and other
current assets (3,545) (552)
Accounts payable 52,860 (62,870)
Accrued expenses and other 67,897 25,647
Income taxes (1,387) (1,736)
Other 104 456
------------------------------------ --------------- ---------------
Net cash provided by operating
activities 151,561 29,286
------------------------------------ --------------- ---------------
Cash flows from investing
activities:
Purchases of property and
equipment (35,373) (34,101)
Purchases of short-term
investments (9,903) -
Sales of short-term investments 12,976 6,000
Purchases of long-term investments - (5,670)
Proceeds from sale of property and
equipment 94 169
------------------------------------ --------------- ---------------
Net cash used in investing
activities (32,206) (33,602)
------------------------------------ --------------- ---------------
Cash flows from financing
activities:
Borrowings under revolving credit
facility - -
Repayments of borrowings under
revolving credit facility (102,500) -
Repayments of long-term
obligations (1,045) (2,653)
Payment of cash dividends - (15,712)
Proceeds from exercise of stock
options - 34,281
Repurchases of common stock (10) -
Tax benefit from stock option
exercises - 3,529
Other financing activities (105) -
------------------------------------ --------------- ---------------
Net cash provided by (used in)
financing activities (103,660) 19,445
------------------------------------ --------------- ---------------
Net increase in cash and cash
equivalents 15,695 15,129
Cash and cash equivalents, beginning
of period 100,209 189,288
------------------------------------ --------------- ---------------
Cash and cash equivalents, end of
period $ 115,904 $ 204,417
==================================== =============== ===============
Supplemental schedule of noncash
investing and financing activities:
Purchases of property and equipment
awaiting processing for payment,
included in Accounts payable $ 8,620 $ 10,639
Purchases of property and equipment
under capital lease obligations $ - $ 163
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
Sales by Category (in thousands)
----------------------------------------------------------------------
Successor Predecessor
------------- -------------------
For the Quarter (13 Weeks) Ended
----------------------------------
May 2, 2008 May 4, 2007 % Change
------------- ------------------- -----------
Highly consumable $1,680,895 $ 1,523,793 10.3%
Seasonal 322,126 336,449 (4.3)
Home products 204,493 215,046 (4.9)
Basic clothing 195,984 199,979 (2.0)
------------- ------------------- -----------
Total sales $2,403,498 $ 2,275,267 5.6%
============= =================== ===========
Same Store Sales
----------------------------------------------------------------------
2008 2007
------------- -------------------
February (4 weeks) 4.6% 4.9%
March (5 weeks) 2.3% 5.5%
April (4 weeks) 10.4% (2.4)%
------------- -------------------
Quarter (13 weeks) 5.4% 2.4%
============= ===================
New Store Activity
----------------------------------------------------------------------
For the Quarter (13 Weeks) Ended
--------------------------------
May 2, 2008 May 4, 2007
------------------- -----------
Beginning store count 8,194 8,229
New store openings 73 124
Store closings (1) (2) (171)
------------------- -----------
Net new (closed)
stores 71 (47)
------------------- -----------
Ending store count 8,265 8,182
=================== ===========
Total selling square
footage (000's) 57,919 57,090
=================== ===========
(1) 2007 store closings include 153 stores closed in connection with
the Company's strategic decision in 2006 to close approximately 400
stores in addition to those closed in the ordinary course of
business.
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
52
13 Weeks 13 Weeks 52 Weeks Weeks 52 Weeks
Ended Ended Ended Ended Ended
May 2, May 4, May 2, May 4, February 1,
(In millions) 2008 2007 2008 2007(a) 2008(b)
--------- --------- --------- ------- -----------
Net income (loss) $ 5.9 $ 34.9 $ (41.8) $123.9 $ (12.8)
Add (subtract):
Interest income (1.0) (2.6) (7.2) (7.1) (8.8)
Interest expense 100.9 6.2 357.9 33.8 263.2
Depreciation and
amortization 58.3 50.5 234.2 202.3 226.4
Income taxes 4.7 16.9 (2.0) 69.7 10.2
--------- --------- --------- ------- -----------
EBITDA 168.8 105.9 541.1 422.6 478.2
--------- --------- --------- ------- -----------
Adjustments:
Transaction and
related costs - 5.6 97.0 5.6 102.6
Loss on debt
retirement - - 1.2 - 1.2
Loss on interest
rate swaps 0.3 - 2.7 2.1 2.4
Contingent loss on
distribution
center leases - - 12.0 - 12.0
Impact of
markdowns related
to inventory
clearance
activities,
including LCM
adjustments, net
of purchasing
accounting
adjustments 1.3 (3.9) 10.9 153.9 5.7
SG&A related to
store closing and
inventory
clearance
activities - 29.3 24.7 62.4 54.0
Operating losses
(cash) of stores
to be closed - 5.3 5.2 17.2 10.5
Hurricane Katrina
insurance
proceeds, net - - - (7.0) -
Monitoring and
consulting fees
to affiliates 2.2 - 7.0 - 4.8
Stock option and
restricted stock
unit expense 2.3 - 8.8 - 6.5
Indirect merger-
related costs 7.8 - 12.4 - 4.6
Other - 0.7 0.3 1.7 1.0
--------- --------- --------- ------- -----------
Total Adjustments 13.9 37.0 182.2 235.9 205.3
--------- --------- --------- ------- -----------
Adjusted EBITDA $ 182.7 $ 142.9 $ 723.3 $658.5 $ 683.5
========= ========= ========= ======= ===========
(a) 52 week data used in calculation of ratio of total debt to
Adjusted EBITDA below.
(b) 52 week data represents the mathematical combination of the
Predecessor through July 6, 2007 and Successor from July 7, 2007
through February 1, 2008.
CALCULATION OF RATIO OF LONG-TERM OBLIGATIONS TO ADJUSTED EBITDA
(Leverage Ratio)
At Merger
February Date
May 2, 1, July 6,
(in millions) 2008 2008 2007
--------- --------- ---------
Senior secured term
loan facility $2,300.0 $2,300.0 $2,300.0
Senior secured
asset-based
revolving credit
facility - 102.5 432.3
10 5/8% Senior Notes
due July 15, 2015,
net of discount 1,153.4 1,152.9 1,151.8
11 7/8%/12 5/8%
Senior Subordinated
Notes due July 15,
2017 700.0 700.0 725.0
8 5/8% Notes due
June 15, 2010 1.8 1.8 1.8
Financing and
capital lease
obligations 9.2 10.3 52.2
Tax increment
financing due
February 1, 2035 14.5 14.5 14.5
--------- --------- ---------
$4,179.0 $4,282.0 $4,677.6
--------- --------- ---------
LTM Adjusted EBITDA
(latest reported
period) $ 723.3 $ 683.5 $ 658.5
--------- --------- ---------
Total Debt /
Adjusted EBITDA 5.8x 6.3x 7.1x
========= ========= =========
SOURCE: Dollar General Corporation
Dollar General Corporation Investor Contact: Emma Jo Kauffman, 615-855-5525 or Media Contact: Tawn Earnest, 615-855-5209
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