Dollar General Corporation Reports First Quarter 2023 Results

• Net Sales Increased 6.8%
• Same-Store Sales Increased 1.6%
• Operating Profit Decreased 0.7% to  $740.9 Million
• Diluted Earnings Per Share (“EPS”) Decreased 2.9% to  $2.34
• Cash Flows From Operations of $191 Million
• Company Updates pOpshelf Real Estate Plans for Fiscal Year 2023
• Board of Directors Declares Quarterly Cash Dividend of $0.59 per share

“While the macroeconomic environment has been more challenging than expected, particularly for our core customer, we are confident in Dollar General’s ability to deliver strong growth in the years ahead, despite the near-term pressure which impacted our first quarter sales results and is anticipated to impact our full-year sales and EPS,” said Jeff Owen, Dollar General’s chief executive officer.

“We are controlling what we can control and have made significant progress improving our execution on multiple fronts, including on our supply chain recovery efforts and enhancements to the customer experience with our previously announced investment in incremental labor hours. In addition, we executed more than 800 real estate projects, including new store openings in our larger footprint Dollar General formats, which continue to outperform our expectations, and drive higher sales productivity compared to our traditional stores.”

“Looking ahead, we feel good about our position, and are taking action to better serve our core customer, which is our most important calling at Dollar General. Overall, we remain well positioned to serve all of our customers with our unique combination of value and convenience, while also creating long-term shareholder value.”

First Quarter 2023 Highlights

Net sales increased 6.8% to $9.3 billion in the first quarter of 2023 compared to $8.8 billion in the first quarter of 2022. The net sales increase was primarily driven by positive sales contributions from new stores and growth in same-store sales, partially offset by the impact of store closures. Same-store sales increased 1.6% compared to the first quarter of 2022, driven by an increase in average transaction amount, partially offset by a decrease in customer traffic. Same-store sales in the first quarter of 2023 included growth in the consumables category, partially offset by declines in each of the seasonal, home, and apparel categories.

Gross profit as a percentage of net sales was 31.6% in the first quarter of 2023 compared to 31.3% in the first quarter of 2022, an increase of 34 basis points. This gross profit rate increase was primarily attributable to higher inventory markups, decreased transportation costs, and a decreased LIFO provision; partially offset by increased shrink, markdowns, and inventory damages, as well as a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories.

Selling, general and administrative expenses (“SG&A”) as a percentage of net sales were 23.7% in the first quarter of 2023 compared to 22.8% in the first quarter of 2022, an increase of 94 basis points. The primary expenses that were a greater percentage of net sales in the current year period were retail labor, repairs and maintenance, and depreciation and amortization; partially offset by a decrease in incentive compensation.

Operating profit for the first quarter of 2023 decreased 0.7% to $740.9 million compared to $746.2 million in the first quarter of 2022.

Interest expense for the first quarter of 2023 increased 109.3% to $83.0 million compared to $39.7 million in the first quarter of 2022, primarily driven by higher average borrowings and higher interest rates.

The effective income tax rate in both the first quarter of 2023 and the first quarter of 2022 was 21.8%. This effective income tax rate was flat due to offsetting changes driven by a lower state effective tax rate, and less benefit from stock-based compensation in the first quarter of 2023 compared to the first quarter of 2022.

The Company reported net income of $514.4 million for the first quarter of 2023, a decrease of 6.9% compared to $552.7 million in the first quarter of 2022. Diluted EPS decreased 2.9% to $2.34 for the first quarter of 2023 compared to diluted EPS of $2.41 in the first quarter of 2022.

Merchandise Inventories

As of May 5, 2023, total merchandise inventories, at cost, were $7.3 billion compared to $6.1 billion as of April 29, 2022, an increase of 14.7% on a per-store basis. This increase primarily reflects the impact of product cost inflation.

Capital Expenditures

Total additions to property and equipment in the first quarter of 2023 were $363 million, including approximately: $153 million for improvements, upgrades, remodels and relocations of existing stores; $101 million for distribution and transportation-related projects; $90 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores; and $8 million for information systems upgrades and technology-related projects. During the first quarter of 2023, the Company opened 212 new stores, remodeled 582 stores, and relocated 22 stores.

Share Repurchases

Under the program, repurchases may be made 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 the Company’s debt agreements, cash requirements, excess debt capacity, results of operations, financial condition and other factors. The authorization has no expiration date. Information regarding the Company’s updated share repurchase expectations for 2023 can be found under “Fiscal Year 2023 Financial Guidance and Store Growth Outlook.”

Dividend

On May 30, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.59 per share on the Company’s common stock, payable on or before July 25, 2023 to shareholders of record on July 11, 2023. While the Board of Directors currently intends to continue regular cash dividends, the declaration and amount of future dividends are 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, excess debt capacity, and other factors the Board may deem relevant in its sole discretion.

Fiscal Year 2023 Financial Guidance and Store Growth Outlook

The macroeconomic environment is more challenging than the Company had previously anticipated, which the Company believes is having a significant impact on customers’ spending levels and behaviors.

The Company remains confident in the business and its long-term growth prospects, but is revising its outlook for fiscal year 2023, provided on March 16, 2023, to reflect these more challenging macroeconomic headwinds, and now expects:

• Net sales growth in the range of approximately 3.5% to 5.0%, compared to its previous expectation of 5.5% to 6%; both of which include an anticipated negative impact of approximately two percentage points due to lapping the fiscal 2022 53rd week
• Same-store sales growth in the range of approximately 1.0% to 2.0%, compared to its previous expectation of 3.0% to 3.5%
• Diluted EPS in the range of an approximate 8% decline to flat, compared to its previous expectation of growth of approximately 4% to 6%, both of which include an anticipated negative impact of approximately four percentage points due to lapping the fiscal 2022 53rd week
  • The updated Diluted EPS guidance includes an anticipated negative impact of approximately four percentage points due to higher interest expense in fiscal 2023, compared to the anticipated negative impact of approximately three percentage points included in the prior EPS guidance.
• This Diluted EPS guidance assumes an effective tax rate of approximately 22.5%, compared to the previous assumption in the range of approximately 22.5% to 23.0%
• Capital expenditures, including those related to investments in the Company’s strategic initiatives, in the range of $1.6 billion to $1.7 billion, compared to its previous expectation of $1.8 billion to $1.9 billion.

The Company’s guidance assumes no share repurchases in 2023, as compared to its previous expectation of share repurchases of approximately $500 million.

The Company is reducing the number of expected new store openings in the pOpshelf format in 2023. As a result, the Company now expects to execute 3,110 real estate projects in the United States, including 990 new store openings, 2,000 remodels, and 120 store relocations. This is compared to the previous expectation of 3,170 real estate projects in fiscal 2023, including 1,050 new store openings, 2,000 remodels, and 120 store relocations.

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