Dollar General Corporation
Dec 1, 2016

Dollar General Corporation Reports Third Quarter 2016 Financial Results

GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)-- Dollar General Corporation (NYSE: DG) today reported financial results for its fiscal 2016 third quarter (13 weeks) ended October 28, 2016.

"The challenging retail environment that we experienced in the 2016 second quarter continued into the third quarter, contributing to weakness in our same-store sales and our financial performance. In the 2016 third quarter, we invested in gross margin with the goal of driving traffic and sales over time. Many of these actions are gaining traction with our core customers, and we are encouraged by the early results. As expected, the full benefit on our same-store sales will not be immediate. In addition, we saw an acceleration in headwinds from average unit retail price deflation and reductions in SNAP benefits in the 2016 third quarter as compared to the 2016 second quarter. We are focused on efforts to drive traffic in our stores and to control the factors we can control as we look to overcome the issues impacting our results, many of which we believe are macroeconomic and transitory in nature," said Todd Vasos, Dollar General's chief executive officer.

"We continue to believe that our business model is strong given our value proposition to our consumers. We are investing in accelerated new store growth with excellent returns, as well as the infrastructure to support this growth, while continuing to return cash to shareholders."

Third Quarter Highlights

The Company reported net income of $235 million, or $0.84 per diluted share, in the 2016 third quarter, compared to net income of $253 million, or $0.86 per diluted share, in the 2015 third quarter.

Net sales increased 5.0 percent to $5.32 billion in the 2016 third quarter compared to $5.07 billion in the 2015 third quarter. Same-store sales decreased 0.1 percent from the 2015 third quarter primarily due to a decline in traffic partially offset by an increase in average transaction amount. Same-store sales were driven by positive results in the consumables category offset by negative results in the seasonal, apparel and home products categories. The net sales increase was positively affected by sales from new stores, modestly offset by sales from closed stores.

Gross profit, as a percentage of net sales, was 29.8 percent in the 2016 third quarter, a decrease of 49 basis points from the 2015 third quarter. The gross profit rate decrease was primarily attributable to higher markdowns, driven mainly by inventory clearance and promotional activities, a greater proportion of sales of consumables, and increased inventory shrink, partially offset by higher initial inventory markups.

Selling, general and administrative expense ("SG&A"), as a percentage of net sales, was 22.5 percent in the 2016 third quarter compared to 22.0 percent in the 2015 third quarter, an increase of 48 basis points. The SG&A increase was primarily attributable to increased retail labor and occupancy costs. The 2016 third quarter also included charges of $13.0 million, or 25 basis points, associated with the acquisition of the former Walmart Express store locations and related closure of existing stores, $11.0 million of which was for lease termination and other exit and disposal costs. In addition, the Company experienced an increase in disaster-related expenses of $7.7 million, or 14 basis points, most of which were hurricane related. Partially offsetting these items were reductions in administrative payroll costs, incentive compensation expenses and advertising expenses. The 2015 period reflects expenses of $6.1 million related to a corporate restructuring for severance-related benefit costs.

The effective income tax rate was 36.2 percent for the 2016 third quarter compared to a rate of 37.0 percent for the 2015 third quarter. The effective income tax rate was lower in the 2016 third quarter due primarily to the recognition of additional amounts of the Work Opportunity Tax Credit ("WOTC") in the 2016 third quarter. The December 2015 reenactment of the WOTC allowed the Company to receive credits for eligible employees hired during the third quarter of 2016. By comparison, in the 2015 third quarter, only a limited number of employees (hired on or before December 31, 2014) were eligible for the credit.

39-Week Period Results

For the 39-week period ended October 28, 2016, net sales increased 5.9 percent over the comparable 2015 period to $15.98 billion. Same-store sales increased 0.9 percent compared to the corresponding 2015 period. An increase in average transaction amount was the primary contributor to the increase in same-store sales. The remainder of the net sales increase was attributable to sales from new stores, modestly offset by sales from closed stores.

Gross profit increased by 5.6 percent and, as a percentage of net sales, decreased by 10 basis points to 30.6 percent in the 2016 39-week period compared to the comparable 2015 period. The majority of the gross profit rate decrease in the 2016 period as compared to the 2015 period was due 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 inventory initial markups and lower transportation costs, partially attributable to lower fuel rates.

SG&A rounded to 21.9 percent of net sales in both the 2016 and 2015 periods, increasing by 5 basis points in the 2016 period. The SG&A increase was primarily attributable to increased retail labor and occupancy costs. As noted above, the 2016 period included lease termination and other expenses related to the acquired Walmart Express stores and disaster-related expenses. Partially offsetting these items were reductions in administrative payroll costs, incentive compensation, and advertising costs. The 2015 period reflects expenses of $6.1 million related to a corporate restructuring for severance-related benefit costs.

The effective income tax rate for the 2016 period was 36.1 percent compared to a rate of 37.6 percent for the 2015 period. The effective income tax rate was lower in the 2016 period due primarily to the recognition of additional amounts of the WOTC and the Company's early adoption of an amended accounting standard for employee share-based payments. The December 2015 reenactment of the WOTC allowed the Company to receive credits for eligible employees hired during the 2016 period. By comparison, in the 2015 period, only a limited number of employees (hired on or before December 31, 2014) were eligible for the credit.

For the 2016 39-week period, the Company reported net income of $837 million, or $2.95 per diluted share, compared to net income of $789 million, or $2.65 per diluted share, for the 2015 39-week period.

Merchandise Inventories

As of October 28, 2016, total merchandise inventories, at cost, were $3.49 billion compared to $3.10 billion as of October 30, 2015, an increase of 5.6 percent on a per-store basis. The increase was concentrated in everyday planogram categories as compared to seasonally-related categories. Key factors impacting the increase in per store inventory were the Company's on-shelf availability initiative and the timing of receipts, coupled with sales performance.

Capital Expenditures

Total additions to property and equipment in the 39-week period ended October 28, 2016 were $406 million, including: $136 million for distribution and transportation-related capital expenditures; $116 million for improvements, upgrades, remodels and relocations of existing stores; $92 million related to new leased stores, primarily for leasehold improvements, fixtures and equipment; $38 million for stores purchased or built by the Company and $18 million for information systems upgrades and technology-related projects. During the 2016 39-week period, the Company opened 768 new stores and remodeled or relocated 861 stores.

Share Repurchases

During the 2016 third quarter, the Company repurchased 2.9 million shares of its common stock under its share repurchase program at an average price of $77.18 per share. For the 2016 39-week period, the Company repurchased 8.2 million shares of its common stock under the share repurchase program at an average price of $83.24 per share. Since the inception of the share repurchase program in December 2011 through the end of the 2016 third quarter, the Company has repurchased 70.2 million shares totaling $4.3 billion, at an average price of $60.65 per share. The total remaining authorization for future repurchases was approximately $1.2 billion at the end of the 2016 third quarter. The authorization has no expiration date.

Dividend

On November 30, 2016, the Board of Directors declared its regular quarterly cash dividend of $0.25 per share on the Company's common stock. The fourth quarter dividend will be payable on January 4, 2017 to shareholders of record at the close of business on December 21, 2016.

Financial Outlook

On March 10, 2016, the Company stated that it intended to update its diluted EPS guidance for the 53-weeks ending February 3, 2017 ("fiscal 2016") only if the Company no longer reasonably expects diluted EPS to fall within the 10 percent to 15 percent range outlined in the long-term growth model included in its press release issued on that date. The Company now forecasts diluted EPS growth for fiscal 2016 to be at the low end of the Company's long-term growth model range of 10 percent to 15 percent. The Company expects the 53rd week to contribute approximately 200 basis points to its net sales performance and continues to estimate a $0.09 per diluted share impact to EPS.

As stated in the March 10, 2016 press release, the Company does not intend, and specifically disclaims any duty, to update its expectations regarding where in the range of guidance fiscal 2016 net sales, same-store sales or diluted EPS may fall, or to update any component of the growth model outlined in that press release, other than the diluted EPS range as specified herein. However, the Company does intend to discuss square footage growth from time to time. For the 52-week period ending February 2, 2018 ("fiscal 2017"), the Company plans to increase square footage growth by approximately 7.5 percent with the opening of approximately 1,000 new stores in addition to remodeling or relocating 900 stores.

The Company continues to use the long-term growth model outlined in its March 10, 2016 press release in discussions of its business, and by doing so the Company does not undertake to update any portion of the growth model. In any given year, one or more key drivers of the model may be outside of the annual targets outlined in such model.

Conference Call Information

The Company will hold a conference call on Thursday, December 1, 2016, 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 passcode is 4908601. The call will also be broadcast live online at www.dollargeneral.com under "Investor Information, News & Events, Events & Presentations." A replay of the conference call will be available through Thursday, December 15, 2016, and will be accessible online or by calling (855) 859-2056. The conference ID for the replay is 4908601.

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 section entitled "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," "should," "could," "will," "believe," "anticipate," "plan," "expect," "estimate," "forecast," "confident," "opportunities," "goal," "prospect," "positioned," "accelerate," "intend," "committed," "continue," "looking ahead," "going forward," "focused on," "look to," 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 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 "Financial Outlook" 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. Dollar General operates 13,205 stores in 43 states as of October 28, 2016. In addition to high quality private brands, Dollar General sells products from America's most-trusted manufacturers such as Clorox, Energizer, Procter & Gamble, Hanes, Coca-Cola, Mars, Unilever, Nestle, Kimberly-Clark, Kellogg's, General Mills, and PepsiCo. For more information on Dollar General, please visit www.dollargeneral.com.

       
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
   
(Unaudited)
October 28 October 30 January 29
2016     2015     2016
ASSETS
Current assets:
Cash and cash equivalents $ 200,236 $ 182,514 $ 157,947
Merchandise inventories 3,488,247 3,101,908 3,074,153
Income taxes receivable 54,586 11,877 6,843
Prepaid expenses and other current assets       225,443         192,476         193,467  
Total current assets       3,968,512         3,488,775         3,432,410  
Net property and equipment       2,388,463         2,237,068         2,264,062  
Goodwill       4,338,589         4,338,589         4,338,589  
Other intangible assets, net       1,200,734         1,201,110         1,200,994  
Other assets, net       20,778         22,751         21,830  
Total assets     $ 11,917,076       $ 11,288,293       $ 11,257,885  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 501,480 $ 1,358 $ 1,379
Accounts payable 1,948,111 1,470,107 1,494,225
Accrued expenses and other 504,427 473,528 467,122
Income taxes payable       5,721         30,462         32,870  
Total current liabilities       2,959,739         1,975,455         1,995,596  
Long-term obligations       2,673,210         3,105,332         2,969,175  
Deferred income taxes       637,135         584,366         639,955  
Other liabilities       285,140         279,547         275,283  
Total liabilities       6,555,224         5,944,700         5,880,009  
 
Commitments and contingencies
 
Shareholders' equity:
Preferred stock - - -
Common stock 244,457 254,697 250,855
Additional paid-in capital 3,144,632 3,095,790 3,107,283
Retained earnings 1,977,969 1,999,119 2,025,545
Accumulated other comprehensive loss       (5,206 )       (6,013 )       (5,807 )
Total shareholders' equity       5,361,852         5,343,593         5,377,876  
Total liabilities and shareholders' equity     $ 11,917,076       $ 11,288,293       $ 11,257,885  
 

Note: Certain financial disclosures relating to prior periods have been reclassified to conform to the current year presentation where applicable.

 

       
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
       
For the Quarter (13 Weeks) Ended
October 28 % of Net October 30 % of Net
2016     Sales       2015     Sales  
Net sales $ 5,320,029 100.00 % $ 5,067,048 100.00 %
Cost of goods sold       3,732,519     70.16         3,530,086     69.67  
Gross profit 1,587,510 29.84 1,536,962 30.33
Selling, general and administrative expenses       1,194,519     22.45         1,113,103     21.97  
Operating profit 392,991 7.39 423,859 8.37
Interest expense 23,877 0.45 21,394 0.42
Other (income) expense       -     0.00         326     0.01  
Income before income taxes 369,114 6.94 402,139 7.94
Income tax expense       133,799     2.52         148,818     2.94  
Net income     $ 235,315     4.42 %     $ 253,321     5.00 %
 
Earnings per share:
Basic $ 0.84 $ 0.87
Diluted $ 0.84 $ 0.86
Weighted average shares outstanding:
Basic 280,441 292,037
Diluted 281,283 292,904
 
 
For the 39 Weeks Ended
October 28 % of Net October 30 % of Net
2016     Sales       2015     Sales  
Net sales $ 15,977,352 100.00 % $ 15,081,624 100.00 %
Cost of goods sold       11,095,461     69.44         10,457,802     69.34  
Gross profit 4,881,891 30.56 4,623,822 30.66
Selling, general and administrative expenses       3,499,060     21.90         3,295,957     21.85  
Operating profit 1,382,831 8.65 1,327,865 8.80
Interest expense 72,310 0.45 63,669 0.42
Other (income) expense       -     0.00         326     0.00  
Income before income taxes 1,310,521 8.20 1,263,870 8.38
Income tax expense       473,564     2.96         474,965     3.15  
Net income     $ 836,957     5.24 %     $ 788,905     5.23 %
 
Earnings per share:
Basic $ 2.96 $ 2.66
Diluted $ 2.95 $ 2.65
Weighted average shares outstanding:
Basic 283,152 296,307
Diluted 284,126 297,174
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
       
For the 39 Weeks Ended
October 28 October 30
2016   2015
Cash flows from operating activities:
Net income $ 836,957 $ 788,905

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

Depreciation and amortization 282,386 263,287
Deferred income taxes (3,207 ) (59,026 )
Loss on debt retirement, net - 326
Noncash share-based compensation 27,676 28,890
Other noncash (gains) and losses 1,935 7,130
Change in operating assets and liabilities:
Merchandise inventories (405,456 ) (317,273 )
Prepaid expenses and other current assets (30,471 ) (24,242 )
Accounts payable 439,259 75,880
Accrued expenses and other liabilities 50,683 58,701
Income taxes (74,892 ) (12,246 )
Other       (456 )       (1,220 )
Net cash provided by (used in) operating activities       1,124,414         809,112  
 
Cash flows from investing activities:
Purchases of property and equipment (405,899 ) (386,886 )
Proceeds from sales of property and equipment       4,333         813  
Net cash provided by (used in) investing activities       (401,566 )       (386,073 )
 
Cash flows from financing activities:
Issuance of long-term obligations - 499,220
Repayments of long-term obligations (1,302 ) (502,120 )
Net increase in commercial paper outstanding 453,000 -
Borrowings under revolving credit facilities 1,584,000 1,302,100
Repayments of borrowings under revolving credit facilities (1,835,000 ) (914,100 )
Debt issuance costs - (7,011 )
Repurchases of common stock (679,416 ) (1,009,411 )
Payments of cash dividends (212,249 ) (195,169 )
Other equity and related transactions       10,408         6,143  
Net cash provided by (used in) financing activities       (680,559 )       (820,348 )
 
Net increase (decrease) in cash and cash equivalents 42,289 (397,309 )
Cash and cash equivalents, beginning of period       157,947         579,823  
Cash and cash equivalents, end of period     $ 200,236       $ 182,514  
 
Supplemental cash flow information:
Cash paid for:
Interest $ 68,258 $ 63,125
Income taxes $ 552,259 $ 548,445
Supplemental schedule of non-cash investing and financing activities:

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

$ 46,647 $ 37,659
 

       
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
   
 
Sales by Category (in thousands)
 
For the Quarter (13 Weeks) Ended
October 28 October 30
2016     2015 % Change
Consumables $ 4,137,748 $ 3,921,663 5.5 %
Seasonal 575,912 555,862 3.6 %
Home products 329,715 317,963 3.7 %
Apparel   276,654       271,560   1.9 %
Net sales $ 5,320,029     $ 5,067,048   5.0 %
 
 
For the 39 Weeks Ended
October 28 October 30
2016     2015 % Change
Consumables $ 12,293,395 $ 11,543,276 6.5 %
Seasonal 1,873,715 1,784,680 5.0 %
Home products 968,161 925,292 4.6 %
Apparel   842,081       828,376   1.7 %
Net sales $ 15,977,352     $ 15,081,624   5.9 %
 
 

Store Activity

 
For the 39 Weeks Ended
October 28 October 30
2016   2015
 
Beginning store count 12,483 11,789
New store openings 768 634
Store closings   (46 )   (27 )
Net new stores   722     607  
Ending store count   13,205     12,396  
Total selling square footage (000's)   98,093     91,818  
Growth rate (square footage)   6.8 %   6.0 %
 

Dollar General Corporation
Investor Contacts:
Mary Winn Pilkington, 615-855-5536
or
Matt Hancock, 615-855-4811
or
Media Contacts:
Dan MacDonald, 615-855-5209
or
Crystal Ghassemi, 615-855-5210

Source: Dollar General Corporation

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