Dollar General Corporation
Mar 10, 2016

Dollar General Reports Record Fourth Quarter and Full Year 2015 Financial Results; Board of Directors Increases Regular Quarterly Cash Dividend by 14%

GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)-- Dollar General Corporation (NYSE: DG) today reported record sales, net income and diluted earnings per share ("EPS") for its fiscal 2015 fourth quarter (13 weeks) and full year (52 weeks) ended January 29, 2016.

"2015 was another great year for Dollar General as we achieved strong financial results with a focus on profitable sales growth. For the 26th consecutive year, we delivered positive same-store sales growth. In the fourth quarter, we effectively balanced sales and operating profit through our toughest quarterly comparison of the year to deliver record results leading to full year diluted EPS growth of 13%,'' said Todd Vasos, Dollar General's chief executive officer.

"Looking ahead, Dollar General continues to have significant opportunities for growth. The goal of our long-term growth model that we announced today is to drive 11% to 17% total annual shareholder return per year through EPS growth and dividend yield. Considering the financial results we have delivered over the last three years and consistent with how we are managing the business, our growth model is focused on increasing long-term shareholder value by driving profitable sales growth, capturing growth opportunities, enhancing our position as a low-cost operator and investing in our people. For 2016, we plan to return approximately $1.3 billion to shareholders through anticipated quarterly cash dividends and consistent share repurchases."

Vasos continued, "The Company remains well-positioned to serve our customers with value and convenience. We continue to take the appropriate strategic steps to ensure that we are investing in the Company for sustainable and consistent growth."

Fourth Quarter 2015 Highlights

The Company's net income for the 2015 fourth quarter was $376 million, or diluted EPS of $1.30, compared to net income of $355 million, or diluted EPS of $1.17, in the 2014 fourth quarter.

Net sales increased 7.0 percent to $5.29 billion in the 2015 fourth quarter compared to $4.94 billion in the 2014 fourth quarter. Departments with the most significant increases in net sales were candy and snacks, perishables, tobacco, and food. Same-store sales increased 2.2 percent, resulting from increases in both customer traffic and average transaction amount. Same-store sales increases were driven by strength in both the consumables and the non-consumables categories. In the consumables category, growth was driven primarily by candy and snacks, tobacco and perishables. Growth in the non-consumable category was broad-based with notable strength across seasonal and home, offset by a modest decline in apparel.

The Company's gross profit, as a percentage of sales, was 31.8 percent in the 2015 fourth quarter compared to 31.7 percent in the 2014 fourth quarter, an increase of 12 basis points. Lower transportation costs and an improved rate of inventory shrinkage were the primary factors of the improved performance, while increased markdowns were an offset.

Selling, general and administrative expenses ("SG&A") were $1.07 billion in the 2015 fourth quarter, compared to $1.00 billion in the 2014 fourth quarter. For both the 2015 and 2014 quarters, SG&A as a percent of sales was 20.2 percent. The 2015 fourth quarter results reflect increases in incentive compensation, retail salaries, and occupancy costs, offset by lower utility costs and administrative salaries as a percentage of sales. The 2014 fourth quarter results reflect expenses of $6.1 million, or 12 basis points as a percentage of sales, related to an acquisition that was not completed.

The effective income tax rate in the 2015 fourth quarter was 36.1 percent compared to 34.8 percent in the 2014 fourth quarter. Both years benefitted from the retroactive reenactment of the Work Opportunity Tax Credit ("WOTC"). The effective tax rate for the 2015 fourth quarter was higher than the 2014 quarter due to state income tax benefits recorded in the 2014 period as well as a benefit in the 2014 quarter associated with a change in the deductibility of expenses incurred in prior quarters of that year associated with an acquisition that was not completed.

As noted above, the 2015 fourth quarter effective tax rate benefitted from the retroactive (for employees hired on or after January 1, 2015) reenactment of the WOTC. A total benefit of approximately $16.5 million, or $0.06 per share, from this reenactment was recorded in the 2015 fourth quarter. Of this amount, approximately $11.5 million would have been recorded in previous 2015 quarters had the law been approved at the beginning of the year, as follows: $3.6 million in the first quarter, $4.0 million in the second quarter and $3.8 million in the third quarter.

Full Year 2015 Financial Results

Full year 2015 net sales increased 7.7 percent to $20.4 billion compared to net sales of $18.9 billion in 2014. Departments with the most significant increases in net sales were candy and snacks, perishables, tobacco, and food. Same-store sales increased 2.8 percent, including increases in both customer traffic and average transaction amount resulting from the refinement of the Company's merchandise offerings, as well as increases in candy and snacks, tobacco products and perishables, and increased utilization of store square footage. In addition, all four product categories contributed to same-store sales growth.

The Company's gross profit rate was 31.0 percent of sales in 2015 compared to 30.7 percent in 2014, an increase of 27 basis points. The majority of the gross profit rate increase in 2015 as compared to 2014 was due to lower transportation costs and an improved rate of inventory shrinkage, partially offset by increased markdowns. The Company recorded a LIFO benefit of $2.3 million in 2015 compared to a LIFO provision of $4.2 million in 2014.

Full year SG&A was 21.4 percent of sales in 2015 compared to 21.3 percent in 2014, an increase of 10 basis points. The 2015 SG&A results reflect increases in incentive compensation expenses, repairs and maintenance expenses, occupancy costs, and fees associated with an increase in debit card transactions. Partially offsetting these items was a higher volume of cash back transactions resulting in increased convenience fees collected from customers. The 2014 SG&A results reflect expenses of $14.3 million, or 8 basis points as a percentage of sales, related to an acquisition that was not completed.

The effective income tax rate for 2015 was 37.1 percent compared to 36.6 percent for 2014. The effective income tax rate was lower in 2014 due principally to federal and state reserve releases in 2014 that did not reoccur, to the same extent, in 2015. As in prior years, we received a significant income tax benefit related to wages paid to certain newly hired employees that qualify for federal jobs credits (principally the Work Opportunity Tax Credit). In December 2015, Congress retroactively extended the federal law authorizing the WOTC for the period from January 1, 2015 through December 31, 2019. Accordingly, the WOTC should be available for the next few years.

The Company reported net income of $1.17 billion, or diluted EPS of $3.95, for fiscal year 2015 compared to net income of $1.07 billion, or diluted EPS of $3.49, for fiscal year 2014. Both net income and adjusted net income increased over 9 percent. Adjusted diluted EPS increased 13 percent to $3.96 in fiscal 2015 compared to adjusted diluted EPS of $3.50 in fiscal 2014. Both adjusted net income and adjusted diluted EPS are defined under "Non-GAAP Disclosure" below and are reconciled to the most directly comparable GAAP measure in the accompanying schedules.

Merchandise Inventories

As of January 29, 2016, total merchandise inventories, at cost, were $3.07 billion compared to $2.78 billion as of January 30, 2015, an increase of approximately four percent on a per store basis.

Capital Expenditures

Significant components of property and equipment purchases in 2015 included approximately: $168 million for improvements, upgrades, remodels and relocations of existing stores; $144 million for distribution and transportation related projects; $99 million for new leased stores; $53 million for stores built by the Company; and $34 million for information systems upgrades and technology-related projects. During 2015, the Company opened 730 new stores and remodeled or relocated 881 stores.

Share Repurchases

The Company repurchased $1.3 billion, or 17.6 million shares, under its share repurchase program in 2015, at an average price of $74.03 per share. Since December 2011, the Company has repurchased 62.0 million shares of its common stock under the share repurchase program at a total cost of $3.6 billion, at an average price of $57.67 per share. The total remaining authorization for future repurchases is approximately $920 million. The authorization has no expiration date.

Dividend

On March 8, 2016, the Board of Directors approved an increase of 14 percent in its regular quarterly cash dividend to shareholders. The first quarter dividend of $0.25 per share will be payable on April 12, 2016 to shareholders of record of the Company's common stock on March 29, 2016. While the Board of Directors intends to continue regular cash dividends, the declaration and payment of future dividends are subject to the Board's discretion.

Financial Growth Outlook

The Company has established a financial growth model that is focused on long-term shareholder value creation. Key components of the model include:

           

Key Drivers

   

Annual Target

Net Sales     +7 to 10%

-  Square Footage

    +6 to 8%

-  Same-Store Sales

    +2 to 4%
Operating Profit     +7 to 11%
Diluted Earnings per Share     +10 to 15%
Cash from Operations     7 to 8% of Sales
Capital Expenditures     2 to 3% of Sales

Annual Shareholder Return
(EPS Growth + Dividend Yield)

    +11 to 17%
 

For the 53-week fiscal year ending February 3, 2017 ("fiscal 2016"), the Company expects the 53rd week to contribute approximately 200 basis points to its net sales performance and $0.09 per diluted share to EPS.

Including the impact of the 53rd week, the Company expects its fiscal 2016 net sales and diluted EPS results to be at the high end of the ranges outlined in the growth model above. Same-store sales growth for fiscal 2016 is forecasted to be near the middle of the range as outlined in the growth model above.

The Company plans to open approximately 900 new stores and relocate or remodel 875 stores in fiscal 2016. Capital expenditures for fiscal 2016 are expected to be in the range of $550 million to $600 million.

The Company intends to update its diluted EPS guidance only if the Company no longer reasonably expects diluted EPS to fall within the 10 percent to 15 percent range outlined in the growth model above. 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 above, other than diluted EPS as specified herein. The Company also does not intend, and specifically disclaims any duty, to update its dollar range for expected fiscal 2016 capital expenditures unless otherwise required by applicable securities laws.

The Company intends to use the financial growth model in discussions of its business beginning in 2016 and in future years, and by doing so the Company does not undertake to update any portion of the growth model except as specified herein.

Conference Call Information

The Company will hold a conference call on Thursday, March 10, 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 ID is 51991167. 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 24, 2016, and will be accessible online or by calling (855) 859-2056. The conference ID for the replay is 51991167.

Non-GAAP Disclosure

Certain financial information relating to the fiscal 2015 and 2014 periods provided in this press release and the accompanying tables has not been derived in accordance with U.S. generally accepted accounting principles ("GAAP"), including adjusted net income and adjusted diluted earnings per share. Adjusted net income is defined as net income excluding the specifically identified expenses below and related tax effects, and adjusted EPS reflects adjusted net income divided by the weighted average number of diluted shares outstanding.

The Company believes that providing comparisons to net income and EPS, adjusted for the items shown in the accompanying reconciliations, provides useful information to the reader in assessing the Company's operating performance as these measures provide an additional relevant comparison of the Company's operating performance across periods. Adjustments to net income and EPS in the 2015 fiscal year include expenses of $6.1 million incurred in connection with the Company's restructuring, $0.3 million of debt refinancing costs and the combined related income tax effect of $2.5 million.

Adjustments to net income and EPS in the 2014 fiscal year include expenses of $14.3 million incurred in connection with an acquisition that was not completed and the related income tax effect of $5.6 million as well as an income tax benefit of $4.7 million from the reversal of income tax reserves established in 2009.

Reconciliations of these non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP are provided in the accompanying schedules.

The non-GAAP measures discussed above are not measures of financial performance or condition, liquidity or profitability in accordance with GAAP, and should not be considered as alternatives to net income, EPS or any other measure derived in accordance with GAAP. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of the Company's financial 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.

Forward-Looking Statements

This press release contains forward-looking information, such as the information in the section entitled "Financial Growth Outlook" as well as other statements regarding the Company's outlook, plans and intentions, including, but not limited to, statements made within the quotations of Mr. Vasos. 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," "believe," "anticipate," "plan," "expect," "estimate," "forecast," "goal," "prospect," "positioned," "accelerate," "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 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 12,483 stores in 43 states as of January 29, 2016, 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 manufacturers 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)  
January 29 January 30
  2016       2015  
ASSETS
Current assets:
Cash and cash equivalents $ 157,947 $ 579,823
Merchandise inventories 3,074,153 2,782,521
Income taxes receivable 6,843 -
Prepaid expenses and other current assets     193,467       170,265  
Total current assets     3,432,410       3,532,609  
Net property and equipment     2,264,062       2,116,075  
Goodwill     4,338,589       4,338,589  
Other intangible assets, net     1,200,994       1,201,870  
Other assets, net     21,830       19,499  
Total assets   $ 11,257,885     $ 11,208,642  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 1,379 $ 101,158
Accounts payable 1,494,225 1,388,154
Accrued expenses and other 467,122 413,760
Income taxes payable     32,870       59,400  
Total current liabilities     1,995,596       1,962,472  
Long-term obligations     2,969,175       2,623,965  
Deferred income taxes     639,955       626,858  
Other liabilities     275,283       285,309  
Total liabilities     5,880,009       5,498,604  
 

Commitments and contingencies

 

Shareholders' equity:

Preferred stock

-

-

Common stock

 250,855

 265,514

Additional paid-in capital 3,107,283 3,048,806
Retained earnings 2,025,545 2,403,045
Accumulated other comprehensive loss     (5,807 )     (7,327 )
Total shareholders' equity     5,377,876       5,710,038  
Total liabilities and shareholders' equity   $ 11,257,885     $ 11,208,642  
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
       
For the Quarter (13 Weeks) Ended
January 29 % of Net January 30 % of Net
  2016   Sales       2015   Sales  
Net sales $ 5,286,938 100.00 % $ 4,939,059 100.00 %
Cost of goods sold     3,604,669   68.18       3,373,620   68.30  
Gross profit 1,682,269 31.82 1,565,439 31.70
Selling, general and administrative expenses     1,069,840   20.24       998,723   20.22  
Operating profit 612,429 11.58 566,716 11.47
Interest expense     23,275   0.44       21,532   0.44  
Income before income taxes 589,154 11.14 545,184 11.04
Income tax expense     212,979   4.03       189,813   3.84  
Net income   $ 376,175   7.12 %   $ 355,371   7.20 %
 
Earnings per share:
Basic $ 1.30 $ 1.17
Diluted $ 1.30 $ 1.17
Weighted average shares outstanding:
Basic 288,401 303,108
Diluted 289,322 304,435
 
 
For the 52 Weeks Ended
January 29 % of Net January 30 % of Net
  2016   Sales       2015   Sales  
Net sales $ 20,368,562 100.00 % $ 18,909,588 100.00 %
Cost of goods sold    

14,062,471

  69.04       13,107,081   69.31  

Gross profit

 6,306,091

30.96

 5,802,507

30.69

Selling, general and administrative expenses

   

 4,365,797

 

21.43

     

 4,033,414

 

21.33

 

Operating profit

 1,940,294

9.53

 1,769,093

9.36

Interest expense

 86,944

0.43

 88,232

0.47

Other (income) expense

   

 326

 

0.00

     

-

 

0.00

 
Income before income taxes 1,853,024 9.10 1,680,861 8.89
Income tax expense     687,944   3.38       615,516   3.26  
Net income   $ 1,165,080   5.72 %   $ 1,065,345   5.63 %
 
Earnings per share:

 

Basic $ 3.96 $ 3.50
Diluted $ 3.95 $ 3.49
Weighted average shares outstanding:
Basic 294,330 304,633
Diluted 295,211 305,681
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
For the 52 Weeks Ended
January 29 January 30
2016     2015  
Cash flows from operating activities:
Net income $ 1,165,080 $ 1,065,345

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

Depreciation and amortization 352,431 342,353
Deferred income taxes 12,126 (17,734 )
Tax benefit of share-based awards (13,698 ) (12,147 )
Loss on debt retirement, net 326 -
Noncash share-based compensation 38,547 37,338
Other noncash (gains) and losses 7,797 8,551
Change in operating assets and liabilities:
Merchandise inventories (290,001 ) (233,559 )
Prepaid expenses and other current assets (24,626 ) (25,048 )
Accounts payable 105,637 97,166
Accrued expenses and other liabilities 44,949 41,635
Income taxes (19,675 ) 12,399
Other     (905 )       (1,555 )  
Net cash provided by (used in) operating activities     1,377,988       1,314,744  
 
Cash flows from investing activities:
Purchases of property and equipment (504,806 ) (373,967 )
Proceeds from sales of property and equipment     1,423       2,268  
Net cash provided by (used in) investing activities     (503,383 )       (371,699 )  
 

Cash flows from financing activities:

Issuance of long-term obligations

 499,220

-

Repayments of long-term obligations

 (502,401

)

 (78,467

)

Borrowings under revolving credit facilities

 2,034,100

 1,023,000

Repayments of borrowings under revolving credit facilities

 (1,783,100

)

 (1,023,000

)

Debt issuance costs (6,991 ) -
Repurchases of common stock (1,299,613 ) (800,095 )
Payments of cash dividends (258,328 ) -

Other equity and related transactions

6,934

(2,373

)
Tax benefit of share-based awards     13,698       12,147  
Net cash provided by (used in) financing activities     (1,296,481 )       (868,788 )  
 
Net increase (decrease) in cash and cash equivalents (421,876 ) 74,257
Cash and cash equivalents, beginning of period     579,823       505,566  
Cash and cash equivalents, end of period   $ 157,947     $ 579,823  
 
Supplemental cash flow information:
Cash paid for:
Interest $ 76,354 $ 82,447
Income taxes $ 697,357 $ 631,483
Supplemental schedule of non-cash investing and financing activities:

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

$ 32,020 $ 31,586
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
   
 
Sales by Category (in thousands)    
 
For the Quarter (13 Weeks) Ended
January 29 January 30
2016   2015   % Change  
Consumables $ 3,914,335 $ 3,654,405 7.1 %
Seasonal 738,021 685,342 7.7 %
Home products 364,131 337,470 7.9 %
Apparel   270,451     261,842   3.3 %
Net sales $ 5,286,938   $ 4,939,059   7.0 %
 
 
For the 52 Weeks Ended
January 29 January 30
2016   2015   % Change  
Consumables $ 15,457,611 $ 14,321,080 7.9 %
Seasonal 2,522,701 2,344,993 7.6 %
Home products 1,289,423 1,205,373 7.0 %
Apparel   1,098,827     1,038,142   5.8 %
Net sales $ 20,368,562   $ 18,909,588   7.7 %
 
 
 
Store Activity    
 
For the 52 Weeks Ended

January 29

January 30

2016

 

2015

 
 

Beginning store count

 11,789

 11,132

New store openings

 730

 700

Store closings   (36 )   (43 )
Net new stores   694     657  
Ending store count   12,483     11,789  
Total selling square footage (000's)   92,477     87,205  
Growth rate (square footage)  

6.0

%

  6.3 %
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures

Adjusted Net Income and

Adjusted Diluted Earnings Per Share
(Unaudited)
   
(in millions, except per share amounts)
 
 
For the 52 Weeks Ended
January 29 January 30
2016 2015
 
Net income $ 1,165.1 $ 1,065.3
Expenses related to acquisition not completed - 14.3
Restructuring expenses 6.1 -
Debt refinancing costs 0.3 -
Income tax effect of adjustments (2.5 ) (5.6 )
Reversal of tax reserves created in 2009     -       (4.7 )
Net adjustments     3.9       4.0  
Adjusted net income   $ 1,169.0     $ 1,069.3  
 
Diluted earnings per share:
As reported $ 3.95 $ 3.49
Adjusted $ 3.96 $ 3.50
 
Weighted average diluted shares outstanding: 295.2 305.7

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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