Dollar General Corporation
Dec 3, 2015

Dollar General Corporation Reports Third Quarter 2015 Financial Results

GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)-- Dollar General Corporation (NYSE:DG) today reported financial results for its fiscal 2015 third quarter (13 weeks) ended October 30, 2015.

(Editor's Note: Dollar General's fiscal 2015 third quarter ended on Friday, October 30, which excluded Halloween day. Halloween day was included in the Company's fiscal 2014 third quarter. The Company estimates this shift was a 20 to 30 basis point negative impact on same-store sales for Halloween-related categories in the fiscal 2015 third quarter. This compares to some retail fiscal 2015 third quarters, which ended on Saturday, October 31 and included Halloween day.)

"The Dollar General team executed well in a retail environment very similar to the second quarter. Our initiatives are showing success relative to our long-term goals as we continued to deliver profitable sales growth coupled with disciplined cost management. We achieved 7.3 percent sales growth, 2.3 percent same-store sales growth and adjusted diluted earnings per share growth of 11 percent," said Todd Vasos, Dollar General's chief executive officer.

"As we plan for 2016, we are adopting a zero-based budgeting process to reinforce our commitment as a low cost operator to better serve our consumers with the everyday low prices they know and trust at Dollar General. Looking forward, we have continued confidence that we are well-positioned for sustainable growth and creation of shareholder value. As evidenced by today's announcement of the increased share repurchase authorization, we remain committed to our balanced approach to capital allocation for our shareholders."

Third Quarter Highlights

The Company reported net income of $253 million, or $0.86 earnings per diluted share ("EPS"), in the 2015 third quarter, an increase of 7.2% compared to net income of $236 million, or $0.78 per diluted share, in the 2014 third quarter. Adjusted net income increased approximately 7.6 percent to $257 million in the 2015 third quarter compared to $239 million in the 2014 third quarter, and adjusted earnings per diluted share increased approximately 11 percent to $0.88 in the 2015 third quarter compared to $0.79 in the 2014 third quarter. See "Non-GAAP Disclosure" below.

Net sales increased 7.3 percent to $5.07 billion in the 2015 third quarter compared to $4.72 billion in the 2014 third quarter. Same-store sales increased 2.3 percent compared to the 2014 third quarter, with increases in both customer traffic and average transaction value. The remainder of the sales increase was attributable to sales from new stores, partially offset by sales from closed stores. All merchandise categories delivered positive same-store sales growth. Sales of consumables increased at a higher rate than sales of non-consumables in the 2015 third quarter, with the more significant growth driven by candy and snacks, tobacco products and perishables. The most significant growth within the non-consumables category was due to sundries, housewares, and hardware, with ladies clothing exhibiting strong growth as well.

Gross profit, as a percentage of net sales, was 30.3 percent in the 2015 third quarter, an increase of 19 basis points from the 2014 third quarter. The gross profit rate increase was primarily attributable to an improved inventory shrink rate and lower transportation costs, partially offset by the Company's sales mix.

Selling, general and administrative expense ("SG&A"), as a percentage of net sales, was 22.0 percent in the 2015 third quarter compared to 21.8 percent in the 2014 third quarter, an increase of 18 basis points. The SG&A increase was primarily attributable to a restructuring charge of $6.1 million, or 12 basis points, in the 2015 period related to restructuring of certain corporate support functions. The 2015 third quarter also reflects increases in store incentive compensation expenses, repairs and maintenance, occupancy costs and advertising expenses. Partially offsetting these items were lower utilities costs and a reduction in employee benefits costs. The 2014 third quarter SG&A reflects expenses of $8.2 million, or 17 basis points, related to an acquisition that was not completed, partially offset by unrelated insurance proceeds of $3.4 million or 7 basis points.

The effective income tax rate was 37.0 percent for the 2015 third quarter compared to a rate of 36.5 percent for the 2014 third quarter.

39-Week Period Results

For the 39-week period ended October 30, 2015, net sales increased 8.0 percent over the comparable 2014 period, to $15.08 billion. Same-store sales increased 2.9 percent compared to the corresponding 2014 period. Increases in customer traffic and average transaction amount contributed to the increase in same-store sales. The remainder of the sales increase was attributable to sales from new stores, partially offset by sales from closed stores.

Gross profit increased by 9.1 percent and, as a percentage of net sales, increased by 33 basis points to 30.7 percent in the 2015 39-week period compared to the comparable 2014 period. The majority of the gross profit rate increase in the 2015 period as compared to the 2014 period was due to lower transportation costs and an improved inventory shrink rate.

SG&A was 21.9 percent of net sales in the 2015 period compared to 21.7 percent in the 2014 period, an increase of 13 basis points. The 2015 period included increased severance costs, the majority of which were related to the restructuring discussed above, as well as increases in incentive compensation expenses and repairs and maintenance. Partially offsetting these items was a higher volume of cash back transactions resulting in increased convenience fees collected from customers. The 2014 results reflect expenses of $8.2 million related to an acquisition that was not completed.

The effective income tax rate for the 2015 period was 37.6 percent compared to a rate of 37.5 percent for the 2014 period.

For the 2015 39-week period, the Company reported net income of $789 million, or $2.65 per diluted share, compared to net income of $710 million, or $2.32 per diluted share, for the 2014 39-week period. Excluding the impact of certain items as described in the accompanying reconciliation, adjusted net income for the 2015 39-week period was $793 million, or $2.67 per diluted share, and adjusted net income for the 2014 39-week period was $713 million, or $2.33 per diluted share.

Merchandise Inventories

As of October 30, 2015, total merchandise inventories, at cost, were $3.10 billion compared to $2.79 billion as of October 31, 2014, an increase of 5.1 percent on a per-store basis. Key factors impacting the increase in per store inventory were the Company's on-shelf availability initiative and timing of receipts, coupled with sales performance.

Capital Expenditures

Total additions to property and equipment in the 39-week period ended October 30, 2015 were $387 million, including: $142 million for improvements, upgrades, remodels and relocations of existing stores; $94 million for distribution and transportation-related capital expenditures; $79 million related to new leased stores, primarily for leasehold improvements, fixtures and equipment; $41 million for stores built by the Company and $26 million for information systems upgrades and technology-related projects. During the 2015 39-week period, the Company opened 634 new stores and remodeled or relocated 857 stores.

Share Repurchases

During the 2015 third quarter, the Company repurchased 3.8 million shares of its common stock at a total cost of $275 million, at an average price of $73.01 per share. For the 2015 39-week period, the Company repurchased 13.4 million shares of its common stock under the share repurchase program at a total cost of $1.0 billion, at an average price of $75.18 per share. Since the inception of the share repurchase program in December 2011, the Company has repurchased 57.9 million shares totaling $3.3 billion, at an average price of $56.77 per share.

On December 2, 2015, the Company's Board of Directors authorized an additional $1.0 billion for share repurchases, increasing the total authorization for future repurchases to $1.2 billion. The authorization has no expiration date.

Fiscal 2015 Financial Outlook

The Company's revised outlook for the 2015 fiscal year anticipates net sales to increase by approximately eight percent over the 2014 fiscal year, with same-store sales expected to increase 2.5 to 2.8 percent. It is still very early in the Company's fiscal quarter with a core customer that tends to shop closer to events.

On both an unadjusted and adjusted basis, operating profit is expected to increase approximately eight percent over 2014 adjusted operating profit. For the fiscal year, diluted EPS is expected to be approximately $3.87 to $3.92, and adjusted diluted EPS is expected to be $3.88 to $3.93, as compared to prior diluted EPS guidance of $3.85 to $3.95. Fiscal 2015 fourth quarter diluted EPS is expected to be in the range of $1.23 to $1.28. The Company's EPS guidance anticipates an income tax benefit of approximately $0.05 per share in the 2015 fourth quarter from the reinstatement of various federal job credit programs (primarily the Work Opportunity Tax Credit) for eligible employees hired after December 31, 2014, which have currently expired. There can be no assurance such credit programs will be reinstated.

The Company continues to expect capital expenditures to be in the range of $500 million to $550 million. In 2015, the Company plans to open approximately 730 new stores, or 6 percent square footage growth, and to relocate or remodel 875 stores. The Company is on track with its pipeline development to accelerate new store openings to seven percent square footage growth in 2016 and expects its new Texas distribution center to be fully operational in the first quarter of 2016.

Conference Call Information

The Company will hold a conference call on Thursday, December 3, 2015, 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 47946815. 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, December 17, 2015, and will be accessible online or by calling (855) 859-2056. The passcode for the replay is 47946815.

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 operating profit, adjusted net income and adjusted diluted earnings per share. Adjusted operating profit is defined as operating profit excluding the specifically identified expenses below. 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. In addition to historical results, guidance for fiscal 2015 adjusted diluted EPS is based on comparable adjustments and does not include any expenses related to the Company's restructuring discussed above.

The Company believes that providing comparisons to operating profit, 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 operating profit in the 2015 third quarter and 39-week period include expenses of $6.1 million incurred in connection with the Company's restructuring. In addition to the operating profit adjustments, adjustments to net income and EPS in the 2015 third quarter and 39-week period include expenses of $0.3 million of debt refinancing costs and the combined related income tax effect of $2.5 million. Adjustments to operating profit in the 2014 third quarter and 39-week period include expenses of $8.2 million incurred in connection with an acquisition that was not completed. In addition to the operating profit adjustments, adjustments to net income and EPS in the 2014 13-week and 39-week period include the related income tax effect of $0.8 million. In addition, a reversal of income tax reserves of $4.7 million in the 2014 13-week and 39-week periods have been excluded from adjusted net income.

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 operating profit, 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 "Fiscal 2015 Financial 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 and statements regarding expected tax benefits. 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 forward," "over time," "will likely result," or "will negatively impact" 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. Dollar General operates 12,396 stores in 43 states as of October 30, 2015. 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 30 October 31

January 30

2015   2014   2015
ASSETS
Current assets:
Cash and cash equivalents $ 182,514 $ 216,155 $ 579,823
Merchandise inventories 3,101,908 2,788,996 2,782,521
Income taxes receivable 11,877 - -
Prepaid expenses and other current assets     192,476       173,981       170,265  
Total current assets     3,488,775       3,179,132       3,532,609  
Net property and equipment     2,237,068       2,120,572       2,116,075  
Goodwill     4,338,589       4,338,589       4,338,589  
Other intangible assets, net     1,201,110       1,202,651       1,201,870  
Other assets, net     22,751       20,004       19,499  
Total assets   $ 11,288,293     $ 10,860,948     $ 11,208,642  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 1,358 $ 101,041 $ 101,158
Accounts payable 1,470,107 1,394,873 1,388,154
Accrued expenses and other 473,528 442,859 413,760
Income taxes payable 30,462 33,215 59,400
Deferred income taxes     16,128       38,858       25,268  
Total current liabilities     1,991,583       2,010,846       1,987,740  
Long-term obligations     3,105,332       2,649,598       2,623,965  
Deferred income taxes     568,238       569,055       601,590  
Other liabilities     279,547       287,812       285,309  
Total liabilities     5,944,700       5,517,311       5,498,604  
 
Commitments and contingencies
 
Shareholders' equity:
Preferred stock - - -
Common stock 254,697 265,495 265,514
Additional paid-in capital 3,095,790 3,038,621 3,048,806
Retained earnings 1,999,119 2,047,674 2,403,045
Accumulated other comprehensive loss     (6,013 )     (8,153 )     (7,327 )
Total shareholders' equity     5,343,593       5,343,637       5,710,038  
Total liabilities and shareholders' equity   $ 11,288,293     $ 10,860,948     $ 11,208,642  
 
   
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
   
For the Quarter (13 Weeks) Ended
October 30 % of Net October 31 % of Net

2015

  Sales   2014   Sales
Net sales $ 5,067,048 100.00 % $ 4,724,409 100.00 %
Cost of goods sold     3,530,086   69.67       3,300,661   69.86  
Gross profit 1,536,962 30.33 1,423,748 30.14
Selling, general and administrative expenses     1,113,103   21.97       1,029,605   21.79  
Operating profit 423,859 8.37 394,143 8.34
Interest expense 21,394 0.42 21,835 0.46
Other (income) expense     326   0.01       -   0.00  
Income before income taxes 402,139 7.94 372,308 7.88
Income tax expense     148,818   2.94       135,992   2.88  
Net income   $ 253,321   5.00 %   $ 236,316   5.00 %
 
Earnings per share:
Basic $ 0.87 $ 0.78
Diluted $ 0.86 $ 0.78
Weighted average shares outstanding:
Basic 292,037 303,080
Diluted 292,904 304,108
 
 
For the 39 Weeks Ended
October 30 % of Net October 31 % of Net
2015   Sales   2014   Sales
Net sales $ 15,081,624 100.00 % $ 13,970,529 100.00 %
Cost of goods sold     10,457,802   69.34       9,733,461   69.67  
Gross profit 4,623,822 30.66 4,237,068 30.33
Selling, general and administrative expenses     3,295,957   21.85       3,034,691   21.72  
Operating profit 1,327,865 8.80 1,202,377 8.61
Interest expense 63,669 0.42 66,700 0.48
Other (income) expense     326   0.00       -   0.00  
Income before income taxes 1,263,870 8.38 1,135,677 8.13
Income tax expense     474,965   3.15       425,703   3.05  
Net income   $ 788,905   5.23 %   $ 709,974   5.08 %
 
Earnings per share:
Basic $ 2.66 $ 2.33
Diluted $ 2.65 $ 2.32
Weighted average shares outstanding:
Basic 296,307 305,142
Diluted 297,174 306,097
 
 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
For the 39 Weeks Ended
October 30 October 31
2015   2014
Cash flows from operating activities:
Net income $ 788,905 $ 709,974

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

Depreciation and amortization 263,287 255,759
Deferred income taxes (59,026 ) (35,944 )
Tax benefit of share-based awards (28,569 ) (11,659 )
Loss on debt retirement, net 326 -
Noncash share-based compensation 28,890 27,698
Other noncash (gains) and losses 7,130 7,574
Change in operating assets and liabilities:
Merchandise inventories (317,273 ) (239,302 )
Prepaid expenses and other current assets (24,242 ) (29,479 )
Accounts payable 75,880 100,510
Accrued expenses and other liabilities 58,701 71,035
Income taxes (12,246 ) (14,274 )
Other     (1,220 )     (1,345 )
Net cash provided by (used in) operating activities     780,543       840,547  
 
Cash flows from investing activities:
Purchases of property and equipment (386,886 ) (288,537 )
Proceeds from sales of property and equipment     813       1,588  
Net cash provided by (used in) investing activities     (386,073 )     (286,949 )
 
Cash flows from financing activities:
Issuance of long-term obligations 499,220 -
Repayments of long-term obligations (502,120 ) (51,914 )
Borrowings under revolving credit facilities 1,302,100 1,023,000
Repayments of borrowings under revolving credit facilities (914,100 ) (1,023,000 )
Debt issuance costs (7,011 ) -
Repurchases of common stock (1,009,411 ) (800,095 )
Payments of cash dividends (195,169 ) -
Other equity and related transactions 6,143 (2,659 )
Tax benefit of share-based awards     28,569       11,659  
Net cash provided by (used in) financing activities     (791,779 )     (843,009 )
 
Net increase (decrease) in cash and cash equivalents (397,309 ) (289,411 )
Cash and cash equivalents, beginning of period     579,823       505,566  
Cash and cash equivalents, end of period   $ 182,514     $ 216,155  
 
Supplemental cash flow information:
Cash paid for:
Interest $ 63,125 $ 66,250
Income taxes $ 548,445 $ 486,961
Supplemental schedule of non-cash investing and financing activities:

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

$ 37,659 $ 34,961
 
 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
   
Sales by Category (in thousands)
 
For the Quarter (13 Weeks) Ended
October 30 October 31
2015   2014 % Change
Consumables $ 3,921,663 $ 3,645,021 7.6 %
Seasonal 555,862 524,623 6.0 %
Home products 317,963 298,878 6.4 %
Apparel   271,560     255,887   6.1 %
Net sales $ 5,067,048   $ 4,724,409   7.3 %
 
 
For the 39 Weeks Ended
October 30 October 31
2015   2014 % Change
Consumables $ 11,543,276 $ 10,666,675 8.2 %
Seasonal 1,784,680 1,659,651 7.5 %
Home products 925,292 867,903 6.6 %
Apparel   828,376     776,300   6.7 %
Net sales $ 15,081,624   $ 13,970,529   8.0 %
 
 
Store Activity
 
For the 39 Weeks Ended
October 30 October 31
2015   2014
 
Beginning store count 11,789 11,132
New store openings 634 617
Store closings   (27 )   (34 )
Net new stores   607     583  
Ending store count   12,396     11,715  
Total selling square footage (000's)   91,818     86,608  
Growth rate (square footage)   6.0 %   6.4 %
 
 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
Adjusted Operating Profit, Adjusted Net Income, and
Adjusted Diluted Earnings Per Share
   
(in millions, except per share amounts)
 
For the Quarter (13 Weeks) Ended
October 30 October 31
2015 2014
 
Operating profit $ 423.9 $ 394.1
Attempted acquisition-related expenses - 8.2
Restructuring expenses     6.1       -  
Adjusted operating profit   $ 430.0     $ 402.3  
 
Net income $ 253.3 $ 236.3
Attempted acquisition-related expenses - 8.2
Restructuring expenses 6.1 -
Debt refinancing costs 0.3 -
Income tax effect of adjustments (2.5 ) (0.8 )
Reversal of tax reserves created in 2009     -       (4.7 )
Net adjustments     3.9       2.7  
Adjusted net income   $ 257.2     $ 239.0  
 
Diluted earnings per share:
As reported $ 0.86 $ 0.78
Adjusted $ 0.88 $ 0.79
 
Weighted average diluted shares outstanding: 292.9 304.1
 
For the 39 Weeks Ended
October 30 October 31
2015 2014
 
Operating profit $ 1,327.9 $ 1,202.4
Attempted acquisition-related expenses - 8.2
Restructuring expenses     6.1       -  
Adjusted operating profit   $ 1,334.0     $ 1,210.6  
 
Net income $ 788.9 $ 710.0
Attempted acquisition-related expenses - 8.2
Restructuring expenses 6.1 -
Debt refinancing costs 0.3 -
Income tax effect of adjustments (2.5 ) (0.8 )
Reversal of tax reserves created in 2009     -       (4.7 )
Net adjustments     3.9       2.7  
Adjusted net income   $ 792.8     $ 712.7  
 
Diluted earnings per share:
As reported $ 2.65 $ 2.32
Adjusted $ 2.67 $ 2.33
 
Weighted average diluted shares outstanding: 297.2 306.1
 

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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