Dollar General Corporation
Aug 25, 2016

Dollar General Reports Second Quarter 2016 Financial Results

GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)-- Dollar General Corporation (NYSE: DG) today reported financial results for its fiscal 2016 second quarter (13 weeks) ended July 29, 2016.

"We are pleased with our 2016 second quarter diluted earnings per share growth of 14 percent over the 2015 second quarter, although our same-store sales performance fell short of our expectations. Retail food deflation and a reduction in both SNAP participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger than expected headwinds to our business. The competitive environment also intensified in select regions of the country. Importantly, even amidst a challenging sales environment, we effectively managed our gross profit margin and leveraged our selling, general and administrative expense as a percent of sales," said Todd Vasos, Dollar General's chief executive officer.

"For the second half of the year, we have action plans across both merchandising and store operations intended to drive same-store sales while maintaining strict expense control discipline. Looking ahead, we remain focused on our long-term strategy to invest for growth while also returning cash to shareholders through consistent share repurchases and anticipated quarterly dividends."

Second Quarter 2016 Highlights

The Company's net income was $307 million, or $1.08 per diluted share, in the 2016 second quarter, compared to net income of $282 million, or $0.95 per diluted share, in the 2015 second quarter.

Net sales increased 5.8 percent to $5.39 billion in the 2016 second quarter compared to $5.10 billion in the 2015 second quarter. Same-store sales increased 0.7 percent driven primarily by an increase in average transaction amount offset by a decline in traffic. Same-store sales increases were driven by positive results in the consumables category accompanied by results in the seasonal category that were flat when compared to the 2015 second quarter, offset by negative results in the apparel and home categories. The net sales increase was also positively affected by sales from new stores, modestly offset by sales from closed stores.

Gross profit, as a percentage of net sales, was 31.2 percent in the 2016 second quarter, an increase of 2 basis points from the 2015 second quarter. The gross profit rate increase was primarily attributable to higher initial inventory markups and lower transportation costs, partially offset by higher markdowns, a greater proportion of sales of consumables merchandise, which have a lower gross profit rate than non-consumables merchandise, and increased inventory shrink.

Selling, general and administrative expense ("SG&A") as a percentage of net sales was 21.7 percent in the 2016 second quarter compared to 21.8 percent in the 2015 second quarter, a decrease of 8 basis points. The SG&A decrease was primarily attributable to lower administrative payroll, advertising, and incentive compensation expenses. Partially offsetting these items were retail labor and occupancy costs, each of which increased at a rate greater than the increase in net sales.

The effective income tax rate was 36.8 percent for the 2016 second quarter compared to a rate of 38.0 percent for the 2015 second quarter. The effective income tax rate was lower in the 2016 second quarter due primarily to the recognition of additional amounts of the Work Opportunity Tax Credit ("WOTC") in the 2016 second quarter. The December 2015 reenactment of the WOTC allowed the Company to receive credits for eligible employees hired during the second quarter of 2016. By comparison, in the 2015 second quarter, only a limited number of employees (hired on or before December 31, 2014) were eligible for the credit.

26-Week Period Highlights

For the 2016 26-week period, net sales increased 6.4 percent over the comparable 2015 period to $10.7 billion. Same-store sales increased 1.4 percent. Increases in customer traffic and average transaction amount contributed to the increase in same-store sales. The remainder of the net sales increase was attributable to new stores, modestly offset by closed stores.

Gross profit increased by 6.7 percent and, as a percentage of net sales, increased by 9 basis points to 30.9 percent in the 2016 26-week period compared to the 2015 period. The gross profit rate increase in the 2016 period as compared to the 2015 period was primarily attributable to higher initial inventory markups and lower transportation costs, partially offset by higher markdowns, a greater proportion of sales of consumables merchandise, which have a lower gross profit rate than non-consumables merchandise, and increased inventory shrink.

SG&A was 21.6 percent of net sales in the 2016 period compared to 21.8 percent in the 2015 period, a decrease of 18 basis points. The SG&A decrease was primarily attributable to lower administrative payroll, utilities, advertising and incentive compensation expenses. Partially offsetting these items were retail labor and occupancy costs, each of which increased at a rate greater than the increase in net sales.

The effective income tax rate for the 2016 period was 36.1 percent compared to a rate of 37.8 percent for the 2015 period. The effective income tax rate was lower in the 2016 first half due primarily to the Company's early adoption of an amended accounting standard for employee share-based payments and the recognition of additional amounts of the WOTC in the 2016 first half. The December 2015 reenactment of the WOTC allowed the Company to receive credits for eligible employees hired during the first half of 2016. By comparison, in the first half of 2015, only a limited number of employees (hired on or before December 31, 2014) were eligible for the credit.

For the 2016 26-week period, the Company reported net income of $602 million, or $2.11 per diluted share, compared to net income of $536 million, or $1.79 per diluted share, for the 26-week 2015 period, an increase in diluted EPS of 18%.

Merchandise Inventories

As of July 29, 2016, total merchandise inventories, at cost, were $3.27 billion compared to $3.03 billion as of July 31, 2015, an increase of 1.6 percent on a per-store basis.

Capital Expenditures

During the 2016 26-week period, the Company opened 510 new stores and remodeled or relocated 594 stores. Total additions to property and equipment in the 2016 26-week period were $268 million, including: $81 million for distribution and transportation-related capital expenditures; $77 million for improvements, upgrades, remodels and relocations of existing stores; $55 million related to new leased stores, primarily for leasehold improvements, fixtures and equipment; $37 million for stores purchased or built by the Company; and $14 million for information systems upgrades and technology-related projects.

Share Repurchases

During the 2016 second quarter, the Company repurchased 2.5 million shares of its common stock under its share repurchase program at an average price of $88.55 per share. For the 2016 26-week period, the Company repurchased 5.2 million shares of its common stock under the share repurchase program at an average price of $86.61 per share. Since the inception of the share repurchase program in December 2011 through the end of the 2016 second quarter, the Company has repurchased 67.3 million shares totaling $4.0 billion, at an average price of $59.93 per share.

On August 24, 2016, the Board of Directors authorized an additional $1.0 billion for share repurchases, increasing the total authorization for future repurchases to approximately $1.4 billion. The authorization has no expiration date.

Dividend

On August 24, 2016, the Board of Directors declared its regular quarterly cash dividend of $0.25 per share on the Company's common stock. The third quarter dividend will be payable on September 28, 2016 to shareholders of record at the close of business on September 14, 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 continues to forecast diluted EPS for fiscal 2016 within this range of 10 percent to 15 percent. Additionally, capital expenditures for fiscal 2016 are now expected to be in the range of $580 million to $630 million to reflect the purchase of 42 Walmart Express stores, compared to the prior forecast of $550 million to $600 million. The Company 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.

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 diluted EPS range as specified herein. However, the Company does intend to discuss square footage growth from time to time.

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 except as specified herein.

Conference Call Information

The Company will hold a conference call on Thursday, August 25, 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 53436019. 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, September 8, 2016, and will be accessible online or by calling (855) 859-2056. The conference ID for the replay is 53436019.

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," 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 operated 13,000 stores in 43 states as of August 13, 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)
July 29 July 31 January 29
2016   2015   2016
ASSETS
Current assets:
Cash and cash equivalents $ 185,033 $ 180,525 $ 157,947
Merchandise inventories 3,270,685 3,029,731 3,074,153
Income taxes receivable 22,985 14,646 6,843
Prepaid expenses and other current assets     229,348       199,945       193,467  
Total current assets     3,708,051       3,424,847       3,432,410  
Net property and equipment     2,349,119       2,195,857       2,264,062  
Goodwill     4,338,589       4,338,589       4,338,589  
Other intangible assets, net     1,200,816       1,201,241       1,200,994  
Other assets, net     20,795       21,141       21,830  
Total assets   $ 11,617,370     $ 11,181,675     $ 11,257,885  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 501,548 $ 101,335 $ 1,379
Accounts payable 1,720,772 1,536,610 1,494,225
Accrued expenses and other 474,426 443,164 467,122
Income taxes payable     22,660       41,348       32,870  
Total current liabilities     2,719,406       2,122,457       1,995,596  
Long-term obligations     2,556,464       2,748,274       2,969,175  
Deferred income taxes     647,372       610,390       639,955  
Other liabilities     280,767       281,620       275,283  
Total liabilities     6,204,009       5,762,741       5,880,009  
 
Commitments and contingencies
 
Shareholders' equity:
Preferred stock - - -
Common stock 246,983 257,968 250,855
Additional paid-in capital 3,136,683 3,085,637 3,107,283
Retained earnings 2,035,101 2,081,543 2,025,545
Accumulated other comprehensive loss     (5,406 )     (6,214 )     (5,807 )
Total shareholders' equity     5,413,361       5,418,934       5,377,876  
Total liabilities and shareholders' equity   $ 11,617,370     $ 11,181,675     $ 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
July 29 % of Net July 31 % of Net
2016   Sales       2015   Sales    
Net sales $ 5,391,891 100.00 % $ 5,095,904 100.00 %
Cost of goods sold     3,710,124   68.81         3,507,749   68.83    
Gross profit 1,681,767 31.19 1,588,155 31.17
Selling, general and administrative expenses     1,172,670   21.75         1,112,343   21.83    
Operating profit 509,097 9.44 475,812 9.34
Interest expense     24,352   0.45         20,699   0.41    
Income before income taxes 484,745 8.99 455,113 8.93
Income tax expense     178,227   3.31         172,764   3.39    
Net income   $ 306,518   5.68   %   $ 282,349   5.54   %
 
Earnings per share:
Basic $ 1.08 $ 0.95
Diluted $ 1.08 $ 0.95
Weighted average shares outstanding:
Basic 283,130 295,679
Diluted 284,116 296,528
 
 
For the 26 Weeks Ended
July 29 % of Net July 31 % of Net
2016   Sales       2015   Sales    
Net sales $ 10,657,323 100.00 % $ 10,014,576 100.00 %
Cost of goods sold     7,362,942   69.09         6,927,716   69.18    
Gross profit 3,294,381 30.91 3,086,860 30.82
Selling, general and administrative expenses     2,304,541   21.62         2,182,854   21.80    
Operating profit 989,840 9.29 904,006 9.03
Interest expense     48,433   0.45         42,275   0.42    
Income before income taxes 941,407 8.83 861,731 8.60
Income tax expense     339,765   3.19         326,147   3.26    
Net income   $ 601,642   5.65   %   $ 535,584   5.35   %
 
Earnings per share:
Basic $ 2.11 $ 1.79
Diluted $ 2.11 $ 1.79
Weighted average shares outstanding:
Basic 284,508 298,440
Diluted 285,547 299,308
 

   
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
For the 26 Weeks Ended
July 29 July 31
2016   2015
Cash flows from operating activities:
Net income $ 601,642 $ 535,584

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

Depreciation and amortization 186,942 174,734
Deferred income taxes 7,159 (32,680 )
Noncash share-based compensation 19,488 19,642
Other noncash (gains) and losses 2,081 7,734
Change in operating assets and liabilities:
Merchandise inventories (191,682 ) (246,793 )
Prepaid expenses and other current assets (34,535 ) (30,754 )
Accounts payable 213,767 133,615
Accrued expenses and other liabilities 15,135 29,237
Income taxes (26,352 ) (4,769 )
Other     (311 )     (569 )
Net cash provided by (used in) operating activities     793,334       584,981  
 
Cash flows from investing activities:
Purchases of property and equipment (267,812 ) (247,051 )
Proceeds from sales of property and equipment     2,426       257  
Net cash provided by (used in) investing activities     (265,386 )     (246,794 )
 
Cash flows from financing activities:
Repayments of long-term obligations (816 ) (50,605 )
Borrowings under revolving credit facilities 1,583,000 445,100
Repayments of borrowings under revolving credit facilities (1,497,000 ) (272,100 )
Repurchases of common stock (454,508 ) (734,334 )
Payments of cash dividends (142,161 ) (131,204 )
Other equity and related transactions     10,623       5,658  
Net cash provided by (used in) financing activities     (500,862 )     (737,485 )
 
Net increase (decrease) in cash and cash equivalents 27,086 (399,298 )
Cash and cash equivalents, beginning of period     157,947       579,823  
Cash and cash equivalents, end of period   $ 185,033     $ 180,525  
 
Supplemental cash flow information:
Cash paid for:
Interest $ 44,581 $ 39,539
Income taxes $ 359,202 $ 363,204
Supplemental schedule of non-cash investing and financing activities:

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

$ 44,800 $ 46,427
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
     
 
Sales by Category (in thousands)
 
For the Quarter (13 Weeks) Ended
July 29 July 31
2016   2015 % Change
Consumables $ 4,116,450 $ 3,867,635 6.4 %
Seasonal 673,953 642,525 4.9 %
Home products 315,598 304,305 3.7 %
Apparel   285,890     281,439   1.6 %
Net sales $ 5,391,891   $ 5,095,904   5.8 %
 
 
For the 26 Weeks Ended
July 29 July 31
2016   2015 % Change
Consumables $ 8,155,647 $ 7,621,613 7.0 %
Seasonal 1,297,803 1,228,818 5.6 %
Home products 638,446 607,329 5.1 %
Apparel   565,427     556,816   1.5 %
Net sales $ 10,657,323   $ 10,014,576   6.4 %
 
 
Store Activity
 
For the 26 Weeks Ended
July 29 July 31
2016   2015
 
Beginning store count 12,483 11,789
New store openings 510 428
Store closings   (26 )   (19 )
Net new stores   484     409  
Ending store count   12,967     12,198  
Total selling square footage (000's)   96,125     90,305  
Growth rate (square footage)   6.4 %   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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