01—Abstract
Summary
Summary of the 10-K/A filed April 27, 1994. Cited figures are marked; the original filing is the authoritative source.
Dollar General Corporation's 10-K for the fiscal year ended January 31, 1994 shows a retailer executing a store-growth and same-store-sales playbook.
Net sales rose 23.1% to $1.133 billiona, crossing the $1 billion mark, while same-store sales grew 12.7% (following 15.5% in 1993 and 11.2% in 1992). Net income increased 36.5% to $48.6 million, and net margin expanded to 4.3% from 3.9%. The company opened a net 183 stores, ending the year with 1,800 stores across 24 states, and its return on average equity reached 22.6%.
The quality of the gains is mostly sound. Gross margin slipped 0.2 points to 28.8% due to higher distribution costs, markdowns, and shrinkage, but SG&A fell to 21.7% of sales, the lowest expense ratio since 1984, which drove the operating margin higher to 7.1%. Inventory rose $43 millionb and was largely funded by growth in payables and accruals, and operating cash flow of $36.2 million was down 15% year over year.
Working capital reached $166.8 millionc with a 2.1 current ratio, and total debt was modest at 10.4% of equity. Shrinkage rose to 2.7% of sales, which management called unacceptable and is addressing with bar-code scanning investment. The outlook is for continued expansion.
Management plans to open roughly 180 net stores in fiscal 1995, with about 250 new openings and capital spending of $55 milliond, including a new 500,000 square foot Ardmore, Oklahoma distribution center. Investors should weigh the strong growth and returns against the risks of rising capex, a heavier inventory base, shrinkage pressure, and the company's dependence on sustained same-store sales gains and a low-income customer base.
02—Key points
Key Highlights
- Net sales increased 23.1% to $1,133.0 million, exceeding $1 billion for the first time, driven by 183 net new stores and a 12.7% same-store sales increase.
- Net income rose 36.5% to $48.6 million; net margin improved to 4.3% from 3.9%, and ROE reached 22.6% versus 20.9% the prior year.
- SG&A fell to 21.7% of sales from 22.4%, the lowest expense ratio since 1984, offsetting a 0.2-point decline in gross margin to 28.8%.
- The chain ended the year with 1,800 stores in 24 states, after opening 251 and closing 68, with plans for roughly 180 net new stores in fiscal 1995.
- Shrinkage rose to 2.7% of sales from 2.4%, which management considers unacceptable; a comprehensive plan including chain-wide bar-code scanning is underway.
- Operating cash flow fell 15.3% to $36.2 million as a $43.2 million inventory build outpaced payables and accrual growth, while capex rose to $35.0 million.
- Balance sheet remains conservative, with a 2.1 current ratio, working capital of $166.8 million, and total debt at 10.4% of equity; fiscal 1995 capex is planned at $55.0 million.
03—Questions
Frequently Asked Questions
How fast is Dollar General growing, and is the growth coming from new stores or existing stores?
Growth comes from both. Net sales rose 23.1% in fiscal 1994, with 183 net new stores contributing and same-store sales up 12.7%. Same-store sales have grown double digits for three consecutive years (11.2%, 15.5%, 12.7%), which indicates that the existing store base is improving, not just expanding.
Are margins improving, and what is driving the change?
Net margin improved to 4.3% from 3.9%, and operating margin rose to 7.1% from 6.6%. The improvement came from SG&A leverage, as sales grew faster than overhead, more than offsetting slightly lower gross margin. Gross margin fell to 28.8% because of higher distribution costs, increased markdowns, and higher shrinkage.
What are the main risks or concerns in the filing?
Key concerns include rising shrinkage (2.7% of sales, up from 2.4%), a 15% decline in operating cash flow, and a larger inventory base. Capital spending is also set to rise to an estimated $55 million in fiscal 1995, including a new distribution center. Management relies on short-term borrowings and internally generated cash to fund seasonal working capital needs. Most leases are short-term, with an average remaining life of 25 months, which provides flexibility but means ongoing renewal exposure.
What is the company's financial position and capital structure?
The balance sheet is conservative. Total debt was $25.0 million, or 10.4% of equity, and long-term debt was only $5.7 million. The current ratio was 2.1, and working capital reached $166.8 million. Short-term bank lines totaled $35.0 million and a $65.0 million revolving credit/term loan was available, with $18.0 million drawn at year end.
What is the outlook for fiscal 1995?
Management expects to open about 250 new stores and close enough to net about 180, and plans to fund $55.0 million of capital expenditures, including $20.0 million for the Ardmore, Oklahoma distribution center and Symbol hand-held scanners for all stores. It also expects to continue reducing advertising circulars, which management says temporarily affects same-store sales, while relying on everyday low pricing.
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