10-QPeriod: Q2 FY2003

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended May 3, 2002

Filed June 11, 2002For Securities:DG

Summary

Dollar General Corporation's 10-Q filing for the quarter ended May 3, 2002, demonstrates robust top-line growth driven by store expansion and a notable increase in same-store sales. Net sales surged by 15.5% year-over-year, fueled by the addition of 535 new stores and a strong 6.7% increase in same-store sales. This growth translated to improved profitability, with gross profit increasing by 18.3% and net income rising by 26.8% to $45.9 million. Diluted earnings per share also saw a positive trend, increasing to $0.14 from $0.11 in the prior year period. The company's financial position remains solid, with total assets growing and shareholders' equity increasing to over $1 billion. Liquidity appears adequate, supported by existing cash balances, cash flow from operations, and planned access to new credit facilities. However, investors should note the significant pending settlements related to past accounting restatements, including a $162 million settlement for class action lawsuits and an expected $24.8 million net payment from derivative lawsuits. While management expects these to be funded by existing cash and insurance, the resolution of these legal matters and the ongoing SEC investigation remain key areas to monitor.

Key Highlights

  • 1Net sales increased by 15.5% to $1.39 billion, driven by 535 new stores and a 6.7% same-store sales increase.
  • 2Gross profit margin improved by 70 basis points to 27.4% of sales, attributed to lower distribution costs and a higher inventory mark-up.
  • 3Net income rose by 26.8% to $45.9 million, with diluted EPS increasing from $0.11 to $0.14.
  • 4Shareholders' equity increased to $1.09 billion from $1.04 billion in the previous fiscal year.
  • 5The company is finalizing new revolving credit facilities totaling $450 million to replace existing credit arrangements and fund general corporate purposes.
  • 6A $162 million settlement for class action lawsuits related to financial restatements was approved, with $161 million expected to be disbursed in June or July 2002.
  • 7A derivative lawsuit settlement is expected to result in a net payment of approximately $24.8 million to the company.

Frequently Asked Questions

The primary drivers of Dollar General's sales growth were the opening of 535 net new stores and a strong 6.7% increase in same-store sales. This indicates both expansion and improved performance from existing locations.

The company's liquidity is supported by cash and cash equivalents of $287.4 million and shareholders' equity exceeding $1 billion. Dollar General is also in the process of securing new revolving credit facilities totaling $450 million to replace existing ones, refinance synthetic leases, and for general corporate purposes, indicating proactive management of its financial resources.

The company has reached a $162 million settlement for class action lawsuits related to past financial restatements, with most of the payment expected soon. Additionally, a derivative lawsuit settlement is anticipated to bring in approximately $24.8 million. While these are significant amounts, management expects to fund the class action settlement from existing cash and believes the derivative settlement will be a net positive. However, an unfavorable outcome in any unresolved litigation could still materially impact the company.

The company adopted SFAS No. 141, 'Business Combinations,' and SFAS No. 142, 'Goodwill and Other Intangible Assets,' and SFAS No. 144, 'Accounting for the Impairment or Disposal of Long-Lived Assets.' The adoption of these standards did not have a material impact on the company's financial position or results of operations for this period.