10-QPeriod: Q2 FY2004

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended May 2, 2003

Filed May 29, 2003For Securities:DG

Summary

Dollar General Corporation's first-quarter 2003 filing showcases a significant increase in net sales, up 12.9% year-over-year, driven by both new store openings and a 4.2% increase in same-store sales. This top-line growth translated into a substantial 31.4% increase in net income, reaching $60.3 million, or $0.18 per diluted share, compared to $45.9 million, or $0.14 per diluted share, in the prior year period. The company's gross profit margin also improved to 28.8% from 27.4%, attributed to higher mark-ups and reduced markdowns. Financially, the company maintained a strong balance sheet with over $1.3 billion in shareholders' equity. While operating cash flow saw a notable decrease compared to the prior year, primarily due to increased inventory levels and tax payments, the company expressed confidence in its liquidity, supported by its revolving credit facilities and cash flow from operations. The company also announced plans for aggressive expansion, with approximately 650 new stores slated for fiscal year 2004, and authorized a significant share repurchase program.

Key Highlights

  • 1Net sales increased by 12.9% to $1.57 billion for the 13 weeks ended May 2, 2003, driven by 598 net new stores and a 4.2% same-store sales increase.
  • 2Net income rose by 31.4% to $60.3 million, with diluted EPS increasing to $0.18 from $0.14 in the prior year.
  • 3Gross profit margin improved to 28.8% of sales, up from 27.4% in the prior year, due to higher mark-ups and reduced markdowns.
  • 4Selling, general, and administrative (SG&A) expenses as a percentage of sales increased to 22.2% from 21.4%, primarily due to higher store-related expenses like labor and occupancy.
  • 5Operating cash flow decreased significantly to $0.3 million from $74.8 million, largely due to a substantial increase in merchandise inventories and income tax payments.
  • 6The company plans to open approximately 650 new stores in the fiscal year ending January 30, 2004.
  • 7A stock repurchase program authorizing up to 12 million shares was authorized in March 2003.

Frequently Asked Questions

Sales growth was primarily driven by the addition of 598 net new stores and a comparable store sales increase of 4.2%. Key product categories contributing to same-store sales growth included highly consumable items and seasonal products.

Profitability significantly improved, with net income increasing by 31.4% to $60.3 million. This was supported by a higher gross profit margin (28.8% vs. 27.4%) due to better mark-ups and reduced markdowns, although SG&A expenses as a percentage of sales increased.

The company maintained a strong liquidity position with $75.9 million in cash and cash equivalents and a $450 million revolving credit facility, of which none was outstanding at the quarter's end. Despite a decrease in operating cash flow due to inventory build-up, the company believes its existing resources are sufficient to meet its foreseeable needs, including funding the planned opening of approximately 650 new stores.

The company is cooperating with an SEC investigation related to past financial restatements. While previous restatement-related shareholder derivative and class action lawsuits have been settled, the SEC investigation's outcome is uncertain. Additionally, a collective action lawsuit concerning overtime pay for store managers is ongoing. The company believes these matters, in aggregate, will not have a material adverse effect, but acknowledges the inherent uncertainty of litigation.