10-QPeriod: Q3 FY2004

DOLLAR GENERAL CORP Quarterly Report for Q3 Ended Oct 31, 2003

Filed December 4, 2003For Securities:DG

Summary

Dollar General Corporation's (DG) third-quarter report for the period ending October 31, 2003, demonstrates robust sales growth and improved profitability. Net sales increased by 12.5% to $1.69 billion compared to the prior year's quarter, driven by both new store openings and a healthy 3.8% same-store sales increase. This top-line growth, particularly in higher-margin categories like seasonal and home products, contributed to a significant improvement in gross profit margin, which rose to 30.7% from 28.6% year-over-year. This enhanced profitability, coupled with effective cost management, led to a 13.6% increase in net income to $77.9 million, translating to diluted earnings per share of $0.23, up from $0.20 in the prior year. The company's strategic focus on inventory management, including the implementation of an item-level perpetual inventory system, and efforts to increase import purchases with higher markups appear to be yielding positive financial results. Management expressed confidence in the company's liquidity and capital resources, supporting planned store expansion and operational improvements.

Key Highlights

  • 1Net sales for the 13 weeks ended October 31, 2003, increased by 12.5% to $1.69 billion, driven by new store openings and a 3.8% same-store sales increase.
  • 2Gross profit increased by 20.6% to $516.9 million, with the gross margin rate expanding to 30.7% of sales from 28.6% in the prior year, primarily due to higher markups and reduced shrink provisions.
  • 3Net income for the quarter grew by 13.6% to $77.9 million, resulting in diluted earnings per share of $0.23, up from $0.20 in the year-ago period.
  • 4For the 39 weeks ended October 31, 2003, net sales grew by 13.0% to $4.91 billion, and net income increased by 26.3% to $198.2 million, with diluted EPS rising to $0.59 from $0.47.
  • 5The company reported a significant reduction in net interest expense, down 30.9% for the quarter and 24.1% for the year-to-date, reflecting lower average debt levels.
  • 6Dollar General plans to open approximately 670 new stores in the current fiscal year, indicating continued expansion efforts.
  • 7Total debt decreased to $285.7 million at October 31, 2003, from $346.5 million at January 31, 2003, while cash and cash equivalents increased.

Frequently Asked Questions

For the 13 weeks ended October 31, 2003, Dollar General reported a 12.5% increase in net sales to $1.69 billion and a 13.6% increase in net income to $77.9 million. Diluted earnings per share rose to $0.23 from $0.20 in the prior year's comparable period.

Sales growth was primarily driven by the opening of 577 net new stores and a 3.8% increase in same-store sales. Strong performance in highly consumable, seasonal, home products, and basic clothing categories contributed to this increase.

The gross profit margin improved significantly, rising to 30.7% from 28.6% year-over-year. This improvement is attributed to higher average markups on inventory purchases, increased import purchases with higher markups, a reduction in the shrink provision, and lower distribution and transportation expenses as a percentage of sales.

Dollar General plans to open approximately 670 new stores in the fiscal year ending January 30, 2004, and has announced plans for even greater expansion in subsequent years. The company believes its current cash balances, cash flow from operations, credit facilities, and access to capital markets provide sufficient financing for its foreseeable liquidity and capital needs.