10-QPeriod: Q2 FY2010

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended May 1, 2009

Filed June 2, 2009For Securities:DG

Summary

Dollar General Corporation (DG) reported a strong first quarter for fiscal year 2009, ended May 1, 2009, demonstrating resilience in a challenging economic environment. The company saw a significant increase in net sales, up 15.7% to $2.78 billion, driven by a robust 13.3% same-store sales increase, indicating that value-conscious consumers are increasingly relying on Dollar General for their needs. This sales growth was accompanied by an impressive improvement in gross profit margin, rising to 30.8% from 28.8% in the prior year period, attributed to better merchandise cost management, increased private brand penetration, and reduced distribution expenses. The company also achieved an 8.3% increase in Selling, General & Administrative (SG&A) expenses, but importantly, managed to reduce SG&A as a percentage of sales to 22.7% from 24.2%. This operational efficiency, coupled with strong sales, led to a substantial increase in operating profit and a significant jump in net income to $83.0 million from $5.9 million in the prior year period. Dollar General's proactive management of its cost structure and product mix appears to be effectively translating into improved profitability, making it an attractive option for investors seeking value in the retail sector during economic downturns.

Key Highlights

  • 1Net sales increased by 15.7% to $2.78 billion for the 13 weeks ended May 1, 2009, compared to $2.40 billion in the prior year period.
  • 2Same-store sales grew by 13.3%, highlighting strong customer traffic and increased transaction amounts, indicating customer reliance on value offerings during economic uncertainty.
  • 3Gross profit margin expanded to 30.8% from 28.8% in the prior year quarter, driven by vendor cost reductions, higher private brand penetration, and lower distribution costs.
  • 4Selling, General, and Administrative (SG&A) expenses as a percentage of sales decreased to 22.7% from 24.2%, reflecting improved operational leverage and cost control measures.
  • 5Net income surged to $83.0 million, a significant improvement from $5.9 million in the comparable prior year period.
  • 6Cash flow from operating activities was $108.9 million, contributing to a healthy cash balance of $434.6 million.
  • 7The company opened 104 new stores during the quarter, continuing its store expansion strategy.

Frequently Asked Questions

Dollar General reported a strong increase in net sales, which rose by 15.7% to $2.78 billion for the 13 weeks ended May 1, 2009, compared to $2.40 billion in the same period last year. This growth was significantly driven by a 13.3% increase in same-store sales, indicating robust customer traffic and higher average transaction amounts.

Profitability improved significantly due to an expansion in gross profit margin to 30.8% from 28.8%, attributed to better merchandise cost management, an increased mix of private brand items, and reduced distribution and transportation costs. Additionally, SG&A expenses as a percentage of sales decreased to 22.7% from 24.2%, showcasing improved operational efficiency and cost leverage.

As of May 1, 2009, Dollar General had approximately $4.14 billion in total outstanding debt and $434.6 million in cash and cash equivalents. The company had $970.4 million available under its senior secured asset-based revolving credit facility. Management believes its operational cash flow, existing cash balances, and available credit facilities provide sufficient liquidity for the next twelve months.

The company is involved in several legal proceedings, primarily related to wage and hour claims, with some of these actions seeking class action status. While Dollar General intends to vigorously defend these actions, it acknowledges that adverse resolutions could potentially have a material adverse effect on its financial statements. The company also notes income tax-related contingencies and potential issues with certain distribution center leases.