10-QPeriod: Q2 FY2010

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended Jul 31, 2009

Filed September 10, 2009For Securities:DG

Summary

Dollar General Corporation (DG) reported strong financial results for the second quarter and first half of fiscal year 2009, ending July 31, 2009. The company experienced significant year-over-year growth in net sales, driven by an 8.6% increase in same-store sales for the quarter and a 10.8% increase year-to-date. This sales growth, coupled with improved gross margins (up to 31.2% from 29.1% in the prior year's quarter) and controlled SG&A expenses (down to 23.2% from 23.6%), led to a substantial rise in net income, which more than tripled to $93.6 million for the quarter and increased over fivefold to $176.6 million for the first half. The company attributes its performance to strategic initiatives focused on driving sales, increasing gross margins, leveraging technology for cost reduction, and strengthening its customer-centric culture. Dollar General's value proposition appears to resonate well with consumers navigating a challenging economic environment. The company also generated robust operating cash flow of $243.9 million for the first half, ending the period with a healthy cash balance of $515.4 million, indicating solid liquidity.

Key Highlights

  • 1Net sales increased by 11.2% to $2.90 billion for the 13-week period ended July 31, 2009, driven by a 8.6% increase in same-store sales.
  • 2Gross profit margin improved significantly to 31.2% from 29.1% in the prior year's quarter, attributed to higher markups, reduced distribution costs, and lower LIFO charges.
  • 3Selling, General, and Administrative (SG&A) expenses as a percentage of sales decreased to 23.2% from 23.6%, primarily due to sales leverage.
  • 4Net income surged by 237.7% to $93.6 million for the quarter compared to the same period last year.
  • 5Cash provided by operating activities for the 26-week period was $243.9 million, and the company ended the period with $515.4 million in cash and cash equivalents.
  • 6The company opened 225 new stores and remodeled or relocated 213 stores in the first half of the fiscal year.
  • 7Dollar General filed a registration statement for a proposed initial public offering (IPO) and declared a special dividend of $0.43 per share.

Frequently Asked Questions

Dollar General reported a strong performance, with net sales increasing 11.2% to $2.90 billion and net income soaring by 237.7% to $93.6 million compared to the second quarter of the prior year. This was driven by a significant increase in same-store sales and improved gross margins.

The gross profit margin improved due to several factors, including higher average markups from vendor cost reductions and an increased mix of private brand items, decreased distribution and transportation costs due to lower fuel prices and improved efficiencies, and a decline in inventory shrink.

The company maintained a solid liquidity position, with $515.4 million in cash and cash equivalents and $901.6 million available for borrowing under its asset-based revolving credit facility (ABL Facility) as of July 31, 2009. They generated $243.9 million in operating cash flow in the first half of the year.

Dollar General is involved in several legal proceedings, including class-action lawsuits related to employee classification and wage disputes. The company believes it is properly defending these actions, but notes that an adverse resolution in some of these cases could have a material adverse effect on its financial statements.

Subsequent to the reporting period, Dollar General filed a registration statement for a proposed initial public offering (IPO) and declared a special dividend of $0.43 per share, amounting to approximately $239.3 million. Proceeds from the IPO are intended for debt redemption.