10-QPeriod: Q2 FY2014

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended May 3, 2013

Filed June 4, 2013For Securities:DG

Summary

Dollar General Corporation's (DG) first-quarter 2013 report, ending May 3, 2013, shows a modest increase in net sales of 8.5% to $4.23 billion, driven by a 2.6% same-store sales increase attributed to higher customer traffic and transaction amounts. The company's strategy continues to focus on driving productive sales growth, increasing gross margins, leveraging process improvements, and strengthening its customer-serving culture. Despite sales growth, the gross profit margin declined by 89 basis points to 30.6%, impacted by higher markdowns, a greater mix of lower-margin consumables, and increased inventory shrinkage. However, selling, general, and administrative (SG&A) expenses as a percentage of sales improved by 37 basis points due to decreased incentive compensation and lower workers' compensation/general liability expenses. Net income saw a slight increase to $220.1 million, or $0.67 per diluted share. The company also completed a significant refinancing in the quarter, issuing new senior notes and entering into a new credit agreement, which contributed to a decrease in interest expense.

Financial Highlights

42 data points
Beta

Revenue

$4.23B

30.6% Gross Margin

Net Income

$220.08M

5.2% Net Margin

EPS (Diluted)

$0.67

Total Assets

$10.49B

Cash & Equivalents

$155.53M

Free Cash Flow

$147.23M

Financial Statements
Beta
Revenue$4.23B
Cost of Revenue$2.94B
Gross Profit$1.30B
SG&A Expenses$900.15M
Operating Income$395.00M
Interest Expense$24.52M
Net Income$220.08M
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)326.98M
Shares Outstanding (Diluted)328.13M

Key Highlights

  • 1Net sales increased by 8.5% to $4.23 billion for the first quarter of 2013, with same-store sales up 2.6%.
  • 2Gross profit margin decreased by 89 basis points to 30.6% due to higher markdowns, a shift towards consumables, and increased inventory shrink.
  • 3SG&A expenses as a percentage of sales improved by 37 basis points to 21.3%, primarily due to cost control measures.
  • 4Net income rose to $220.1 million, or $0.67 per diluted share, compared to $213.4 million, or $0.63 per diluted share, in the prior year.
  • 5The company completed a significant refinancing, issuing $1.3 billion in senior notes and securing a new $1.85 billion credit facility.
  • 6Interest expense decreased by $12.6 million due to lower interest rates and the refinancing efforts.
  • 7The company opened 165 new stores and remodeled or relocated 207 stores, expanding its retail footprint.

Frequently Asked Questions

The primary driver for the increase in net sales was a 2.6% same-store sales increase, which was fueled by higher customer traffic and an increased average transaction amount. Additionally, sales from new store openings contributed to the overall sales growth.

The gross profit margin was negatively impacted by several factors: higher markdowns, a greater percentage of sales coming from consumables (which typically have lower profit margins than non-consumables), increased inventory shrinkage, and lower initial inventory markups compared to the prior year period.

Dollar General completed a substantial refinancing during the quarter. This involved terminating existing credit agreements, entering into a new five-year $1.85 billion unsecured credit agreement, and issuing $1.3 billion in senior notes. This refinancing resulted in a decrease in interest expense and a strengthened balance sheet, with new credit facilities and senior notes maturing later.

The company's Board of Directors authorized an additional $500 million increase to its existing common stock repurchase program. During the quarter, Dollar General repurchased approximately 0.4 million shares of its common stock for a total cost of $20.0 million. As of May 3, 2013, $623.6 million remained available under this repurchase program.