10-QPeriod: Q3 FY2014

DOLLAR GENERAL CORP Quarterly Report for Q3 Ended Aug 2, 2013

Filed September 4, 2013For Securities:DG

Summary

Dollar General Corporation (DG) reported a strong second quarter for fiscal year 2013, with net sales increasing by 11.3% to $4.39 billion compared to the same period last year. This growth was driven by a 5.1% increase in same-store sales, attributed to higher customer traffic and an increased average transaction amount. The company also demonstrated improved operational efficiency, with Selling, General, and Administrative (SG&A) expenses decreasing as a percentage of sales. Despite a slight decline in gross profit margin due to a shift towards lower-margin consumable products and higher inventory shrinkage, the company's net income rose to $245.5 million, or $0.75 per diluted share, up from $214.1 million, or $0.64 per diluted share, in the prior year. This improvement was further bolstered by a significant decrease in interest expense following a successful debt refinancing. The company also continued its store expansion and remodeling initiatives, adding 375 new stores and remodeling or relocating 377 stores in the first half of the year.

Financial Highlights

42 data points
Beta

Revenue

$4.39B

31.3% Gross Margin

Net Income

$245.47M

5.6% Net Margin

EPS (Diluted)

$0.75

Total Assets

$10.70B

Cash & Equivalents

$169.22M

Free Cash Flow

$336.89M

Financial Statements
Beta
Revenue$4.39B
Cost of Revenue$3.02B
Gross Profit$1.38B
SG&A Expenses$964.47M
Operating Income$412.82M
Interest Expense$20.63M
Net Income$245.47M
EPS (Basic)$0.76
EPS (Diluted)$0.75
Shares Outstanding (Basic)324.77M
Shares Outstanding (Diluted)325.64M

Key Highlights

  • 1Net sales increased by 11.3% to $4.39 billion for the 13 weeks ended August 2, 2013.
  • 2Same-store sales increased by 5.1%, driven by higher customer traffic and average transaction amount.
  • 3Net income grew to $245.5 million ($0.75 per diluted share) from $214.1 million ($0.64 per diluted share) year-over-year.
  • 4Gross profit margin decreased by 65 basis points to 31.3% due to a shift towards lower-margin consumables and increased inventory shrinkage.
  • 5SG&A expenses decreased by 23 basis points to 21.9% of sales, reflecting improved operational efficiencies.
  • 6Interest expense decreased by $15.0 million due to lower interest rates following a refinancing.
  • 7The company opened 375 new stores and remodeled or relocated 377 stores in the first half of the fiscal year.

Frequently Asked Questions

The primary driver of Dollar General's sales growth was a 5.1% increase in same-store sales. This growth was fueled by higher customer traffic and an increased average transaction amount, indicating that customers are visiting stores more frequently and spending more per visit.

The gross profit margin declined by 65 basis points primarily due to a shift in the sales mix towards more consumable products, which generally carry lower margins. Additionally, an increase in sales of lower-margin items within the consumables category (like tobacco and expanded perishables) and a higher inventory shrinkage rate contributed to this decline.

Dollar General successfully refinanced its debt, leading to a significant decrease in interest expense by $15.0 million for the quarter due to lower all-in interest rates. As of August 2, 2013, total long-term obligations were approximately $2.87 billion, with $753.8 million available under its revolving credit facility, providing ample liquidity.

Dollar General is focused on four key operating priorities: driving productive sales growth through initiatives like store remodels and expanded offerings (e.g., refrigerated foods, tobacco), increasing gross margins through category management and private brands, leveraging process improvements and IT for cost reduction, and strengthening its culture of service to customers, employees, and shareholders.