10-QPeriod: Q2 FY2015

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended May 2, 2014

Filed June 3, 2014For Securities:DG

Summary

Dollar General Corporation (DG) reported its first-quarter results for the period ending May 2, 2014, demonstrating a moderate increase in net sales of 6.8% to $4.52 billion, driven by a 1.5% same-store sales increase. Despite top-line growth, gross profit margin declined by 57 basis points to 30.0%, primarily due to a shift in sales mix towards lower-margin consumables like tobacco and perishables, coupled with increased promotional markdowns. Selling, general, and administrative (SG&A) expenses as a percentage of sales also rose slightly by 37 basis points to 21.6%, impacted by lower same-store sales growth and increased occupancy costs, partially offset by reduced labor costs. Net income saw a modest increase of 1.1% to $222.4 million, resulting in diluted earnings per share (EPS) of $0.72, up from $0.67 in the prior year. The company significantly increased cash flow from operating activities, which more than doubled to $251.5 million, largely due to favorable changes in working capital. DG also continued its aggressive share repurchase program, spending $800.1 million in the quarter, while maintaining a strong cash position. The company remains focused on expanding its store footprint, planning to open 700 new stores in fiscal year 2014.

Financial Highlights

41 data points
Beta

Revenue

$4.52B

30.0% Gross Margin

Net Income

$222.40M

4.9% Net Margin

EPS (Diluted)

$0.72

Total Assets

$10.60B

Cash & Equivalents

$166.33M

Free Cash Flow

$251.46M

Financial Statements
Beta
Revenue$4.52B
Cost of Revenue$3.16B
Gross Profit$1.36B
SG&A Expenses$978.04M
Operating Income$379.71M
Interest Expense$22.27M
Net Income$222.40M
EPS (Basic)$0.72
EPS (Diluted)$0.72
Shares Outstanding (Basic)309.33M
Shares Outstanding (Diluted)310.30M

Key Highlights

  • 1Net sales grew by 6.8% to $4.52 billion, with same-store sales increasing by 1.5%.
  • 2Gross profit margin decreased by 57 basis points to 30.0% due to a shift towards lower-margin consumables and increased markdowns.
  • 3SG&A expenses as a percentage of sales increased by 37 basis points to 21.6%, impacting operating profit.
  • 4Net income rose by 1.1% to $222.4 million, and diluted EPS increased to $0.72 from $0.67.
  • 5Cash flow from operating activities significantly improved, more than doubling to $251.5 million.
  • 6The company repurchased approximately $800.1 million of its common stock during the quarter.
  • 7Dollar General plans to open 700 new stores in fiscal year 2014, alongside remodeling and relocating existing stores.

Frequently Asked Questions

The primary driver of the gross profit margin decrease was the increased proportion of sales from lower-margin consumables, such as tobacco products and perishables. Additionally, increased promotional activity led to higher markdowns, further pressuring margins.

Dollar General actively engaged in its share repurchase program, buying back approximately $800.1 million worth of its common stock during the quarter. This contributed to a decrease in diluted weighted-average shares outstanding, which in turn helped boost diluted earnings per share.

The company has a strong focus on growth through physical expansion, with plans to open approximately 700 new stores in fiscal year 2014. They are also continuing with store remodels and relocations to optimize their store base.

The company had completed a significant refinancing in April 2013, and this report details its current debt structure including a $1.0 billion senior unsecured term loan and an $850 million senior unsecured revolving credit facility, along with outstanding senior notes. As of May 2, 2014, the company was in compliance with all debt covenants and had significant borrowing availability.