10-QPeriod: Q3 FY2015

DOLLAR GENERAL CORP Quarterly Report for Q3 Ended Oct 31, 2014

Filed December 4, 2014For Securities:DG

Summary

Dollar General Corporation's (DG) 10-Q filing for the period ended October 31, 2014, reveals a company experiencing steady sales growth with net sales increasing by 7.8% to $4.72 billion for the third quarter. This growth was driven by a 2.8% increase in same-store sales, attributed to higher customer traffic and average transaction amounts, particularly in consumables like tobacco and perishables. Despite a slight decrease in gross profit margin (30.1% vs. 30.3%), the company managed operating profit growth, though net income saw a minor decline of 0.5% to $236.3 million, resulting in diluted earnings per share of $0.78. The company continued its aggressive share repurchase program, buying back $800.1 million in the first 39 weeks of the fiscal year, contributing to a decrease in diluted shares outstanding. Financially, DG maintained a solid liquidity position with $216.2 million in cash and cash equivalents and $818.8 million in available borrowing capacity under its revolving credit facility. The company is also actively expanding its store footprint, opening 617 new stores in the first three quarters and planning for 700 new stores by year-end. A significant development highlighted is DG's ongoing, but currently rejected, proposals to acquire Family Dollar Stores, Inc., which has incurred some acquisition-related expenses impacting operating costs and effective tax rate. The company also faces ongoing legal proceedings, particularly related to wage and hour claims, which, while currently manageable, carry potential risks.

Key Highlights

  • 1Net sales increased by 7.8% to $4.72 billion for the third quarter ended October 31, 2014.
  • 2Same-store sales grew by 2.8% due to increased customer traffic and average transaction amounts.
  • 3Net income was $236.3 million, a slight decrease of 0.5% year-over-year, with diluted EPS of $0.78.
  • 4The company repurchased approximately $800.1 million of its common stock during the first 39 weeks of the fiscal year.
  • 5Dollar General continued its store expansion, opening 617 new stores in the first three quarters and planning for 700 for the full year.
  • 6The company is pursuing an acquisition of Family Dollar, which has incurred associated expenses and impacted the effective tax rate.
  • 7Liquidity remains strong with $216.2 million in cash and $818.8 million in revolving credit availability.

Frequently Asked Questions

The primary driver of Dollar General's sales growth in the third quarter was a 2.8% increase in same-store sales, fueled by higher customer traffic and an increased average transaction amount. Growth in consumables, particularly tobacco products and perishables, also significantly contributed.

While net sales grew, net income saw a slight decrease of 0.5% due to a marginal decline in gross profit margin from 30.3% to 30.1%. This margin compression was primarily caused by an increase in promotional markdowns and a higher proportion of sales from lower-margin consumables, partially offset by higher initial markups and improved inventory shrink rates.

Dollar General announced it submitted proposals to acquire Family Dollar, offering $80.00 per share in cash. However, Family Dollar's Board of Directors rejected the revised proposal, and Dollar General commenced a tender offer which Family Dollar's board recommended stockholders reject. The tender offer expiration was extended to December 31, 2014, with no assurance of completion. The acquisition pursuit has resulted in incurred expenses impacting the company's financials.

Dollar General maintains a strong liquidity position with $216.2 million in cash and cash equivalents and $818.8 million available under its revolving credit facility as of October 31, 2014. The company refinanced its debt in April 2013, establishing a five-year unsecured credit agreement and issuing senior notes. They are compliant with debt covenants and believe their cash flow from operations and available liquidity will be sufficient for their obligations.