10-QPeriod: Q2 FY2017

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended Jul 29, 2016

Filed August 25, 2016For Securities:DG

Summary

Dollar General Corporation reported solid performance for the fiscal second quarter ended July 29, 2016, with net sales increasing by 5.8% to $5.39 billion. This growth was driven by a 0.7% same-store sales increase, primarily due to a higher average transaction amount, although customer traffic saw a slight decline. The company demonstrated effective cost management, with SG&A expenses as a percentage of sales decreasing by 8 basis points, and gross profit margin saw a slight increase of 2 basis points. Profitability improved year-over-year, with net income rising to $306.5 million, or $1.08 per diluted share, a notable 13.7% increase from the prior year's $0.95 per diluted share. This improvement was supported by higher operating profit and a slightly lower effective income tax rate. The company also highlighted strong operating cash flow of $793.3 million for the first half of the year and continued its commitment to shareholder returns through share repurchases and dividend payments. Strategic initiatives, including store expansion and format innovation, are underway to capture future growth.

Financial Highlights

44 data points
Beta

Revenue

$5.39B

31.2% Gross Margin

Net Income

$306.52M

5.7% Net Margin

EPS (Diluted)

$1.08

Total Assets

$11.62B

Cash & Equivalents

$185.03M

Free Cash Flow

$389.38M

Financial Statements
Beta
Revenue$5.39B
Cost of Revenue$3.71B
Gross Profit$1.68B
SG&A Expenses$1.17B
Operating Income$509.10M
Interest Expense$24.35M
Net Income$306.52M
EPS (Basic)$1.08
EPS (Diluted)$1.08
Shares Outstanding (Basic)283.13M
Shares Outstanding (Diluted)284.12M

Key Highlights

  • 1Net sales increased 5.8% to $5.39 billion for the quarter, driven by a 0.7% same-store sales increase.
  • 2Diluted Earnings Per Share (EPS) grew by 13.7% to $1.08, compared to $0.95 in the prior year period.
  • 3Gross profit margin slightly improved by 2 basis points to 31.2%, aided by higher initial markups.
  • 4Selling, General, and Administrative (SG&A) expenses as a percentage of sales decreased by 8 basis points to 21.7%, reflecting cost management efficiencies.
  • 5Operating cash flow for the first half of the year was robust at $793.3 million, up 35.6% from the prior year.
  • 6The company continued its share repurchase program, repurchasing approximately 5.2 million shares for $454.5 million during the first half of the year.
  • 7Dollar General acquired 41 former Walmart Express store locations, with plans to relocate existing stores to 40 of these sites.

Frequently Asked Questions

Sales growth was primarily driven by a 0.7% increase in same-store sales, which was fueled by a higher average transaction amount. While customer traffic saw a slight decline, the increase in spending per customer offset this. Additionally, sales from new store openings contributed to the overall net sales increase.

The company demonstrated effective expense management. SG&A expenses as a percentage of sales decreased by 8 basis points to 21.7%, attributed to reductions in administrative payroll, advertising costs, and incentive compensation. While retail labor and occupancy costs increased, they did so at a rate lower than net sales growth.

Dollar General is pursuing several growth strategies, including expanding its store base by opening approximately 900 new stores in fiscal 2016 and planning for 1,000 new stores in 2017. They are also innovating store formats, such as the DG16 format with more cooler doors, and testing smaller format stores. The acquisition of 41 former Walmart Express locations is also a key initiative to capture growth opportunities and relocate existing stores.

Dollar General is returning capital to shareholders through a combination of share repurchases and quarterly cash dividends. In the first half of the year, the company repurchased approximately 5.2 million shares for $454.5 million and paid total cash dividends of $142.2 million. The Board of Directors also authorized a $1.0 billion increase to the existing common stock repurchase program.