10-QPeriod: Q3 FY2018

DOLLAR GENERAL CORP Quarterly Report for Q3 Ended Nov 3, 2017

Filed December 7, 2017For Securities:DG

Summary

Dollar General Corporation's third-quarter 2017 10-Q filing shows a solid performance with net sales increasing by 11.0% to $5.9 billion, driven by a 4.3% same-store sales increase. This growth was attributed to both higher average transaction amounts and increased customer traffic, partially boosted by hurricane-related impacts in certain regions. The company's focus on value and convenience continues to resonate with its core, value-conscious customer base, even amidst ongoing macroeconomic challenges. The company demonstrated effective management of its cost of goods sold, which increased by 10.8%, slightly less than the net sales growth, leading to a marginal increase in gross profit margin. However, Selling, General, and Administrative (SG&A) expenses rose as a percentage of net sales, primarily due to investments in store manager compensation and occupancy costs, partially offset by lower utility and advertising expenses. Net income saw a healthy increase of 7.3% to $252.5 million, with diluted earnings per share growing to $0.93 from $0.84 in the prior year period. The company also continued its commitment to returning capital to shareholders through share repurchases and dividends.

Key Highlights

  • 1Net sales increased 11.0% to $5.9 billion for the quarter, driven by a 4.3% same-store sales increase.
  • 2Gross profit margin improved slightly to 29.9% from 29.8% year-over-year, aided by higher markups and reduced inventory shrinkage.
  • 3SG&A expenses increased as a percentage of net sales to 22.9% due to investments in labor and occupancy costs.
  • 4Net income grew 7.3% to $252.5 million, with diluted EPS rising to $0.93 from $0.84.
  • 5Cash flow from operations remained strong at $1.14 billion for the year-to-date period.
  • 6The company repurchased $298.7 million of its common stock and paid $212.9 million in dividends year-to-date.
  • 7Dollar General plans to open approximately 1,285 new stores in 2017, including acquired locations, and remodel/relocate approximately 760 stores.

Frequently Asked Questions

Dollar General focuses on driving profitable sales growth by increasing customer traffic and average transaction amounts. Key initiatives include expanding cooler offerings, optimizing merchandise assortments through customer segmentation, enhancing in-store product availability, and improving advertising effectiveness through integrated traditional and digital media. They also maintain a focus on affordability, with over 80% of SKUs priced at $5 or less.

While Cost of Goods Sold increased at a slightly lower rate than sales, leading to a gross profit improvement, Selling, General, and Administrative (SG&A) expenses increased as a percentage of net sales. This increase was primarily driven by investments in store manager compensation and higher occupancy costs. However, these were partially offset by reduced utility and advertising expenses. Hurricane-related costs also impacted SG&A in the current period.

Dollar General is actively expanding its store base. For fiscal year 2017, they planned to open approximately 1,285 new stores (including acquired locations) and remodel or relocate around 760 stores. Looking ahead to fiscal year 2018, they plan to open approximately 900 new stores, remodel 1,000 mature locations, and relocate 100 stores, indicating a continued commitment to growth and store optimization.

Yes, Dollar General is involved in several legal proceedings, including wage and hour litigation, employment litigation, consumer/product litigation (notably regarding private-label motor oil), and shareholder litigation. The company states it is vigorously defending these matters, but notes that adverse resolutions could have a material adverse effect on its financial statements. Investors should monitor developments in these cases.