10-QPeriod: Q2 FY2019

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended May 4, 2018

Filed May 31, 2018For Securities:DG

Summary

Dollar General Corporation reported a solid first quarter for fiscal year 2018, demonstrating continued sales growth and improved profitability. Net sales increased by 9.0% year-over-year, driven by a 2.1% increase in same-store sales, primarily attributed to a higher average transaction amount. The company also saw an improvement in gross profit margin due to better inventory management and markups, despite rising transportation costs. Diluted earnings per share saw a significant increase to $1.36 from $1.02 in the prior year, aided by a lower effective income tax rate resulting from the Tax Cuts and Jobs Act. Operationally, Dollar General continued its expansion strategy, opening 241 new stores and remodeling 322 stores in the quarter, with plans for substantial further expansion throughout the year. The company also repurchased $150 million of its common stock and maintained its quarterly dividend. While facing some headwinds such as increased SG&A expenses related to investments in store managers and occupancy costs, and ongoing legal matters, the company's financial performance indicates resilience and effective execution of its growth strategies.

Financial Highlights

44 data points
Beta

Revenue

$6.11B

30.5% Gross Margin

Net Income

$364.85M

6.0% Net Margin

EPS (Diluted)

$1.36

Total Assets

$12.49B

Cash & Equivalents

$283.97M

Free Cash Flow

$548.65M

Financial Statements
Beta
Revenue$6.11B
Cost of Revenue$4.25B
Gross Profit$1.86B
SG&A Expenses$1.37B
Operating Income$490.18M
Interest Expense$24.77M
Net Income$364.85M
EPS (Basic)$1.36
EPS (Diluted)$1.36
Shares Outstanding (Basic)268.27M
Shares Outstanding (Diluted)269.13M

Key Highlights

  • 1Net sales increased 9.0% to $6.11 billion, with same-store sales up 2.1% driven by higher average transaction amounts.
  • 2Gross profit margin improved by 17 basis points to 30.5%, due to higher initial markups and reduced inventory shrinkage.
  • 3Diluted earnings per share (EPS) rose significantly to $1.36 from $1.02 in the prior year.
  • 4Effective income tax rate decreased substantially to 21.6% from 37.2%, largely due to the Tax Cuts and Jobs Act.
  • 5Generated $548.7 million in cash from operating activities, an increase from the prior year.
  • 6Continued store expansion with 241 new store openings and 353 remodels/relocations in the quarter.
  • 7Repurchased $150 million of common stock and paid $77.7 million in dividends, demonstrating commitment to shareholder returns.

Frequently Asked Questions

Net sales increased by 9.0% to $6.11 billion primarily due to a 2.1% increase in same-store sales, which was driven by an increase in the average transaction amount. This increase was partially offset by a decline in customer traffic.

The effective income tax rate decreased from 37.2% in the prior year's first quarter to 21.6% in the current year's first quarter. This substantial decrease is primarily attributed to the impact of the Tax Cuts and Jobs Act, which lowered the U.S. federal corporate income tax rate.

Dollar General plans to open approximately 900 new stores, remodel about 1,000 existing stores, and relocate approximately 100 stores in fiscal year 2018, totaling around 2,000 real estate projects. Capital expenditures for 2018 are projected to be between $725 million and $800 million, supporting store growth, remodels, and supply chain initiatives.

The company is involved in several legal proceedings, including wage and hour litigation, other employment-related matters, and consumer/product litigation concerning private-label motor oil. While the company believes it has strong defenses, some of these matters, if decided adversely, could have a material adverse effect on its financial statements. The Tennessee Wage/Hour Litigation has a preliminary settlement that is not material to the financial statements.