10-QPeriod: Q3 FY2020

DOLLAR GENERAL CORP Quarterly Report for Q3 Ended Nov 1, 2019

Filed December 5, 2019For Securities:DG

Summary

Dollar General Corporation (DG) reported solid performance for the third quarter and the first 39 weeks of fiscal year 2019, ending November 1, 2019. The company demonstrated robust sales growth, with net sales increasing by 8.9% in the third quarter and 4.6% on a same-store basis, driven by both higher average transaction amounts and increased customer traffic. This top-line growth translated into a significant increase in operating profit, up 11.1% for the quarter. Diluted earnings per share also saw a healthy rise to $1.42 for the quarter. The company continues to execute on its strategic initiatives, including store remodels and the DG Fresh program, signaling a commitment to long-term expansion and operational efficiency. Despite some headwinds such as increased transportation costs and a shift towards lower-margin consumables, Dollar General has effectively managed its expenses and maintained its gross profit margin. Financially, DG maintains a strong liquidity position with ample availability under its revolving credit facility. The company also continued its commitment to shareholder returns through share repurchases and dividend payments. While facing potential challenges from tariffs and ongoing litigation, the company's management expressed confidence in its ability to navigate these issues and maintain financial stability. Overall, the results indicate a healthy and growing business, with continued strategic investments for future performance.

Key Highlights

  • 1Net sales increased by 8.9% to $6.99 billion in the third quarter of fiscal 2019, with same-store sales growing by 4.6%.
  • 2Operating profit increased by 11.1% to $491.4 million in the third quarter.
  • 3Diluted earnings per share rose to $1.42 in the third quarter, up from $1.26 in the prior year period.
  • 4Cash generated from operating activities increased by 9.7% to $1.66 billion for the first 39 weeks of fiscal 2019.
  • 5The company repurchased approximately 2.5 million shares of common stock for $398.1 million during the 13-week period ended November 1, 2019.
  • 6Dollar General continues to invest in growth, planning for approximately 1,000 new stores and 1,500 remodels in fiscal year 2020.
  • 7The company has a strong liquidity position, with $1.24 billion in borrowing availability under its revolving credit facility as of November 1, 2019.

Frequently Asked Questions

Dollar General reported strong sales growth in Q3 FY2019, with net sales up 8.9% and same-store sales up 4.6%. Operating profit increased 11.1%, and diluted EPS grew to $1.42. The company is continuing its expansion plans with significant store openings and remodels planned for FY2020, suggesting a positive outlook for continued sales and earnings growth.

While facing increased transportation and distribution costs and a sales mix shifting towards lower-margin consumables, Dollar General managed to maintain its gross profit margin at 29.5% in Q3 FY2019 through higher initial markups and reduced markdowns. SG&A as a percentage of sales also decreased slightly due to a reduction in hurricane-related expenses from the prior year and lower retail labor costs as a percentage of sales.

Dollar General demonstrates a commitment to returning capital to shareholders through its share repurchase program and dividend payments. During the 39 weeks ended November 1, 2019, the company paid $246.8 million in dividends and repurchased approximately 5.6 million shares for $785.3 million. The company also recently authorized an additional $1 billion for its share repurchase program.

The company is involved in ongoing legal proceedings, notably concerning consumer/product litigation related to motor oil labeling, for which an immaterial accrual was recorded. Management believes these matters will not have a material adverse effect on the consolidated financial statements, but acknowledges litigation uncertainty. Operationally, potential risks include tariffs on imported goods, but the company believes it can mitigate their impact. They are also focused on managing inventory levels and supply chain efficiencies.