10-QPeriod: Q2 FY2021

DOLLAR GENERAL CORP Quarterly Report for Q2 Ended May 1, 2020

Filed May 28, 2020For Securities:DG

Summary

Dollar General Corporation (DG) reported strong first-quarter results for the period ending May 1, 2020, demonstrating significant resilience and growth amidst the COVID-19 pandemic. The company experienced a substantial increase in net sales, up 27.6% to $8.4 billion, driven by a 21.7% increase in same-store sales. This growth was attributed to heightened customer demand for consumables and essential products, a rise in average transaction amounts, and increased customer traffic. The company also saw an improvement in gross profit margin and a significant decrease in SG&A as a percentage of net sales, leading to a 69.2% surge in operating profit. Financially, DG strengthened its liquidity position by issuing $1.5 billion in senior notes, resulting in a robust cash balance of $2.7 billion at quarter-end. While the company incurred additional costs related to the pandemic, such as employee bonuses and enhanced safety measures, these were more than offset by the incremental sales. Management highlighted the company's classification as an essential business, its ability to maintain store operations, and its commitment to employee and customer safety. Despite uncertainties surrounding the ongoing pandemic and its potential economic impact on core customers, Dollar General's performance indicates strong operational execution and adaptability.

Financial Highlights

45 data points
Beta

Revenue

$8.68B

32.5% Gross Margin

Net Income

$787.60M

9.1% Net Margin

EPS (Diluted)

$3.12

Total Assets

$25.85B

Cash & Equivalents

$2.96B

Free Cash Flow

$1.74B

Financial Statements
Beta
Revenue$8.68B
Cost of Revenue$5.87B
Gross Profit$2.82B
SG&A Expenses$1.78B
Operating Income$1.04B
Interest Expense$39.33M
Net Income$787.60M
EPS (Basic)$3.15
EPS (Diluted)$3.12
Shares Outstanding (Basic)250.28M
Shares Outstanding (Diluted)252.19M

Key Highlights

  • 1Net sales surged by 27.6% to $8.4 billion, driven by a 21.7% increase in same-store sales, reflecting strong customer demand during the COVID-19 pandemic.
  • 2Operating profit saw a significant increase of 69.2% to $866.8 million, due to sales growth and improved operating margins.
  • 3Gross profit margin increased by 49 basis points to 30.7%, benefiting from favorable markdowns and higher initial inventory markups.
  • 4SG&A expenses decreased by 204 basis points to 20.5% of net sales, primarily due to sales leverage offsetting incremental COVID-19 related costs.
  • 5Diluted earnings per share rose to $2.56 from $1.48 in the prior year period, a 73.0% increase.
  • 6The company significantly strengthened its liquidity by issuing $1.5 billion in senior notes, ending the quarter with $2.7 billion in cash and cash equivalents.
  • 7Despite increased costs associated with COVID-19, including employee bonuses, these were outpaced by incremental sales, resulting in strong overall financial performance.

Frequently Asked Questions

The COVID-19 pandemic significantly benefited Dollar General's first quarter results, driving heightened customer demand, particularly for consumables. This led to a substantial increase in net sales and same-store sales. While the company incurred additional operational costs related to safety measures and employee bonuses, these were more than offset by the incremental sales, resulting in strong profit growth.

Dollar General significantly strengthened its liquidity position by issuing $1.5 billion in senior unsecured notes during the quarter. As a result, the company ended the first quarter of 2020 with a robust cash balance of $2.7 billion, providing ample resources to meet its obligations and fund future operations.

Despite incurring incremental costs due to the COVID-19 pandemic (e.g., employee bonuses, enhanced cleaning protocols, personal protective equipment), Dollar General effectively managed its operating expenses. Selling, general, and administrative (SG&A) expenses decreased by 204 basis points to 20.5% of net sales. This was largely due to the significant leverage gained from the substantial increase in net sales, which more than offset the additional pandemic-related expenses.

Dollar General anticipates continued impacts from the COVID-19 pandemic, with uncertainty surrounding duration and severity. Potential effects include shifts in consumer demand, supply chain disruptions, and increased costs. However, the company's classification as an essential business, strong liquidity, and strategic initiatives position it to navigate these challenges. Management expects the quarterly cadence of results may vary from historical patterns due to these uncertainties.