10-QPeriod: Q1 FY2023

DOLLAR GENERAL CORP Quarterly Report for Q1 Ended Apr 29, 2022

Filed May 26, 2022For Securities:DG

Summary

Dollar General Corporation's first-quarter 2022 results (ended April 29, 2022) show a 4.2% increase in net sales to $8.75 billion, driven by new store openings, though same-store sales saw a slight decrease of 0.1%. This top-line growth was accompanied by a notable 18.5% decline in net income to $552.7 million, or $2.41 per diluted share, down from $677.7 million, or $2.82 per diluted share, in the prior year quarter. The decrease in profitability is primarily attributed to a lower gross profit margin, impacted by a shift in sales mix towards more consumables and increased inventory costs, as well as higher selling, general, and administrative (SG&A) expenses related to labor and occupancy costs. The company continues to invest in strategic initiatives like new store openings, remodels, and expanding concepts like pOpshelf and DG Fresh. Despite inflationary pressures and supply chain challenges impacting costs, Dollar General maintains a positive outlook on its liquidity and ability to fund operations and capital expenditures through a combination of operating cash flow, existing cash balances, and available credit facilities. The company also continues its commitment to returning capital to shareholders through dividends and share repurchases.

Financial Highlights

45 data points
Beta

Revenue

$8.75B

31.3% Gross Margin

Net Income

$552.66M

6.3% Net Margin

EPS (Diluted)

$2.41

Total Assets

$26.96B

Cash & Equivalents

$335.61M

Free Cash Flow

$449.52M

Financial Statements
Beta
Revenue$8.75B
Cost of Revenue$6.01B
Gross Profit$2.74B
SG&A Expenses$1.99B
Operating Income$746.16M
Interest Expense$39.68M
Net Income$552.66M
EPS (Basic)$2.42
EPS (Diluted)$2.41
Shares Outstanding (Basic)228.48M
Shares Outstanding (Diluted)229.61M

Key Highlights

  • 1Net sales increased by 4.2% to $8.75 billion, primarily due to new store openings, while same-store sales decreased by 0.1%.
  • 2Net income decreased by 18.5% to $552.7 million, resulting in diluted earnings per share of $2.41, down from $2.82 in the prior year quarter.
  • 3Gross profit margin declined by 151 basis points to 31.3%, attributed to a shift in sales mix towards lower-margin consumables and increased costs.
  • 4SG&A expenses as a percentage of net sales increased by 78 basis points to 22.8%, driven by higher labor and occupancy costs.
  • 5The company opened 239 new stores and plans to open approximately 1,110 new stores in total for fiscal 2022, alongside remodeling and relocating other stores.
  • 6Cash flow from operating activities decreased by 36.1% to $449.5 million, mainly due to increased inventory purchases.
  • 7Dollar General continued its capital return program, paying $125.3 million in dividends and repurchasing $0.7 billion in common stock during the quarter.

Frequently Asked Questions

The decrease in net income was primarily driven by a lower gross profit margin, which fell by 151 basis points to 31.3%. This was influenced by a shift in the sales mix towards a higher proportion of consumables, which generally have lower gross profit rates, and increased inventory costs including a higher LIFO provision. Additionally, selling, general, and administrative (SG&A) expenses rose as a percentage of net sales by 78 basis points to 22.8%, mainly due to higher retail labor and store occupancy costs.

Dollar General is experiencing inflationary pressures in areas such as commodity, transportation, and fuel costs, as well as supply chain disruptions leading to higher costs and shipping delays. The company is working to mitigate these impacts through various initiatives including improving its private brand penetration, enhancing distribution and transportation efficiencies (like the DG Fresh initiative and expanding its private tractor fleet), optimizing category management, and implementing pricing strategies. The company also notes that while reductions in SNAP benefits did not materially impact the business in Q1 2022, they continue to monitor such macroeconomic factors.

Dollar General believes its cash flow from operations, combined with existing cash balances and availability under its $2.0 billion revolving credit facility and commercial paper program, will provide sufficient liquidity to fund its obligations, capital expenditures, and shareholder returns for the next twelve months and several years. The company anticipates potential combined borrowings under the revolving facility and commercial paper program to be a maximum of approximately $1.5 billion outstanding at any one time for the remainder of fiscal 2022.

Key strategic initiatives include expanding its store footprint by opening approximately 1,110 new stores in fiscal 2022 and remodeling others. The company is also growing concepts like pOpshelf and its DG Fresh self-distribution model for frozen and refrigerated products. They are also investing in digital tools like the Dollar General app and delivery partnerships. Furthermore, they are innovating store formats with larger footprints to accommodate broader assortments and enhancing operational efficiency through programs like 'Fast Track' which includes self-checkout options.