- Net Sales Increased 5.8%; Same-Store
Sales Increased 0.7%
- Diluted Earnings Per Share Increased
14% to $1.08; Year to Date Through the Second Quarter, Diluted
Earnings Per Share Increased 18% to $2.11
- Cash From Operations Increased 36%
Year to Date Through the Second Quarter
- $597 Million of Capital Returned to
Shareholders Year to Date Through the Second Quarter
- Board of Directors Approves
Incremental $1.0 Billion Share Repurchase Authorization; Declares
Third Quarter 2016 Dividend
- Confirms 2016 Full Year Diluted EPS
Guidance of 10% to 15% Growth
Dollar General Corporation (NYSE: DG) today reported financial
results for its fiscal 2016 second quarter (13 weeks) ended July
29, 2016.
“We are pleased with our 2016 second quarter diluted earnings
per share growth of 14 percent over the 2015 second quarter,
although our same-store sales performance fell short of our
expectations. Retail food deflation and a reduction in both SNAP
participation rates and benefit levels, coupled with unseasonably
mild spring weather, proved to be stronger than expected headwinds
to our business. The competitive environment also intensified in
select regions of the country. Importantly, even amidst a
challenging sales environment, we effectively managed our gross
profit margin and leveraged our selling, general and administrative
expense as a percent of sales,” said Todd Vasos, Dollar General’s
chief executive officer.
“For the second half of the year, we have action plans across
both merchandising and store operations intended to drive
same-store sales while maintaining strict expense control
discipline. Looking ahead, we remain focused on our long-term
strategy to invest for growth while also returning cash to
shareholders through consistent share repurchases and anticipated
quarterly dividends.”
Second Quarter 2016
Highlights
The Company’s net income was $307 million, or $1.08 per diluted
share, in the 2016 second quarter, compared to net income of $282
million, or $0.95 per diluted share, in the 2015 second
quarter.
Net sales increased 5.8 percent to $5.39 billion in the 2016
second quarter compared to $5.10 billion in the 2015 second
quarter. Same-store sales increased 0.7 percent driven primarily by
an increase in average transaction amount offset by a decline in
traffic. Same-store sales increases were driven by positive results
in the consumables category accompanied by results in the seasonal
category that were flat when compared to the 2015 second quarter,
offset by negative results in the apparel and home categories. The
net sales increase was also positively affected by sales from new
stores, modestly offset by sales from closed stores.
Gross profit, as a percentage of net sales, was 31.2 percent in
the 2016 second quarter, an increase of 2 basis points from the
2015 second quarter. The gross profit rate increase was primarily
attributable to higher initial inventory markups and lower
transportation costs, partially offset by higher markdowns, a
greater proportion of sales of consumables merchandise, which have
a lower gross profit rate than non-consumables merchandise, and
increased inventory shrink.
Selling, general and administrative expense (“SG&A”) as a
percentage of net sales was 21.7 percent in the 2016 second quarter
compared to 21.8 percent in the 2015 second quarter, a decrease of
8 basis points. The SG&A decrease was primarily attributable to
lower administrative payroll, advertising, and incentive
compensation expenses. Partially offsetting these items were retail
labor and occupancy costs, each of which increased at a rate
greater than the increase in net sales.
The effective income tax rate was 36.8 percent for the 2016
second quarter compared to a rate of 38.0 percent for the 2015
second quarter. The effective income tax rate was lower in the 2016
second quarter due primarily to the recognition of additional
amounts of the Work Opportunity Tax Credit (“WOTC”) in the 2016
second quarter. The December 2015 reenactment of the WOTC allowed
the Company to receive credits for eligible employees hired during
the second quarter of 2016. By comparison, in the 2015 second
quarter, only a limited number of employees (hired on or before
December 31, 2014) were eligible for the credit.
26-Week Period
Highlights
For the 2016 26-week period, net sales increased 6.4 percent
over the comparable 2015 period to $10.7 billion. Same-store sales
increased 1.4 percent. Increases in customer traffic and average
transaction amount contributed to the increase in same-store sales.
The remainder of the net sales increase was attributable to new
stores, modestly offset by closed stores.
Gross profit increased by 6.7 percent and, as a percentage of
net sales, increased by 9 basis points to 30.9 percent in the 2016
26-week period compared to the 2015 period. The gross profit rate
increase in the 2016 period as compared to the 2015 period was
primarily attributable to higher initial inventory markups and
lower transportation costs, partially offset by higher markdowns, a
greater proportion of sales of consumables merchandise, which have
a lower gross profit rate than non-consumables merchandise, and
increased inventory shrink.
SG&A was 21.6 percent of net sales in the 2016 period
compared to 21.8 percent in the 2015 period, a decrease of 18 basis
points. The SG&A decrease was primarily attributable to lower
administrative payroll, utilities, advertising and incentive
compensation expenses. Partially offsetting these items were retail
labor and occupancy costs, each of which increased at a rate
greater than the increase in net sales.
The effective income tax rate for the 2016 period was 36.1
percent compared to a rate of 37.8 percent for the 2015 period. The
effective income tax rate was lower in the 2016 first half due
primarily to the Company’s early adoption of an amended accounting
standard for employee share-based payments and the recognition of
additional amounts of the WOTC in the 2016 first half. The December
2015 reenactment of the WOTC allowed the Company to receive credits
for eligible employees hired during the first half of 2016. By
comparison, in the first half of 2015, only a limited number of
employees (hired on or before December 31, 2014) were eligible for
the credit.
For the 2016 26-week period, the Company reported net income of
$602 million, or $2.11 per diluted share, compared to net income of
$536 million, or $1.79 per diluted share, for the 26-week 2015
period, an increase in diluted EPS of 18%.
Merchandise Inventories
As of July 29, 2016, total merchandise inventories, at cost,
were $3.27 billion compared to $3.03 billion as of July 31, 2015,
an increase of 1.6 percent on a per-store basis.
Capital Expenditures
During the 2016 26-week period, the Company opened 510 new
stores and remodeled or relocated 594 stores. Total additions to
property and equipment in the 2016 26-week period were $268
million, including: $81 million for distribution and
transportation-related capital expenditures; $77 million for
improvements, upgrades, remodels and relocations of existing
stores; $55 million related to new leased stores, primarily for
leasehold improvements, fixtures and equipment; $37 million for
stores purchased or built by the Company; and $14 million for
information systems upgrades and technology-related projects.
Share Repurchases
During the 2016 second quarter, the Company repurchased 2.5
million shares of its common stock under its share repurchase
program at an average price of $88.55 per share. For the 2016
26-week period, the Company repurchased 5.2 million shares of its
common stock under the share repurchase program at an average price
of $86.61 per share. Since the inception of the share repurchase
program in December 2011 through the end of the 2016 second
quarter, the Company has repurchased 67.3 million shares totaling
$4.0 billion, at an average price of $59.93 per share.
On August 24, 2016, the Board of Directors authorized an
additional $1.0 billion for share repurchases, increasing the total
authorization for future repurchases to approximately $1.4 billion.
The authorization has no expiration date.
Dividend
On August 24, 2016, the Board of Directors declared its regular
quarterly cash dividend of $0.25 per share on the Company’s common
stock. The third quarter dividend will be payable on September 28,
2016 to shareholders of record at the close of business on
September 14, 2016.
Financial Outlook
On March 10, 2016, the Company stated that it intended to update
its diluted EPS guidance for the 53-weeks ending February 3, 2017
(“fiscal 2016”) only if the Company no longer reasonably expects
diluted EPS to fall within the 10 percent to 15 percent range
outlined in the long-term growth model included in its press
release issued on that date. The Company continues to forecast
diluted EPS for fiscal 2016 within this range of 10 percent to 15
percent. Additionally, capital expenditures for fiscal 2016 are now
expected to be in the range of $580 million to $630 million to
reflect the purchase of 42 Walmart Express stores, compared to the
prior forecast of $550 million to $600 million. The Company does
not intend, and specifically disclaims any duty, to update its
dollar range for expected fiscal 2016 capital expenditures unless
otherwise required by applicable securities laws.
As stated in the March 10, 2016 press release, the Company does
not intend, and specifically disclaims any duty, to update its
expectations regarding where in the range of guidance fiscal 2016
net sales, same-store sales or diluted EPS may fall, or to update
any component of the growth model outlined in that press release,
other than diluted EPS range as specified herein. However, the
Company does intend to discuss square footage growth from time to
time.
The Company continues to use the long-term growth model outlined
in its March 10, 2016 press release in discussions of its business,
and by doing so the Company does not undertake to update any
portion of the growth model except as specified herein.
Conference Call
Information
The Company will hold a conference call on Thursday, August 25,
2016 at 9:00 a.m. CT/10:00 a.m. ET, hosted by Todd Vasos, chief
executive officer, and John Garratt, chief financial officer. If
you wish to participate, please call (855) 576-2641 at least 10
minutes before the conference call is scheduled to begin. The
conference ID is 53436019. The call will also be broadcast live
online at www.dollargeneral.com under “Investor Information,
Conference Calls and Investor Events.” A replay of the conference
call will be available through Tuesday, September 8, 2016, and will
be accessible online or by calling (855) 859-2056. The conference
ID for the replay is 53436019.
Forward-Looking
Statements
This press release contains forward-looking information,
including statements regarding the Company’s outlook, plans and
intentions, including, but not limited to, statements made within
the quotations of Mr. Vasos and in the section entitled “Financial
Outlook”. A reader can identify forward-looking statements because
they are not limited to historical fact or they use words such as
“outlook,” “may,” “should,” “could,” “will,” “believe,”
“anticipate,” “plan,” “expect,” “estimate,” “forecast,”
“confident,” “opportunities,” “goal,” “prospect,” “positioned,”
“accelerate,” “intend,” “committed,” “continue,” “looking ahead,”
“going forward,” “focused on,” or “will likely result,” and similar
expressions that concern the Company’s strategy, plans, intentions
or beliefs about future occurrences or results. These matters
involve risks, uncertainties and other factors that may cause the
actual performance of the Company to differ materially from that
which the Company expected. Many of these statements are derived
from the Company’s operating budgets and forecasts as of the date
of this release, which are based on many detailed assumptions that
the Company believes are reasonable. However, it is very difficult
to predict the effect of known factors on the Company’s future
results, and the Company cannot anticipate all factors that could
affect future results that may be important to an investor. All
forward-looking information should be evaluated in the context of
these risks, uncertainties and other factors. Important factors
that could cause actual results to differ materially from the
expectations expressed in or implied by such forward-looking
statements include, but are not limited to:
- economic conditions, including their
effect on employment levels, consumer demand, disposable income,
credit availability and spending patterns, inflation, commodity
prices, fuel prices, interest rates, exchange rate fluctuations and
the cost of goods;
- failure to successfully execute the
Company’s strategies and initiatives, including those relating to
merchandising, sourcing, customer segmentation, shrink, private
brand, distribution and transportation, store operations, store
formats, budgeting and expense reduction, and real estate;
- failure to open, relocate and remodel
stores profitably and on schedule, as well as failure of the
Company’s new store base to achieve sales and operating levels
consistent with the Company’s expectations;
- levels of inventory shrinkage;
- effective response to competitive
pressures and changes in the competitive environment and the
markets where the Company operates, including consolidation;
- the Company’s level of success in
gaining and maintaining broad market acceptance of its private
brands;
- disruptions, unanticipated or unusual
expenses or operational failures in the Company’s supply chain
including, without limitation, a decrease in transportation
capacity for overseas shipments, increases in transportation costs
(including increased fuel costs and carrier rates or driver wages),
work stoppages or other labor disruptions that could impede the
receipt of merchandise, or delays in constructing or opening new
distribution centers;
- risks and challenges associated with
sourcing merchandise from suppliers, including, but not limited to,
those related to international trade;
- unfavorable publicity or consumer
perception of the Company’s products, including, but not limited
to, related product liability and food safety claims;
- the impact of changes in or
noncompliance with governmental laws and regulations (including,
but not limited to, environmental compliance, product safety, food
safety, information security and privacy, and labor and employment
laws, as well as tax laws, the interpretation of existing tax laws,
or the Company’s failure to sustain its reporting positions
negatively affecting the Company’s tax rate) and developments in or
outcomes of private actions, class actions, administrative
proceedings, regulatory actions or other litigation;
- natural disasters, unusual weather
conditions, pandemic outbreaks, terrorist acts and geo-political
events;
- damage or interruption to the Company’s
information systems or failure of technology initiatives to deliver
desired or timely results;
- ability to attract and retain qualified
employees, while controlling labor costs (including effects of
regulatory changes related to overtime exemption under Fair Labor
Standards Act once implemented) and other labor issues;
- the Company’s loss of key personnel,
inability to hire additional qualified personnel or disruption of
executive management as a result of retirements or
transitions;
- failure to successfully manage
inventory balances;
- seasonality of the Company’s
business;
- incurrence of material uninsured
losses, excessive insurance costs or accident costs;
- failure to maintain the security of
information that the Company holds, whether as a result of a data
security breach or otherwise;
- deterioration in market conditions,
including market disruptions, limited liquidity and interest rate
fluctuations, or a lowering of the Company’s credit ratings;
- new accounting guidance, or changes in
the interpretation or application of existing guidance, such as
changes to lease accounting guidance;
- the factors disclosed under “Risk
Factors” in the Company’s most recent Annual Report on Form 10-K;
and
- such other factors as may be discussed
or identified in this press release.
All forward-looking statements are qualified in their entirety
by these and other cautionary statements that the Company makes
from time to time in its SEC filings and public communications. The
Company cannot assure the reader that it will realize the results
or developments the Company anticipates or, even if substantially
realized, that they will result in the consequences or affect the
Company or its operations in the way the Company expects.
Forward-looking statements speak only as of the date made. The
Company undertakes no obligation to update or revise any
forward-looking statements to reflect events or circumstances
arising after the date on which they were made, except as otherwise
required by law or as set forth under “Financial Outlook” herein.
As a result of these risks and uncertainties, readers are cautioned
not to place undue reliance on any forward-looking statements
included herein or that may be made elsewhere from time to time by,
or on behalf of, the Company.
About Dollar General
Corporation
Dollar General Corporation has been delivering value to shoppers
for over 75 years. Dollar General helps shoppers Save time. Save
money. Every day!® by offering products that are frequently used
and replenished, such as food, snacks, health and beauty aids,
cleaning supplies, basic apparel, housewares and seasonal items at
low everyday prices in convenient neighborhood locations. Dollar
General operated 13,000 stores in 43 states as of August 13, 2016.
In addition to high quality private brands, Dollar General sells
products from America's most-trusted manufacturers such as Clorox,
Energizer, Procter & Gamble, Hanes, Coca-Cola, Mars, Unilever,
Nestle, Kimberly-Clark, Kellogg's, General Mills, and PepsiCo. For
more information on Dollar General, please visit
www.dollargeneral.com.
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (In thousands)
(Unaudited) July 29 July 31 January
29 2016 2015 2016 ASSETS
Current assets: Cash and cash equivalents $ 185,033 $ 180,525 $
157,947 Merchandise inventories 3,270,685 3,029,731 3,074,153
Income taxes receivable 22,985 14,646 6,843 Prepaid expenses and
other current assets 229,348
199,945 193,467 Total current assets
3,708,051 3,424,847
3,432,410 Net property and equipment
2,349,119 2,195,857
2,264,062 Goodwill 4,338,589
4,338,589 4,338,589 Other
intangible assets, net 1,200,816
1,201,241 1,200,994 Other assets, net
20,795 21,141
21,830 Total assets $ 11,617,370
$ 11,181,675 $ 11,257,885 LIABILITIES
AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of
long-term obligations $ 501,548 $ 101,335 $ 1,379 Accounts payable
1,720,772 1,536,610 1,494,225 Accrued expenses and other 474,426
443,164 467,122 Income taxes payable 22,660
41,348 32,870 Total
current liabilities 2,719,406
2,122,457 1,995,596 Long-term
obligations 2,556,464 2,748,274
2,969,175 Deferred income taxes
647,372 610,390
639,955 Other liabilities 280,767
281,620 275,283 Total
liabilities 6,204,009 5,762,741
5,880,009 Commitments and
contingencies Shareholders' equity: Preferred stock - - -
Common stock 246,983 257,968 250,855 Additional paid-in capital
3,136,683 3,085,637 3,107,283 Retained earnings 2,035,101 2,081,543
2,025,545 Accumulated other comprehensive loss (5,406
) (6,214 ) (5,807 ) Total shareholders'
equity 5,413,361 5,418,934
5,377,876 Total liabilities and
shareholders' equity $ 11,617,370 $ 11,181,675
$ 11,257,885
Note: Certain financial disclosures
relating to prior periods have been reclassified to conform to the
current year presentation where applicable.
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (In
thousands, except per share amounts) (Unaudited)
For the Quarter (13 Weeks)
Ended July 29 % of Net July 31 % of
Net 2016 Sales
2015 Sales Net sales $ 5,391,891
100.00 % $ 5,095,904 100.00 % Cost of goods sold
3,710,124 68.81 3,507,749
68.83 Gross profit 1,681,767 31.19 1,588,155 31.17
Selling, general and administrative expenses
1,172,670 21.75 1,112,343
21.83 Operating profit 509,097 9.44 475,812 9.34
Interest expense 24,352 0.45
20,699 0.41 Income before income
taxes 484,745 8.99 455,113 8.93 Income tax expense
178,227 3.31 172,764 3.39
Net income $ 306,518 5.68 %
$ 282,349 5.54 % Earnings per share:
Basic $ 1.08 $ 0.95 Diluted $ 1.08 $ 0.95 Weighted average shares
outstanding: Basic 283,130 295,679 Diluted 284,116 296,528
For the 26 Weeks Ended July 29 % of Net
July 31 % of Net 2016 Sales
2015 Sales
Net sales $ 10,657,323 100.00 % $ 10,014,576 100.00 % Cost of goods
sold 7,362,942 69.09
6,927,716 69.18 Gross profit 3,294,381
30.91 3,086,860 30.82 Selling, general and administrative expenses
2,304,541 21.62
2,182,854 21.80 Operating profit 989,840 9.29
904,006 9.03 Interest expense 48,433 0.45
42,275 0.42 Income
before income taxes 941,407 8.83 861,731 8.60 Income tax expense
339,765 3.19
326,147 3.26 Net income $ 601,642
5.65 % $ 535,584 5.35 %
Earnings per share: Basic $ 2.11 $ 1.79 Diluted $ 2.11 $ 1.79
Weighted average shares outstanding: Basic 284,508 298,440 Diluted
285,547 299,308
DOLLAR GENERAL CORPORATION
AND SUBSIDIARIES Condensed Consolidated Statements of Cash
Flows (In thousands) (Unaudited) For
the 26 Weeks Ended July 29 July 31 2016
2015 Cash flows from operating activities: Net
income $ 601,642 $ 535,584
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 186,942 174,734 Deferred income taxes
7,159 (32,680 ) Noncash share-based compensation 19,488 19,642
Other noncash (gains) and losses 2,081 7,734 Change in operating
assets and liabilities: Merchandise inventories (191,682 ) (246,793
) Prepaid expenses and other current assets (34,535 ) (30,754 )
Accounts payable 213,767 133,615 Accrued expenses and other
liabilities 15,135 29,237 Income taxes (26,352 ) (4,769 ) Other
(311 ) (569 ) Net cash provided by
(used in) operating activities 793,334
584,981
Cash flows from investing
activities: Purchases of property and equipment (267,812 )
(247,051 ) Proceeds from sales of property and equipment
2,426 257 Net cash provided by
(used in) investing activities (265,386 )
(246,794 )
Cash flows from financing
activities: Repayments of long-term obligations (816 ) (50,605
) Borrowings under revolving credit facilities 1,583,000 445,100
Repayments of borrowings under revolving credit facilities
(1,497,000 ) (272,100 ) Repurchases of common stock (454,508 )
(734,334 ) Payments of cash dividends (142,161 ) (131,204 ) Other
equity and related transactions 10,623
5,658 Net cash provided by (used in) financing
activities (500,862 ) (737,485 )
Net increase (decrease) in cash and cash equivalents 27,086
(399,298 ) Cash and cash equivalents, beginning of period
157,947 579,823 Cash and cash
equivalents, end of period $ 185,033 $ 180,525
Supplemental cash flow information: Cash
paid for: Interest $ 44,581 $ 39,539 Income taxes $ 359,202 $
363,204
Supplemental schedule of non-cash investing and
financing activities:
Purchases of property and equipment
awaiting processing for payment, included in Accounts payable
$ 44,800 $ 46,427
DOLLAR GENERAL CORPORATION AND
SUBSIDIARIES Selected Additional Information
(Unaudited) Sales by Category
(in thousands) For the Quarter (13 Weeks) Ended
July 29 July 31 2016 2015 %
Change Consumables $ 4,116,450 $ 3,867,635 6.4 % Seasonal
673,953 642,525 4.9 % Home products 315,598 304,305 3.7 % Apparel
285,890 281,439 1.6 % Net sales $
5,391,891 $ 5,095,904 5.8 %
For the
26 Weeks Ended July 29 July 31 2016
2015 % Change Consumables $ 8,155,647 $ 7,621,613 7.0
% Seasonal 1,297,803 1,228,818 5.6 % Home products 638,446 607,329
5.1 % Apparel 565,427 556,816 1.5 % Net
sales $ 10,657,323 $ 10,014,576 6.4 %
Store Activity For the 26 Weeks Ended July
29 July 31 2016 2015
Beginning store count 12,483 11,789 New store openings 510 428
Store closings (26 ) (19 ) Net new stores 484
409 Ending store count 12,967
12,198 Total selling square footage (000's)
96,125 90,305 Growth rate (square footage)
6.4 % 6.0 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160825005214/en/
Dollar General CorporationInvestor Contacts:Mary Winn
Pilkington, 615-855-5536orMatt Hancock, 615-855-4811orMedia
Contacts:Dan MacDonald, 615-855-5209orCrystal Ghassemi,
615-855-5210
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