- Net Sales Increased 5.0%; Same-Store
Sales Decreased 0.1%
- Diluted Earnings Per Share of $0.84,
Including Approximately $0.05 Charge for Store Relocation Costs and
Disaster-Related Expenses
- Cash From Operations Increased 39%
Year to Date Through the Third Quarter
- $892 Million of Capital Returned to
Shareholders Year to Date Through the Third Quarter
- 2016 Full Year Diluted EPS Growth
Forecasts at the Low End of the Company’s Long-Term Growth Model
Range of 10 Percent to 15 Percent
Dollar General Corporation (NYSE: DG) today reported financial
results for its fiscal 2016 third quarter (13 weeks) ended October
28, 2016.
“The challenging retail environment that we experienced in the
2016 second quarter continued into the third quarter, contributing
to weakness in our same-store sales and our financial performance.
In the 2016 third quarter, we invested in gross margin with the
goal of driving traffic and sales over time. Many of these actions
are gaining traction with our core customers, and we are encouraged
by the early results. As expected, the full benefit on our
same-store sales will not be immediate. In addition, we saw an
acceleration in headwinds from average unit retail price deflation
and reductions in SNAP benefits in the 2016 third quarter as
compared to the 2016 second quarter. We are focused on efforts to
drive traffic in our stores and to control the factors we can
control as we look to overcome the issues impacting our results,
many of which we believe are macroeconomic and transitory in
nature,” said Todd Vasos, Dollar General’s chief executive
officer.
“We continue to believe that our business model is strong given
our value proposition to our consumers. We are investing in
accelerated new store growth with excellent returns, as well as the
infrastructure to support this growth, while continuing to return
cash to shareholders."
Third Quarter Highlights
The Company reported net income of $235 million, or $0.84 per
diluted share, in the 2016 third quarter, compared to net income of
$253 million, or $0.86 per diluted share, in the 2015 third
quarter.
Net sales increased 5.0 percent to $5.32 billion in the 2016
third quarter compared to $5.07 billion in the 2015 third quarter.
Same-store sales decreased 0.1 percent from the 2015 third quarter
primarily due to a decline in traffic partially offset by an
increase in average transaction amount. Same-store sales were
driven by positive results in the consumables category offset by
negative results in the seasonal, apparel and home products
categories. The net sales increase was positively affected by sales
from new stores, modestly offset by sales from closed stores.
Gross profit, as a percentage of net sales, was 29.8 percent in
the 2016 third quarter, a decrease of 49 basis points from the 2015
third quarter. The gross profit rate decrease was primarily
attributable to higher markdowns, driven mainly by inventory
clearance and promotional activities, a greater proportion of sales
of consumables, and increased inventory shrink, partially offset by
higher initial inventory markups.
Selling, general and administrative expense (“SG&A”), as a
percentage of net sales, was 22.5 percent in the 2016 third quarter
compared to 22.0 percent in the 2015 third quarter, an increase of
48 basis points. The SG&A increase was primarily attributable
to increased retail labor and occupancy costs. The 2016 third
quarter also included charges of $13.0 million, or 25 basis points,
associated with the acquisition of the former Walmart Express store
locations and related closure of existing stores, $11.0 million of
which was for lease termination and other exit and disposal costs.
In addition, the Company experienced an increase in
disaster-related expenses of $7.7 million, or 14 basis points, most
of which were hurricane related. Partially offsetting these items
were reductions in administrative payroll costs, incentive
compensation expenses and advertising expenses. The 2015 period
reflects expenses of $6.1 million related to a corporate
restructuring for severance-related benefit costs.
The effective income tax rate was 36.2 percent for the 2016
third quarter compared to a rate of 37.0 percent for the 2015 third
quarter. The effective income tax rate was lower in the 2016 third
quarter due primarily to the recognition of additional amounts of
the Work Opportunity Tax Credit (“WOTC”) in the 2016 third quarter.
The December 2015 reenactment of the WOTC allowed the Company to
receive credits for eligible employees hired during the third
quarter of 2016. By comparison, in the 2015 third quarter, only a
limited number of employees (hired on or before December 31, 2014)
were eligible for the credit.
39-Week Period Results
For the 39-week period ended October 28, 2016, net sales
increased 5.9 percent over the comparable 2015 period to $15.98
billion. Same-store sales increased 0.9 percent compared to the
corresponding 2015 period. An increase in average transaction
amount was the primary contributor to the increase in same-store
sales. The remainder of the net sales increase was attributable to
sales from new stores, modestly offset by sales from closed
stores.
Gross profit increased by 5.6 percent and, as a percentage of
net sales, decreased by 10 basis points to 30.6 percent in the 2016
39-week period compared to the comparable 2015 period. The majority
of the gross profit rate decrease in the 2016 period as compared to
the 2015 period was due to higher markdowns, driven mainly by
promotional activities and inventory clearance, a greater
proportion of sales of consumables, and increased inventory shrink,
partially offset by higher inventory initial markups and lower
transportation costs, partially attributable to lower fuel
rates.
SG&A rounded to 21.9 percent of net sales in both the 2016
and 2015 periods, increasing by 5 basis points in the 2016 period.
The SG&A increase was primarily attributable to increased
retail labor and occupancy costs. As noted above, the 2016 period
included lease termination and other expenses related to the
acquired Walmart Express stores and disaster-related expenses.
Partially offsetting these items were reductions in administrative
payroll costs, incentive compensation, and advertising costs. The
2015 period reflects expenses of $6.1 million related to a
corporate restructuring for severance-related benefit costs.
The effective income tax rate for the 2016 period was 36.1
percent compared to a rate of 37.6 percent for the 2015 period. The
effective income tax rate was lower in the 2016 period due
primarily to the recognition of additional amounts of the WOTC and
the Company’s early adoption of an amended accounting standard for
employee share-based payments. The December 2015 reenactment of the
WOTC allowed the Company to receive credits for eligible employees
hired during the 2016 period. By comparison, in the 2015 period,
only a limited number of employees (hired on or before December 31,
2014) were eligible for the credit.
For the 2016 39-week period, the Company reported net income of
$837 million, or $2.95 per diluted share, compared to net income of
$789 million, or $2.65 per diluted share, for the 2015 39-week
period.
Merchandise Inventories
As of October 28, 2016, total merchandise inventories, at cost,
were $3.49 billion compared to $3.10 billion as of October 30,
2015, an increase of 5.6 percent on a per-store basis. The increase
was concentrated in everyday planogram categories as compared to
seasonally-related categories. Key factors impacting the increase
in per store inventory were the Company’s on-shelf availability
initiative and the timing of receipts, coupled with sales
performance.
Capital Expenditures
Total additions to property and equipment in the 39-week period
ended October 28, 2016 were $406 million, including: $136 million
for distribution and transportation-related capital expenditures;
$116 million for improvements, upgrades, remodels and relocations
of existing stores; $92 million related to new leased stores,
primarily for leasehold improvements, fixtures and equipment; $38
million for stores purchased or built by the Company and $18
million for information systems upgrades and technology-related
projects. During the 2016 39-week period, the Company opened 768
new stores and remodeled or relocated 861 stores.
Share Repurchases
During the 2016 third quarter, the Company repurchased 2.9
million shares of its common stock under its share repurchase
program at an average price of $77.18 per share. For the 2016
39-week period, the Company repurchased 8.2 million shares of its
common stock under the share repurchase program at an average price
of $83.24 per share. Since the inception of the share repurchase
program in December 2011 through the end of the 2016 third quarter,
the Company has repurchased 70.2 million shares totaling $4.3
billion, at an average price of $60.65 per share. The total
remaining authorization for future repurchases was approximately
$1.2 billion at the end of the 2016 third quarter. The
authorization has no expiration date.
Dividend
On November 30, 2016, the Board of Directors declared its
regular quarterly cash dividend of $0.25 per share on the Company’s
common stock. The fourth quarter dividend will be payable on
January 4, 2017 to shareholders of record at the close of business
on December 21, 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 now forecasts diluted EPS
growth for fiscal 2016 to be at the low end of the Company’s
long-term growth model range of 10 percent to 15 percent. The
Company expects the 53rd week to contribute approximately 200 basis
points to its net sales performance and continues to estimate a
$0.09 per diluted share impact to EPS.
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 the diluted EPS range as specified herein. However, the
Company does intend to discuss square footage growth from time to
time. For the 52-week period ending February 2, 2018 (“fiscal
2017”), the Company plans to increase square footage growth by
approximately 7.5 percent with the opening of approximately 1,000
new stores in addition to remodeling or relocating 900 stores.
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. In any given year, one or more key
drivers of the model may be outside of the annual targets outlined
in such model.
Conference Call
Information
The Company will hold a conference call on Thursday, December 1,
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 passcode is 4908601. The call will also be broadcast
live online at www.dollargeneral.com under “Investor Information,
News & Events, Events & Presentations.” A replay of the
conference call will be available through Thursday, December 15,
2016, and will be accessible online or by calling (855) 859-2056.
The conference ID for the replay is 4908601.
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,” “look to,” 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, customer traffic,
disposable income, credit availability and spending patterns,
inflation, deflation, 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 if 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, revenue recognition and
intra-company transfers;
- 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 operates 13,205 stores in 43 states as of October 28, 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) October
28 October 30 January 29 2016
2015 2016 ASSETS Current assets:
Cash and cash equivalents $ 200,236 $ 182,514 $ 157,947 Merchandise
inventories 3,488,247 3,101,908 3,074,153 Income taxes receivable
54,586 11,877 6,843 Prepaid expenses and other current assets
225,443 192,476
193,467 Total current assets
3,968,512
3,488,775 3,432,410 Net property
and equipment 2,388,463
2,237,068 2,264,062
Goodwill 4,338,589
4,338,589 4,338,589 Other
intangible assets, net 1,200,734
1,201,110 1,200,994
Other assets, net 20,778
22,751 21,830
Total assets $ 11,917,076 $
11,288,293 $ 11,257,885
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current
portion of long-term obligations $ 501,480 $ 1,358 $ 1,379 Accounts
payable 1,948,111 1,470,107 1,494,225 Accrued expenses and other
504,427 473,528 467,122 Income taxes payable
5,721 30,462
32,870 Total current liabilities
2,959,739 1,975,455
1,995,596 Long-term obligations
2,673,210 3,105,332
2,969,175 Deferred income taxes
637,135 584,366
639,955 Other liabilities
285,140 279,547
275,283 Total liabilities
6,555,224 5,944,700
5,880,009 Commitments and contingencies
Shareholders' equity: Preferred stock - - - Common stock
244,457 254,697 250,855 Additional paid-in capital 3,144,632
3,095,790 3,107,283 Retained earnings 1,977,969 1,999,119 2,025,545
Accumulated other comprehensive loss (5,206 )
(6,013 ) (5,807 ) Total
shareholders' equity 5,361,852
5,343,593 5,377,876
Total liabilities and shareholders' equity $
11,917,076 $ 11,288,293 $
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 October 28 % of Net October
30 % of Net 2016 Sales
2015 Sales
Net sales $ 5,320,029 100.00 % $ 5,067,048 100.00 % Cost of goods
sold 3,732,519 70.16
3,530,086 69.67 Gross
profit 1,587,510 29.84 1,536,962 30.33 Selling, general and
administrative expenses 1,194,519
22.45 1,113,103
21.97 Operating profit 392,991 7.39 423,859 8.37 Interest
expense 23,877 0.45 21,394 0.42 Other (income) expense
- 0.00 326
0.01 Income before income taxes 369,114 6.94
402,139 7.94 Income tax expense 133,799
2.52 148,818 2.94
Net income $ 235,315 4.42 %
$ 253,321 5.00 % Earnings per
share: Basic $ 0.84 $ 0.87 Diluted $ 0.84 $ 0.86 Weighted average
shares outstanding: Basic 280,441 292,037 Diluted 281,283 292,904
For the 39 Weeks Ended October 28 %
of Net October 30 % of Net 2016
Sales 2015
Sales Net sales $ 15,977,352 100.00 % $ 15,081,624
100.00 % Cost of goods sold 11,095,461
69.44 10,457,802
69.34 Gross profit 4,881,891 30.56 4,623,822 30.66 Selling,
general and administrative expenses 3,499,060
21.90 3,295,957
21.85 Operating profit 1,382,831 8.65 1,327,865 8.80
Interest expense 72,310 0.45 63,669 0.42 Other (income) expense
- 0.00
326 0.00 Income before income taxes
1,310,521 8.20 1,263,870 8.38 Income tax expense
473,564 2.96
474,965 3.15 Net income $
836,957 5.24 % $ 788,905
5.23 % Earnings per share: Basic $ 2.96 $ 2.66 Diluted $
2.95 $ 2.65 Weighted average shares outstanding: Basic 283,152
296,307 Diluted 284,126 297,174
DOLLAR GENERAL
CORPORATION AND SUBSIDIARIES Condensed Consolidated
Statements of Cash Flows (In thousands)
(Unaudited) For the 39 Weeks
Ended October 28 October 30 2016
2015 Cash flows from operating activities: Net income
$ 836,957 $ 788,905
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 282,386 263,287 Deferred income taxes
(3,207 ) (59,026 ) Loss on debt retirement, net - 326 Noncash
share-based compensation 27,676 28,890 Other noncash (gains) and
losses 1,935 7,130 Change in operating assets and liabilities:
Merchandise inventories (405,456 ) (317,273 ) Prepaid expenses and
other current assets (30,471 ) (24,242 ) Accounts payable 439,259
75,880 Accrued expenses and other liabilities 50,683 58,701 Income
taxes (74,892 ) (12,246 ) Other (456 )
(1,220 ) Net cash provided by (used in) operating
activities 1,124,414
809,112
Cash flows from investing
activities: Purchases of property and equipment (405,899 )
(386,886 ) Proceeds from sales of property and equipment
4,333 813 Net cash
provided by (used in) investing activities
(401,566 ) (386,073 )
Cash flows
from financing activities: Issuance of long-term obligations -
499,220 Repayments of long-term obligations (1,302 ) (502,120 ) Net
increase in commercial paper outstanding 453,000 - Borrowings under
revolving credit facilities 1,584,000 1,302,100 Repayments of
borrowings under revolving credit facilities (1,835,000 ) (914,100
) Debt issuance costs - (7,011 ) Repurchases of common stock
(679,416 ) (1,009,411 ) Payments of cash dividends (212,249 )
(195,169 ) Other equity and related transactions
10,408 6,143 Net cash
provided by (used in) financing activities
(680,559 ) (820,348 ) Net increase
(decrease) in cash and cash equivalents 42,289 (397,309 ) Cash and
cash equivalents, beginning of period 157,947
579,823 Cash and cash
equivalents, end of period $ 200,236
$ 182,514
Supplemental cash flow
information: Cash paid for: Interest $ 68,258 $ 63,125
Income taxes $ 552,259 $ 548,445
Supplemental schedule of
non-cash investing and financing activities:
Purchases of property and equipment
awaiting processing for payment, included in Accounts payable
$ 46,647 $ 37,659
DOLLAR
GENERAL CORPORATION AND SUBSIDIARIES Selected Additional
Information (Unaudited) Sales by
Category (in thousands) For the Quarter (13 Weeks)
Ended October 28 October 30 2016
2015 % Change Consumables $ 4,137,748 $
3,921,663 5.5 % Seasonal 575,912 555,862 3.6 % Home products
329,715 317,963 3.7 % Apparel 276,654
271,560 1.9 % Net sales $ 5,320,029 $
5,067,048 5.0 %
For the 39 Weeks Ended
October 28 October 30 2016
2015 % Change Consumables $ 12,293,395 $ 11,543,276
6.5 % Seasonal 1,873,715 1,784,680 5.0 % Home products 968,161
925,292 4.6 % Apparel 842,081 828,376
1.7 % Net sales $ 15,977,352 $ 15,081,624
5.9 %
Store Activity
For the 39 Weeks Ended October 28 October
30 2016 2015 Beginning store count
12,483 11,789 New store openings 768 634 Store closings (46
) (27 ) Net new stores 722 607
Ending store count 13,205 12,396 Total
selling square footage (000's) 98,093 91,818
Growth rate (square footage) 6.8 % 6.0 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161201005337/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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