Dollar General Corporation — Form 10-Q Summary
Period discrepancy: The request identifies 2018 Q3, but the supplied filing is for the 13 and 39 weeks ended November 1, 2019, compared with periods ended November 2, 2018. Dollar General operated 16,094 stores in 44 states at quarter-end. Financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial performance
| Metric | 13 weeks ended Nov. 1, 2019 | Change vs. 2018 | 39 weeks ended Nov. 1, 2019 | Change vs. 2018 |
|---|---|---|---|---|
| Net sales | $6.99 billion | +8.9% | $20.60 billion | +8.5% |
| Same-store sales | +4.6% | Higher traffic and average transaction amount | +4.1% | Higher traffic and average transaction amount |
| Gross profit | $2.07 billion; 29.54% margin | +9.0%; margin +1 bp | $6.22 billion; 30.18% margin | +8.4%; margin -3 bps |
| SG&A | $1.57 billion; 22.51% of sales | Expense ratio -13 bps | $4.63 billion; 22.50% of sales | Expense ratio +8 bps |
| Operating profit | $491.4 million; 7.03% margin | +11.1% | $1.58 billion; 7.68% margin | +7.0% |
| Net income | $365.6 million | +9.4% | $1.18 billion | +6.4% |
| Diluted EPS | $1.42 | +12.7% | $4.54 | +9.7% |
Quarterly gross-margin gains reflected higher initial markups, fewer markdowns and a lower LIFO provision, offset by transportation and distribution costs, shrink, and sales mix. Year-to-date gross margin declined as those cost and mix pressures outweighed pricing and markdown benefits. The quarterly SG&A ratio improved partly because the prior-year quarter included higher hurricane expenses; year-to-date SG&A included a $31 million legal accrual.
Cash flow, balance sheet and liquidity
- Year-to-date operating cash flow was $1.66 billion, up 9.7% from $1.51 billion. Investing cash outflow was $516 million, including $518 million of property and equipment purchases.
- Financing cash outflow was $1.10 billion, including $785 million of share repurchases and $247 million of dividends. Cash ended at $276 million.
- At November 1, 2019, total assets were $22.41 billion, including $4.50 billion of inventory. Current assets were $5.07 billion and current liabilities $4.51 billion.
- Reported current and long-term obligations totaled approximately $2.76 billion, primarily senior notes and commercial paper. The company also had $8.63 billion of operating lease liabilities recognized following adoption of the new lease standard. An additional $181 million of commercial paper held by a subsidiary was not reflected on the consolidated balance sheet.
- The $1.25 billion revolving facility had no borrowings and $1.24 billion of availability; after reserving capacity for the commercial-paper program, it could provide $786 million of incremental liquidity. The company reported compliance with debt covenants. Management said available cash, operating cash flow and financing access should cover obligations and planned spending over the next twelve months and several years.
Outlook, commentary and material risks
- For fiscal 2019, management projected capital expenditures of $775–$825 million; approximately 975 new stores, 1,000 remodels and 100 relocations. For fiscal 2020, it planned approximately 1,000 new stores, 1,500 remodels and 80 relocations.
- Management expected combined revolving-facility and commercial-paper borrowings to peak at approximately $900 million during the remainder of fiscal 2019. It anticipated mitigating existing tariffs through sourcing, merchandising and pricing, but warned that existing or additional tariffs could affect margins and customer spending.
- Strategic initiatives included DG Fresh, then serving approximately 4,900 stores; refreshed non-consumables in more than 2,100 stores; and Fast Track distribution and store-efficiency pilots. Execution costs, wage and occupancy increases, inventory shrink, and the shift toward lower-margin consumables could weigh on results.
- Legal matters include motor-oil labeling and marketing litigation, with multiple state classes certified and an appeal permitted. The company recorded a $31 million accrual for estimated legal losses in the period ended August 2, 2019; it stated that outcomes remain uncertain and adverse developments could affect future results or liquidity.
- The company repurchased $785 million of stock year to date. On December 3, 2019, the board increased the repurchase authorization by $1 billion; approximately $1.6 billion remained available. Dividends and future repurchases remain subject to board discretion and financial conditions.
- The effective tax rate rose to 21.7% for the quarter and 21.9% year to date, primarily reflecting state tax changes and the nonrecurrence of a prior-year federal tax benefit. The business is seasonal, and interim results may not indicate full-year performance.
Most important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers 2019 Q3, not 2018 Q3.
- Track same-store sales, customer traffic and transaction growth alongside consumables mix, shrink, and transportation and distribution costs.
- Assess cash generation and capital spending against buybacks, dividends, and the company’s substantial lease obligations.
- Monitor the outcomes and potential cash exposure of the motor-oil and other legal matters, and the effect of tariffs and cost inflation.
- Compare planned store openings and remodels, fiscal 2019 capital expenditures, and fiscal 2020 plans with subsequent execution and results.