Dollar General Corporation — Form 10-Q Summary
Period discrepancy: The request identifies “2020 Q3,” but the supplied filing is for the 13 and 39 weeks ended October 29, 2021, compared with periods ended October 30, 2020. The filing was signed December 2, 2021. Dollar General operates one reportable segment and had 17,915 U.S. stores at quarter-end.
Financial performance
| Metric | Third quarter 2021 | Year to date 2021 |
|---|---|---|
| Net sales | $8.52 billion, up 3.9% | $25.57 billion, up 0.9% |
| Same-store sales | Down 0.6% | Down 3.3% |
| Gross profit / margin | $2.62 billion / 30.75%; margin down 57 basis points | $8.11 billion / 31.73%; margin up 22 basis points |
| SG&A | $1.95 billion; 22.94% of sales | $5.69 billion; 22.25% of sales |
| Operating profit | $665.6 million, down 13.9%; 7.81% margin | $2.42 billion, down 9.6%; 9.48% margin |
| Net income | $487.0 million, down 15.2% | $1.80 billion, down 10.5% |
| Diluted EPS | $2.08, versus $2.31 | $7.61, versus $8.00 |
| Operating cash flow | Not provided for the quarter | $2.23 billion, down 34.2% |
| Capital expenditures | Not provided for the quarter | $779.4 million |
Quarterly sales growth was primarily attributable to new stores; same-store sales fell mainly as customer traffic declined, partly offset by higher average transaction amounts. Consumables and home products grew in the quarter, while apparel and seasonal sales declined. YTD same-store sales fell across all categories.
Financial position and liquidity
At October 29, 2021, cash and equivalents were $488.7 million, compared with $1.38 billion at January 29, 2021. Merchandise inventory was $5.30 billion. Total assets were $25.93 billion and shareholders’ equity was $6.19 billion. Long-term obligations were $4.13 billion, principally senior notes; operating lease liabilities totaled approximately $9.97 billion. The company had no revolver borrowings and reported no outstanding unsecured commercial paper on its balance sheet, although $181 million of commercial paper held by a wholly owned subsidiary was excluded from it.
The $1.25 billion revolving facility was undrawn, with approximately $1.07 billion described as incremental liquidity after reserving availability for the commercial paper program. The company was in compliance with its debt covenants. Management said operating cash flow, cash balances, credit availability and debt-market access should provide sufficient liquidity for obligations and planned investments over the next twelve months and several years. YTD financing included $2.06 billion of share repurchases and $295.4 million of dividends.
Changes versus the prior comparable period
- Third-quarter gross margin declined from 31.32% to 30.75%; management cited higher LIFO provision and transportation costs, a return toward consumables sales mix, and increased inventory damages. Higher inventory markups and lower shrink partly offset these pressures.
- Third-quarter SG&A rose 8.8%, faster than sales, with higher retail labor, occupancy, depreciation, maintenance, benefits and supplies costs. Operating profit consequently fell 13.9%.
- YTD gross margin improved 22 basis points, helped by higher markups, lower shrink, fewer markdowns and stronger non-consumables mix, partly offset by transportation, distribution, LIFO and damage costs. Higher SG&A as a share of sales more than offset this improvement.
- YTD operating cash flow fell by $1.16 billion. The filing points in particular to the prior-year benefit from a $919.8 million increase in accounts payable, versus a $61.8 million decrease in 2021, as well as lower net income and different timing of accrued liabilities.
- YTD share repurchases increased to $2.1 billion from $1.6 billion, while diluted weighted-average shares declined. Dividends per share rose to $1.26 from $1.08.
Outlook, commentary and risks
- Management anticipated a less favorable overall pandemic effect on operating and net income in fiscal 2021 than in fiscal 2020, reflecting moderating sales benefits and the phaseout of economic support programs. It cautioned that pandemic duration, consumer behavior and seasonal patterns remained uncertain.
- Fiscal 2021 capital expenditures were projected at $1.1 billion to $1.2 billion. Plans called for approximately 1,050 new stores, 1,750 remodels and 100 relocations in 2021; for 2022, approximately 1,110 openings, 1,750 remodels and 120 relocations. These are plans, not guarantees.
- Management reported supply-chain constraints, shipping delays, labor shortages and elevated distribution, transportation, payroll and input costs, with inflationary pressures expected to continue for an uncertain duration. Minimum-wage increases and reductions in SNAP or other assistance could also affect costs or customer demand.
- Strategic initiatives include expanding the non-consumables offering, DG Fresh, digital and delivery services, Fast Track and pOpshelf. The company targeted up to 50 standalone pOpshelf locations by fiscal year-end 2021 and approximately 100 additional standalone locations in 2022; it was targeting approximately 1,000 by the end of fiscal 2025.
- The board authorized an additional $2.0 billion of share repurchases on December 1, 2021, after quarter-end. The company was also seeking to increase its revolver and commercial-paper program limits to $2.0 billion; amendments were not assured. A quarterly dividend of $0.42 per share was declared after quarter-end.
- The Motor Oil MDL settlement received final approval in June 2021 for an amount described as immaterial. A related Mississippi matter remained pending. The company disclosed a $31.0 million accrual recorded in 2019 for probable and estimable losses relating to certified class actions and associated matters; it cautioned that adverse legal developments could have material effects.
Most important facts for investors to verify
- Confirm the intended reporting year: the supplied filing covers Q3 2021, not Q3 2020.
- Track same-store sales, traffic and the shift in sales mix, particularly whether consumables growth continues to pressure margins.
- Monitor whether inflation, LIFO costs, transportation and labor expenses continue to outpace sales and weigh on operating profit.
- Assess the sustainability of operating cash flow, including working-capital and accounts-payable timing, against capital spending, dividends and buybacks.
- Verify execution of store, pOpshelf and capital-spending plans, the proposed credit amendments, and developments in the pending Mississippi litigation.