Dollar General Corporation — Form 10-Q Summary
Reporting period: 13 and 26 weeks ended July 30, 2021; prior-year comparisons are to periods ended July 31, 2020. The request metadata says “2020 Q2,” but the filing is for the second quarter of fiscal 2021.
Business context: Dollar General operated 17,683 U.S. stores across 46 states and reported one operating segment. The company said pandemic-related demand and customer behavior continued to affect comparisons with 2020.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Net sales | $8.65 billion | $8.68 billion | -0.4% |
| Same-store sales | -4.7% | Not stated here | Traffic decline, partly offset by higher average transaction amount |
| Gross profit | $2.74 billion | $2.82 billion | -2.9% |
| Gross margin | 31.6% | 32.5% | -80 basis points |
| SG&A | $1.89 billion | $1.78 billion | 21.8% of sales vs. 20.4% |
| Operating profit | $849.6 million | $1.04 billion | -18.5% |
| Net income | $637.0 million | $787.6 million | -19.1% |
| Diluted EPS | $2.69 | $3.12 | -13.8% |
For the first half of fiscal 2021, sales were $17.05 billion (-0.5%) and net income was $1.31 billion (-8.6%). Gross margin increased 62 basis points to 32.2%, while operating profit declined 7.9% to $1.76 billion and diluted EPS fell 3.0% to $5.52.
Cash flow, debt and liquidity
- First-half operating cash flow was $1.32 billion, down $1.59 billion, or 54.7%, year over year. The filing attributes much of the comparison to working-capital movements, including inventory, accounts payable and accrued liabilities.
- Capital expenditures were $518.5 million; investing cash outflow was $516.7 million. First-half financing outflow was $1.86 billion, including $1.70 billion of share repurchases and $198.1 million of dividends.
- Cash and equivalents were $313.7 million at July 30, 2021, versus $1.38 billion at fiscal year-end. Current assets were $5.99 billion and current liabilities $5.48 billion.
- Long-term obligations were $4.16 billion, including $18.4 million of commercial paper; the company also had $8.66 billion of long-term operating lease liabilities. No Revolving Facility borrowings were outstanding. About $1.25 billion of facility availability was reported, with approximately $1.05 billion potentially incremental after reserving for the commercial-paper program.
- Management said cash flows, cash balances, credit facilities, commercial paper and debt-market access should provide sufficient liquidity for obligations, investment and planned shareholder returns. It anticipated combined Revolving Facility and commercial-paper borrowings of up to about $900 million at one time for the rest of fiscal 2021.
Changes, outlook and risks
- Q2 sales and same-store sales weakened against a strong pandemic-affected prior-year comparison. Consumables sales rose 1.8% in the quarter, while seasonal, home and apparel sales declined. Management said customer traffic fell, partly offset by higher average basket amounts.
- Q2 gross margin pressure reflected higher transportation costs, a larger LIFO provision, a shift back toward lower-margin consumables and increased inventory damage. Higher markups and lower shrink partly offset these pressures. SG&A as a share of sales rose, with higher retail labor and occupancy costs among the drivers.
- Management expects the pandemic’s overall net benefit to operating and net income in fiscal 2021 to be less favorable than in fiscal 2020. Risks include changing consumer demand, supply-chain delays and shortages, higher freight and input costs, labor availability and expense pressures, inflation, and changes in government assistance programs.
- Fiscal 2021 capital expenditures were projected at $1.1–$1.2 billion. Plans included approximately 1,050 new stores, 1,750 remodels and 100 relocations. The company had opened 530 stores and remodeled or relocated 1,078 in the first half.
- Strategic initiatives include expanding the non-consumables offering, DG Pickup, DG Fresh, Fast Track and pOpshelf. DG Fresh had completed its rollout; management said its first-half sales and gross-profit benefits were partly offset by distribution and transportation costs. The company aimed to operate up to 50 pOpshelf locations and 25 store-within-a-store offerings by fiscal year-end.
- Legal matters include a motor-oil class-action settlement approved in June 2021 that management said was immaterial; a related Mississippi matter remained pending. The company stated pending matters could still create material effects if adverse developments occur.
- The company repurchased 8.3 million shares for $1.7 billion in the first half, compared with 3.6 million shares for $0.7 billion a year earlier. Remaining repurchase authorization was approximately $979 million. The board declared a $0.42-per-share dividend payable in October 2021.
Important facts for investors to verify
- Confirm the intended filing period: this is a quarter ended July 30, 2021, not a 2020 Q2 filing.
- Track same-store sales, traffic and category mix as pandemic-related comparisons normalize.
- Assess whether freight, inventory costs, LIFO charges, labor and occupancy inflation continue to pressure margins.
- Review working-capital trends and cash generation, given the substantial year-over-year decline in first-half operating cash flow.
- Compare planned capital spending, store projects, repurchases and dividends with liquidity and debt levels.
- Monitor supply-chain conditions, customer exposure to government-benefit changes, and developments in the pending Mississippi motor-oil litigation.
The interim financial statements were reviewed by the independent auditor, not audited; the auditor reported that it was unaware of material modifications needed for U.S. GAAP conformity.