Dollar General Corporation — Form 10-K Summary
Business context and reporting period
Filing-period clarification: The supplied filing is Dollar General’s fiscal 2020 Form 10-K, not a 2019 Q4 filing. It covers the 52 weeks ended January 29, 2021; comparisons are primarily with the 52 weeks ended January 31, 2020. The company operated 17,177 stores at fiscal year-end and 17,266 as of February 26, 2021, across 46 states. It sells consumables and general merchandise through small-format discount stores.
Financial and operating performance
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Net sales | $33.75 billion | $27.75 billion |
| Same-store sales growth | 16.3% | 3.9% |
| Gross profit / margin | $10.72 billion / 31.76% | $8.49 billion / 30.59% |
| Operating profit / margin | $3.55 billion / 10.53% | $2.30 billion / 8.30% |
| Net income | $2.66 billion | $1.71 billion |
| Diluted EPS | $10.62 | $6.64 |
| Operating cash flow | $3.88 billion | $2.24 billion |
| Capital expenditures | $1.03 billion | $0.78 billion |
- Sales rose 21.6%; management attributed the exceptional increase largely to pandemic-related demand, larger average baskets and a shift toward non-consumables, partly offset by lower customer traffic. Home products had the largest percentage sales increase among categories.
- Gross margin improved 117 basis points, helped by lower markdowns, higher initial markups, a more favorable non-consumables mix and lower inventory shrink. SG&A fell to 21.23% of sales from 22.29%, as sales growth more than offset incremental pandemic-related expenses.
- Fourth-quarter fiscal 2020 sales were $8.41 billion versus $7.16 billion in the prior-year quarter; net income was $642.7 million versus $535.4 million, and diluted EPS was $2.62 versus $2.10.
- Cash and cash equivalents were $1.38 billion at year-end. Current assets were $6.91 billion and current liabilities $5.71 billion. Long-term obligations were $4.13 billion; separately, operating lease liabilities totaled approximately $9.46 billion on the balance sheet.
- Operating cash flow increased 73.2%. The company spent $2.47 billion repurchasing 12.3 million shares and paid $355.9 million in dividends. Inventory increased 12% overall; inventory turnover was 4.9 times.
Material changes versus the prior comparable period
- Fiscal 2020 sales, operating profit and net income rose substantially, with same-store sales growth accelerating to 16.3% from 3.9%. Management said COVID-19 demand materially benefited results; the unusually strong year is not presented as a normal run rate.
- Interest expense increased $49.8 million to $150.4 million, primarily reflecting higher average debt after $1.5 billion of senior notes were issued in April 2020. Year-end debt rose from $2.91 billion to $4.13 billion, while cash increased from $240 million to $1.38 billion.
- The company incurred approximately $167 million in employee appreciation bonuses and other elevated health, safety, distribution and transportation costs. Management said incremental sales more than offset these expenses in fiscal 2020.
Outlook, risks and contingencies
- Management said it believes positive same-store sales growth in fiscal 2021 is unlikely against the unusually high 2020 comparison. It expects pandemic effects, supply constraints and elevated distribution, transportation, payroll and health-and-safety costs to continue to some degree; the net effect on 2021 operating income and net income could be less favorable.
- Fiscal 2021 plans included approximately 1,050 new stores, 1,750 remodels and 100 relocations. Capital expenditures were projected at $1.05–$1.15 billion. The company aimed to extend its NCI merchandising initiative to more than 11,000 stores and operate up to 50 pOpshelf locations by year-end, while completing the initial DG Fresh rollout.
- Management stated that cash from operations, existing cash, credit facilities and capital-market access should fund obligations, working capital, planned capital spending and dividends. The company had a $1.25 billion revolving facility with no borrowings at year-end and was in compliance with its covenants. It anticipated peak combined revolver and commercial-paper borrowings of about $600 million in fiscal 2021.
- Principal risks include pandemic-related demand and supply-chain uncertainty; competition and pressure on margins; labor availability and wage increases; inventory shrink and inventory-management estimates; execution of store growth and strategic initiatives; cybersecurity and systems disruption; and litigation, product safety and self-insurance exposure.
- Legal proceedings include motor-oil labeling litigation. A proposed settlement of the federal matter was described as immaterial, subject to final court approval; related state matters were at differing stages. Self-insurance reserves were $245.1 million. The filing also reports a $31 million legal-matter accrual in fiscal 2019.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. The auditor identified workers’ compensation and general-liability reserves as a critical audit matter because their valuation depends on actuarial assumptions.
Important facts for investors to verify
- Confirm the intended period: this filing reports fiscal 2020 and includes fiscal 2020 Q4 data, rather than a standalone 2019 Q4 filing.
- Assess how much of the 2020 sales and margin uplift was pandemic-related and whether post-pandemic demand, customer traffic and category mix support the company’s 2021 expectations.
- Review debt maturities, interest costs, lease obligations and liquidity alongside the company’s continuing buybacks, dividends and planned capital investment.
- Track execution and returns from store openings, remodels, NCI, pOpshelf, DG Fresh and Fast Track, including supply-chain and labor-cost effects.
- Monitor inventory growth, shrink, self-insurance reserve assumptions and the status and potential financial effects of material legal matters.