Dollar General Corporation — Form 10-K Summary
Reporting period: Fiscal year 2022, ended February 3, 2023 (53 weeks), compared with fiscal 2021, ended January 28, 2022 (52 weeks). The supplied filing is for fiscal 2022, not 2021 Q4 as indicated in the request metadata.
Business context
Dollar General operates a U.S. discount retail business focused on everyday essentials and general merchandise. It reported 19,104 stores at fiscal year-end and 19,147 stores as of March 3, 2023, including its first Mexico store, opened in February 2023. Consumables represented 79.7% of fiscal 2022 sales. The company reports one operating segment.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $37.84 billion | $34.22 billion | +10.6% |
| Same-store sales | +4.3% | -2.8% | Improved |
| Gross profit margin | 31.23% | 31.60% | -37 basis points |
| Operating profit | $3.33 billion | $3.22 billion | +3.3% |
| Operating margin | 8.79% | 9.41% | -62 basis points |
| Net income | $2.42 billion | $2.40 billion | +0.7% |
| Diluted EPS | $10.68 | $10.17 | +5.0% |
| Cash flow from operations | $1.98 billion | $2.87 billion | -30.8% |
| Capital expenditures | $1.56 billion | $1.07 billion | Increased |
Cash and cash equivalents were $382 million. Consolidated debt was approximately $7.0 billion, up from $4.17 billion; this included $1.5 billion of commercial paper. The company reported $1.0 billion of combined availability under its revolving credit facilities, while noting that the commercial paper program affects available capacity. Operating lease liabilities were approximately $10.65 billion. Current assets were $7.58 billion and current liabilities $5.89 billion.
Inventory increased 20% year over year, to $6.76 billion, and inventory turnover was 4.0 times. Operating cash flow declined largely due to inventory-related working-capital use. Approximate operating cash flow less capital expenditures was $424 million, versus $1.80 billion in fiscal 2021. This is a simple calculation, not a company-reported non-GAAP measure.
Material changes and drivers
- Sales growth reflected new stores and 4.3% same-store sales growth. Higher average transaction amounts, driven mainly by inflation, more than offset lower customer traffic.
- Consumables sales rose 14.8%; apparel sales fell 19.4%. The mix shifted toward lower-margin consumables.
- Gross margin was pressured by a larger LIFO provision, markdowns, damages and shrink, and the sales mix. The LIFO provision rose to $517 million from $180 million.
- SG&A rose 11.8%, faster than sales, and increased to 22.44% of sales from 22.19%, with higher utilities, retail labor and repairs and maintenance.
- Interest expense increased 34.1% to $211 million, primarily from higher borrowings and interest rates.
- Cash flow from operations decreased by $881 million. Inventory changes used $1.67 billion of cash, compared with $550 million in fiscal 2021.
- The company repurchased 11.6 million shares for $2.7 billion and paid $494 million in dividends. Fiscal-year dividends were $2.20 per share.
Outlook, commentary and risks
- For fiscal 2023, management planned approximately $1.8–$1.9 billion in capital expenditures, about 1,050 U.S. store openings, approximately 2,000 remodels and 120 relocations. It targeted about 20 Mexico stores by year-end.
- Management targeted nearly 300 standalone pOpshelf stores by fiscal 2023 year-end and approximately 1,000 by fiscal 2025. These are plans, not assured results.
- The company expected near-term inflation, fuel and energy costs, and elevated shrink and damages to continue pressuring results. It anticipated shrink and damages could weigh on results through the first half of 2023.
- Warehouse capacity constraints and supply-chain inefficiencies materially increased fiscal 2022 costs; management said new distribution facilities had relieved most constraints. Winter Storm Elliott also hurt fourth-quarter traffic and sales and increased damages, repairs and markdowns.
- Management planned an approximately $100 million fiscal 2023 investment, primarily in store labor, to improve store standards, compliance and customer and employee experience.
- Key risks include inflation and pressure on lower-income customers, labor costs and availability, competition, inventory shrink and damage, supply-chain disruption, cyber and technology risks, and execution of store-growth and merchandising initiatives.
- A shareholder derivative lawsuit alleges failures concerning workplace-safety controls and related fiduciary-duty issues. The company and individual defendants intend to seek dismissal; management said pending matters were not expected to materially adversely affect the consolidated financial statements, while noting litigation uncertainty.
- The company redeemed $900 million of 3.25% notes due 2023 in October 2022 and issued $2.3 billion of new senior notes during the year. Its senior unsecured debt ratings were Baa2 from Moody’s and BBB from S&P, both with stable outlooks.
Most important facts for investors to verify
- Whether sales growth can continue without relying primarily on inflation-driven average ticket increases, and whether customer traffic improves.
- Whether gross margins recover as the consumables mix, LIFO costs, markdowns, shrink and damages normalize.
- Whether inventory levels convert into sales and cash, and whether operating cash flow rebounds after the 2022 inventory build.
- Debt, commercial-paper usage, interest costs and actual liquidity availability, including upcoming debt maturities and lease obligations.
- Progress on warehouse capacity, store investments, pOpshelf expansion and Mexico growth against stated plans.
- Developments in the workplace-safety litigation and any resulting financial, operational or reputational effects.
Assurance: Ernst & Young issued an unqualified audit opinion on the financial statements and internal control over financial reporting. The auditor identified workers’ compensation and general-liability reserves as a critical audit matter.