Market Overview

Dollar General Reports Fourth Quarter and Fiscal 2016 Financial Results; Company Provides Financial Guidance for Fiscal 2017

Share:





Dollar General Corporation (NYSE:DG) today reported financial results
for its fiscal 2016 fourth quarter (14 weeks) and fiscal year (53 weeks)
ended February 3, 2017.

Note: Dollar General's fiscal 2016 and 2016 fourth quarter results
contain an additional, non-comparable week, or the "53rd" week, when
compared to fiscal 2015 and 2015 fourth quarter results, which included
13 weeks and 52 weeks, respectively, and fiscal 2017 guidance which
includes 52 weeks.
By definition, the Company's same-store sales
growth calculations do not include the non-comparable 53
rd
week in the 2016 periods.
Unless stated otherwise, financial
metrics discussed in this release such as operating income, net income
and earnings per share ("EPS") are calculated in accordance with
generally accepted accounting principles ("GAAP") and therefore include
the 53
rd week.

Key Fiscal 2016 Highlights

  • Fourth Quarter Net Sales Increased 13.7%; Fourth Quarter Same-Store
    Sales Increased 1.0%
  • Fourth Quarter Diluted EPS Increased 15% to $1.49
  • Fiscal Year Net Sales Increased 7.9% to $22.0 Billion; Fiscal Year
    Same-Store Sales Increased 0.9%
  • Fiscal Year Diluted EPS Increased 12% to $4.43
  • Cash From Operations for the Fiscal Year Increased 15% to $1.6 Billion
  • Company Provides Fiscal 2017 Diluted EPS Outlook of $4.25 to $4.50,
    Including Approximately $70 Million in Planned Investments Primarily
    for Store Manager Pay
  • Board of Directors Declares Increased Quarterly Cash Dividend of $0.26
    per share

"We are pleased with our fourth quarter 2016 financial results, and
believe that during the quarter many of our initiatives continued to
gain traction. For the year, we effectively managed through what proved
to be a challenging retail environment to deliver same-store sales
growth of 0.9% and diluted earnings per share growth of 12%, while
returning nearly $1.3 billion to shareholders through the combination of
share repurchases and dividends," said Todd Vasos, Dollar General's
chief executive officer.

"Dollar General is well-positioned to serve our customers with value and
convenience given our plans to open approximately 1,000 new stores in
2017. To strengthen our position for the long term, we are making
significant investments, primarily in compensation and training for our
store managers given the critical role this position plays in our
customer experience, as well as strategic initiatives. While these
investments are expected to put pressure on our 2017 earnings, we
believe they will strengthen our market share position over time and are
positive steps to further support sustainable growth for our
shareholders over the long term."

Fourth Quarter 2016 Highlights

The Company's net income and diluted EPS for the 2016 fourth quarter
were $414 million and $1.49, respectively, compared to net income and
diluted EPS of $376 million and $1.30, respectively, in the 2015 fourth
quarter.

Net sales increased 13.7 percent to $6.0 billion in the 2016 fourth
quarter compared to $5.3 billion in the 2015 fourth quarter. Net sales
for the 53rd week of 2016 were $398.7 million. Same-store
sales increased 1.0 percent from the 2015 fourth quarter primarily due
to an increase in average transaction amount, partially offset by a
slight decline in traffic that moderated from the second and third
quarters. Same-store sales were driven by positive results in the
consumables and home products categories, partially offset by negative
results in the seasonal and apparel categories. The net sales increase
was positively affected by sales from new stores, modestly offset by
sales from closed stores.

The Company's gross profit, as a percentage of sales, was 31.6 percent
in the 2016 fourth quarter compared to 31.8 percent in the 2015 fourth
quarter, a decrease of 19 basis points. The gross profit rate decrease
was primarily attributable to higher markdowns, driven mainly by
promotional activities and inventory clearance, and a greater proportion
of sales of consumables. Partially offsetting these items were higher
initial inventory markups.

Selling, general and administrative expenses ("SG&A") were $1.22 billion
in the 2016 fourth quarter, compared to $1.07 billion in the 2015 fourth
quarter, an increase of 6 basis points as a percentage of sales. The
SG&A increase was primarily attributable to increased retail labor costs
which increased at a rate greater than the increase in net sales.
Partially offsetting these costs were a reduction in incentive
compensation expenses and administrative payroll costs which were
essentially unchanged. In addition, during the fourth quarter of 2016,
the Company recorded a reduction in SG&A of $4.5 million due to the sale
or assignment of leases for 12 store locations that previously were
closed in connection with the acquisition of former Walmart Express
store locations.

The effective income tax rate in the 2016 fourth quarter was 36.8
percent compared to 36.1 percent in the 2015 fourth quarter. The
effective income tax rate for the 2016 fourth quarter was higher than
the 2015 quarter due primarily to the one-time benefit recorded in the
2015 fourth quarter related to the retroactive extension of federal jobs
tax credit programs to the 2015 tax year (principally the Work
Opportunity Tax Credit). For the first time in several years, these tax
credits were not retroactively renewed in the Company's fourth quarter
but instead were available throughout fiscal 2016 and thus already
reflected in the Company's income tax rate for the first three quarters
of fiscal 2016.

Full Year 2016 Financial Results

Full year 2016 net sales increased 7.9 percent to $22.0 billion compared
to net sales of $20.4 billion in 2015. Same-store sales increased 0.9
percent, primarily due to an increase in average transaction amount
accompanied by traffic that was essentially unchanged as compared to the
prior year. Same-store sales were driven by positive results in the
consumables and home products categories partially offset by negative
results in the apparel and seasonal categories.

The Company's gross profit rate was 30.8 percent of sales in 2016
compared to 31.0 percent in 2015, a decrease of 11 basis points. The
gross profit rate decrease was primarily attributable to higher
markdowns, driven mainly by promotional activities and inventory
clearance, a greater proportion of sales of consumables, and increased
inventory shrink, partially offset by higher initial inventory markups
and lower transportation costs.

Full year SG&A was 21.5 percent of sales in 2016 compared to 21.4
percent in 2015, an increase of 3 basis points. The SG&A increase was
primarily attributable to retail labor costs which increased at a rate
greater than the increase in net sales, partially offset by reductions
in administrative payroll costs, incentive compensation expenses and
advertising costs. The 2016 results also reflect an increase in
disaster-related expenses of $12.2 million over 2015, much of which was
hurricane-related.

The effective income tax rate for 2016 was 36.3 percent compared to a
rate of 37.1 percent for 2015. The effective income tax rate was lower
in 2016 due to the adoption of an amended accounting standard related to
employee share-based payments requiring the recognition of excess tax
benefits in the income statement rather than in the balance sheet, as
reported in prior years.

The Company reported net income of $1.25 billion, or diluted EPS of
$4.43, for fiscal year 2016 compared to net income of $1.17 billion, or
diluted EPS of $3.95, for fiscal year 2015, an increase in diluted EPS
of 12.2 percent. The increase in diluted EPS includes an estimated
impact of the 53rd week of approximately two percentage
points.

Merchandise Inventories

As of February 3, 2017, total merchandise inventories, at cost, were
$3.26 billion compared to $3.07 billion as of January 29, 2016, a
decrease of approximately 0.7 percent on a per store basis.

Capital Expenditures

Total additions to property and equipment during fiscal 2016 were $560
million, including approximately: $201 million for distribution and
transportation related projects; $168 million for improvements,
upgrades, remodels and relocations of existing stores; $120 million for
new leased stores, primarily for leasehold improvements; $38 million for
stores purchased or built by the Company; and $26 million for
information systems upgrades and technology-related projects. During
2016, the Company opened 900 new stores and remodeled or relocated 906
stores.

Share Repurchases

The Company repurchased $990 million, or 12.4 million shares, under its
share repurchase program in 2016, at an average price of $80.17 per
share. Since December 2011 through the end of fiscal 2016, the Company
has repurchased 74.4 million shares of its common stock at a total cost
of $4.6 billion, at an average price of $61.41 per share. The total
remaining authorization for future repurchases was approximately $930
million at the end of the 2016 fiscal year. The authorization has no
expiration date.

Dividend

On March 15, 2017, the Board of Directors approved an increase of four
percent in its quarterly cash dividend to shareholders. The first
quarter dividend of $0.26 per share will be payable on April 25, 2017 to
shareholders of record of the Company's common stock on April 11, 2017.
While the Board of Directors intends to continue regular cash dividends,
the declaration and amount of future dividends are subject to the
Board's discretion.

Fiscal 2017 Guidance

For the 52-week fiscal year ending February 2, 2018 ("fiscal 2017"), the
Company expects its fiscal 2017 net sales to increase four to six
percent with same-store sales growth to be slightly positive to up two
percent and diluted EPS to be in the range of $4.25 to $4.50.

The Company's fiscal 2017 net sales guidance includes an anticipated
negative impact of approximately 2 percentage points due to lapping the
2016 53rd week. The Company's fiscal 2017 diluted EPS guidance includes
an anticipated negative impact totaling approximately $0.34 per share,
lowering the fiscal 2017 EPS growth rate by approximately 8 percentage
points as follows:

  • approximately $0.16 per share relating to anticipated store manager
    compensation and training and other strategic investments,
  • approximately $0.09 per share due to lapping of the 53rd
    week in 2016,
  • and approximately $0.09 per share for the combined impact from the
    early adoption of income tax changes for stock-based compensation in
    2016, lower estimated share repurchases in 2017 and an anticipated
    charge related to the retirement of debt.

Share repurchases for fiscal 2017 are expected to be approximately $450
million. The Company plans to open approximately 1,000 new stores and
relocate or remodel 900 stores in fiscal 2017. Capital expenditures for
fiscal 2017 are expected to be in the range of $650 to $700 million.

The information in this "Fiscal 2017 Guidance" section of this press
release constitutes the only guidance issued by the Company with respect
to its fiscal 2017 performance, operating results or financial
condition. The Company undertakes no obligation, and specifically
disclaims any duty, to update any of the information set forth in this
section except as may be required by law.

Long-Term Growth Model

The Company's fiscal 2017 financial guidance contemplates results that
do not fall within the ranges contained in its long-term growth model
that was announced on March 10, 2016. The Company expects to continue to
use the long-term growth model internally to assess and benchmark its
results and strategic plans; however, the Company does not intend to
discuss fiscal 2017 guidance or results in the context of the long-term
growth model.

Over the longer term, the Company's goal is to grow diluted EPS at a 10
percent or higher rate on an adjusted basis. GAAP EPS may include the
impact of certain discrete items, which may be excluded in calculating
adjusted EPS. In the past these discrete items have included
restructuring costs, legal settlements and certain other items that are
discretely managed. The Company is not currently aware of any such
discrete items.

Conference Call Information

The Company will hold a conference call on Thursday, March 16, 2017 at
9:00 a.m. CT/10:00 a.m. ET, hosted by Todd Vasos, chief executive
officer, and John Garratt, chief financial officer. If you wish to
participate, please call (855) 576-2641 at least 10 minutes before the
conference call is scheduled to begin. The conference ID is 46410117.
The call will also be broadcast live online at www.dollargeneral.com
under "Investor Information, Conference Calls and Investor Events." A
replay of the conference call will be available through Thursday, March
30, 2017, and will be accessible online or by calling (855) 859-2056.
The conference ID for the replay is 46410117.

Forward-Looking Statements

This press release contains forward-looking information, including
statements regarding the Company's outlook, plans and intentions,
including, but not limited to, statements made within the quotations of
Mr. Vasos and in the sections entitled "Fiscal 2017 Guidance" and
"Long-Term Growth Model". A reader can identify forward-looking
statements because they are not limited to historical fact or they use
words such as "outlook," "may," "should," "could," "will," "believe,"
"anticipate," "plan," "intend," "expect," "estimate," "forecast,"
"confident," "goal," "opportunities," "prospect," "positioned,"
"committed," or "continue," and similar expressions that concern the
Company's strategy, plans, intentions or beliefs about future
occurrences or results. These matters involve risks, uncertainties and
other factors that may cause the actual performance of the Company to
differ materially from that which the Company expected. Many of these
statements are derived from the Company's operating budgets and
forecasts as of the date of this release, which are based on many
detailed assumptions that the Company believes are reasonable. However,
it is very difficult to predict the effect of known factors on the
Company's future results, and the Company cannot anticipate all factors
that could affect future results that may be important to an investor.
All forward-looking information should be evaluated in the context of
these risks, uncertainties and other factors. Important factors that
could cause actual results to differ materially from the expectations
expressed in or implied by such forward-looking statements include, but
are not limited to:

  • economic conditions and other economic factors, including their effect
    on employment levels, consumer demand, customer traffic, customer
    disposable income, credit availability and spending patterns,
    inflation, commodity prices, fuel prices, interest rates, exchange
    rate fluctuations and the cost of goods;
  • failure to successfully execute the Company's strategies and
    initiatives, including those relating to merchandising, marketing,
    real estate, sourcing, shrink, private brand, distribution and
    transportation, store operations, store formats, budgeting and expense
    reduction, and technology;
  • failure to open, relocate and remodel stores profitably and on
    schedule, as well as failure of the Company's new store base to
    achieve sales and operating levels consistent with the Company's
    expectations;
  • effective response to competitive pressures and changes in the
    competitive environment and the markets where the Company operates,
    including, but not limited to, consolidation and omnichannel shopping;
  • levels of inventory shrinkage;
  • failure to successfully manage inventory balances;
  • disruptions, unanticipated or unusual expenses or operational failures
    in the Company's supply chain including, without limitation, a
    decrease in transportation capacity for overseas shipments, increases
    in transportation costs (including increased fuel costs and carrier
    rates or driver wages), work stoppages or other labor disruptions that
    could impede the receipt of merchandise, or delays in constructing or
    opening new distribution centers;
  • risks and challenges associated with sourcing merchandise from
    suppliers, including, but not limited to, those related to
    international trade;
  • risks and challenges associated with the Company's private brands,
    including, but not limited to, the Company's level of success in
    gaining and maintaining broad market acceptance of its private brands;
  • unfavorable publicity or consumer perception of the Company's
    products, including, but not limited to, related product liability;
  • the impact of changes in or noncompliance with governmental laws and
    regulations (including, but not limited to, environmental compliance,
    product safety, food safety, information security and privacy, and
    labor and employment laws, as well as tax laws, the interpretation of
    existing tax laws, or the Company's failure to sustain its reporting
    positions negatively affecting the Company's tax rate) and
    developments in or outcomes of private actions, class actions,
    administrative proceedings, regulatory actions or other litigation;
  • incurrence of material uninsured losses, excessive insurance costs or
    accident costs;
  • natural disasters, unusual weather conditions, pandemic outbreaks,
    terrorist acts and geo-political events;
  • failure to maintain the security of information that the Company
    holds, whether as a result of cybersecurity attacks or otherwise;
  • damage or interruption to the Company's information systems or failure
    of technology initiatives to deliver desired or timely results;
  • ability to attract, train and retain qualified employees, while
    controlling labor costs (including effects of potential federal or
    state regulatory changes related to overtime exemptions, if
    implemented) and other labor issues;
  • loss of key personnel, inability to hire additional qualified
    personnel or disruption of executive management as a result of
    retirements or transitions;
  • seasonality of the Company's business;
  • deterioration in market conditions, including market disruptions,
    limited liquidity and interest rate fluctuations, or a lowering of the
    Company's credit ratings;
  • new accounting guidance, or changes in the interpretation or
    application of existing guidance, such as changes to guidance related
    to leases, revenue recognition and intra-company transfers;
  • the factors disclosed under "Risk Factors" in the Company's most
    recent Annual Report on Form 10-K; and
  • such other factors as may be discussed or identified in this press
    release.

All forward-looking statements are qualified in their entirety by these
and other cautionary statements that the Company makes from time to time
in its SEC filings and public communications. The Company cannot assure
the reader that it will realize the results or developments the Company
anticipates or, even if substantially realized, that they will result in
the consequences or affect the Company or its operations in the way the
Company expects. Forward-looking statements speak only as of the date
made. The Company undertakes no obligation to update or revise any
forward-looking statements to reflect events or circumstances arising
after the date on which they were made, except as otherwise required by
law or as set forth under "Fiscal 2017 Guidance" herein. As a result of
these risks and uncertainties, readers are cautioned not to place undue
reliance on any forward-looking statements included herein or that may
be made elsewhere from time to time by, or on behalf of, the Company.

About Dollar General Corporation

Dollar General Corporation has been delivering value to shoppers for
over 75 years. Dollar General helps shoppers Save time. Save money.
Every day!® by offering products that are frequently used and
replenished, such as food, snacks, health and beauty aids, cleaning
supplies, basic apparel, housewares and seasonal items at low everyday
prices in convenient neighborhood locations. With 13,320 stores in 43
states as of February 3, 2017, Dollar General is among the largest
discount retailers in the United States. In addition to high quality
private brands, Dollar General sells products from America's
most-trusted brands such as Procter & Gamble, Kimberly-Clark, Unilever,
Kellogg's, General Mills, Nabisco, Hanes, PepsiCo and Coca-Cola. Learn
more about Dollar General at www.dollargeneral.com.

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
       
(Unaudited)
February 3 January 29
2017     2016
ASSETS
Current assets:
Cash and cash equivalents $ 187,915 $ 157,947
Merchandise inventories 3,258,785 3,074,153
Income taxes receivable 11,050 6,843
Prepaid expenses and other current assets       220,021         193,467  
Total current assets       3,677,771         3,432,410  
Net property and equipment       2,434,456         2,264,062  
Goodwill       4,338,589         4,338,589  
Other intangible assets, net       1,200,659         1,200,994  
Other assets, net       20,823         21,830  
Total assets     $ 11,672,298       $ 11,257,885  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 500,950 $ 1,379
Accounts payable 1,557,596 1,494,225
Accrued expenses and other 500,866 467,122
Income taxes payable       63,393         32,870  
Total current liabilities       2,622,805         1,995,596  
Long-term obligations       2,710,576         2,969,175  
Deferred income taxes       652,841         639,955  
Other liabilities       279,782         275,283  
Total liabilities       6,266,004         5,880,009  
 
Commitments and contingencies
 
Shareholders' equity:
Preferred stock - -
Common stock 240,811 250,855
Additional paid-in capital 3,154,606 3,107,283
Retained earnings 2,015,867 2,025,545
Accumulated other comprehensive loss       (4,990 )       (5,807 )
Total shareholders' equity       5,406,294         5,377,876  
Total liabilities and shareholders' equity     $ 11,672,298       $ 11,257,885  
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
               
For the Quarter Ended
(14 Weeks)     (13 Weeks)
February 3 % of Net January 29 % of Net
2017     Sales     2016     Sales
Net sales $ 6,009,246 100.00 % $ 5,286,938 100.00 %
Cost of goods sold       4,108,499     68.37         3,604,669     68.18  
Gross profit 1,900,747 31.63 1,682,269 31.82
Selling, general and administrative expenses       1,220,129     20.30         1,069,840     20.24  
Operating profit 680,618 11.33 612,429 11.58
Interest expense       25,511     0.42         23,275     0.44  
Income before income taxes 655,107 10.90 589,154 11.14
Income tax expense       240,931     4.01         212,979     4.03  
Net income     $ 414,176     6.89 %     $ 376,175     7.12 %
 
Earnings per share:
Basic $ 1.50 $ 1.30
Diluted $ 1.49 $ 1.30
Weighted average shares outstanding:
Basic 276,204 288,401
Diluted 277,059 289,322
 
 
For the Year Ended
(53 Weeks)     (52 Weeks)
February 3 % of Net January 29 % of Net
2017     Sales     2016     Sales
Net sales $ 21,986,598 100.00 % $ 20,368,562 100.00 %
Cost of goods sold       15,203,960     69.15         14,062,471     69.04  
Gross profit 6,782,638 30.85 6,306,091 30.96
Selling, general and administrative expenses       4,719,189     21.46         4,365,797     21.43  
Operating profit 2,063,449 9.39 1,940,294 9.53
Interest expense 97,821 0.44 86,944 0.43
Other (income) expense       -     0.00         326     0.00  
Income before income taxes 1,965,628 8.94 1,853,024 9.10
Income tax expense       714,495     3.25         687,944     3.38  
Net income     $ 1,251,133     5.69 %     $ 1,165,080     5.72 %
 
Earnings per share:
Basic $ 4.45 $ 3.96
Diluted $ 4.43 $ 3.95
Weighted average shares outstanding:
Basic 281,317 294,330
Diluted 282,261 295,211
 

 
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
     
For the Year Ended
(53 Weeks)     (52 Weeks)
February 3 January 29
2017     2016
Cash flows from operating activities:
Net income $ 1,251,133 $ 1,165,080

Adjustments to reconcile net income to net cash from operating
activities:

Depreciation and amortization 379,931 352,431
Deferred income taxes 12,359 12,126
Loss on debt retirement, net - 326
Noncash share-based compensation 36,967 38,547
Other noncash (gains) and losses (3,625 ) 7,797
Change in operating assets and liabilities:
Merchandise inventories (171,908 ) (290,001 )
Prepaid expenses and other current assets (25,046 ) (24,626 )
Accounts payable 56,477 105,637
Accrued expenses and other liabilities 42,937 44,949
Income taxes 26,316 (19,675 )
Other     (500 )       (905 )
Net cash provided by (used in) operating activities     1,605,041         1,391,686  
 
Cash flows from investing activities:
Purchases of property and equipment (560,296 ) (504,806 )
Proceeds from sales of property and equipment     9,360         1,423  
Net cash provided by (used in) investing activities     (550,936 )       (503,383 )
 
Cash flows from financing activities:
Issuance of long-term obligations - 499,220
Repayments of long-term obligations (3,138 ) (502,401 )
Net increase in commercial paper outstanding 490,500 -
Borrowings under revolving credit facilities 1,584,000 2,034,100
Repayments of borrowings under revolving credit facilities (1,835,000 ) (1,783,100 )
Debt issuance costs - (6,991 )
Repurchases of common stock (990,474 ) (1,299,613 )
Payments of cash dividends (281,135 ) (258,328 )
Other equity and related transactions     11,110         6,934  
Net cash provided by (used in) financing activities     (1,024,137 )       (1,310,179 )
 
Net increase (decrease) in cash and cash equivalents 29,968 (421,876 )
Cash and cash equivalents, beginning of period     157,947         579,823  
Cash and cash equivalents, end of period   $ 187,915       $ 157,947  
 
Supplemental cash flow information:
Cash paid for:
Interest $ 92,952 $ 76,354
Income taxes $ 679,633 $ 697,357
Supplemental schedule of non-cash investing and financing
activities:

Purchases of property and equipment awaiting processing for
payment, included in Accounts payable

$ 38,914 $ 32,020
 

   
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
       
 

Sales by Category (in thousands)

 
For the Quarter Ended
(14 Weeks)     (13 Weeks)
February 3 January 29
  2017       2016   % Change  
Consumables $ 4,505,486 $ 3,914,335 15.1 %
Seasonal 800,604 738,021 8.5 %
Home products 405,236 364,131 11.3 %
Apparel   297,920       270,451   10.2 %
Net sales $ 6,009,246     $ 5,286,938   13.7 %
 
 
For the Year Ended
(53 Weeks)     (52 Weeks)
February 3 January 29
  2017       2016   % Change  
Consumables $ 16,798,881 $ 15,457,611 8.7 %
Seasonal 2,674,319 2,522,701 6.0 %
Home products 1,373,397 1,289,423 6.5 %
Apparel   1,140,001       1,098,827   3.7 %
Net sales $ 21,986,598     $ 20,368,562   7.9 %
 
 
 
Store Activity
(Unaudited)
 
For the Year Ended
(53 Weeks)     (52 Weeks)
February 3 January 29
2017     2016
 
Beginning store count 12,483 11,789
New store openings 900 730
Store closings   (63 )     (36 )
Net new stores   837       694  
Ending store count   13,320       12,483  
Total selling square footage (000's)   98,943       92,477  
Growth rate (square footage)   7.0 %     6.0 %
 

View Comments and Join the Discussion!