Market Overview

Dollar General Corporation Reports Strong Second Quarter 2018 Financial Results

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Raises Net Sales and Same-Store Sales Guidance for Fiscal Year 2018;
Reiterates Fiscal Year EPS Outlook

Dollar General Corporation (NYSE:DG) today reported financial results
for its fiscal year 2018 second quarter (13 weeks) ended August 3, 2018.

  • Net Sales Increased 10.6%; Same-Store Sales Increased 3.7%
  • Diluted Earnings Per Share ("EPS") Increased 40.7% to $1.52
  • Cash Flows From Operations Increased 39.6% to $1.1 billion
  • $277 Million Returned to Shareholders through Share Repurchases and
    Cash Dividends
  • Board of Directors Declares Third Quarter 2018 Cash Dividend of $0.29
    per share

"We delivered a strong second quarter and are proud of our team's
execution," said Todd Vasos, Dollar General's chief executive officer.
"Our results this quarter were driven by contributions from our mature
store base, as well as the robust performance of our new stores. In
addition, we maintained our disciplined focus on cost control, which
culminated in another quarter of significant earnings growth. At the
same time, we also continued to invest in our strategic initiatives and
made meaningful progress advancing against our goals. We are grateful to
our approximately 134,000 employees throughout the company who continued
to provide our customers with the value and convenience they have come
to expect from Dollar General, and we are looking forward to a solid
second half."

Second Quarter 2018 Highlights

Net sales increased 10.6% to $6.4 billion in the second quarter of 2018
compared to $5.8 billion in the second quarter of 2017. The net sales
increase in the second quarter of 2018 was positively affected by the
sales contributions from new stores and growth in same-store sales,
modestly offset by the impact of store closures. Same-store sales
increased 3.7% from the second quarter of 2017, driven by increases in
average transaction amount and customer traffic. Growth in same-store
sales was driven by positive results in the consumables, seasonal and
apparel categories, partially offset by sales declines in the home
category.

Gross profit as a percentage of net sales was 30.6% in the second
quarter of 2018 compared to 30.7% in the second quarter of 2017, a
decrease of seven basis points. This gross profit rate decrease was
primarily attributable to a greater proportion of sales coming from
consumables, which generally have a lower gross profit rate than other
product categories, sales of lower margin products comprising a higher
proportion of consumables sales, higher markdowns, and increased
transportation costs. These factors were partially offset by an improved
rate of inventory shrink and higher initial markups on inventory
purchases.

Selling, general and administrative expenses ("SG&A") as a percentage of
net sales were 22.2% in the second quarter of 2018 compared to 22.3% in
the second quarter of 2017, a decrease of eight basis points. This SG&A
decrease as a percentage of net sales was primarily attributable to
lower repairs and maintenance expenses, a reduction in lease termination
expenses, lower fixed asset impairment costs, and a reduction in retail
labor expenses as a percent of sales. These factors were partially
offset by an increase in professional fees, higher incentive
compensation expenses, and increased costs to support certain loss
prevention initiatives.

The effective income tax rate in the second quarter of 2018 was 21.5%
compared to 37.2% in the second quarter of 2017. The effective income
tax rate for the second quarter of 2018 was lower than the second
quarter of 2017 primarily due to the federal tax law changes contained
in the Tax Cuts and Jobs Act ("TCJA") enacted in December 2017,
including the change in the federal income tax rate to 21% in the 2018
period compared to 35% in the 2017 period.

The Company reported net income of $407 million, or diluted EPS of
$1.52, for the second quarter of 2018 compared to net income of $295
million, or diluted EPS of $1.08, in the second quarter of 2017, an
increase in diluted EPS of 40.7%. Diluted EPS for the second quarter of
2017 included an approximate $0.02 charge primarily for the lease
termination costs related to the acquisition of the Dollar Express store
locations.

26-Week Period Highlights

For the 2018 26-week period ended August 3, 2018, net sales increased
9.8% to $12.6 billion, compared to $11.4 billion in the comparable 2017
period. The net sales increase in the 2018 period was positively
affected by the sales contributions from new stores and growth in
same-store sales, modestly offset by the impact of store closures.
Same-store sales increased 2.9% from the 2017 26-week period, driven by
an increase in average transaction amount, partially offset by a decline
in customer traffic. Growth in same-store sales for the period was
driven by positive results in the consumables and seasonal categories,
partially offset by sales declines in the apparel and home categories.

Gross profit as a percentage of net sales was 30.6% in the 2018 26-week
period, compared to 30.5% in the comparable 2017 period, an increase of
five basis points. The gross profit rate increase in the 2018 period was
primarily attributable to higher initial markups on inventory purchases
and an improved rate of inventory shrink. These factors were partially
offset by a greater proportion of sales coming from consumables, which
generally have a lower gross profit rate than other product categories,
sales of lower margin products comprising a higher proportion of
consumables sales, and increased transportation costs.

SG&A as a percentage of net sales was 22.3% in the 2018 26-week period
compared to 22.1% in the comparable 2017 period, an increase of 26 basis
points. This SG&A increase in the 2018 period as a percentage of net
sales was primarily attributable to increased occupancy costs, utilities
and professional fees, each of which increased at a rate greater than
the increase in net sales. These factors were partially offset by
reduced repairs and maintenance and lease termination expenses as a
percentage of sales.

The effective income tax rate in the 2018 26-week period was 21.6%
compared to 37.2% in the comparable 2017 period. The effective income
tax rate was lower in the 2018 period primarily due to the federal tax
law changes contained in the TCJA, including the change in the federal
income tax rate to 21% in the 2018 period compared to 35% in the 2017
period.

The Company reported net income of $772 million, or diluted EPS of
$2.88, for the 2018 26-week period, compared to net income of $574
million, or diluted EPS of $2.09, in the comparable 2017 period, an
increase in diluted EPS of 37.8%. Diluted EPS for the 2017 26-week
period included an approximate $0.02 charge primarily for the lease
termination costs related to the acquisition of the Dollar Express store
locations.

Merchandise Inventories

As of August 3, 2018, total merchandise inventories, at cost, were $3.90
billion compared to $3.46 billion as of August 4, 2017, an increase of
approximately 3.9% on a per store basis.

Capital Expenditures

Total additions to property and equipment in the 2018 26-week period
were $371 million, including approximately: $147 million for
improvements, upgrades, remodels and relocations of existing stores;
$113 million for distribution and transportation related projects; $81
million for new leased stores, primarily for leasehold improvements,
fixtures and equipment; and $24 million for information systems upgrades
and technology-related projects. During the 2018 26-week period, the
Company opened 510 new stores, remodeled 643 stores and relocated 67
stores.

Share Repurchases

The Company repurchased $200 million of its common stock, or 2.1 million
shares, under its share repurchase program in the second quarter of
2018, at an average price of $95.17 per share. From the inception of the
share repurchase program in December 2011 through the end of the second
quarter of 2018, the Company has repurchased 85.1 million shares of its
common stock at an average price of $64.58 per share, for a total cost
of $5.5 billion. The total remaining authorization for future
repurchases was approximately $1.0 billion at the end of the second
quarter of 2018. Under the authorization, purchases may be made in the
open market or in privately negotiated transactions from time to time
subject to market and other conditions. The authorization has no
expiration date.

Dividend

On August 28, 2018, the Company's Board of Directors declared a
quarterly cash dividend of $0.29 per share on the Company's common
stock, payable on or before October 23, 2018 to shareholders of record
on October 9, 2018. While the Board of Directors intends to continue
regular cash dividends, the declaration and amount of future dividends
are subject to the sole discretion of the Board and will depend upon,
among other things, the Company's results of operations, cash
requirements, financial condition, contractual restrictions, and other
factors the Board may deem relevant in its sole discretion.

Fiscal Year 2018 Financial Guidance and Store
Growth Outlook

The Company previously issued financial guidance and store growth
outlook, in each case for the 52-week fiscal year ending February 1,
2019 ("fiscal year 2018"), on May 31, 2018. The Company is updating such
prior guidance in full, as detailed below.

For the fiscal year 2018, the Company now expects net sales growth to be
in the range of 9% to 9.3%. The Company is also raising its fiscal year
2018 same-store sales growth outlook to the mid-to-high two percent
range. The Company continues to expect its fiscal year 2018 operating
margin rate to be relatively unchanged compared with the fiscal year
2017 operating margin rate.

The Company is reiterating its diluted EPS guidance of $5.95 to $6.15
for fiscal year 2018. This diluted EPS guidance now assumes an effective
tax rate at the lower end of the 22% to 23% range that the Company
previously provided.

The Company continues to anticipate a cash benefit of approximately $300
million in fiscal 2018 as a result of the TCJA.

In addition, the Company continues to expect share repurchases for
fiscal year 2018 to be approximately $850 million, and capital
expenditures for fiscal year 2018 to be in the range of $725 million to
$800 million.

The Company is also reiterating its plans to open approximately 900 new
stores, remodel 1,000 stores and relocate 100 stores in fiscal year 2018.

Conference Call Information

The Company will hold a conference call on Thursday, August 30, 2018, at
9:00 a.m. CT/10:00 a.m. ET, hosted by Todd Vasos, chief executive
officer, and John Garratt, chief financial officer. To participate via
telephone, please call (877) 868-1301 at least 10 minutes before the
conference call is scheduled to begin. The conference ID is 6591008.
There will also be a live webcast of the call available at
investor.dollargeneral.com under "News & Events, Events &
Presentations." A replay of the conference call will be available
through Thursday, September 13, 2018, and will be accessible online or
by calling (855) 859-2056. The conference ID for the replay is 6591008.

Forward-Looking Statements

This press release contains forward-looking information within the
meaning of the federal securities laws, including the Private Securities
Litigation Reform Act. Forward-looking statements include those
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 Year 2018 Financial Guidance and Store
Growth Outlook," "Share Repurchases," and "Dividend". A reader can
identify forward-looking statements because they are not limited to
historical fact or they use words such as "outlook," "may," "will,"
"should," "could," "would," "believe," "anticipate," "plan," "expect,"
"estimate," "assume," "forecast," "confident," "opportunities," "goal,"
"prospect," "positioned," "intend," "committed," "continue," "future,"
"guidance," "years ahead," "looking ahead," "looking forward," "going
forward," "focused on," "subject to," or "will likely result," 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 but not
    limited to employment levels, credit availability and spending
    patterns, inflation, commodity prices, fuel prices, interest rates,
    measures that create barriers to or increase the costs associated with
    international trade (including increased import duties or tariffs),
    and healthcare and housing costs, and their effect on, as applicable,
    consumer demand, customer traffic, customer disposable income, our
    ability to execute our strategic initiatives, our cost of goods sold,
    our SG&A expenses and real estate costs;
  • failure to successfully execute the Company's strategies and
    initiatives, including those relating to merchandising, marketing,
    real estate and new store development, digital, sourcing, shrink,
    private brand, inventory management, 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 geographic and product markets where
    the Company operates, including, but not limited to, pricing, the
    creation of a more convenient customer online and in-store shopping
    experience, and consolidation;
  • levels of inventory shrinkage;
  • failure to successfully manage inventory balances;
  • failure to maintain the security of information that the Company
    holds, whether as a result of cybersecurity attacks or otherwise;
  • 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 or delivery 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;
  • unfavorable publicity or consumer perception of the Company's
    products, including, but not limited to, related product liability;
  • risks and challenges associated with the Company's private brands,
    including, but not limited to, the Company's level of success in
    improving its gross profit rate;
  • the impact of changes in or noncompliance with governmental laws and
    regulations (including, but not limited to, environmental compliance,
    product safety or labeling, 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 (whether or not caused
    by climate change), pandemic outbreaks, terrorist acts and
    geo-political events;
  • 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 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;
  • 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, and specifically disclaims
any duty, 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. 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 everyday low
prices in convenient neighborhood locations. Dollar General operated
15,015 stores in 44 states as of August 3, 2018. In addition to
high-quality private brands, Dollar General sells products from
America's most-trusted manufacturers such as Clorox, Energizer, Procter
& Gamble, Hanes, Coca-Cola, Mars, Unilever, Nestle, Kimberly-Clark,
Kellogg's, General Mills, and PepsiCo. Learn more about Dollar General
at www.dollargeneral.com.

     
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
 
(Unaudited)
August 3 August 4 February 2
2018   2017   2018
ASSETS
Current assets:
Cash and cash equivalents $ 265,288 $ 214,173 $ 267,441
Merchandise inventories 3,896,432 3,463,004 3,609,025
Income taxes receivable 68,353 44,255 108,265
Prepaid expenses and other current assets     287,753       258,559       263,121  
Total current assets     4,517,826       3,979,991       4,247,852  
Net property and equipment     2,857,274       2,574,816       2,701,282  
Goodwill     4,338,589       4,338,589       4,338,589  
Other intangible assets, net     1,200,322       1,200,537       1,200,428  
Other assets, net     29,938       26,891       28,760  
Total assets   $ 12,943,949     $ 12,120,824     $ 12,516,911  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 1,909 $ 401,402 $ 401,345
Accounts payable 2,294,996 1,880,668 2,009,771
Accrued expenses and other 611,389 521,027 549,658
Income taxes payable     7,250       3,658       4,104  
Total current liabilities     2,915,544       2,806,755       2,964,878  
Long-term obligations     2,776,811       2,683,105       2,604,613  
Deferred income taxes     569,690       659,844       515,702  
Other liabilities     302,962       284,025       305,944  
Total liabilities     6,565,007       6,433,729       6,391,137  
 
Commitments and contingencies
 
Shareholders' equity:
Preferred stock - - -
Common stock 232,340 239,101 235,141
Additional paid-in capital 3,222,233 3,166,518 3,196,462
Retained earnings 2,928,064 2,286,060 2,698,352
Accumulated other comprehensive loss     (3,695 )     (4,584 )     (4,181 )
Total shareholders' equity     6,378,942       5,687,095       6,125,774  
Total liabilities and shareholders' equity   $ 12,943,949     $ 12,120,824     $ 12,516,911  
 

     
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
 
For the Quarter Ended
August 3 % of Net August 4 % of Net
2018   Sales   2017   Sales
Net sales $ 6,443,309 100.00 % $ 5,828,305 100.00 %
Cost of goods sold     4,468,436   69.35       4,037,783   69.28  
Gross profit 1,974,873 30.65 1,790,522 30.72
Selling, general and administrative expenses     1,429,397   22.18       1,297,376   22.26  
Operating profit 545,476 8.47 493,146 8.46
Interest expense 25,451 0.39 23,748 0.41
Other (income) expense     1,019   0.02       -   0.00  
Income before income taxes 519,006 8.05 469,398 8.05
Income tax expense (benefit)   111,769   1.73       174,615   3.00  
Net income   $ 407,237   6.32 %   $ 294,783   5.06 %
 
Earnings per share:
Basic $ 1.53 $ 1.08
Diluted $ 1.52 $ 1.08
Weighted average shares outstanding:
Basic 266,457 273,690
Diluted 267,226 274,132
 
 
For the 26 Weeks Ended
August 3 % of Net August 4 % of Net
2018   Sales   2017   Sales
Net sales $ 12,557,772 100.00 % $ 11,437,930 100.00 %
Cost of goods sold     8,720,650   69.44       7,948,425   69.49  
Gross profit 3,837,122 30.56 3,489,505 30.51
Selling, general and administrative expenses     2,801,462   22.31       2,522,564   22.05  
Operating profit 1,035,660 8.25 966,941 8.45
Interest expense 50,224 0.40 48,752 0.43
Other (income) expense     1,019   0.01       3,502   0.03  
Income before income taxes 984,417 7.84 914,687 8.00
Income tax expense     212,328   1.69       340,415   2.98  
Net income   $ 772,089   6.15 %   $ 574,272   5.02 %
 
Earnings per share:
Basic $ 2.89 $ 2.09
Diluted $ 2.88 $ 2.09
Weighted average shares outstanding:
Basic 267,362 274,191
Diluted 268,180 274,674
 

   
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
For the 26 Weeks Ended
August 3 August 4
2018   2017
Cash flows from operating activities:
Net income $ 772,089 $ 574,272

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

Depreciation and amortization 221,511 197,616
Deferred income taxes 12,500 6,750
Loss on debt retirement 1,019 3,502
Noncash share-based compensation 21,779 16,839
Other noncash (gains) and losses 12,120 11,359
Change in operating assets and liabilities:
Merchandise inventories (292,934 ) (205,385 )
Prepaid expenses and other current assets (25,727 ) (43,240 )
Accounts payable 270,862 292,074
Accrued expenses and other liabilities 61,096 26,751
Income taxes 43,058 (92,940 )
Other     (84 )     (1,368 )
Net cash provided by (used in) operating activities     1,097,289       786,230  
 
Cash flows from investing activities:
Purchases of property and equipment (370,968 ) (314,050 )
Proceeds from sales of property and equipment     1,349       343  
Net cash provided by (used in) investing activities     (369,619 )     (313,707 )
 
Cash flows from financing activities:
Issuance of long-term obligations 499,495 599,556
Repayments of long-term obligations (575,664 ) (750,584 )
Net increase (decrease) in commercial paper outstanding (149,400 ) 25,000
Costs associated with issuance and retirement of debt (4,384 ) (9,524 )
Repurchases of common stock (349,538 ) (163,736 )
Payments of cash dividends (154,708 ) (142,339 )
Other equity and related transactions     4,376       (4,638 )
Net cash provided by (used in) financing activities     (729,823 )     (446,265 )
 
Net increase (decrease) in cash and cash equivalents (2,153 ) 26,258
Cash and cash equivalents, beginning of period     267,441       187,915  
Cash and cash equivalents, end of period   $ 265,288     $ 214,173  
 
Supplemental cash flow information:
Cash paid for:
Interest $ 45,538 $ 41,356
Income taxes $ 156,796 $ 425,278
Supplemental schedule of non-cash investing and financing
activities:

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

$ 77,541 $ 69,912
 

     
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
 
 
Sales by Category (in thousands)
 
For the Quarter Ended
August 3 August 4
2018   2017 % Change
Consumables $ 4,988,063 $ 4,484,359 11.2 %
Seasonal 792,513 717,993 10.4 %
Home products 345,161 327,648 5.3 %
Apparel   317,572     298,305   6.5 %
Net sales $ 6,443,309   $ 5,828,305   10.6 %
 
 
For the 26 Weeks Ended
August 3 August 4
2018   2017 % Change
Consumables $ 9,760,451 $ 8,799,872 10.9 %
Seasonal 1,483,544 1,380,631 7.5 %
Home products 699,794 660,798 5.9 %
Apparel   613,983     596,629   2.9 %
Net sales $ 12,557,772   $ 11,437,930   9.8 %
 
 
 
 
Store Activity
 
For the 26 Weeks Ended
August 3 August 4
2018   2017
 
Beginning store count 14,534 13,320
New store openings 510 574
Store closings   (29 )   (29 )
Net new stores   481     545  
Ending store count   15,015     13,865  
Total selling square footage (000's)   111,210     103,029  
Growth rate (square footage)   7.9 %   7.2 %
 

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