• Q1 profit rose 3.3% to $220m
  • Sales grew 8.5% to $4.23bn
  • FY adjusted EPS forecast to be $3.15 to $3.22

US discount retailer Dollar General has cut the top end of its full-year earnings guidance despite booking a rise in first-quarter profit.

The company, which operates 10,662 stores, said net income reached US$220m for the 13 weeks to 3 May, up 3.3% from $213m in the same period last year.

Sales grew 8.5% to $4.23bn over $3.90bn the prior year, while same-store sales were up 2.6%, driven by increases in consumer traffic and average transaction amount.

Gross margin, however, declined 89 basis points to 30.6% because of higher markdowns, increased inventory shrinkage, lower initial markups, and a higher mix of consumables.

The retailer now expects full-year adjusted earnings per share to $3.15 to $3.22, against its earlier guidance of $3.15 to $3.30. Total sales and same store sales are forecast to increase 10-11% and 4-5% respectively, compared to its previous guidance of 10-12% and 4-6%.

Looking forward, chairman and CEO Rick Dreiling said: "Sales of non-consumables are expected to remain challenging, and we anticipate a continued shift to lower margin items within consumables and higher inventory shrink."

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Dollar General Reports First Quarter 2013 Financial Results



  • First Quarter Same-Store Sales Increased 2.6%; Total Sales Improved 8.5%
  • Reported First Quarter EPS of $0.67; Adjusted EPS of $0.71, up 13%
  • Company Updates Financial Outlook

GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)-- Dollar General Corporation (NYSE: DG) today reported record sales, operating profit and net income for its fiscal 2013 first quarter (13 weeks) ended May 3, 2013.

"For the quarter, we achieved same-store sales growth of 2.6 percent reflecting strong growth in our consumables categories offset by softer sales in seasonal and weather-sensitive categories," said Rick Dreiling, Dollar General's chairman and chief executive officer. "Solid SG&A leverage helped to offset gross margin declines in the first quarter. We believe the continued strength in consumables is a sign of the underlying health of our business."

"We have updated our outlook for the year to reflect moderating sales growth and a lower expected gross profit rate than we previously anticipated," Mr. Dreiling continued. "We are well positioned for our same-store sales growth to accelerate to four to five percent for the year as our key initiatives, such as the rollout of tobacco and Phase 5 planogram changes, continue to gain traction through the year. Sales of non-consumables are expected to remain challenging, and we anticipate a continued shift to lower margin items within consumables and higher inventory shrink. We believe that our customers' dependence on our everyday low pricing and convenient locations has never been greater."

The Company's net income was $220 million, or $0.67 per diluted share, in the 2013 first quarter, compared to net income of $213 million, or $0.63 per diluted share, in the 2012 first quarter. Adjusted net income, as defined below, increased 8 percent to $232 million in the 2013 first quarter, compared to$215 million in the 2012 first quarter. Adjusted diluted EPS increased 13 percent to $0.71 in the 2013 first quarter from $0.63 in the 2012 first quarter.

Adjusted net income is defined as net income excluding specifically identified expenses. Adjustments include the expenses relating to secondary offerings of the Company's stock in both the 2013 and 2012 periods and losses associated with restructuring the Company's credit facility in 2013 and an amendment of the Company's revolving credit facility in 2012. The income tax effect of adjustments is also excluded from both periods. A reconciliation of adjusted net income to net income is presented in the accompanying schedules.

Financial Highlights

Net sales increased 8.5 percent to $4.23 billion in the 2013 first quarter compared to $3.90 billion in the 2012 first quarter. Same-store sales increased 2.6 percent resulting from increases in both customer traffic and average transaction amount. Total sales increases in consumables significantly outpaced increases in the Company's non-consumable categories, reflecting the impact of continued financial pressures on consumers as well as unfavorable weather conditions in many of the Company's geographic regions.

Gross profit, as a percentage of sales, was 30.6 percent in the 2013 first quarter, a decrease of 89 basis points from the 2012 first quarter. The gross profit rate was negatively affected by several factors including higher markdowns, a higher mix of consumables, which generally have lower gross profit rates, increased inventory shrinkage, and lower initial markups. These factors were partially offset by improved transportation efficiencies and other logistics initiatives, in addition to modestly lower fuel rates.

Selling, general and administrative expenses ("SG&A"), as a percentage of sales, were 21.3 percent in the 2013 first quarter compared to 21.6 percent in the 2012 first quarter, an improvement of 37 basis points. Decreases in incentive compensation expense and workers' compensation and general liability expenses contributed to the overall decrease in SG&A as a percentage of sales. Retail labor expense increased at a rate lower than the increase in sales, partially due to ongoing benefits of the Company's workforce management system. Costs that increased at a rate higher than the increase in sales include advertising, rent, depreciation and amortization and utilities.

Operating profit was $395 million, or 9.3 percent of sales, in the 2013 first quarter compared to $384 million, or 9.9 percent of sales, in the 2012 first quarter. Operating profit, excluding expenses resulting from secondary offerings of the Company's stock, was $396 million, or 9.4 percent of sales, in the 2013 first quarter compared to $385 million, or 9.9 percent of sales, in the 2012 first quarter.

Interest expense was $25 million in the 2013 first quarter compared to $37 million in the 2012 first quarter. The decrease was due to lower all-in interest rates resulting from the restructuring of the Company's outstanding long-term obligations.

Other expenses include pretax losses of $18.9 million resulting from the restructuring of the Company's credit facilities in the 2013 first quarter and pretax losses of $1.6 million resulting from the amendment of the Company's senior secured revolving credit facility in the 2012 first quarter.

The effective income tax rate in the 2013 first quarter was 37.4 percent compared to 38.2 percent in the 2012 first quarter. The primary reason for the lower effective rate in the 2013 quarter relates to federal jobs credits that the Company receives for certain newly hired employees. The law authorizing these credits was not in effect during the 2012 period.

Merchandise Inventories

As of May 3, 2013, total merchandise inventories, at cost, were $2.41 billion compared to $2.00 billion as of May 4, 2012, an increase of 14 percent on a per-store basis. The increase was due to the introduction of new items in both 2012 and 2013. Annualized inventory turns were 5.0 times through the 2013 first quarter.

Long-Term Obligations

As of May 3, 2013, outstanding long-term obligations, including the current portion, were $2.84 billion compared to outstanding long-term obligations of$2.88 billion as of May 4, 2012. The Company has made significant improvements to its capital structure over the past year. This quarter, the Company refinanced its senior secured credit facilities with the combination of a new unsecured bank facility and the issuance of senior notes.

Capital Expenditures

Total additions to property and equipment in the 2013 first quarter were $150 million, including: $74 million for improvements, upgrades, remodels and relocations of existing stores; $30 million related to new leased stores, primarily for leasehold improvements, fixtures and equipment; $25 million for stores purchased or built by the Company; $14 million for distribution and transportation-related capital expenditures; and $6 million for information systems upgrades and technology-related projects. During the 2013 first quarter, the Company opened 165 new stores and remodeled or relocated 207 stores.

Share Repurchases

In the 2013 first quarter, the Company repurchased $20 million, or 0.4 million shares, under its share repurchase program. Since the inception of the program in December 2011, the Company has repurchased 19.7 million shares totaling $876 million. Authorizations for an additional $624 million of share repurchases remain available under the Company's share repurchase program.

Fiscal 2013 Financial Outlook

For the 2013 fiscal year, the Company expects total sales to increase 10 to 11 percent over the 2012 fiscal year. Same-store sales are expected to increase 4 to 5 percent. Sales to date in the 2013 second quarter are solid. The Company's 2013 full year gross profit, as a percentage of sales, is expected to decrease from the full year 2012 gross profit rate at a level in line with the decrease experienced in the 2013 first quarter. Adjusted operating profit for 2013 is expected to be in the range of $1.73 billion to $1.77 billion.

The Company expects full year interest expense to be in the range of $95 million to $100 million.

Diluted EPS for the fiscal year, adjusted to exclude charges or expenses relating to amendments to or refinancing of any notes, loans or revolving credit facilities and any expenses resulting from secondary stock offerings, is expected to be approximately $3.15 to $3.22, based on approximately 326 million weighted average diluted shares, assuming share repurchases. The full year 2013 effective tax rate is expected to be approximately 38 percent.

Capital expenditures are expected to be in the range of $575 million to $625 million in 2013. Approximately 50 percent of planned capital spending is for investment in store growth and development, including new stores, remodels, relocations and purchases of existing store locations; approximately 30 percent is planned for transportation, distribution and special projects; and the remaining 20 percent is expected to be spent on maintenance capital. The Company plans to open approximately 635 new stores, including approximately 20 Dollar General Market stores and 40 Dollar General Plus stores. In addition, the Company plans to remodel or relocate a total of approximately 550 stores. Square footage is again expected to increase by approximately 7 percent. The Company expects its new Pennsylvania distribution center to be fully operational in the first quarter of fiscal 2014.

The Company plans to utilize a portion of its cash flows in 2013 to repurchase common stock under its share repurchase program.

Original source: http://investor.shareholder.com/dollar/releasedetail.cfm?ReleaseID=768905