EX-99.1 3 f2q03earningsrelease2.htm _Investor Contact:

Investor Contact:  

Media Contact:  

Emma Jo Kauffman

Andrea Turner

615-855-5525

615-855-5209


DOLLAR GENERAL REPORTS SECOND QUARTER EPS OF $0.18;

UPDATES FISCAL 2003 OUTLOOK


GOODLETTSVILLE, Tenn. – August 28, 2003 – Dollar General Corporation (NYSE: DG) today reported net income for the second quarter of fiscal 2003 of $59.9 million, or $0.18 per diluted share, compared to $42.4 million, or $0.13 per diluted share, in the second quarter of fiscal 2002, an increase of 41.5 percent. Excluding restatement-related items from the prior year’s results, net income in the quarter increased 53.4 percent when compared against net income of $39.1 million, or $0.12 per diluted share, in 2002.  In the second quarter of 2002, the Company recorded approximately $5.2 million of restatement-related pre-tax income, primarily from insurance proceeds.


Net sales during the second quarter increased 13.6 percent to $1.65 billion compared to $1.45 billion in the second quarter of 2002.  The increase resulted primarily from 588 net new stores and a same-store sales increase of 4.7 percent.  


Gross profit during the quarter was $472.8 million, or 28.6 percent of sales, versus $387.4 million, or 26.7 percent of sales, in the prior year. The increase in the gross margin rate as a percent to sales is primarily attributable to a higher average markup on inventory purchases in all four of the Company’s merchandise categories. The Company’s provision for inventory shrinkage, calculated at the retail value of the inventory, as a percentage of net sales, decreased to 3.05 percent in the second quarter of 2003 from 3.61 percent in 2002. In addition, damaged product markdowns decreased from the prior year quarter.


Selling, general and administrative expenses (“SG&A”) for the quarter were $371.0 million, or 22.5 percent of sales, in the current year, versus $313.7 million, or 21.6 percent of sales, in the prior year. The increase in SG&A as a percent to sales is primarily due to increases in workers’ compensation and general liability costs, costs related to the departure of two officers of the Company, increases in store occupancy and utilities costs, and an increase in the accrual for bonuses resulting from the Company’s strong financial performance in the first half of the year.


Net interest expense during the current year period decreased by 30.3 percent to $7.9 million in the current year quarter compared to $11.3 million in the prior year.  The decrease is primarily attributable to lower average debt outstanding in the current year quarter. The Company had $289.4 million in debt outstanding at August 1, 2003, compared to $521.8 million at August 2, 2002.


For the 26-week year-to-date period, net income was $120.3 million in fiscal 2003, or $0.36 per diluted share, compared to $88.3 million, or $0.26 per diluted share, in the comparable prior year period, an increase of 36.2 percent. Excluding net restatement-related items from both years, year-to-date net income increased 36.4 percent to $120.5 million, or $0.36 per diluted share, in fiscal 2003 compared to net income of $88.4 million, or $0.26 per diluted share, in the comparable prior year period. Year-to-date net sales increased 13.3 percent, including a same-store sales increase of 4.5 percent.


Updated 2003 Outlook


The Company projects net income, excluding restatement-related items, to increase 15 to 20 percent for the year.  The Company had previously indicated that it expected net income, excluding restatement-related items, to increase by 11 to 15 percent in 2003. Total revenues in 2003 are expected to increase 13 to 15 percent, including a same store sales increase of four to six percent. While the Company expects gross margin for the full year to be higher than in the prior year, gross margin for the fourth quarter of 2003 will likely be lower than the 30.01% gross margin reported in the fourth quarter of 2002.  The annual SG&A rate to sales for 2003 is expected to be higher than in the prior year.  The Company expects to open a total of approximately 650 new stores, close 50 to 70 stores, and relocate or remodel 60 to 80 stores. Capital expenditures for the year are expected to be approximately $165 million.


Conference Call


The Company will host a conference call on Thursday, August 28, 2003, at 10 a.m. ET to discuss the quarter’s results.  The security code for the conference call is “Dollar General.”  If you wish to participate, please call 334-260-2280 at least 10 minutes before the conference call is scheduled to begin.  A webcast of the call can also be accessed live on Dollar General’s Web site at www.dollargeneral.com by clicking on the home page spotlight item. A replay of the conference call will be available until 5 p.m. ET on Thursday, September 4, online or by calling 334-323-7226.  The access code for the replay is 40954 and the pass code is 86362.


Dollar General is a Fortune 500® discount retailer with 6,479 neighborhood stores in 27 states as of August 1, 2003.  Dollar General stores offer convenience and value to customers, by providing consumable basics, items that are frequently used and replenished, such as food, snacks, health and beauty aids and cleaning supplies, as well as an appealing selection of basic apparel, housewares and seasonal items at everyday low prices.  The typical Dollar General store has 6,750 square feet of selling space and is located within five miles of its target customers.


Non-GAAP Disclosures


This release includes certain historical and future financial information not derived in accordance with generally accepted accounting principles (“GAAP”). This information should not be considered a substitute for any measures derived in accordance with GAAP. The Company believes that this information is useful to investors as it indicates more clearly the Company’s comparative year-to-year operating results.  The Compensation Committee of the Company’s Board of Directors may use portions of this information for compensation purposes to ensure that employees are not inappropriately penalized or rewarded as a result of unusual items affecting the Company’s financial statements.  Management may also use this information to better understand the Company’s underlying operating results.  We have included a reconciliation of this information, to the most comparable GAAP measures, either in this release or in the accompanying reconciliation tables.


This press release contains forward-looking information, including information regarding the Company’s updated 2003 outlook.  The words “believe,” “anticipate,” “project,” “plan,” “expect,” “estimate,” “objective,” “forecast,” “goal,” “intend,” “will likely result,” or “will continue” and similar expressions generally identify forward-looking statements.  The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and, therefore, actual results may differ materially from those projected by, or implied in, the forward-looking statements.  A number of factors may result in actual results differing from such forward-looking information, including, but not limited to:  the Company's ability to maintain adequate liquidity through its cash resources and credit facilities; the Company's ability to comply with the terms of the Company's credit facilities (or obtain waivers for non-compliance); transportation and distribution delays or interruption; the Company’s ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; changes in product mix; interruptions in suppliers' businesses; costs and potential problems and interruptions associated with implementation of new or upgraded systems and technology; fuel price and interest rate fluctuations; a deterioration in general economic conditions caused by acts of war or terrorism; temporary changes in demand due to weather patterns; seasonality of the Company’s business; delays associated with building, opening and operating new stores; the impact of the SEC inquiry related to the restatement of certain of the Company’s financial statements; and other risk factors discussed in our SEC filings, including in our most recent Annual Report on Form 10-K.


Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release.  The Company disclaims any obligation to publicly update or revise any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this release or to reflect the occurrence of unanticipated events.


 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(In thousands)



 

 August 1,

2003

(Unaudited)

 August 2,

2002

(Unaudited)

January 31,

2003

ASSETS

   

Current assets:

   

Cash and cash equivalents


$

102,276

$

 39,517

$

121,318

Merchandise inventories


1,184,709

1,058,200

1,123,031

Deferred income taxes


22,829

25,552

 

33,860

Income taxes receivable


–

55,573

–

Other current assets


57,494

65,263

45,699

Total current assets


1,367,308

1,244,105

1,323,908

    

Property and equipment, at cost


1,639,164

1,547,346

1,577,823

Less accumulated depreciation and amortization


652,701

548,073

584,001

    

Net property and equipment


986,463

999,273

993,822

    

Other assets, net


11,610

21,851

15,423

    

Total assets


$

2,365,381

$

2,265,229

$

2,333,153

    

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities:

   

Current portion of long-term obligations


$

16,957

$

 15,132

$

16,209

Accounts payable


352,717

346,786

341,303

Accrued expenses and other


255,027

219,220

239,898

Income taxes payable


9,182

–

67,091

    

Total current liabilities


633,883

581,138

664,501

    

Long-term obligations


272,420

506,707

330,337

Deferred income taxes


56,933

46,030

50,247

Total liabilities


  963,236

1,133,875

1,045,085

    

Shareholders’ equity:

   

Preferred stock


–

–

–

Common stock


167,345

166,670

166,670

Additional paid-in capital


331,185

312,589

313,269

Retained earnings


909,114

656,894

812,220

Accumulated other comprehensive loss


(1,266)

(2,012)

(1,349)

 

1,406,378

1,134,141

1,290,810

Less other shareholders’ equity


4,233

2,787

2,742

    

Total shareholders’ equity


1,402,145

1,131,354

1,288,068

    

Total liabilities and shareholders’ equity


$

2,365,381

$

2,265,229

$

2,333,153

    


DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income
(In thousands, except per share amounts)

(Unaudited)



 

13 Weeks Ended

 

August 1,

2003

% of Net

Sales

August 2,

2002

% of Net

Sales

     

Net sales


$

1,651,094

100.00%

$

1,453,727

100.00%

Cost of goods sold


1,178,264

71.36

1,066,300

73.35

Gross profit


472,830

28.64

387,427

26.65

     

Selling, general and administrative


370,987

22.47

313,667

21.58

Insurance proceeds


–

–

(4,500)

(0.31)

     

Operating profit


101,843

6.17

78,260

5.38

Interest expense, net


7,899

0.48

11,337

0.78

     

Income before income taxes


93,944

5.69

66,923

4.60

Provision for taxes on income


34,008

2.06

24,561

1.69

     

Net income


$

59,936

3.63%

$

42,362

2.91%

     

Earnings per share:

    

Basic


$

0.18

 

$

0.13

 
     

Diluted


$

0.18

 

$

0.13

 
     

Weighted average shares:

    

Basic


333,871

 

333,067

 
     

Diluted


336,841

 

335,737

 
     

Dividends per share


$

0.035

 

$

0.032

 
     


DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income
(In thousands, except per share amounts)

(Unaudited)



 

26 Weeks Ended

 

August 1,

2003

% of Net

Sales

August 2,

2002

% of Net

Sales

     

Net sales


$

3,220,158

100.00%

$

2,843,139

100.00%

Cost of goods sold


2,295,422

71.28

2,075,420

73.00

Gross profit


924,736

28.72

767,719

27.00

     

Selling, general and administrative


719,942

22.36

610,971

21.49

Insurance proceeds


–

–

(4,500)

(0.16)

     

Operating profit


204,794

6.36

161,248

5.67

Interest expense, net


17,310

0.54

21,769

0.77

     

Income before income taxes


187,484

5.82

139,479

4.90

Provision for taxes on income


67,216

2.09

51,189

1.80

     

Net income


$

120,268

3.73%

$

88,290

3.10%

     

Earnings per share:

    

Basic


$

0.36

 

$

0.27

 
     

Diluted


$

0.36

 

$

0.26

 
     

Weighted average shares:

    

Basic


333,557

 

332,866

 
     

Diluted


335,719

 

335,286

 
     

Dividends per share


$

0.070

 

$

0.064

 
     

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)


 

26 Weeks Ended

 

August 1,

2003

August 2,

 2002

Cash flows from operating activities:

  

Net income


$

120,268

$

88,290

Adjustments to reconcile net income to net cash provided by operating activities:

  

Depreciation and amortization


74,883

66,019

Deferred income taxes


17,657

87,296

Tax benefit from stock option exercises


3,139

2,120

Litigation settlement


–

(162,000)

Change in operating assets and liabilities:

  

Merchandise inventories


(61,678)

72,823

Other current assets


(11,795)

(13,675)

Accounts payable


11,414

24,323

Accrued expenses and other


15,930

(11,206)

Income taxes


(57,909)

(59,464)

Other


1,756

(13,914)

Net cash provided by operating activities


113,665

80,612

   

Cash flows from investing activities:

  

Purchase of property and equipment


(65,874)

(70,445)

Purchase of promissory notes


(49,582)

–

Proceeds from sale of property and equipment


141

127

Net cash used in investing activities


(115,315)

(70,318)

   

Cash flows from financing activities:

  

Net borrowings under revolving credit facilities


–

170,000

Repayments of long-term obligations


(7,979)

(389,561)

Payment of cash dividends


(23,374)

(21,307)

Proceeds from exercise of stock options


14,214

4,509

Other financing activities


(253)

4,057

Net cash used in financing activities


(17,392)

(232,302)

   

Net decrease in cash and cash equivalents


(19,042)

(222,008)

Cash and cash equivalents, beginning of period


121,318

261,525

   

Cash and cash equivalents, end of period


$

102,276

$

39,517

   

Supplemental schedule of noncash investing and financing activities:

  

Purchase of property and equipment under capital lease obligations


$

427

$

6,233

   



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Reconciliation of Non-GAAP Disclosures
(In thousands, except per share amounts)

(Unaudited)


 

13 Weeks Ended

 

26 Weeks Ended

 

August 1, 2003

August 2, 2002

 

August 1, 2003

August 2, 2002

      

Net Income and Earnings Per Share

     

Net income in accordance with GAAP

$

59,936

$

42,362

 

$

120,268

$

88,290

Restatement-related items in SG&A


39

(695)

 

369

4,623

Restatement-related insurance proceeds

-

(4,500)

 

-

(4,500)

Total restatement-related items

39

(5,195)

 

369

123

Tax effect

(14)

1,907

 

(133)

(45)

Total restatement-related items, net of tax

25

(3,288)

 

236

78

Net income, excluding restatement-related

items


$

59,961


$

39,074

 


$120,504


$

88,368

      

Weighted average diluted shares outstanding


336,841

335,737

 

335,719

335,286

Diluted earnings per share, excluding

restatement-related items



$

0.18


$

0.12

 


$

0.36


$

0.26


Selling, General and Administrative Expenses

     

SG&A in accordance with GAAP


$

370,987

$

313,667

 

$

719,942

$

610,971

Less restatement-related items


39

(695)

 

369

4,623

SG&A, excluding restatement-related items


$

370,948

$

314,362

 

$

719,573

$

606,348

      

SG&A, excluding restatement-related items

% to sales


22.5%


21.6%

 


22.3%


21.3%

      


  

Guidance Range

 

Fiscal

 2002

Fiscal

 2003

Fiscal

2003

    

Annual Outlook

   

Net income in accordance with GAAP


$

264,946

$

286,950

$

301,450

    

Restatement-related items:

   

Litigation settlement and related proceeds


(29,541)


–

–

Restatement-related items in SG&A


6,395

  900

  900

 

(23,146)

  900

  900

Tax effect


9,073

(350)

(350)

Total restatement-related items, net of tax


(14,073)

550

550

Net income, excluding restatement-related items


$

250,873

$

287,500

$

302,000

    

% increase over 2002, excluding restatement-related

items


 


15%


20%


   



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Selected Additional Information


Sales by Category (in thousands)

(Unaudited)


 

13 Weeks Ended

 

26 Weeks Ended

 

August 1,
2003

August 2, 2002

%
Change

 

August 1,
2003

August 2,
2002

%
Change

Highly consumable

$

1,027,854

$

892,507

15.2%

 

$

2,017,884

$

1,743,744

15.7%

Seasonal

263,468

226,328

16.4%

 

500,587

431,091

16.1%

Home products

207,707

188,272

10.3%

 

407,176

379,383

7.3%

Basic clothing

152,065

146,620

3.7%

 

294,511

288,921

1.9%

   Total sales

$

1,651,094

$

1,453,727

13.6%

 

$

3,220,158

$

2,843,139

13.3%

        




New Store Activity

(Unaudited)


 

26 Weeks Ended

 

August 1, 2003

August 2, 2002

Beginning store count

6,113

5,540

New store openings

400

372

Store closings

  34

21

Net new stores

366

351

Ending store count

6,479

5,891

Total selling square footage (000’s)

43,796

39,760




Customer Transaction Data

(Unaudited)


 

13 Weeks Ended

 

26 Weeks Ended

 

August 1, 2003

August 2, 2002

 

August 1, 2003

August 2, 2002

Same-store customer transactions

+ 4.7%

+7.6%


+4.1%

+6.5%

Average customer purchase

$8.31

$8.28


$8.36

$8.30


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