EX-99.1 3 f3q03earningsrelease.htm _Investor Contact:

 



Investor Contact:

Media Contact:

Emma Jo Kauffman

Andrea Turner

615-855-5525

615-855-5209



DOLLAR GENERAL REPORTS THIRD QUARTER EPS OF $0.23



GOODLETTSVILLE, Tenn. – December 4, 2003 – Dollar General Corporation (NYSE: DG) today reported net income for the third quarter of fiscal 2003 of $77.9 million, or $0.23 per diluted share, compared to $68.6 million, or $0.20 per diluted share, in the third quarter of fiscal 2002, an increase of 13.6 percent. Excluding restatement-related items from the prior year’s results, net income in the quarter increased 46.3 percent when compared against net income of $53.2 million, or $0.16 per diluted share, in 2002.  In the third quarter of 2002, the Company recorded approximately $24.3 million of net restatement-related pre-tax income, primarily from insurance proceeds.


Net sales during the third quarter of 2003 increased 12.5 percent to $1.69 billion compared to $1.50 billion in the third quarter of 2002.  The increase resulted primarily from 577 net new stores and a same-store sales increase of 3.8 percent.  


Gross profit during the quarter was $516.9 million, or 30.7 percent of sales, versus $428.6 million, or 28.6 percent of sales, in the prior year. The increase in the gross margin rate as a percent to sales is attributable to higher average markup on inventories, a decrease in distribution and transportation expenses as a percentage of sales, a decrease in the Company’s provision for inventory shrinkage, strong sales of high margin seasonal inventories and a $7.8 million favorable non-recurring inventory adjustment primarily representing a change in the Company’s estimated provision for inventory shrinkage. The non-recurring adjustment resulted from using an improved inventory ownership estimate due to the implementation, for financial reporting purposes, of an item level perpetual inventory system. The Company reiterated that it anticipates a challenging gross margin rate comparison versus last year’s performance in its fourth quarter, which ends on January 30, 2004.


Selling, general and administrative expenses (“SG&A”) for the quarter were $385.6 million, or 22.9 percent of sales, in the current year, versus $335.2 million, or 22.4 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, store training expenses, and the accrual for bonuses.

 

Net interest expense during the current year period decreased by 30.9 percent to $8.0 million in the current year quarter compared to $11.5 million in the prior year.  The decrease is primarily attributable to lower average debt outstanding in the current year quarter. The Company had $285.7 million in debt outstanding at October 31, 2003, compared to $518.3 million at November 1, 2002.


For the 39-week year-to-date period, net income was $198.2 million in fiscal 2003, or $0.59 per diluted share, compared to $156.9 million, or $0.47 per diluted share, in the comparable prior year period, an increase of 26.3 percent. Excluding net restatement-related items from both years, year-to-date net income increased 40.1 percent to $198.4 million, or $0.59 per diluted share, in fiscal 2003 compared to net income of $141.6 million, or $0.42 per diluted share, in the comparable prior year period. Year-to-date net sales increased 13.0 percent, including a same-store sales increase of 4.3 percent.


Return on invested capital for the trailing year increased to 13.8 percent from 12.6 percent in the previous year. Excluding restatement-related items, return on invested capital for the trailing year increased to 13.9 percent from 12.4 percent in the previous year. Return on assets for the trailing year increased to 12.7 percent from 10.3 percent in the previous year. Excluding restatement-related items, return on assets for the trailing year increased to 12.8 percent from 10.0 percent in the previous year.


Conference Call


The Company will host a conference call on Thursday, December 4, 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, December 18, online or by calling 334-323-7226.  The access code for the replay is 40954 and the pass code is 86362.


About Dollar General


Dollar General is a Fortune 500® discount retailer with 6,709 neighborhood stores in 27 states as of November 28, 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.  


Non-GAAP Disclosures


This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”), including net income, diluted earnings per share, SG&A expenses, operating profit margin, return on assets and return on invested capital, excluding restatement-related items. The Company includes these non-GAAP financial measures in order to indicate more clearly for investors 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. In addition, the return on invested capital, included in this release, may be considered a non-GAAP financial measure.  Management believes that return on invested capital provides investors with additional useful information for evaluating the efficiency of the Company’s capital deployed in its operations. None of this information should be considered a substitute for any measures derived in accordance with GAAP. The Company has included its calculation of return on invested capital and reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures in the accompanying schedules.


Forward-Looking Information


This press release may contain forward-looking information, such as information regarding gross margin rate expectations. 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. The factors that may result in actual results differing from such forward-looking information, include, but are 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 interruptions; the impact on transportation costs from the “driver hours of service” regulations adopted by the Federal Motor Carriers Safety Administration, which are scheduled to become effective on January 4, 2004;  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; delays associated with building, opening, expanding and converting new or existing distribution centers; 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.  Except as may be required by law, 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. Readers are advised, however, to consult any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC.


 





DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(In thousands)



 

October 31,

2003

November 1,

2002

January 31,

2003

 

(Unaudited)

(Unaudited)

 

ASSETS

   

Current assets:

   

Cash and cash equivalents

$

138,470

$

 37,101

$

121,318

Merchandise inventories

1,373,200

1,249,120

1,123,031

Deferred income taxes

21,729

43,095

 

33,860

Other current assets

65,301

61,077

45,699

Total current assets

1,598,700

1,390,393

1,323,908

    

Property and equipment, at cost

1,667,438

1,581,427

1,577,823

Less accumulated depreciation and amortization

687,951

581,162

584,001

    

Net property and equipment

979,487

1,000,265

993,822

    

Other assets, net

11,007

20,506

15,423

    

Total assets

$

2,589,194

$

2,411,164

$

2,333,153

    

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities:

   

Current portion of long-term obligations

$

17,295

$

 15,834

$

16,209

Accounts payable

440,505

410,426

341,303

Accrued expenses and other

287,724

247,015

239,898

Income taxes payable

14,553

–

67,091

    

Total current liabilities

760,077

673,275

664,501

    

Long-term obligations

268,357

502,498

330,337

Deferred income taxes

59,100

45,040

50,247

Total liabilities

  1,087,534

1,220,813

1,045,085

    

Shareholders’ equity:

   

Preferred stock

–

–

–

Common stock

168,415

166,691

166,670

Additional paid-in capital

363,767

313,023

313,269

Retained earnings

975,255

714,800

812,220

Accumulated other comprehensive loss

(1,206)

(1,382)

(1,349)

 

1,506,231

1,193,132

1,290,810

Less other shareholders’ equity

4,571

2,781

2,742

    

Total shareholders’ equity

1,501,660

1,190,351

1,288,068

    

Total liabilities and shareholders’ equity

$

2,589,194

$

2,411,164

$

2,333,153






DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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

(Unaudited)



 

13 Weeks Ended

 

October 31,

2003

% of Net

Sales

November 1,

2002

% of Net

Sales

     

Net sales

$

1,685,346

100.00%

$

1,497,702

100.00%

Cost of goods sold

1,168,449

69.33

1,069,119

71.38

Gross profit

516,897

30.67

428,583

28.62

     

Selling, general and administrative

385,551

22.88

335,152

22.38

Insurance proceeds

–

–

(25,041)

(1.67)

Operating profit

131,346

7.79

118,472

7.91

     

Interest expense, net

7,976

0.47

11,537

0.77

Income before income taxes

123,370

7.32

106,935

7.14

     

Provision for taxes on income

45,467

2.70

38,365

2.56

Net income

$

77,903

4.62%

$

68,570

4.58%

     

Earnings per share:

    

Basic

$

0.23

 

$

0.21

 
     

Diluted

$

0.23

 

$

0.20

 
     

Weighted average shares:

    

Basic

335,411

 

333,227

 
     

Diluted

339,238

 

334,970

 
     

Dividends per share

$

0.035

 

$

0.032

 






DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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

(Unaudited)



 

39 Weeks Ended

 

October 31,

2003

% of Net

Sales

November 1,

2002

% of Net

Sales

     

Net sales

$

4,905,504

100.00%

$

4,340,841

100.00%

Cost of goods sold

3,463,871

70.61

3,144,539

72.44

Gross profit

1,441,633

29.39

1,196,302

27.56

     

Selling, general and administrative

1,105,493

22.54

946,123

21.80

Insurance proceeds

–

–

(29,541)

(0.68)

Operating profit

336,140

6.85

279,720

6.44

     

Interest expense, net

25,286

0.51

33,306

0.77

Income before income taxes

310,854

6.34

246,414

5.67

     

Provision for taxes on income

112,683

2.30

89,554

2.06

Net income

$

198,171

4.04%

$

156,860

3.61%

     

Earnings per share:

    

Basic

$

0.59

 

$

0.47

 
     

Diluted

$

0.59

 

$

0.47

 
     

Weighted average shares:

    

Basic

334,175

 

332,986

 
     

Diluted

336,892

 

335,180

 
     

Dividends per share

$

0.105

 

$

0.096

 




DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)


 

39 Weeks Ended

 

October 31,

2003

November 1,

 2002

Cash flows from operating activities:

  

Net income

$

198,171

$

156,860

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

  

Depreciation and amortization

113,114

102,302

Deferred income taxes

20,912

68,424

Tax benefit from stock option exercises

10,780

2,278

Litigation settlement

–

(161,800)

Change in operating assets and liabilities:

  

Merchandise inventories

(250,169)

(118,097)

Other current assets

(19,602)

(2,774)

Accounts payable

99,202

87,963

Accrued expenses and other

49,039

10,105

Income taxes

(52,538)

(3,137)

Other

1,974

(14,124)

Net cash provided by operating activities

170,883

128,000

   

Cash flows from investing activities:

  

Purchase of property and equipment

(96,923)

(104,727)

Purchase of promissory notes

(49,582)

–

Proceeds from sale of property and equipment

195

379

Net cash used in investing activities

(146,310)

(104,348)

   

Cash flows from financing activities:

  

Net borrowings under revolving credit facilities

–

168,400

Repayments of long-term obligations

(11,808)

(393,378)

Payment of cash dividends

(35,136)

(31,972)

Proceeds from exercise of stock options

39,660

4,844

Other financing activities

(137)

4,030

Net cash used in financing activities

(7,421)

(248,076)

   

Net increase (decrease) in cash and cash equivalents

17,152

(224,424)

Cash and cash equivalents, beginning of period

121,318

261,525

   

Cash and cash equivalents, end of period

$

138,470

$

37,101

   

Supplemental schedule of noncash investing and financing activities:

  

Purchase of property and equipment under capital lease obligations

$

551

$

8,134







DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Selected Additional Information



Sales by Category (in thousands)

(Unaudited)


 

13 Weeks Ended

 

39 Weeks Ended

 

October 31,
2003

November 1, 2002

%
Change

 

October 31,
2003

November 1, 2002

%
Change

Highly consumable

$

1,076,913

$

959,873

12.2%

 

$

3,094,797

$

2,703,617

14.5%

Seasonal

237,365

196,213

21.0%

 

737,952

627,303

17.6%

Home products

207,570

187,250

10.9%

 

614,746

566,634

8.5%

Basic clothing

163,498

154,366

5.9%

 

458,009

443,287

3.3%

   Total sales

$

1,685,346

$

1,497,702

12.5%

 

$

4,905,504

$

4,340,841

13.0%




New Store Activity

(Unaudited)


 

39 Weeks Ended

 

October 31, 2003

November 1, 2002

Beginning store count

6,113

5,540

New store openings

601

575

Store closings

  61

39

Net new stores

540

536

Ending store count

6,653

6,076

Total selling square footage (000’s)

44,998

41,011




Customer Transaction Data

(Unaudited)


 

13 Weeks Ended

 

39 Weeks Ended

 

October 31, 2003

November 1, 2002

 

October 31, 2003

November 1, 2002

Same-store customer transactions

+3.4%

+6.5%


+3.9%

+6.2%

Average customer purchase

$8.38

$8.31


$8.37

$8.33







DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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

(Unaudited)


 

13 Weeks Ended

 

39 Weeks Ended

 

October 31, 2003

 

November 1, 2002

 

October 31, 2003

 

November 1, 2002

        

Net Income and Earnings Per Share

       

Net income in accordance with GAAP

$

77,903

 

$

68,570

 

$

198,171

 

$

156,860

Restatement-related items in SG&A

2

 

783

 

371

 

5,406

Restatement-related insurance proceeds

-

 

(25,041)

 

-

 

(29,541)

Total restatement-related items

2

 

(24,258)

 

371

 

(24,135)

Tax effect

(13)

 

8,924

 

(146)

 

8,879

Total restatement-related items,
net of tax

 (11)

 

(15,334)

 

225

 

(15,256)

Net income, excluding restatement-related items

$

77,892

 

$

53,236

 

$

198,396

 

$

141,604

        

Weighted average diluted shares
outstanding

339,238

 

334,970

 

336,892

 

335,180

Diluted earnings per share, excluding restatement-related items


$

0.23

 


$

0.16

 


$

0.59

 


$

0.42


Selling, General and Administrative Expenses

       

SG&A in accordance with GAAP

$

385,551

 

$

335,152

 

$

1,105,493

 

$

946,123

Less restatement-related items

2

 

783

 

371

 

5,406

SG&A, excluding restatement-related items

$

385,549

 

$

334,369

 

$

1,105,122

 

$

940,717

        

SG&A, excluding restatement-related items,
% to sales


22.9%

 


22.3%

 


22.5%

 


21.7%

        


Operating Profit Margin

       

Operating profit in accordance with GAAP

$

131,346

 

$

118,472

 

$    336,140

 

$

   279,720

Restatement-related items

2

 

  

(24,258)

 

371

 

   (24,135)

Operating profit, excluding restatement-related items

$

131,348

 

$

94,214

 

$

336,511

 

$

255,585

        

Operating profit, excluding restatement-related items, % to sales

7.8%

 

6.3%

 

6.9%

 

5.9%








DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Non-GAAP Disclosures

Return on Invested Capital  (Unaudited) (a)


($ in thousands, except per share amounts)


52 Weeks Ended

October 31, 2003

 


52 Weeks Ended

November 1, 2002

Net income:

     

39 weeks ended third quarter 2003 and 2002

 

$

198,171

  

$

156,860

13 weeks ended fourth quarter 2002 and 2001

 

108,086

  

97,443

52 weeks ended third quarter 2003 and 2002

 

306,257

  

254,303

Interest expense, net:

     

39 weeks ended third quarter 2003 and 2002

$

25,286

  

$

33,306

 

13 weeks ended fourth quarter 2002 and 2001

9,333

  

10,752

 

52 weeks ended third quarter 2003 and 2002

34,619

        

 

44,058

        

Interest expense, net of tax

 

22,131

  

28,112

Rent expense:

     

39 weeks ended third quarter 2003 and 2002

182,192

  

158,444

 

13 weeks ended fourth quarter 2002 and 2001

57,900

  

46,961

 

52 weeks ended third quarter 2003 and 2002

240,092

        

 

205,405

        

Rent expense, net of tax (52 weeks)

 

153,486

  

131,064


Return, net of tax (52 weeks)

 


$

481,874

  


$

413,479

      

Restatement-related items, net of tax:

     

39 weeks ended third quarter 2003 and 2002

225

  

(15,256)

 

13 weeks ended fourth quarter 2002 and 2001

1,183

  

6,526

 

52 weeks ended third quarter 2003 and 2002

1,408

1,408

 

(8,730)

(8,730)


Return, net of tax, excluding restatement-related items (52 weeks)

 



$

483,282

  



$

404,749


Invested Capital:

Average long-term obligations (b)



$

356,499

  



$

649,108

 

Average shareholders’ equity (c)

1,343,994

  

1,081,049

 

Average rent expense multiplied by eight (d)

1,781,988

  

1,539,496

 

Invested capital

 

$

3,482,481

  

$

3,269,653


Return on invested capital

 


13.8%

  


12.6%

Return on invested capital, excluding restatement-related items

 


13.9%

  


12.4%


(a)

The Company believes that the most directly comparable ratio calculated solely using GAAP measures is the ratio of net income to the sum of average long-term obligations, including current portion, and average shareholders’ equity.  This ratio was 18.0% and 14.7% for the 52 weeks ended October 31, 2003, and November 1, 2002, respectively.

(b)

Average long-term obligations is equal to the average long-term obligations, including current portion, measured at the end of each of the last five fiscal quarters.

(c)

Average shareholders’ equity is equal to the average shareholders’ equity measured at the end of each of the last five fiscal quarters.

(d)

Average rent expense is computed using a rolling 2-year period. Average rent expense is multiplied by a factor of eight to capitalize operating leases in the determination of pretax invested capital. This is a conventional methodology utilized by credit rating agencies and investment bankers.






DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Non-GAAP Disclosures

Return on Assets (Unaudited)



($ in thousands, except per share amounts)


52 Weeks Ended

October 31, 2003

 


52 Weeks Ended

November 1, 2002

Net income:

     

39 weeks ended third quarter 2003 and 2002

 

$

198,171

  

$

156,860

13 weeks ended fourth quarter 2002 and 2001

 

108,086

  

97,443

52 weeks ended third quarter 2003 and 2002

 

306,257

  

254,303

      

Restatement-related items, net of tax:

     

39 weeks ended third quarter 2003 and 2002

225

  

(15,256)

 

13 weeks ended fourth quarter 2002 and 2001

1,183

  

6,526

 

52 weeks ended third quarter 2003 and 2002

1,408

1,408

 

(8,730)

(8,730)


Net Income, excluding restatement-related items (52 weeks)

 



$

307,665

  



$

245,573

      

Average Assets (a)

 

$

2,410,972

  

$

2,457,355

      

Return on Assets

 

12.7%

  

10.3%

Return on Assets, excluding restatement-related items

 


12.8%

  


10.0%


(a)

Average assets is equal to the average total assets measured at the end of each of the last five fiscal quarters.


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