EX-99 2 a4708801ex99.txt PRESS RELEASE EXHIBIT 99 Dollar General Reports Increase in Second Quarter Net Income GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)--Aug. 26, 2004--Dollar General Corporation (NYSE:DG) today reported diluted earnings per share of $0.22 for the second quarter of fiscal 2004 compared to $0.18 per diluted share in the second quarter of fiscal 2003. Net income for the quarter increased 19 percent to $71.3 million in 2004 compared to $59.9 million in 2003. During the quarter, the Company recorded a net reduction in certain income tax-related liabilities and related interest accruals which increased net income by $7.4 million. Excluding these adjustments, net income for the second quarter of 2004 would have been $63.9 million, or $0.19 per share. Net sales during the second quarter increased 11.2 percent to $1.84 billion compared to $1.65 billion in the second quarter of 2003. The sales increase was driven by new store growth and a same-store sales increase of 3.2 percent. Gross profit during the quarter was $537.0 million, or 29.2 percent of sales, versus $472.8 million, or 28.6 percent of sales, in the prior year quarter. The improvement in gross margin is primarily the result of a higher average markup on beginning inventories and a decrease in lower of cost or market inventory adjustments. Selling, general and administrative expenses ("SG&A") for the quarter were $428.9 million, or 23.4 percent of sales, in the current year, versus $371.0 million, or 22.5 percent of sales, in the prior year quarter. The increase in SG&A as a percentage to sales is primarily due to increased rental expense on the Company's leased facilities, increased costs associated with store physical inventory counts, increased labor relating to the execution of store layout changes during the quarter, fees associated with the acceptance of debit cards, and increased professional fees associated with the Company's 2004 store work-flow project. The Company's effective tax rate was 31.5 percent in the current year quarter versus 36.2 percent in the comparable prior year period. The current quarter's provision for income taxes reflects an adjustment of $6.2 million to reduce certain contingent state income-tax related liabilities, net of the federal income tax effect. The Company also reduced the interest accrual relating to these contingent liabilities by $2.0 million. Excluding these adjustments, the Company's effective tax rate for the second quarter of 2004 would have been 37.5 percent. This rate is higher than the Company's tax rate in the prior year period due in part to the expiration of certain federal jobs tax credits. For the 26-week year-to-date period, net income was $139.2 million in fiscal 2004, or $0.42 per diluted share, compared to $120.3 million, or $0.36 per diluted share, in the comparable prior year period. Excluding the effect of the income tax-related adjustments described above, net income for the 26-week period would have been $131.7 million, or $0.39 per diluted share. Year-to-date net sales increased 11.3 percent, including a same-store sales increase of 3.1 percent. As a percentage to sales, gross margin for the year-to-date period has increased to 29.3 percent in 2004 compared to 28.7 percent in 2003. SG&A expenses have increased as a percentage to sales to 23.1 percent in 2004 from 22.4 percent in 2003, with the most significant increases relating to increased rental expense on the Company's leased facilities, increased costs associated with store physical inventory counts, increased professional fees associated with the Company's 2004 store work-flow project and increased expenses resulting from the acceptance of debit cards. The Company's effective tax rate was 34.4 percent in the current year-to-date period versus 35.9 percent in the comparable prior year period. Excluding the adjustments to reduce certain contingent income tax-related liabilities, the Company's effective tax rate would have been 37.3 percent. This rate is higher than the Company's tax rate in the prior year period due in part to the expiration of certain federal jobs tax credits. The Company estimates that the expiration of these federal tax credit programs increased its 2004 effective tax rate by approximately 0.5 percent. The Company estimates that its effective income tax rate for the remainder of the 2004 fiscal year will be approximately 37.3 percent. Through July 30, 2004, the Company has opened 418 Dollar General stores and two Dollar General Markets and has closed 41 Dollar General stores. Store openings are on track to meet or exceed the Company's target of 695 total new stores this year. Year-to-date cash capital expenditures were $124.8 million. The Company has repurchased a total of approximately 10.5 million shares of its common stock to date, including 0.9 million shares purchased during the second quarter of 2004, with respect to its 12 million share repurchase authorization which expires on March 13, 2005. Year-to-date, the Company has repurchased 9.0 million shares at a total cost of $169.4 million. Dollar General also announced today that in addition to cash and personal checks, substantially all of its stores are now accepting any bank's debit and check cards via pin entry as well as Discover(R)Card. In addition, the Company has accelerated the pace of EBT acceptance in its stores with refrigerated coolers and is currently accepting EBT in over 3,000 stores. Non-GAAP Disclosures This press release and the tables accompanying this release include certain financial information not derived in accordance with generally accepted accounting principles ("GAAP"), including net income, earnings per share, and the Company's effective income tax rate excluding an adjustment resulting from the reduction of certain income tax liabilities and the related interest accruals. Also, the accompanying tables include calculations of return on invested capital and return on assets each of which is calculated using certain financial results that exclude restatement-related items. In addition, return on invested capital may be considered a non-GAAP financial measure. None of this information should be considered a substitute for any measures derived in accordance with GAAP. The reasons why management believes return on capital and return on assets, excluding restatement-related items, are useful to investors, and the additional purposes for which management uses this information are disclosed in the Company's Form 10-K filed with the SEC on March 16, 2004. Management believes that net income, earnings per share, and the effective income tax rate, excluding the income tax-related adjustment, more clearly reflect the Company's actual performance on a comparable and ongoing basis. Forward-Looking Information This press release contains forward-looking information, such as information regarding the Company's 2004 growth targets, the expected effective income tax rate for fiscal 2004 and the planned acceptance of EBT payments. The words "believe," "anticipate," "project," "plan," "schedule," "expect," "estimate," "objective," "forecast," "goal," "intend," "will likely result," or "will continue" and similar expressions generally identify forward-looking statements. These matters involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from that expressed or implied by these forward-looking statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. 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: delays associated with building, opening and operating new stores; changes in tax laws, the Company's tax position or its tax assumptions; potential problems and interruptions due to implementation of new technology; potential delays in the installation of refrigerated coolers; the inability to procure adequate suppliers of refrigerated food items; the inability to obtain certifications to accept EBT; and other risk factors discussed from time to time in our SEC filings, including but not limited to our 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. Conference Call The Company will host a conference call today at 10 a.m. EDT 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. The call will also be broadcast live online at www.dollargeneral.com. A replay of the conference call will be available until 5 p.m. EDT on Thursday, September 9, 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(R) discount retailer with 7,079 neighborhood stores as of July 30, 2004. Dollar General stores offer convenience and value to customers by offering consumable basic items that are frequently used and replenished, such as food, snacks, health and beauty aids and cleaning supplies, as well as a selection of basic apparel, housewares and seasonal items at everyday low prices. The Company store support center is located in Goodlettsville, Tennessee. Dollar General's Web site can be reached at www.dollargeneral.com. DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands) July 30, August 1, January 30, 2004 2003 2004 ---------- ---------- ---------- (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 101,465 $ 102,276 $ 398,278 Merchandise inventories 1,379,543 1,184,709 1,157,141 Deferred income taxes 10,997 22,829 30,413 Other current assets 94,637 57,494 66,383 ----------- ----------- ---------- Total current assets 1,586,642 1,367,308 1,652,215 ----------- ----------- ---------- Property and equipment, at cost 1,833,447 1,639,164 1,709,722 Less: accumulated depreciation and amortization 794,401 652,701 720,498 ----------- ----------- ---------- Net property and equipment 1,039,046 986,463 989,224 ----------- ----------- ---------- Other assets, net 29,317 11,610 11,270 ----------- ----------- ---------- Total assets $2,655,005 $2,365,381 $2,652,709 =========== =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $ 15,956 $ 16,957 $ 16,670 Accounts payable 440,485 352,717 383,791 Accrued expenses and other 304,962 255,027 297,616 Income taxes payable 19,466 9,182 45,725 ----------- ----------- ---------- Total current liabilities 780,869 633,883 743,802 ----------- ----------- ---------- Long-term obligations 259,009 272,420 265,337 Deferred income taxes 76,251 56,933 66,650 Shareholders' equity: Preferred stock - - - Common stock 164,191 167,345 168,095 Additional paid-in capital 395,205 331,185 376,930 Retained earnings 985,243 909,114 1,037,409 Accumulated other comprehensive loss (1,054) (1,266) (1,161) ----------- ----------- ---------- 1,543,585 1,406,378 1,581,273 Other shareholders' equity (4,709) (4,233) (4,353) ----------- ----------- ---------- Total shareholders' equity 1,538,876 1,402,145 1,576,920 ----------- ----------- ---------- Total liabilities and shareholders' equity $2,655,005 $2,365,381 $2,652,709 =========== =========== ========== DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Dollars in thousands, except per share amounts) (Unaudited) For the Quarter (13 Weeks) Ended --------------------------------------- % of % of July 30, Net August 1, Net 2004 Sales 2003 Sales ---------- ------- ---------- ------- Net sales $1,836,243 100.00% $1,651,094 100.00% Cost of goods sold 1,299,263 70.76 1,178,264 71.36 ---------- ------- ---------- ------- Gross profit 536,980 29.24 472,830 28.64 Selling, general and administrative 428,854 23.35 370,987 22.47 ---------- ------- ---------- ------- Operating profit 108,126 5.89 101,843 6.17 Interest expense, net 4,041 0.22 7,899 0.48 ---------- ------- ---------- ------- Income before taxes on income 104,085 5.67 93,944 5.69 Provision for taxes on income 32,763 1.78 34,008 2.06 ---------- ------- ---------- ------- Net income $ 71,322 3.88% $ 59,936 3.63% ========== ======= ========== ======= Diluted earnings per share $ 0.22 $ 0.18 ========== ========== Weighted average diluted shares (000s) 330,298 336,841 ========== ========== Basic earnings per share $ 0.22 $ 0.18 ========== ========== Weighted average basic shares (000s) 327,799 333,871 ========== ========== Dividends per share $ 0.040 $ 0.035 ========== ========== DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Dollars in thousands, except per share amounts) (Unaudited) For the 26 Weeks Ended ---------------------------------------- % of % of July 30, Net August 1, Net 2004 Sales 2003 Sales ---------- ------- ---------- ------- Net sales $3,584,202 100.00% $3,220,158 100.00% Cost of goods sold 2,534,972 70.73 2,295,422 71.28 ---------- ------- ---------- ------- Gross profit 1,049,230 29.27 924,736 28.72 Selling, general and administrative 826,554 23.06 719,942 22.36 ---------- ------- ---------- ------- Operating profit 222,676 6.21 204,794 6.36 Interest expense, net 10,483 0.29 17,310 0.54 ---------- ------- ---------- ------- Income before taxes on income 212,193 5.92 187,484 5.82 Provision for taxes on income 73,022 2.04 67,216 2.09 ---------- ------- ---------- ------- Net income $ 139,171 3.88% $ 120,268 3.73% ========== ======= ========== ======= Diluted earnings per share $ 0.42 $ 0.36 ========== ========== Weighted average diluted shares (000s) 333,778 335,719 ========== ========== Basic earnings per share $ 0.42 $ 0.36 ========== ========== Weighted average basic shares (000s) 330,954 333,557 ========== ========== Dividends per share $ 0.080 $ 0.070 ========== ========== DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) 26 Weeks Ended -------------------- July 30, August 1, 2004 2003 --------- --------- Cash flows from operating activities: Net income $ 139,171 $ 120,268 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 80,697 74,883 Deferred income taxes 29,017 17,657 Tax benefit from stock option exercises 3,684 3,139 Change in operating assets and liabilities: Merchandise inventories (222,402) (61,678) Other current assets (28,254) (11,795) Accounts payable 51,328 9,519 Accrued expenses and other 8,172 15,930 Income taxes (26,295) (57,909) Other (17,093) 1,756 --------- --------- Net cash provided by operating activities 18,025 111,770 --------- --------- Cash flows from investing activities: Purchase of property and equipment (124,810) (63,979) Purchase of promissory notes - (49,582) Proceeds from sale of property and equipment 90 141 --------- --------- Net cash used in investing activities (124,720) (113,420) --------- --------- Cash flows from financing activities: Repayments of long-term obligations (8,419) (7,979) Payment of cash dividends (26,448) (23,374) Proceeds from exercise of stock options 14,285 14,214 Repurchases of common stock (169,391) - Other financing activities (145) (253) --------- --------- Net cash used in financing activities (190,118) (17,392) --------- --------- Net decrease in cash and cash equivalents (296,813) (19,042) Cash and cash equivalents, beginning of period 398,278 121,318 --------- --------- Cash and cash equivalents, end of period $ 101,465 $ 102,276 ========= ========= Supplemental schedule of noncash investing and financing activities: Purchases of property and equipment awaiting processing for payment, included in accounts payable $ 5,366 $ 1,895 Purchases of property and equipment under capital lease obligations $ 1,364 $ 427 ========= ========= DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Selected Additional Information (Unaudited) Net Sales by Category (in thousands) ------------------------------------ 13 Weeks Ended ------------------------------ July 30, August 1, % 2004 2003 Change ----------- ----------- ------ Highly consumable $1,167,324 $1,027,854 13.6% Seasonal 290,893 263,468 10.4% Home products 208,153 207,707 0.2% Basic clothing 169,873 152,065 11.7% ----------- ----------- ------ Total sales $1,836,243 $1,651,094 11.2% =========== =========== ====== 26 Weeks Ended ------------------------------ July 30, August 1, % 2004 2003 Change ----------- ----------- ------ Highly consumable $2,281,718 $2,017,884 13.1% Seasonal 551,331 500,587 10.1% Home products 422,926 407,176 3.9% Basic clothing 328,227 294,511 11.4% ----------- ----------- ------ Total sales $3,584,202 $3,220,158 11.3% =========== =========== ====== New Store Activity ------------------ 26 Weeks Ended ------------------------------ July 30, August 1, 2004 2003 -------------- ------------- Beginning store count 6,700 6,113 New store openings 420 400 Store closings 41 34 Net new stores 379 366 Ending store count 7,079 6,479 Total selling square footage (000's) 48,139 43,796 Customer Transaction Data -------------------------- 13 Weeks Ended 26 Weeks Ended ------------------- ------------------ July 30, August 1, July 30, August 1, 2004 2003 2004 2003 --------- --------- -------- --------- Same-store customer transactions + 2.8% + 4.7% + 3.2% + 4.1% Average customer purchase (total stores) $8.36 $8.31 $8.38 $8.36 DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Non-GAAP Disclosures Impact of Adjustment to Tax Liabilities (Dollars in thousands, except per share amounts) (Unaudited) For the Quarter (13 Weeks) Ended July 30, 2004 --------------------------------------------------- % of % of Net Non-GAAP Net As Reported Sales Adjustments Disclosure Sales ----------- ------- ----------- ----------- ------- Net Sales $1,836,243 100.00% - $1,836,243 100.00% Cost of goods sold 1,299,263 70.76 - 1,299,263 70.76 ----------- ------- ----------- ----------- ------- Gross profit 536,980 29.24 - 536,980 29.24 Selling, general and administrative 428,854 23.35 - 428,854 23.35 ----------- ------- ----------- ----------- ------- Operating profit 108,126 5.89 - 108,126 5.89 Interest expense, net 4,041 0.22 1,958 5,999 0.33 ----------- ------- ----------- ----------- ------- Income before taxes on income 104,085 5.67 (1,958) 102,127 5.56 Provisions for taxes on income(1) 32,763 1.78 5,484 38,247 2.08 ----------- ------- ----------- ----------- ------- Net income $71,322 3.88% $(7,442) $63,880 3.48% =========== ======= =========== =========== ======= Diluted earnings per share $0.22 $(0.02) $0.19 =========== =========== =========== Weighted average diluted shares (000s) 330,298 330,298 330,298 =========== =========== =========== Basic earnings per share $0.22 $(0.02) $0.19 =========== =========== =========== Weighted average basic shares (000s) 327,799 327,799 327,799 =========== =========== =========== Effective tax rate 31.5% 37.5% =========== =========== For the 26 Weeks Ended July 30, 2004 --------------------------------------------------- % of % of Net Non-GAAP Net As Reported Sales Adjustments Disclosure Sales ----------- ------- ----------- ----------- ------- Net Sales $3,584,202 100.00% - $3,584,202 100.00% Cost of goods sold 2,534,972 70.73 - 2,534,972 70.73 ----------- ------- ----------- ----------- ------- Gross profit 1,049,230 29.27 - 1,049,230 29.27 Selling, general and administrative 826,554 23.06 - 826,554 23.06 ----------- ------- ----------- ----------- ------- Operating profit 222,676 6.21 - 222,676 6.21 Interest expense, net 10,483 0.29 1,958 12,441 0.35 ----------- ------- ----------- ----------- ------- Income before taxes on income 212,193 5.92 (1,958) 210,235 5.87 Provisions for taxes on income(1) 73,022 2.04 5,484 78,506 2.19 ----------- ------- ----------- ----------- ------- Net income $139,171 3.88% $(7,442) $131,729 3.68% =========== ======= =========== =========== ======= Diluted earnings per share $0.42 $(0.02) $0.39 =========== =========== =========== Weighted average diluted shares (000s) 333,778 333,778 333,778 =========== =========== =========== Basic earnings per share $0.42 $(0.02) $0.40 =========== =========== =========== Weighted average basic shares (000s) 330,954 330,954 330,954 =========== =========== =========== Effective tax rate 34.4% 37.3% =========== =========== (1) Adjustment to provision for taxes on income includes a $6,232 adjustment to tax liabilities, which is partially offset by the income tax effect of the related interest adjustment of $748. DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Non-GAAP Disclosures Return on Invested Capital (a) (Unaudited) For the four quarters ended ---------------------- July 30, August 1, ($ in thousands) 2004 2003 ---------- ---------- Net income $ 319,903 $ 296,924 Add: Interest expense, net 24,676 38,180 Rent expense 267,978 232,451 Tax effect of interest and rent (107,070) (96,937) ---------- ---------- Interest and rent, net of tax 185,584 173,694 ---------- ---------- Return, net of tax $ 505,487 $ 470,618 ---------- ---------- Restatement-related items: Penalty and litigation settlement proceeds 10,000 (25,041) Restatement-related items in SG&A 668 2,141 Tax effect (274) 8,986 ---------- ---------- Restatement-related items, net of tax 10,394 (13,914) ---------- ---------- Return excluding restatement-related items $ 515,881 $ 456,704 ---------- ---------- Average Invested Capital: Average long-term obligations (b) $ 282,100 $ 403,736 Shareholders' equity (c) 1,501,537 1,269,933 Average rent x 8 (d) 2,001,716 1,721,236 ---------- ---------- Invested capital $3,785,353 $3,394,905 ---------- ---------- Return on invested capital 13.4% 13.9% ========== ========== Return on invested capital, excluding restatement- related items 13.6% 13.5% ========== ========== (a) The Company believes that the most directly comparable ratio calculated solely using GAAP measures is the ratio of net income to the sum of average long-term obligations, including current portion, and average shareholders' equity. This ratio was 17.9% and 17.7% for the rolling four quarters ended July 30, 2004 and August 1, 2003, respectively. (b) Average long-term obligations is equal to the average long-term obligations, including current portion, measured at the end of each of the last five fiscal quarters. (c) Average shareholders' equity is equal to the average shareholders' equity measured at the end of each of the last five fiscal quarters. (d) Average rent expense is computed using a rolling two-year period. Average rent expense is multiplied by a factor of eight to capitalize operating leases in the determination of pretax invested capital. This is a conventional methodology utilized by credit rating agencies and investment bankers. DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Non-GAAP Disclosures Return on Assets (Unaudited) For the four quarters ended ----------------------- July 30, August 1, ($ in thousands) 2004 2003 ---------- ---------- Net income $ 319,903 $ 296,924 Restatement-related items, net of tax 10,394 (13,914) ---------- ---------- Net income, excluding restatement-related items $ 330,297 $ 283,010 ---------- ---------- Average assets (a) $2,587,212 $2,346,179 ---------- ---------- Return on assets 12.4% 12.7% ========== ========== Return on assets, excluding restatement- related items 12.8% 12.1% ========== ========== (a) Average assets is equal to the average total assets measured at the end of each of the last five fiscal quarters. CONTACT: Dollar General Corporation, Goodlettsville Emma Jo Kauffman, 615-855-5525 www.dollargeneral.com