Dollar General Corporation released its third quarter financials Thursday, and while the discount grocer beat Wall Street’s revenue and adjusted earnings expectations, it saw a dip in same-store sales.
Other highlights include:
- Net sales increased 2.4% to $9.7 billion
- Same-store sales decreased 1.3%
- Operating profit decreased 41.1% to $433.5 million
- Diluted earnings per share (“EPS”) decreased 45.9% to $1.26
- Year-to-date cash flows from operations of $1.4 billion
- Board of directors declares quarterly cash dividend of $0.59 per share
“I am excited to be back at Dollar General and working with the team to fulfill our mission of Serving Others every day,” said Todd Vasos, Dollar General’s chief executive officer. “Over the last several weeks, we have spent significant time reviewing all areas of the business, and we have identified key opportunities for improvement both in the near term and over the longer term. Moving forward, our entire team is laser focused and moving with urgency to take the actions we have identified to drive operational excellence for our customers and employees.”
“While we are not satisfied with our financial results for the third quarter, including a significant headwind from inventory shrink, we are pleased with the momentum in some of the underlying sales trends, including positive customer traffic, as well as market share gains in both dollars and units. We continue to believe our model is relevant in all economic cycles, and we are working diligently to further enhance our unique combination of value and convenience.”
“With that in mind, we are pleased to announce today our real estate growth plans for fiscal year 2024, which include approximately 2,385 projects in total, including 800 new stores, 1,500 remodels, and 85 relocations. This is a modest slow down compared to the number of projects in recent years, which we believe is prudent in this environment. We are excited about the opportunities these projects provide to serve both new and existing customers, while also driving strong financial returns for the business and laying the foundation for future growth. Looking ahead, we are confident in this business model and its ability to create long-term shareholder value.”
Other Q3 highlights
Net sales increased 2.4% to $9.7 billion in the third quarter of 2023 compared to $9.5 billion in the third quarter of 2022. The net sales increase was primarily driven by positive sales contributions from new stores, partially offset by the decline in same-store sales and the impact of store closures. Same-store sales decreased 1.3% compared to the third quarter of 2022, driven by a decline in average transaction amount, partially offset by an increase in customer traffic. Same-store sales in the third quarter of 2023 included declines in each of the home, seasonal, apparel, and consumable categories.
Gross profit as a percentage of net sales was 29.0% in the third quarter of 2023 compared to 30.5% in the third quarter of 2022, a decrease of 147 basis points. This gross profit rate decrease was primarily attributable to increased shrink, lower inventory markups, and increased markdowns. These factors were partially offset by a lower LIFO provision and decreased transportation costs.
Selling, general and administrative expenses (“SG&A”) as a percentage of net sales were 24.5% in the third quarter of 2023 compared to 22.7% in the third quarter of 2022, an increase of 183 basis points. The primary expenses that were a greater percentage of net sales in the current year period were retail labor, depreciation and amortization, repairs and maintenance, rent, professional fees, and other services purchased, including debit and credit card transaction fees. These were partially offset by a decrease in incentive compensation.
Operating profit for the third quarter of 2023 decreased 41.1% to $433.5 million compared to $735.5 million in the third quarter of 2022.
Interest expense for the third quarter of 2023 increased 53.3% to $82.3 million compared to $53.7 million in the third quarter of 2022, primarily driven by higher average borrowings and higher interest rates.
The effective income tax rate for the third quarter of 2023 was 21.3% compared to 22.8% in the third quarter of 2022. This lower effective income tax rate was primarily due to increased benefits from federal employment tax credits and an increased benefit from rate-impacting items, caused by lower earnings before taxes during the quarter. These benefits were partially offset by a higher state effective tax rate.
The Company reported net income of $276.2 million for the third quarter of 2023, a decrease of 47.5% compared to $526.2 million in the third quarter of 2022. Diluted EPS decreased 45.9% to $1.26 for the third quarter of 2023 compared to diluted EPS of $2.33 in the third quarter of 2022.
Merchandise inventories
As of November 3, 2023, total merchandise inventories, at cost, were $7.4 billion compared to $7.1 billion as of October 28, 2022, a decrease of 1.8% on a per-store basis.
Capital expenditures
Total additions to property and equipment in the 39-week period ended November 3, 2023 were $1.2 billion, including approximately: $462 million for improvements, upgrades, remodels and relocations of existing stores; $390 million for distribution and transportation-related projects; $334 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores; and $39 million for information systems upgrades and technology-related projects. During the third quarter of 2023, the company opened 263 new stores, remodeled 545 stores, and relocated 44 stores.
Share repurchases
In the third quarter of 2023, as planned, the company did not repurchase any shares under its share repurchase program. The total remaining authorization for future repurchases was $1.4 billion at the end of the third quarter of 2023.
Under the program, repurchases may be made from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions. The timing, manner and number of shares repurchased will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under the Company’s debt agreements, cash requirements, excess debt capacity, results of operations, financial condition and other factors. The authorization has no expiration date. Information regarding the company’s share repurchase expectations for 2023 can be found under “Fiscal Year 2023 Financial Guidance and Store Growth Outlook.”
Dividend
On December 6, Dollar General’s Board of Directors declared a quarterly cash dividend of $0.59 per share on the company’s common stock, payable on or before January 23, 2024 to shareholders of record on January 9, 2024. While the Board of Directors currently 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, excess debt capacity, and other factors the Board may deem relevant in its sole discretion.
Fiscal year 2023 financial guidance and store growth outlook
The company said it continues to expect:
- Net sales growth in the range of 1.5% to 2.5%, which continues to include an anticipated negative impact of approximately two percentage points due to lapping the fiscal 2022 53rd week.
- Same-store sales growth in the range of a decline of approximately 1.0% to flat.
- Diluted EPS in the range of approximately $7.10 to $7.60, or a decline of 34% to 29%.
- The Diluted EPS guidance continues to include an anticipated negative impact of approximately four percentage points due to lapping the fiscal 2022 53rd week.
- The Diluted EPS guidance continues to include an anticipated negative impact of approximately four percentage points due to higher interest expense in fiscal 2023.
- The Diluted EPS guidance continues to assume an effective tax rate of approximately 22.5%.
- Capital expenditures, including those related to investments in the Company’s strategic initiatives, in the range of $1.6 billion to $1.7 billion.
- 3,110 real estate projects in the United States, including 990 new store openings, 2,000 remodels, and 120 store relocations.
The company’s guidance also continues to assume no share repurchases in 2023.
Fiscal year 2024 store growth outlook
For fiscal year 2024, Dollar General plans to execute approximately 2,385 real estate projects, including approximately 800 new store openings (including approximately 30 pOpshelf openings and approximately 15 new stores in Mexico), 1,500 remodels, and 85 store relocations.
