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Dollar General reports record Q1 sales and earnings
Jun '11
Dollar General Corporation reported financial results for its fiscal 2011 first quarter (13 weeks) ended April 29, 2011. The Company's net income increased by 15 percent to $157 million, or $0.45 per diluted share, in the 2011 first quarter, compared to net income of $136 million, or $0.39 per diluted share, in the 2010 first quarter. Adjusted net income increased 14 percent to $166 million, or $0.48 per diluted share, in the 2011 first quarter, compared to $145 million, or $0.42 per diluted share, in the 2010 first quarter.

"Dollar General is off to a great start in 2011," said Rick Dreiling, chairman and chief executive officer. "Our first quarter sales exceeded our expectations with strong same-store sales growth of 5.4 percent. As I look back on the first quarter, we maintained our focus on serving our customers and worked to hold the line where we reasonably could when it came to raising prices in an environment of rising commodity and fuel costs. Our customers are depending on Dollar General more than ever for consistent value and convenience.

"In spite of expected gross margin headwinds, we remain well positioned to deliver on our financial outlook for fiscal 2011 as we invest for the long-term health of the Company," Dreiling said.

First Quarter 2011 Financial Results

Sales increased 10.9 percent to $3.45 billion in the 2011 first quarter compared to $3.11 billion in the 2010 first quarter. Same-store sales increased 5.4 percent in the 2011 quarter and 6.7 percent in the 2010 quarter, with customer traffic and average transaction amount contributing to the same-store sales increases in both periods.

The Company's gross profit rate decreased by 63 basis points to 31.5 percent of sales in the 2011 first quarter from 32.1 percent of sales in the 2010 first quarter. Rising commodity costs resulted in a LIFO charge of $3.6 million (10 basis points) in the 2011 period. Higher markdowns, primarily related to the reduction of winter home and apparel merchandise, had the most significant impact on the gross profit rate decrease. In addition, a shift in sales mix to more consumables, which generally have a lower gross profit rate, and higher transportation costs, resulting from increased fuel rates, contributed to the gross profit rate decrease. A lower inventory shrink rate and improved distribution efficiencies partially offset these decreases.

Selling, general and administrative expenses ("SG&A") were $766 million, or 22.2 percent of sales, in the quarter, a decrease of 60 basis points from last year's quarter. SG&A in the 2011 quarter includes $13 million relating to the expected settlement of two legal matters and SG&A in the 2010 quarter includes expenses totaling $15 million relating to a secondary offering of the Company's common stock by certain existing shareholders.

Excluding these items, SG&A decreased by 50 basis points. As a percentage of total sales, retail labor costs represented the most significant decrease, followed by advertising expense and repairs and maintenance. Increased sales and the impact of other cost reduction initiatives also contributed to the decrease. Increased depreciation expense, primarily relating to new store fixtures and equipment, partially offset the SG&A improvements.

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