Dollar General Corporation (NYSE: DG) today reported financial results for its fiscal year 2020 second quarter (13 weeks) ended July 31, 2020.
- Net Sales Increased 24.4%; Same-Store Sales Increased 18.8%
- Operating Profit Increased 80.5% to $1.0 billion
- Diluted Earnings Per Share (“EPS”) Increased 89.1% to $3.12
- Cash Flows From Operations Increased 157.2% to $2.9 billion
- $691 Million Returned to Shareholders through Share Repurchases and Cash Dividend
- Board of Directors Declares Third Quarter 2020 Cash Dividend of $0.36 per share; Increases Share Repurchase Program Authorization by $2.0 Billion
“I want to thank our associates for their exceptional work over the past several months as we continue to navigate this challenging and dynamic operating environment,” said Todd Vasos, Dollar General’s chief executive officer. “As the neighborhood general store for thousands of communities across the country, we appreciate the importance of our role in providing customers with affordable, convenient, and close-to-home access to everyday essentials. As a result of the team’s strong execution and tireless commitment to serving our customers, we are pleased to report strong second-quarter financial results.
“We continue to operate from a position of strength and are excited to announce the acceleration of several key strategic initiatives, including the rollout of DG Pickup, DG Fresh, and our Non-Consumables initiative, as well as an increase in our expected number of real estate projects for fiscal 2020. Our robust portfolio of initiatives, coupled with our expansive real estate footprint of nearly 17,000 store locations, positions us well to continue delivering value and convenience for our customers, while driving sustainable long-term growth and value for our shareholders.”
Second Quarter 2020 Highlights
Net sales increased 24.4% to $8.7 billion in the second quarter of 2020 compared to $7.0 billion in the second quarter of 2019. The net sales increase included positive sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures. Same-store sales increased 18.8% compared to the second quarter of 2019, driven by an increase in average transaction amount, partially offset by a decline in customer traffic. Same-store sales increased in each of the consumables, seasonal, home products and apparel categories, with the largest percentage increase in the home products category. The Company believes consumer behavior driven by COVID-19 had a significant positive effect on net sales and same-store sales.
Gross profit as a percentage of net sales was 32.5% in the second quarter of 2020 compared to 30.8% in the second quarter of 2019, an increase of 167 basis points. This gross profit rate increase was attributable to higher initial markups on inventory purchases, a greater proportion of sales coming from the non-consumables product categories, which generally have a higher gross profit rate than the consumables product category, and a reduction in markdowns as a percentage of net sales. These factors were partially offset by increased distribution and transportation costs, which were impacted by the COVID-19 pandemic in the form of increased volume and discretionary employee bonus expense. As a result of the significant increase in sales, the Company believes consumer behavior driven by COVID-19 also had a significant positive effect on gross profit dollars.
Selling, general and administrative expenses (“SG&A”) as a percentage of net sales were 20.4% in the second quarter of 2020 compared to 22.5% in the second quarter of 2019, a decrease of 205 basis points. Although the Company incurred certain incremental costs related to COVID-19, they were more than offset by the significant increase in net sales during the quarter as discussed above. Expenses that were lower as a percentage of net sales in the current year period include retail labor, occupancy costs, utilities, employee benefits, depreciation and amortization, and taxes and licenses. These items were partially offset by increased incentive compensation and charitable giving expenses. The second quarter of 2019 included expenses of $31.0 million, or 44 basis points, reflecting the Company’s estimate for the settlement of certain legal matters (the “Significant Legal Expenses”). SG&A in the second quarter of 2020 decreased 161 basis points as a percentage of sales compared to Adjusted SG&A of 22.1%, which excluded the impact of the Significant Legal Expenses, in the 2019 second quarter.
Operating profit for the second quarter of 2020 increased 80.5% to $1.0 billion compared to $577.8 million in the second quarter of 2019. Operating profit for the second quarter of 2020 increased 71.3% compared to Adjusted operating profit for the second quarter of 2019 of $608.8 million1, which excluded the impact of the Significant Legal Expenses. The second quarter of 2020 included approximately $38 million of incremental investments the Company made in response to the COVID-19 pandemic. These investments included measures taken to further protect the health and safety of employees and customers, and approximately $13 million in appreciation bonuses for eligible frontline employees.
The effective income tax rate in the second quarter of 2020 was 21.5% compared to 22.9% in the second quarter of 2019. This lower effective income tax rate was primarily due to increased tax benefits associated with share-based compensation, partially offset by a lower income tax rate benefit from federal income tax credits due to higher pre-tax earnings in the 2020 period compared to the 2019 period. In addition, the tax rate in the 2020 period was lower than in the 2019 period due to increased income tax expense associated with state law changes that occurred in the 2019 period that did not reoccur in the 2020 period.
The Company reported net income of $787.6 million for the second quarter of 2020, an increase of 84.6% compared to $426.6 million in the second quarter of 2019. Diluted EPS increased 89.1% to $3.12 for the second quarter of 2020 compared to diluted EPS of $1.65 in the second quarter of 2019. Net income and diluted EPS for the second quarter of 2020 increased 74.8% and 79.3%, respectively, compared to Adjusted net income and Adjusted diluted EPS of $450.7 million and $1.741, respectively. Adjusted net income and Adjusted diluted EPS for the second quarter of 2019 excluded the after-tax impact of the Significant Legal Expenses of approximately $24.1 million, or $0.09 per diluted share.
