Dollar General profits on the rise

Don Hogsett, Staff Staff, December 15, 2003

Fueled by stronger sales, substantially wider margins and deep cuts in interest expense, third-quarter profits at Dollar General Corp. climbed by 13.6 percent, to $77.9 million from $68.6 million last year.

Sales at the nationwide chain of neighborhood stores advanced by 12.5 percent, to $1.7 billion from $1.5 billion last year, driven by continued rapid expansion. Same-store sales rose at a more moderate pace of 3.8 percent.

Providing a big lift to the bottom line, average gross margin improved considerably, widening by 210 basis points, or 2.1 percentage points, to 30.7 percent of sales from 28.6 percent a year ago. Gross margin dollars shot up by 20.6 percent, to $516.9 million from $428.6 million.

Driving the margin improvement were a number of factors, the company said, including higher average mark-up on inventories; lower distribution and transportation costs as a percentage of sales; a decrease in the provision for inventory shrinkage; and strong sales of high-margin seasonal merchandise.

Somewhat offsetting the stronger margins, costs rose during the period, rising by 50 basis points, or one half of a percentage point, to 22.9 percent of sales from 22.4 percent a year ago. Higher costs were blamed on increases in workers' compensation and general liability costs, store training expenses, and the accrual for bonuses.

The retailer slashed its interest expense by 30.9 percent, to $8.0 million from $11.5 million last year, generating a cash savings of $3.6 million.

Dollar General Corp.

Qtr. 10/31 (x000) 2003 2002 % chg
a-Results in the prior-year third quarter include $25.0 million in insurance proceeds; and results in the year-ago nine-month period include $29.5 million in insurance proceeds.
Sales $1,685,346 $1,497,702 12.5
Oper. income (EBIT) 131,346 93,431 40.6
Net income 77,903 68,570a 13.6
Per share (diluted) 0.23 0.20 15.0
Average gross margin 30.7% 28.6%
SG&A expenses 22.9% 22.4%
Nine months 2003 2002 % chg
Sales 4,905,504 4,340,841 13.0
Oper. income (EBIT) 336,140 250,179 34.4
Net income 198,171 156,860a 26.3
Per share (diluted) 0.59 0.47 25.5
Average gross margin 29.4% 27.6%
SG&A expenses 22.5% 1.8%

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