Dollar General pumps profit in Q2

Don Hogsett, Staff Staff, September 8, 2003

Building sales and margins, and at the same time slashing debt and interest costs, neighborhood retailer Dollar General Stores drove second-quarter profits up 41.5 percent, to $59.9 million from $42.4 million last year.

Sales at the rapidly expanding chain climbed by 13.6 percent, to $1.7 billion from $1.5 billion last year, fueled by the opening of 588 new stores. Even without the assist from the rapid rollout of new units, same-store sales grew by 4.7 percent.

In a big lift to the bottom line, Dollar General boosted margins by 190 basis points, or 1.9 percentage points, helped by a lower shrinkage rates and a decrease in damaged product markdowns. Lifted by stronger sales and wider margins, gross margin dollars improved by 22.0 percent, to $472.8 million from $387.4 million.

But offsetting stronger margins, costs climbed higher by 0.9 basis points, or nine-tenths of a percentage point, mostly due to increases in workers' compensation and general liability costs; payments made to two former officers; increases in store occupancy and utilities costs; and increased bonuses paid out due to the company's strong performance during the first half of the year.

The retailer slashed both long-term debt and interest expense. Interest expense was reduced by 30.3 million to $7.9 million from $11.3 million, generating a cash savings of $3.4 million. Long-term debt was slashed almost in half, by 46.2 percent, to $272.4 million from $506.7 million.

The retailer said it expects sales for all of this year to rise by 13 to 15 percent, while same-store sales increase by four to six percent. Excluding restatement-related items, profits are expected to grow by 11 to 15 percent. The retailer said it will open about 650 new stores this year, close 50 to 70, and relocate or remodel 60 to 80.

Dollar General Stores

Qtr. 8/1 (x000) 2003 2002 % chg
a-Earnings in the year-ago period include $4.5 million in insurance proceeds.
Sales $1,651,000 $1,453,000 13.6
Oper. income (EBIT) 101,843 73,760 38.1
Net income 59,936 42,362a 41.5
Per share (diluted) 0.18 0.13 38.5
Average gross margin 28.6% 26.7%
SG&A expenses 22.5% 21.6%
Six months 2003 2002 % chg
Sales 3,220,158 2,843,139 13.3
Oper. income (EBIT) 204,794 156,748 30.7
Net income 120,268 88,290a 36.2
Per share (diluted) 0.36 0.26 38.5
Average gross margin 28.7% 27.0%
SG&A expenses 22.4% 21.5%

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