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Dollar General (DG): Delivering Consistent Value and Growth in Challenging Times
Published on September 24, 2024 | Ticker: DG

Dollar General Corporation (DG) has solidified its position as a leading discount retailer, catering to the evolving needs of its value-conscious customer base. With a vast network of over 20,000 stores across 48 U.S. states and Mexico, the company continues to demonstrate resilience and adaptability in the face of macroeconomic headwinds.

Financials

In the fiscal year 2023, Dollar General reported annual net income of $1,661,274,000 and annual revenue of $38,691,609,000, showcasing its ability to generate consistent financial performance. The company's annual operating cash flow reached $2,391,798,000, while its annual free cash flow stood at $691,576,000, underscoring its strong liquidity position.

During the first quarter of fiscal 2024, the company reported a 6.1% increase in net sales to $9.9 billion, compared to $9.3 billion in the same period of the prior year. This growth was driven by new store openings and a 2.4% increase in same-store sales. Gross profit, as a percentage of net sales, was 30.2% in the 2024 period, a decrease of 145 basis points from the 31.6% reported in the 2023 period. This decline was primarily due to increased shrink and markdowns, a greater proportion of sales coming from the consumables category, and lower inventory markups.

Selling, general, and administrative (SG&A) expenses, as a percentage of net sales, increased by 97 basis points to 24.7% in the 2024 period, primarily due to higher retail labor, depreciation and amortization, and incentive compensation. Operating profit decreased 26.3% to $546.1 million in the 2024 period, compared to $740.9 million in the 2023 period.

The company's effective income tax rate for the 2024 period was 23.3%, compared to 21.8% in the 2023 period, primarily due to the effect of certain rate-impacting items on lower earnings before taxes. Net income for the first quarter of 2024 was $363.3 million, or $1.65 per diluted share, compared to $514.4 million, or $2.34 per diluted share, in the 2023 period.

Business Overview

Dollar General's management team remains focused on its four key operating priorities: driving profitable sales growth, capturing growth opportunities, leveraging and reinforcing its position as a low-cost operator, and investing in its diverse teams through development, empowerment, and inclusion. The company's "Back to Basics" initiative, implemented in 2023, has been a key driver of its recent performance, with improvements seen across its supply chain, stores, and merchandising efforts.

Supply Chain Improvements

In the supply chain, the company has made significant strides in improving on-time and in-full (OTIF) truck deliveries, exiting temporary warehouse facilities, and optimizing its sorting processes within distribution centers. These actions have enhanced the agility and efficiency of the company's supply chain, allowing it to better meet changing customer demands.

Store Operations

Within its stores, Dollar General has prioritized increasing employee presence at the front end to provide a more engaging customer experience, while also focusing on perpetual inventory management and simplifying in-store activities. These efforts have contributed to improved customer perception of in-stock levels and a reduction in store manager turnover.

Merchandising Strategy

In the merchandising area, the company has remained committed to its strong private brand offering, affordable national brands, and the $1 price point, which are highly valued by its value-conscious customer base. Additionally, the company has made progress in reducing its overall inventory position, with a 22.5% decrease in nonconsumable inventory on a per-store basis.

Outlook

Looking ahead, Dollar General has reiterated its financial guidance for fiscal 2024, expecting net sales growth in the range of approximately 6% to 6.7%, same-store sales growth of 2% to 2.7%, and earnings per share (EPS) in the range of $6.80 to $7.55. The company anticipates a negative EPS impact of approximately $0.50 due to higher incentive compensation expense and an effective tax rate in the range of 22.5% to 23.5%.

Conclusion

While the company continues to face headwinds from shrink and a more promotional environment, it remains confident in its ability to navigate these challenges through its strategic initiatives and disciplined cost management. Dollar General's focus on value, convenience, and serving its core customer base has been a key driver of its success, and the company remains well-positioned to capitalize on growth opportunities in the years to come.

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