Dollar General Corp.’s bottom line got help from lower debt repurchase costs and tax adjustments during the second quarter, but sales, operating profit and adjusted earnings all escalated at a double-digit pace, and management raised its full-year earnings guidance as a result.


Dollar General Corp., Hire Actís Retention Credit, chairman and chief executive officer Rick Dreiling








































































































































































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Inside This Issue - News

Dollar General has record qtr.

October 15th, 2012

GOODLETTSVILLE, Tenn. – Dollar General Corp.’s bottom line got help from lower debt repurchase costs and tax adjustments during the second quarter, but sales, operating profit and adjusted earnings all escalated at a double-digit pace, and management raised its full-year earnings guidance as a result.

Net income for the 13 weeks ended August 3 soared 46.6% to $214.1 million, or 64 cents per diluted share. Results included a $29 million pretax loss related to early debt retirement as well as other adjustments totaling $16.8 million net of tax ($27.4 million pretax) in the most recent quarter. Year-ago earnings reflected $35.4 million ($58.1 million, pretax) in debt retirement losses.

Factoring out those items, adjusted net income vaulted 27.3% to $230.9 million, or 69 cents per diluted share, from $181.4 million, or 52 cents per share, a year ago. Adjusted earnings exceeded the average estimate of 64 cents per share among analysts polled by Thomson Reuters.

As indicated above, the company also benefited from an effective tax rate of 34.1% for the quarter, compared to a year-ago rate of 36.8%. Increases in the effective tax rate resulting from the expiration of federal jobs credits and the expiration of the Hire Act’s Retention Credit were more than offset by tax decreases totaling $14.5 million, or approximately 4 cents per diluted share, associated with the adjustment of accruals resulting from the favorable resolution of income tax audits.

Earnings before interest, taxes, depreciation and amortization (EBITDA) jumped 21.1% to $432.5 million, while adjusted EBITDA, which excludes a number of items related to debt retirement, gain on hedging instruments and noncash share-based compensation, as well as LIFO and other noncash charges, advanced 8.4% to $467.2 million.

A continued lackluster economy helped drive Dollar General’s double-digit top-line growth, as net sales advanced 10.4% to $3.95 billion. Results included a 5.1% increase in comparable-store sales that came on top of a 5.9% rise in the fiscal 2011 quarter. The same-store improvement was fueled by increases in both customer traffic and average transaction.

Turning to operating results, gross margin lost 13 basis points to 31.99%. Management blamed the margin erosion on the shift in sales mix toward lower-margin consumables and bigger markdowns that offset improvements from higher initial inventory markups, transportation efficiencies and lower fuel costs, as well as a shift in LIFO to a $500,000 benefit from a charge of $10.7 million a year ago.

The margin deterioration was countered, however, by a 15-basis-point reduction of selling, general and administrative (SG&A) expense to 22.18% of sales. The improved expense ratio resulted from additional efficiencies in workforce utilization and lower workers’ compensation, general liability and benefits expenses, and the leverage provided by higher sales. Those factors were partially offset by higher advertising expense and fees related to debit card usage.

With that, operating profit climbed 10.6% to $387.2 million, or 9.81% of sales. A 41.2% drop in interest expense to $35.7 million (which includes the debt retirement losses) coupled with a 54.4% reduction in other expense to $26.6 million propelled pretax income up 40.6% to $325 million.

"We had another record second quarter and are on track for a great year," said chairman and chief executive officer Rick Dreiling during a conference call. "Our core customers are depending on us more than ever, and our base is run to include many more faithful customers with higher incomes than we’ve seen in the past. We continue to be excited about the progress we have made in attracting and retaining these customers as we build our brand across new ­geographies."

Net income for the first half skyrocketed 41.1% to $427.6 million on an 11.7% rise in net sales to $7.85 billion as comparable-store results expanded 5.9%. Excluding $18.6 million in net adjustments during the fiscal 2012 span and $44.7 million a year ago, adjusted net income for the 26 weeks leapt 28.3% to $446.2 million from $347.7 million.

EBITDA for the half expanded 19.5% to $885.1 million, while adjusted EBITDA jumped 10.9% to $930.4 million.

Operating profit climbed 14.9% to $771.5 million, as gross margin receded 8 basis points to 31.74%, while SG&A expense contracted by 35 basis points to 21.91% of sales.

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