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Text: dollargeneral.com under News & Events.
We also may reference certain financial measures that have not been derived in accordance with GAAP.
dollargeneral.com under News & Events.
As a testament to their efforts, our first quarter results exceeded our expectations, reflecting strong underlying performance across the business, which we believe was enhanced by the most recent round of government stimulus payments.
The quarter was highlighted by net sales growth of 16% in our combined nonconsumable categories, a 208 basis point increase in gross margin rate and double-digit growth in diluted EPS.
Despite what continues to be a challenging operating environment, we are increasing our sales and diluted earnings per share guidance for fiscal 2021 to reflect our strong first quarter performance.
John will provide additional details on our outlook during his remarks.
As always, the health and safety of our employees and customers continue to be a top priority while meeting the critical needs of the communities we serve.
And we believe we are uniquely positioned to continue supporting our customers through our unique combination of value and convenience, including our network of more than 17,000 stores located within 5 miles of approximately 75% of the US population.
Overall, we are executing well against our operating priorities and strategic initiatives as we continue to meet the evolving needs of our customers and further position Dollar General for long-term sustainable growth.
Now let's recap some of the top line results for the first quarter.
As we lapped our most difficult quarterly comp sales comparison of the year, net sales decreased 0.6% to $8.4 billion, driven by a comp sales decline of 4.6%.
Notably, comp sales on a 2-year stack basis increased a robust 17.1%, which compares to the 15.9% 2-year stack we delivered last quarter.
Our first quarter sales results include a decline in customer traffic, which was partially offset by growth in average basket size.
And while customers continue to consolidate trips, on average they continue to spend more with us compared to last year.
From a monthly cadence perspective, comp sales increased 5.7% in February despite a headwind from inclement weather across the country.
For the month of March, which represents our most difficult monthly sales comparison of the year, comp sales declined 11.2%.
Importantly, beginning in mid-March and in line with the timing of stimulus payments, we saw a meaningful acceleration in sales relative to the first two weeks of the month, especially in our nonconsumable categories.
Comp sales declined 4.3% in April, and while year-over-year growth in nonconsumable sales moderated in comparison to March, they were positive overall despite a more challenging lap.
Overall, each of our three nonconsumable categories delivered a comp sales increase for the quarter.
Of note, comp sales growth of 11.3% in our combined nonconsumable categories and 29.8% on a comparable 2-year stack basis significantly exceeded our expectation and speaks to the continued strength and sustained momentum in these product categories, enhanced by the benefit from stimulus.
Once again this quarter, we increased our market share in highly consumable product sales as measured by syndicated data.
Importantly, we continue to be encouraged by the retention rates of new customers acquired over the past several quarters and are working hard to drive even higher levels of engagement with more personalized marketing and continued execution of our key initiatives.
In addition, we recently published our third annual Serving Others report, which provides context related to our ongoing ESG efforts as well as new and updated performance metrics, and we look forward to continued progress on our journey as we move ahead.
Collectively, our first quarter results reflect strong and disciplined execution across many fronts and further validate our belief that we are pursuing the right strategies to enable sustainable growth while creating meaningful long-term shareholder value.
We operate in one of the most attractive sectors in retail and believe we are well positioned to continue advancing our goal of further differentiating and distancing Dollar General from the rest of the discount retail landscape.
As a mature retailer in growth mode, we are also laying the groundwork for future initiatives, which we believe will unlock even more growth opportunities as we move forward.
In short, I feel very good about the underlying business and we are excited about the opportunities that lie ahead.
Now that Todd has taken you through a few highlights of the quarter, let me take you through some of its important financial details.
Unless we specifically note otherwise, all comparisons are year-over-year, all references to earnings per share refer to diluted earnings per share and all years noted refer to the corresponding fiscal year.
As Todd already discussed sales, I will start with gross profit, which we believe was positively impacted in the quarter by a significant benefit to sales, particularly in our nonconsumables categories from the most recent round of government stimulus payments.
Gross profit as a percentage of sales was 32.8% in the first quarter.
As Todd noted, this was an increase of 208 basis points and represents our eighth consecutive quarter of year-over-year gross margin rate expansion.
This increase was primarily attributable to: higher initial markups on inventory purchases, a reduction in markdowns as a percentage of sales, a greater proportion of sales coming from our nonconsumables categories and a reduction in shrink as a percentage of sales.
These factors were partially offset by increased transportation costs, which were primarily driven by higher rates.
SG&A as a percentage of sales was 22%, an increase of 152 basis points.
This increase was driven by expenses that were greater as a percentage of net sales, the most significant of which were store occupancy costs, disaster expenses related to winter storm Uri, retail labor and depreciation and amortization.
Moving down the income statement.
Operating profit for the first quarter increased 4.9% to $908.9 million.
As a percentage of sales, operating profit was 10.8%, an increase of 56 basis points.
Our effective tax rate for the quarter was 22% and compares to 22.2% in the first quarter last year.
Finally, earnings per share for the first quarter increased 10.2% to $2.82, which reflects a compound annual growth rate of 38% over a 2-year period.
Turning now to our balance sheet and cash flow, which remain strong and provide us the financial flexibility to continue investing for the long term while delivering significant returns to shareholders.
Merchandise inventories were $5.1 billion at the end of the first quarter, an increase of 24.2% overall and a 17.6% increase on a per store basis as we cycled a 5.5% decline in inventory on a per store basis, driven by extremely strong sales volumes in Q1 2020.
In anticipation of a more challenging supply environment, we strategically pulled forward certain inventory purchases during the quarter, particularly in select nonconsumable categories to better support the sales momentum we were seeing in the business.
And while out of stocks remain higher than we would like for certain high-demand products, we continue to make good progress with improving our in-stock position and are pleased with the overall quality of our inventory.
The business generated significant cash flow from operations during the quarter totaling $703 million, a decrease of 60% but which reflects a compound annual growth rate of 11% over a 2-year period.
This decrease was primarily driven by higher levels of improving inventory positions, including the pull forward of certain inventory purchases I mentioned earlier.
Total capital expenditures for the quarter were $278 million and included: our planned investments in new stores, remodels and relocations; distribution and transportation projects and spending related to our strategic initiatives.
During the quarter, we repurchased 5 million shares of our common stock for $1 billion and paid a quarterly cash dividend of $0.42 per common share outstanding at a total cost of $100 million.
At the end of Q1, the remaining share repurchase authorization was $1.7 billion.
Our capital allocation priorities continue to serve us well and remain unchanged.
Our first priority is investing in high-return growth opportunities, including new store expansion and our strategic initiatives.
We also remain committed to returning significant cash to shareholders through anticipated share repurchases and quarterly dividend payments, all while maintaining our current investment-grade credit rating and managing to a leverage ratio of approximately 3 times adjusted-debt-to-EBITDA.
Moving to an update on our financial outlook for fiscal 2021.
We continue to operate at a time of uncertainty regarding the severity and duration of the COVID-19 pandemic, including its impact on the economy, consumer behavior and our business.
Despite continued uncertainty, as Todd mentioned, we are increasing our full year guidance for sales and earnings per share due to our strong Q1 outperformance, which we believe was aided by the latest round of stimulus.
For 2021, we now expect the following: net sales in the range of a 1% decline to an increase of 1%; a same-store sales decline of 5% to 3% but which reflects growth of approximately 11% to 13% on a 2-year stack basis and earnings per share in the range of $9.50 to $10.20, which reflects a compound annual growth rate in the range of approximately 20% to 24% or in the range of approximately 19% to 23% compared to the 2019 adjusted diluted earnings per share over a 2-year period, which is well above our long-term goal of delivering at least 10% annual earnings per share growth on an adjusted basis.
Our earnings per share guidance continues to assume an effective tax rate in the range of 22% to 23%.
With regards to share repurchases, we now expect to repurchase approximately $2.2 billion of our common stock this year compared to our previous expectation of about $1.8 billion.
Let me now provide some additional context as it relates to our full year outlook.
First, there could be additional headwinds and tailwinds this year, the timing, degree and potential impacts on our business of which are currently unclear, including but not limited to the potential impacts from legislation and regulatory agency actions.
Given the unusual situation, I will now elaborate on our comp sales trends thus far in May.
From the end of Q1 through May 23, comp sales declined by approximately 7% as we continue to cycle extremely difficult prior year comparisons.
As a reminder, comp sales growth for the month of May in 2020 was 21.5%.
And while we are nonetheless encouraged with our sales trends, we remain cautious in our 2021 sales outlook, given the continued uncertainty that still exists, the unique comparisons against last year and the anticipation of fading tailwinds from the most recent round of government stimulus.
That said, as you think about the comp sales cadence of 2021, we continue to expect our performance to be better in the second half, given a more difficult comp sales comparison in the first half.
Turning to gross margin.
As a reminder, gross margin in 2020 benefited from a favorable sales mix and a reduction in markdowns, including the benefit of higher sell-through rates in more clear and sensitive nonconsumables categories.
As we move through 2021, we expect pressure in our gross margin rate as we anticipate a less favorable sales mix, an increase in markdown rates as we cycle abnormally low levels we saw in 2020 and higher fuel and transportation costs.
Also, please keep in mind the second and third quarters represent our most challenging laps of the year from a gross margin rate perspective, following improvements of 167 basis points in Q2 2020 and 178 basis points in Q3 2020.
With regards to SG&A, while we continue to expect ongoing expenses related to the pandemic in 2021, overall, we currently anticipate a significant reduction in COVID-19 related costs compared to the prior year.
Additionally, we continue to expect about $60 million to $70 million incremental year-over-year investments in our strategic initiatives this year as we further their rollouts.
This amount includes approximately $23 million in incremental investments made during the first quarter.
However, in aggregate, we continue to expect our strategic initiatives will positively contribute to operating profit and margin in 2021, driven by NCI and DG Fresh as we expect the benefits to gross margin from our initiatives will more than offset the associated SG&A expense.
In closing, we are very proud of the team's execution and performance which resulted in another quarter of exceptional results.
As always, we continue to be disciplined in how we manage expenses and capital with the goal of delivering consistent, strong financial performance while strategically investing for the long term.
We remain confident in our business model and our ongoing financial priorities to drive profitable same-store sales growth, healthy new store returns, strong free cash flow and long-term shareholder value.
Let me take the next few minutes to update you on our operating priorities and strategic initiatives.
Our first operating priority is driving profitable sales growth.
We are off to a great start to the year as our team continues to drive strong execution across our portfolio of growth initiatives.
Let me take you through some of the more recent highlights.
Starting with our nonconsumables initiative or NCI.
As a reminder, NCI consists of a new and expanded product offering in key nonconsumable categories.
The NCI offering was available in over 7,300 stores at the end of Q1, and we remain on track to expand this offering to a total of more than 11,000 stores by year end, including over 2,100 stores in our light version, which incorporates a vast majority of the NCI assortment but through a more streamlined approach.
We're especially pleased with the strong sales and margin performance we continue to see across our NCI product categories.
Notably, this performance is contributing to an incremental comp sales increase in nonconsumable sales of 8% in our NCI stores and 3% in our NCI Lite stores as compared to stores without the NCI offering.
Given our strong performance to date, coupled with the added flexibility of a more streamlined approach, our plans now include completing the rollout of NCI across nearly all of the chain by year-end 2022.
Moving to our newest concept, pOpshelf, which further builds on our success and learnings with NCI.
pOpshelf aims to engage customers by offering a fun, affordable and differentiated treasure hunt experience delivered through continually refreshed merchandise, a differentiated in-store experience and exceptional value with the vast majority of our items priced at $5 or less.
During the quarter, we opened three new pOpshelf locations, bringing the total number of stores to eight.
And while still early, we continue to be very pleased with the initial results, which have far exceeded our expectations for both sales and gross margin.
In fact, year one annualized sales volumes for our first eight locations are trending between $1.7 million and $2 million per store, with an average gross margin rate of about 40%, which we expect will climb as we continue to scale this exciting initiative.
As a reminder, this compares to year one sales volumes of about $1.4 million for a traditional Dollar General store and a gross margin rate of about 32% for the overall chain in 2020.
For 2021, we remain on track to have a total of up to 50 pOpshelf locations by year-end as well as up to an additional 25 store-within-a-store concepts, which incorporates a smaller footprint pOpshelf shop into one of our larger-format Dollar General market stores.
Importantly, we currently estimate there are about 3,000 pOpshelf store opportunities potentially available in the Continental United States.
And when combined with pOpshelf's compelling unit economics, we remain very excited about the significant and incremental growth opportunities we see available for this unique and differentiated concept.
Turning now to DG Fresh, which is a strategic, multiphase shift to self-distribution of frozen and refrigerated products.
The primary objective of DG Fresh is to reduce product cost on these items, and we continue to be very pleased with the savings we are seeing.
In fact, DC Fresh continues to be the largest contributor to the gross margin benefit we are realizing from higher initial markups on inventory purchases.
And we expect this benefit to grow as we continue to optimize our network and further leverage our scale.
Another important goal of DG Fresh is to increase sales in these categories, and we are pleased with the success we are seeing on this front, driven by higher overall in-stock levels and the continued rollout of additional products, including both national and private brands.
In total, at the end of Q1, we were delivering to more than 17,000 stores from 10 facilities and now expect to complete our initial rollout across the chain by the end of Q2, which is ahead of our previous expectation of year-end as communicated on our Q4 call.
Moving to our cooler expansion program, which continues to be our most impactful merchandising initiative.
During the quarter, we added nearly 18,000 cooler doors across our store base and are on track to install approximately 65,000 cooler doors this year.
Notably, the majority of these doors will be in high-capacity coolers, creating additional opportunities to drive higher on-shelf availability and deliver an even wider product selection, all enabled by DG Fresh.
In addition to the gross margin benefits associated with NCI and DG Fresh, we continue to pursue other gross margin enhancing opportunities, including improvements in private brand sales, global sourcing, supply chain efficiencies and shrink.
Our second priority is capturing growth opportunities.
Our proven high-return, low-risk real estate model continues to be a core strength of our business.
In the first quarter, we completed a total of 836 real estate projects, including 260 new stores, 543 remodels and 33 relocations.
In addition, we now have produce in more than 1,300 stores.
For 2021, we remain on track to open 1,050 new stores, remodel 1,750 stores and relocate 100 stores, representing 2,900 real estate projects in total.
We also now plan to add produce in more than 1,000 stores, which compares to our previous expectation of approximately 700 stores.
As a reminder, we recently made key changes to our development strategy, including establishing two of our larger footprint formats, which each comprise about 8,500 square feet of selling space as our base prototypes for nearly all new stores going forward.
With about 1,200 square feet of additional selling space compared to a traditional store, these larger formats allow for expanded high-capacity cooler counts, an extended queue line and a broader product assortment, including NCI, a larger health and beauty section with about 30% more feet of selling space and produce in select stores.
We are especially pleased with the sales productivity of these larger formats as average sales per square foot are currently trending about 15% above an average traditional store, which bodes well for the future as we look to grow these unit counts in the years ahead.
In total, we expect more than 550 of our real estate projects this year will be in these formats as we look to further enhance our value and convenience proposition while driving additional growth.
Next, our digital initiative, which is an important complement to our brick-and-mortar footprint as we continue to deploy and leverage technology to further enhance convenience and access for customers.
One such example is contactless payment, which is now available in the vast majority of the chain, further extending our convenience proposition, particularly for those seeking a more contactless shopping experience.
Overall, our strategy consists of building a digital ecosystem specifically tailored to provide our customers with an even more convenient, frictionless and personalized shopping experience.
And we are pleased with the growing engagement we are seeing across our digital properties.
Going forward, our plans include providing more relevant, meaningful and personalized offerings, with the goal of driving even higher levels of digital engagement and customer loyalty.
Our third operating priority is to leverage and reinforce our position as a low-cost operator.
Over the years, we have established a clear and defined process to control spending, which governs our disciplined approach to spending decisions.
This zero-based budgeting approach, internally branded as Safe to Serve, keeps the customer at the center of all we do while reinforcing our cost control mindset.
Our Fast Track initiative is a great example of this approach where our goals include: increasing labor productivity in our stores, enhancing customer convenience and further improving on-shelf availability.
We continue to be pleased with the labor productivity improvements we are seeing as a result of our efforts, both around rolltainer and case pack optimization, which have led to even more efficient stocking of our stores.
The second component of Fast Track is self-checkout, which provides customers with another flexible and convenient checkout solution while also driving greater efficiencies for our store associates.
Self-checkout was available in more than 3,400 stores at the end of Q1, which represents more than double the store count at the end of Q4.
And we are pleased with our results including customer adoption rates as well as positive feedback both from customers and employees.
Our plans consist of a broader rollout this year, and we are focused on introducing this offering into the vast majority of our stores by the end of 2022 as we look to further enhance our convenience proposition while extending our position as an innovative leader in small-box discount retail.
Our underlying principles are to keep the business simple but move quickly to capture growth opportunities while controlling expenses and always seeking to be a low-cost operator.
Our fourth operating priority is investing in our diverse teams through development, empowerment and inclusion.
As a growing retailer, we continue to create new jobs and opportunities for career advancement.
In fact, more than 12,000 of our current store managers are internal promotes, and we continue to pursue innovative opportunities to further develop our teams, including our recent announcement to partner with a leading training provider to deliver more personalized training solutions to our employees.
Importantly, we believe these efforts continue to yield positive results across our organization and are an important driver of our consistent and strong execution.
At the store level, we continue to be pleased with our robust internal promotion pipeline and store manager turnover, which continues to trend below historic levels.
We believe the opportunity to start and develop a career with a growing and purpose-driven company is a unique competitive advantage and remains our greatest currency in attracting and retaining talent.
Overall, we continue to make great progress against our operating priorities and strategic initiatives, and we are confident in our plans to drive long-term sustainable growth while creating meaningful value for our shareholders.
In closing, I am proud of our team's performance and we are pleased with our strong first quarter results, which further demonstrate that our unique combination of value and convenience continues to resonate with customers and positions us well going forward.

user
q1 earnings per share $2.82.
q1 sales $8.4 billion versus refinitiv ibes estimate of $8.28 billion.
raises financial guidance for fiscal year 2021.
qtrly same-store sales decreased 4.6%; increased 17.1% on a two-year stack basis.
reiterating its plans to execute 2,900 real estate projects in fiscal year 2021.
dollar general - believes q1 results were positively impacted by consumer behavior related to government stimulus payments.
sees 2021 net sales of 1% decline to increase of 1%.
sees 2021 same-store sales decline of 5% to 3%.
sees fy 2021 earnings per share $9.50 to $10.20.
sees share repurchases of about $2.2 billion in fiscal year 2021.
as of april 30, 2021, total merchandise inventories, at cost, were $5.1 billion versus $4.1 billion as of may 1, 2020.

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