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Text: dollargeneral.com under News & Events.
We also will reference certain non-GAAP financial measures.
dollargeneral.com under News & Events.
We are pleased with our second quarter results and continue to be grateful to our associates for their dedication to fulfilling our mission of serving others.
Despite what remains a challenging operating environment, including additional uncertainties brought on by the Delta variant and pressures on the global supply chain, our teams continue to successfully adapt and deliver for our customers.
Because of their efforts, during the quarter, we saw an improvement in customer traffic as compared to Q1.
And once again increased our market share in highly consumable product sales as measured by syndicated data.
Looking ahead, we remain focused on controlling the things we can control and believe we are well positioned to navigate the current inflationary environment and global supply chain challenges.
As always the health and safety of our employees and customers is our primary focus, while meeting the needs of the communities we serve.
And with more than 17,500 stores located within 5 miles of about 75% of the US population, we believe we are well positioned to continue supporting our customers through our unique combination of value and convenience.
To that end, we recently hired our first Chief Medical Officer.
Going forward, our plans include further expansion of our health offering, with the goal of increasing access to affordable healthcare products and services, particularly in rural America.
Overall, we remain focused on 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.
Turning now to our second quarter performance.
As we continue to lap difficult quarterly sales comparisons from the prior-year, net sales decreased 0.4% to $8.7 billion, followed by a 24.4% increase in Q2 of 2020.
Comp sales declined 4.7% compared to the prior-year period, which translates into a robust 14.1% increase on a two-year stack basis.
Our Q2 sales results include a year-over-year decline in customer traffic, which was partially offset by the growth in average basket size.
From a monthly cadence perspective, comp sales were lowest in May, with July being our strongest month of performance.
And I'm pleased to report that Q3 is off to a great start.
Importantly, we continue to be very pleased with the retention rates of new customers acquired in 2020, underscoring the broadening appeal of our value and convenience proposition.
We believe we will ultimately exit the pandemic with a larger, broader and more engaged customer base than when we entered it, resulting in a even stronger foundation from which to grow.
Overall, our second quarter results reflect strong execution across many fronts as we continue to strengthen our position while further differentiating and distancing Dollar General from the rest of the discount retail landscape.
We operate in one of the most attractive sectors in retail, and we believe our unique store footprint further enhanced through our multiyear initiatives provides a distinct competitive advantage and positions us well for continued success.
As a mature retailer in growth mode, we are also laying the groundwork for future initiatives, which we believe will unlock significant growth opportunities as we move forward.
In short, I feel very good about the underlying strength of the business and we're confident we are pursuing the right strategies to enable balanced and sustainable growth while -- while creating meaningful long-term shareholder value.
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.
As a reminder, gross profit in Q2 2020 was positively impacted by a significant increase in sales, including net sales growth of 41% in our combined non consumables categories.
For Q2 2021, gross profit as a percentage of sales was 31.6%, a decrease of 80 basis points, but an increase of 87 basis points compared to Q2 2019.
The decrease compared to Q2 2020 was primarily attributable to increased transportation costs, a higher LIFO provision, a greater proportion of sales coming from the consumable categories and an increase in inventory damages.
These factors were partially offset by higher inventory markups and a reduction in shrink as a percentage of sales.
SG&A as a percentage of sales was 21.8%, an increase of 138 basis points.
This increase was driven by expenses that were greater as a percentage of sales, the most significant of which were retail labor and store occupancy costs.
Moving down the income statement, operating profit for the second quarter decreased 18.5% to $849.6 million.
As a percentage of sales, operating profit was 9.8%, a decrease of 219 basis points.
And while the unusual and difficult prior year comparison created pressure on our operating margin rate, we're very pleased with the improvement in our profitability on a two-year basis.
Our effective tax rate for the quarter was 21.4% and compares to 21.5% in the second quarter last year.
Finally earnings per share for the second quarter decreased 13.8% to $2.69, which reflects a compound annual growth rate of 27.7% or 24.3% compared to Q2 2019 adjusted earnings per share over a two-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 $5.3 billion at the end of the second quarter, an increase of 20% overall and 13.7% on a per store basis, as we continue to cycle unusually low levels of inventory in Q2 2020 which were driven by extremely strong sales volumes in that quarter.
Similar to Q1, we strategically pulled forward certain inventory purchases during the quarter, particularly in select non-consumable categories in anticipation of longer lead times.
As a result, we were pleased with our strong inventory position for the back-to-school shopping season and our teams continue to work closely with suppliers to ensure delivery of seasonal and other goods in the remaining back half of the year.
Year-to-date through Q2 we generated significant cash flow from operations totaling $1.3 billion.
Total capital expenditures for the quarter were $518 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 3.3 million shares of our common stock for $700 million and paid a quarterly dividend of $0.42 per common share outstanding at a total cost of $98 million.
At the end of Q2, the remaining share repurchase authorization was $979 million.
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 excess cash to shareholders through anticipated share repurchases in quarterly dividend payments, all while maintaining our current investment grade credit rating and managing to a leverage ratio of about 3 times adjusted debt-to-EBITDA.
Moving to an update on our financial outlook for fiscal 2021.
We continue to operate in a time of uncertainty regarding the severity and duration of the COVID-19 pandemic, including its impact on the economic recovery, global supply chain, consumer behavior and our business.
Despite continued uncertainty, including additional pressure throughout the supply chain and cost inflation, we are updating our full year sales and earnings per share guidance, which reflects our strong first half performance.
For 2021, we now expect the following.
Net sales growth of 0.5% to 1.5%; a same-store sales decline of 3.5% to 2.5% which reflects growth of approximately 13% to 14% on a two-year stack basis and earnings per share in the range of $9.60 to $10.20, which reflects a compound annual growth rate in the range of 20% to 24% or approximately 19% to 23% compared to 2019 adjusted earnings per share over a two-year period.
Our earnings per share guidance assumes an effective tax rate in the range of 22% to 22.5%.
With regards to share repurchases, we now expect to repurchase approximately $2.4 billion of our common stock this year, compared to our previous expectation of about $2.2 billion.
Finally, we are increasing our expectations for capital spending in 2021 to a range of $1.1 billion to $1.2 billion to reflect higher equipment costs for store projects in the pull forward of select supply chain investments.
Let me now provide some additional context as it relates to our outlook.
In terms of sales, we remain cautious in our 2021 outlook given the current continued uncertainties arising from COVID-19 pandemic and the impact of the expected end of additional federal unemployment benefits.
Turning to gross margin, please keep in mind, we will continue to cycle strong gross margin performance from the prior year where we benefited from a favorable sales mix and a reduction in markdowns, including the benefit of higher sell-through rates.
Much like our Q2 results, we expect continued pressure on our gross margin rate in the second half, due to a less favorable sales mix compared to prior year, an increase in markdown rates as we cycle the abnormally low levels in 2020 and higher LIFO provisions as a result of cost of goods increases.
We also anticipate higher supply chain costs in the second half compared to our previous expectations.
Like other retailers, our business is seeing the effects of higher cost due to transit and port delays as well as elevated demand for services at third-party carriers.
However, despite these challenges, our team was able to meet strong customer demand during the quarter and we're confident in our ability to continue navigating these transitory pressures.
Finally, please keep in mind that the third quarter represents our most challenging lap of the year from a gross profit rate perspective, following an improvement of 178 basis points in Q3 2020.
With regards to SG&A, we now expect about $70 million to $80 million of incremental year-over-year investments in our strategic initiatives as we further their rollouts.
This amount includes $40 million in incremental investments made during the first half of the year.
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 proud of our second quarter results, which are a testament to the performance and strong execution by the entire team.
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 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.
The team continues to drive strong execution against a robust portfolio of growth initiatives.
Let me take you through some of our more recent highlights.
Starting with our non-consumables initiative or NCI.
The NCI offering was available in more than 8,800 stores at the end of Q2, and we continue to be very pleased with the strong sales and margin performance we are seeing across our NCI store base.
In fact this performance is contributing to an incremental 1% to 2.5% total comp sales increase in NCI stores and a meaningful improvement in gross margin rate as compared to stores without the NCI offering.
Overall, 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, with the goal of completing the rollout of NCI across nearly the entire chain by year-end 2022.
Moving to our newer store concept, pOpshelf, which further builds on our success in 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 eight new pOpshelf locations, bringing the total number of stores to 16, including four conversions of a traditional Dollar General store into our pOpshelf concept.
And while still early, we remain extremely pleased with our results, which continue to exceed our expectations for both sales and gross margin.
We also recently opened our first two store-within-a-store concepts, which incorporates a smaller footprint pOpshelf shop into one of our larger Dollar General market stores, and we are encouraged by the initial results including positive reaction from customers.
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 as we continue to lay the foundation for future growth.
Overall, 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 goods.
I'm very pleased to report that during the quarter, we completed the initial rollout of DG Fresh across the entire chain and are now delivering to more than 17,500 stores from 12 facilities.
Notably the rollout was completed about six months ahead of our initial rollout schedule.
As a reminder, the primary objective of DG Fresh is to reduce product costs on our frozen and refrigerated items and we continue to be very pleased with the savings we are seeing.
In fact DG Fresh continues to be the largest contributor to the gross margin benefit we are realizing from higher inventory markups and we expect additional benefits going forward 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 introduction of additional products, including both national and private brands.
For example, we recently introduced about 25 new and exclusive items under the Armor [Phonetic] brand, as we continue to optimize our assortment, while further differentiating our product offering from others.
And while produce was not included in our initial rollout plans, we believe DG Fresh provides a potential path to accelerating our produce offering in up to 10,000 stores over time as we look to further capitalize on our extensive self-distribution capabilities.
Moving to our cooler expansion program, which continues to be our most impactful merchandising initiative.
During the first half, we added more than 34,000 cooler doors across our store base and remain 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 second quarter, we completed a total of 772 real estate projects, including 270 new stores, 477 remodels and 25 relocations.
For the full year, we remain on track to open 1,050 new stores, remodel 1,750 stores and relocate 100 stores.
In addition, we now have produce in more than 1,500 stores with plans to expand this offering to a total of more than 2,000 stores by year end.
As a reminder, we recently made key changes to our development strategy, including establishing our larger 8,500 square foot format as our base prototype for nearly all new stores going forward.
We're especially pleased with the sales productivity of this larger format, as average sales per square foot continue to trend well above an average traditional store.
In total, we expect to have nearly 2,000 stores in this format by the end of the year, as we look to further enhance our value and convenience proposition particularly in rural America.
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.
Our efforts remain centered around building engagement across our digital properties including our mobile app, which continues to grow in popularity.
In fact, we ended Q2 with nearly 4 million monthly active users on the app, a 28% increase over prior year.
Importantly, as we continue to drive higher levels of digital engagement, our DG Media Network, which we launched in 2018 has become an increasingly more relevant platform for connecting our brand partners with our customers.
Of note, during the first half, the number of campaigns on our platform increased 65% compared to the prior year period, and we are very excited about the growth potential of this business as we look to further enhance the value proposition for both our customers and brand partners.
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.
Our third operating priority is to leverage and reinforce our position as a low-cost operator.
We have a clear and defined process to control spending, which continues to govern our disciplined approach to spending decisions.
This zero-based budgeting approach internally branded as Save 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.
The first phase of Fast Track consisted of optimizing our rolltainers in case pack sizes, resulting in the 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 approximately 4,300 stores at the end of Q2, and we continue to be pleased with our results, including customer adoption rates and higher overall satisfaction scores in stores that include this offering.
Our plans consist of a broader rollout this year and we remain focused on introducing self checkout into the vast majority of our stores by the end of 2022 as we look to further extend 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 in the communities we serve.
As evidenced, we recently launched a national hiring event with the goal of hiring up to an additional 50,000 employees by Labor Day, and I am pleased to note that we are on track to meet our goal.
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, and because over 75% of our store associates at or above the lead sales associate position were internally placed, employees who joined Dollar General know, they have an opportunity to grow their career with us.
We also continue to innovate on the development opportunities we can offer our teams, including continued expansion of our private fleet and those associated with DG Fresh as well as pOpshelf.
Importantly, we believe these efforts continue to yield positive results across our store base, as evidenced by a robust internal promotion pipeline in staffing above traditional levels.
We also held our annual leadership meeting earlier this month, resulting in a rich and virtual development experience for more than 1,500 leaders of our company.
This is one of my favorite events every year and I was once again inspired by the incredible talent and dedication of our people.
In closing, I am proud of our team's performance as we continue to advance our operating priorities and strategic initiatives.
Overall, we are very pleased with our position as we head into the back half of the year.
And I'm excited about the significant growth opportunities ahead.

user
compname posts q2 earnings per share of $2.69.
q2 earnings per share $2.69.
sees fy sales up 0.5 to 1.5 percent.
q2 sales $8.7 billion versus refinitiv ibes estimate of $8.61 billion.
qtrly same-store sales decreased 4.7%; increased 14.1% on a two-year stack basis.
sees fy same-store sales decline of 3.5% to 2.5%.
sees fy diluted earnings per share in range of $9.60 to $10.20.
as of july 30, 2021, total merchandise inventories, at cost, were $5.3 billion compared to $4.4 billion as of july 31, 2020.
same-store sales in q2 included a decline in each of consumables, seasonal, apparel, and home products categories.

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