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Text: dollargeneral.com under News & Events.
We also will reference certain financial measures that have not been derived in accordance with GAAP.
dollargeneral.com under News & Events.
Throughout this period, our team has remained steadfast in its focus on employee and customer safety, while providing affordable, convenient and close to home access to everyday essentials.
I could not be more proud of our team's efforts to serve our customers, our communities and each other.
For over 80 years, Dollar General has served our customers [Technical Issues] through a unique combination of value and convenience.
But it has never been more evident, just how essential our role is as our customers depend on us now more than ever for their everyday household needs.
We remain committed to being part of the solution during these difficult times, and believe we are uniquely positioned to continue supporting our customers through our expansive network of nearly 17,000 [Technical Issues] within 5 miles or more than 75% of the US population.
Our convenient small box format, providing for a quick in-and-out access, our broad assortment of everyday household essential items, our ongoing commitment to everyday low prices, our flexible supply chain, our growing digital capabilities and most importantly, our talented and committed associates.
Let me now highlight some of the actions we've taken to further protect our employees and customers, while keeping our operations running with minimal disruption.
As we discussed on last quarter's call, with the onset of COVID-19, we quickly and proactively implemented numerous safety protocols across the Company, based on recommendations by federal, state and local government agencies.
We continue to monitor CDC and other government guidelines regarding COVID-19 and are adapting our protocols and policies as that guideline evolves.
As announced in today's release, we invested approximately $13 million in employee appreciation bonuses during the quarter, bringing our total incremental investment in appreciation bonuses to about $73 million through the end of Q2.
Additionally, we expect to invest up to $50 million in additional financial incentives in the second half of the year.
Overall, these actions have helped to further ensure the continuity of our business at a time when our customers need us most, while recognizing our employees for their extraordinary efforts.
While navigating the challenging times of COVID-19, our country has simultaneously entered a period of deep reflection on its societal values including racial equality and other matters of social justice.
Our mission at Dollar General is serving others and our core values include, respecting the dignity and differences of others.
We are committed to ensuring these values are evident in all we do, including working to promote racial equality and social justice across our communities.
To further advance these efforts, we recently expanded our diversity and inclusion team and announced the combined $5 million pledge with the Dollar General Literacy Foundation to support racial and social justice and education.
Additionally, during the quarter, we published our most recent Serving Others report which highlights many of our efforts on the ESG front.
We first published this report in 2019 and expect that it will evolve and expand as we move into the future.
Beyond these efforts, we remain focused on advancing our operating priorities and strategic initiatives as we continue to meet the evolving needs of our customers and better position Dollar General for continued long-term growth.
To that end, and from a position of strength, we are pleased to announce the acceleration of several value-creating initiatives including DG Pickup, DG Fresh and our non-consumable initiatives.
We are also increasing our expectation for remodels and relocations in 2020.
We will discuss each of these updates in more detail later in the call.
Turning now to our second quarter performance.
The quarter was once again highlighted by extraordinary growth on both the top and bottom lines, as some of the consumer trends we experienced in Q1 related to the pandemic continued in Q2.
More specifically, and as we discussed on our Q1 earnings call, we experienced significant growth in our non-consumable business in the month of April and through May 26.
These trends continued through the end of Q2, and we're pleased to note that for the second quarter, our three non-consumable product categories in total delivered a combined comp sales percentage increase, well in excess [Technical Issues] of our consumable businesses.
In terms of our monthly comp cadence, sales increased 21.5% in May, 17.9% in June and 17.2% in July.
While we do not typically disclose monthly comp sales, we believe it's helpful in this environment.
Overall second quarter net sales increased 24.4% to $8.7 billion driven by comp sales growth of 18.8%.
These results include significant growth in average basket size, particular -- partially, excuse me, offset by a decline in customer traffic, as we believe customers consolidated trips in an effort to limit social contact.
During the quarter, our highly consumable market share trends as measured by syndicated data continued to exhibit strength, including strong double-digit increases in both units and dollars over the 4-week, 12-week, 24-week and 52-week periods ending July 25th, 2020.
Importantly, our data suggest another meaningful increase in new customers this quarter compared to Q2 2019, underscoring the broadening appeal of our value and convenience proposition.
We are very focused on retaining these new customers, and the incremental spend of current customers through the acceleration of several key initiatives which I noted earlier.
We're particularly pleased that we once again delivered significant operating margin expansion, which contributed to second quarter diluted earnings per share of $3.12, an increase of 89% over the prior year.
Collectively, we view these results as further validation that we are pursuing the right strategies to enable balanced and sustainable growth, while creating meaningful long-term shareholder value.
We continue to operate in one of the most attractive sectors in retail and with the plans and initiatives we have in place, we believe we are well positioned to serve an even broader set of consumers even in a challenging economic environment.
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 I specifically note otherwise, all comparisons are year-over-year and all references to earnings per share refer to diluted earnings per share.
As Todd already discussed sales, I will start with gross profit, which was positively impacted in the quarter by a significant increase in sales, including the impact of COVID-19.
Gross profit as a percentage of sales was 32.5% in the second quarter, an increase of 167 basis points.
This increase was primarily attributable to higher initial markups on inventory purchases, a greater proportion of sales coming from non-consumable categories and a reduction in markdowns as a percentage of sales.
These factors were partially offset by increased distribution and transportation costs, which were driven by increased volume and our decision to incur employee appreciation bonus expense.
SG&A as a percentage of sales was 20.4%, a decrease of 205 basis points or 161 basis points compared to Q2 2019 adjusted SG&A.
Although we incurred incremental costs related to COVID-19, these costs were more than offset by the significant increase in sales.
Expenses that were lower as a percentage of sales in the quarter include retail labor, occupancy costs, utilities, employee benefits, depreciation and amortization, and taxes and licenses.
These items were partially offset by increased incentive compensation and charitable giving expenses.
As I mentioned, we also recorded expenses of $31 million in Q2 2019 reflecting our estimate for the settlement of certain legal matters.
Moving down the income statement, operating profit for the second quarter was $1 billion, an increase of 80.5% or 71.3% compared to Q2 2019 adjusted operating profit.
As a percentage of sales, operating profit was 12%, an increase of 373 basis points or 329 basis points compared to Q2 2019 adjusted operating profit.
Operating profit in the second quarter was positively impacted by COVID-19 primarily through higher sales.
The benefit from higher sales was partially offset by approximately $38 million of incremental investments that we made in response to the pandemic, including additional measures taken to further protect our employees and customers and approximately $13 million in appreciation bonuses for eligible frontline employees.
Our effective tax rate for the quarter was 21.5% and compares to 22.9% in the second quarter last year.
Finally, as Todd noted earlier, earnings per share for the second quarter was $3.12, which represents an increase of 89% or 79% compared to Q2 2019 adjusted EPS.
Turning now to our balance sheet and cash flow, which remained strong and provide us the financial flexibility to further support our customers, employees during these challenging times while continuing to invest for the long term.
Merchandise inventories were $4.4 billion at the end of the second quarter, essentially flat overall, and down 6% on a per store basis.
Year-to-date through Q2, we generated significant cash flow from operations totaling $2.9 billion, an increase of $1.8 billion or 157%.
This increase was primarily driven by strong operating performance combined with lower levels of inventory, as our supply chain teams continue to work closely with our vendor partners to improve in-stock levels for high demand products.
Total capital expenditures through the first half were $424 million and included our planned investments in new stores, remodels and relocations and spending related to our strategic initiatives.
Moving on to liquidity and capital structure.
We continue to have ample liquidity as a result of the measures we took earlier in the year to further bolster our liquidity position, coupled with our extremely strong cash flow in the quarter.
As a result, we finished the quarter with $3 billion of cash and cash equivalents and $1.1 billion of availability under our undrawn revolving credit facility.
As one of the measures to preserve liquidity at the onset of COVID-19, we temporarily suspended share repurchases during Q1.
We continue to evaluate business conditions in our liquidity and as a result of this evaluation, we resumed share repurchases in the second quarter.
During the quarter, we repurchased 3.2 million shares of our common stock for $602 million and paid a quarterly dividend of $0.36 per common share outstanding at a total cost of $90 million.
With today's announcement of an incremental share repurchase authorization, we have remaining authorization of approximately $2.5 billion under the repurchase program.
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 three times adjusted debt-to-EBITDAR.
Moving to an update on our financial outlook for fiscal 2020.
We continue to operate in a time of significant uncertainty regarding the severity and duration of the COVID-19 pandemic including its impact on the economy, consumer behavior and our business.
As a result, we are not providing guidance for fiscal 2020 sales or earnings per share at this time.
With regards to share repurchases, we now expect to repurchase approximately $2.5 billion of our common stock this year, reflecting our strong liquidity position and confidence about the long-term growth opportunity for our business.
As Todd noted earlier, we are increasing our expectations for remodels and relocations in 2020.
Overall, we now expect to open 1,000 new stores, remodel 1,670 stores and relocate 110 stores representing 2,780 real estate projects in total.
Finally, we are increasing our expectations for capital spending in 2020 to a range of $1 billion to $1.1 billion as we accelerate key initiatives and continue to invest in our core business to support and drive future growth.
Let me now provide some additional context as it relates to our full year outlook.
Given the unusual situation, I will elaborate on our comp sales trends thus far in August.
Since the end of Q2 and through August 25th, we have continued to experience elevated same-store sales, which have increased by approximately 15% during this timeframe.
That said, we remain cautious in our sales outlook and recognize the significant uncertainty that still exists concerning the duration of the positive operating environment.
In particular, we can't speculate as to whether there will be additional government stimulus or, if so, to what degree, our business would benefit.
Ultimately, we expect to see our comp sales trends moderate as we move through the back half, but believe we are very well positioned to deliver positive sales growth for the balance of the year even if broader economic conditions deteriorate.
With regards to our strategic initiatives, we continue to anticipate they will improve operating margin over time, particularly as benefits to gross margin continue to scale and outpace the associated expense with both NCI and DG Fresh expected to be accretive to operating margin in 2020.
However, our investment in these initiatives will pressure SG&A rates in the back half, particularly as we further accelerate their rollouts.
Finally, we expect to make additional investments in the second half as a result of COVID-19 including up to $50 million in employee appreciation bonuses which Todd mentioned, as well as investments in additional safety measures.
In closing, we are very proud of the team's execution and service, 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 four operating priorities.
Our first operating priority is driving profitable sales growth.
The team did an outstanding job this quarter executing against a portfolio of growth initiatives while keeping the customer at the center of all we do.
Let me highlight a few of our recent efforts.
Starting with our cooler door expansion program, which continues to be our most impactful merchandising initiative.
During the first half we added more than 30,000 cooler doors across our store base.
In total, we now expect to install more than 60,000 cooler doors this year compared to our previous target of 55,000 cooler doors in 2020.
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.
Turning now to private brands, which remains a priority as we pursue opportunities to further enhance our value proposition.
During the quarter, we made great progress with our rebranding and repositioning efforts including the recent relaunch of our office products brand.
Looking ahead, our plans include the continued expansion of existing brands as well as the rebranding of several additional product lines as we seek to drive greater category awareness and even higher customer adoption.
Moving to our Better For You offering which is especially important for our customers as more food continues to be consumed at home.
This offering is now available in approximately 6,400 stores with plans to expand more than 7,000 stores by year-end.
Finally, a quick update on our FedEx relationship.
This convenient, package pick up and drop off service is now available in over 8,000 locations.
We now expect to complete our initial rollout to more than 8,500 stores by the end of Q3, further advancing our long track record of serving rural communities.
Beyond these sales driving initiatives, enhancing gross margin remains a key focus area for us.
In addition to the gross margin benefits associated with our NCI, DG Fresh and private brand efforts, foreign sourcing remains an important gross margin opportunity for us.
During the quarter the team once again did a phenomenal job working with our global supply partners to ensure product availability.
Looking ahead, we continue to see opportunities to increase our foreign sourcing penetration, while further diversifying our countries of origin.
We also continue to pursue supply chain efficiencies through the further reduction of stem miles and accelerated expansion of our private fleet.
To this end, we recently announced the purchase of our 18th traditional distribution center in Walton, Kentucky.
We anticipate this facility will begin shipping early next year, enabling us to drive additional efficiencies as we move ahead.
Finally, shrink remains an opportunity as we continue to build on our success with electronic article surveillance.
Over the past year, we've increased the number of items tagged by more than 40%, and we continue to focus on leveraging technology to drive even higher levels of in-store execution.
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.
During the first half, we opened 500 new stores, remodeled 973 stores including 704 in the higher cooler count DGTP or DGP formats and relocated 43 stores.
We also added produce in more than 120 stores, bringing the total number of stores which carry [Phonetic] produce to more than 870.
As John noted, we now expect 2,780 real estate projects in total this year, as we continue to deploy capital in these high return investments while delivering an expanded assortment offering to an additional 200 communities in 2020.
Overall, our real estate pipeline remains robust, and I am very proud of the team's ability to execute such high volumes of real estate product -- projects despite the added complexities as a result of COVID-19.
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 governs 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 operational initiatives consist of building on our success with Fast Track, which Todd will discuss in more detail.
As a result of our efforts to-date, our store associates are able to better serve our customers during this period of heightened demand as evidenced by recent customer survey results which we are seeing overall satisfaction at all time highs.
Beyond enhancing our ability to serve, this process has also generated significant savings across the business.
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 to invest in our people as we believe they are our competitive advantage.
In total, for fiscal 2020, we now expect to invest up to $123 million in appreciation bonuses for eligible frontline employees to provide them with further support and demonstrate our continued appreciation for their exceptional efforts during these difficult times.
As a reminder, these bonuses follow our 2017 investment of nearly $70 million in store manager compensation and training, as well as prior and continued investments in employee training, benefits and wages.
Importantly, these investments continue to yield positive results across our store base, including continued record low store manager turnover, strong applicant flows and a robust internal promotion pipeline as well as record staffing levels over the first half of the year.
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.
We also held our annual leadership meeting earlier this month, and I was amazed by the team's ability to seamlessly transition to a virtual event resulting in continued development for more than 1,500 leaders of our Company.
This meeting was once again a testament to how our people truly embrace the Serving Others culture.
In summary, we are executing well from a position of strength and our operating priorities continue to provide a strong foundation from which we can continue to provide continued growth in years ahead.
I'm very proud of the progress the team has made in advancing our key strategic initiatives, which we believe better positions us for long-term sustainable growth.
Let me take you through some of the most recent highlights.
Starting with our non-consumable initiative or NCI, as a reminder, NCI consist of a new and expanded product offering in key non-consumable categories.
The NCI offering was available in approximately 4,300 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 product categories.
In fact, this performance is contributing to an incremental 8% comp sales increase in total non-consumable sales compared to stores without the NCI offering, as well as a meaningful improvement in gross margin rate in these stores.
We also continue to realize meaningful benefits from incorporating select NCI products and planograms throughout the broader store base resulting in positive sales and margin contributions across the chain.
As a result of our strong performance in learnings to date, our plans now include accelerating the rollout of our NCI offering to more than 5,400 stores by the end of 2020.
By incorporating a lite [Phonetic] version of this initiative into approximately 400 stores.
The lite version provides for a more streamlined approach as the full NCI assortment is incorporated into space already dedicated to non-consumable products resulting in less disruption to the stores and the ability to more aggressively scale this initiative as we move ahead.
Turning now to DG Fresh, which is a strategic multi-phase shift to self-distribution of frozen and refrigerated goods.
As a reminder, the primary objective of DG Fresh is to reduce product cost on our frozen and refrigerated items by removing the markup paid to third party distributors, thereby enhancing gross margin.
And we continue to be very pleased with the product cost savings we are seeing.
In fact, DG Fresh continues to be the largest contributor to the gross margin benefit we are seeing from higher initial markups on the inventory purchases, which John noted earlier and we expect this benefit to grow as we continue to scale this transformational initiative.
Another important goal of DG Fresh is to increase sales in these categories.
We are pleased with the success we are seeing on this front, driven by higher overall in-stock levels and the introduction of more than 55 additional new items including both the national and private brands in select stores being serviced by DG Fresh.
In total, we were self-distributing to more than 12,000 stores from eight -- excuse me, from eight DG fresh facilities at the end of Q2.
Given our success and strong execution to date, we now expect to capture benefits from DG Fresh in approximately 14,000 stores from at least ten facilities by the end of this year.
This compares to our previous expectation of approximately 12,000 stores by year's end.
Turning to our digital initiative where our strategy consist of building a digital ecosystem specifically tailored to provide our customers with an even more convenient, frictionless and personalized shopping experience, all of which have become even more important as a result of COVID-19.
Today, customers are seeking safe, familiar and convenient experiences in many aspects of their lives, and in that regard, we believe our unique store footprint combined with our digital assets are a distinct competitive advantage.
During the quarter, we accelerated the rollout of DG Pickup, our Buy Online Pickup in the Store offering to more than 2,500 stores compared to about 40 stores at the end of Q1 with plans for even more aggressive expansion as we move ahead.
In fact, we now expect to introduce this offering into essentially all of our stores by the end of Q3.
In addition to DG Pickup, our plans include the further expansion of DG GO!
mobile checkout as we look to combine this feature with self checkout providing an even more convenient and contactless shopping experience.
Moving now to Fast Track 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 investments we are seeing as a result of our efforts around rolltainer optimization and even more shelf-ready packaging.
The second component of Fast Track is self checkout which represents added flexibility for customers who may seek to limit face to face interactions while also driving greater efficiencies in the store for our associates.
Self checkout is currently available in approximately 400 stores compared to more than 30 stores at the end of Q1.
And our plans consist of a broader rollout later this year as we look to further enhance our convenience proposition.
Overall, we are focused on controlling what we can control, while taking action, including the acceleration of our strategic initiatives to further differentiate and distance 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, as we are constantly evaluating what lies ahead for our customers and our business.
We continue to believe we are pursuing the right strategies to drive long-term sustainable growth, while creating value for our shareholders.
In closing, we are excited about our position midway through the year.
Our extraordinary first half results are a testament to the strong execution and disciplined approach of our team.
We are very proud of our people, especially those serving on the front lines.

user
compname reports q2 earnings per share of $3.12.
q2 earnings per share $3.12.
q2 same store sales rose 18.8 percent.
q2 sales $8.7 billion versus refinitiv ibes estimate of $8.35 billion.
dollar general - believes consumer behavior driven by covid-19 had positive effect on net sales and same-store sales.
on august 25, co's board declared a quarterly cash dividend of $0.36 per share.
as of july 31, 2020, total merchandise inventories, at cost, were $4.4 billion compared to $4.4 billion as of august 2, 2019.
not issuing updated fiscal 2020 sales or earnings per share guidance at this time.
from august 1, 2020 through august 25, 2020, same-store sales increased approximately 15%.
sees fy capital expenditures in range of $1.0 billion to $1.1 billion.

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