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Text: dollargeneral.com under News & Events.
Such as statements about our financial guidance, strategy, initiatives, plans, goals, priorities, opportunities, investments, expectations or beliefs about future matters and other statements that are not limited to historical fact.
We will also reference certain non-GAAP financial measures.
dollargeneral.com under News & Events.
Despite, what continues to be a challenging operating environment, including elevated cost pressures and broad-based supply chain disruptions, our teams remain focused on controlling what we can control, and they are delivering for our customers.
We are grateful for their efforts.
Looking ahead, we believe we are well positioned to navigate the current environment.
And although we've experienced higher-than-expected costs, both from a product and supply chain perspective we're very confident in our price position.
As our price indexes relative to our competitors and other classes of trade remain in line with our targeted and historical ranges.
And because so many families depend on us for everyday essentials at the right price, we believe products at the $1 price point are important for our customers and they will continue to have a significant presence in our assortment.
In fact, approximately 20% of our overall assortment remains at $1 or less.
And moving forward we will continue to foster and grow this program where appropriate.
As the largest retailer in the US by store count, with over 18,000 stores located within five miles of about 75% of the US population, we believe our presence in local communities across the country provides another distinct advantage and positions us well for continued success.
Overall, we remain focused on advancing our operating priorities and strategic initiatives.
As we continue to strengthen our competitive position, while further differentiating and distancing Dollar General from the rest of the discount retail landscape.
To that end, I'm excited to share an update on some of our more recent plans.
First, as you saw in our release, we expect to execute a total of nearly 3,000 real estate projects in 2022, including 1,100 new store openings as we continue to lay and strengthen the foundation for future growth.
Of note, these plans include the acceleration of our pOpshelf concept, as we expect to nearly triple our store count next year, as compared to our fiscal '21 year-end target of up to 50 locations.
In addition, given the sustained performance of our pOpshelf concept, which continues to exceed our expectations, we plan to further accelerate the pace of new store openings as we move ahead.
Targeting a total of about 1,000 pOpshelf locations by fiscal year-end 2025.
Importantly, we anticipate these new pOpshelf locations will be incremental to our annual Dollar General store opening plans, as we look to further capitalize on the significant growth opportunities we see for both brands.
We are also now at the early stages of plans to extend our footprint into Mexico, which will represent our first store locations outside the Continental United States.
We believe Mexico represents a compelling expansion opportunity for Dollar General given this demographics and proximity to the US, and we are confident that our unique value and convenience proposition will resonate with the Mexican consumer.
While our initial entry in the Mexico is focused on piloting a small number of stores in 2022.
We expect to seize -- we plan today will ultimately turn into additional growth opportunities in the future.
Finally, as previously announced, we recently introduced our digital services by partnering with DoorDash to provide delivery in under an hour, in over 10,000 locations.
Further enhancing our convenience proposition, while broadening our reach with new customers.
Jeff will discuss these updates in more detail later in the call.
But first let's recap some of the top line results for the third quarter.
Net sales increased 3.9% to $8.5 billion following a 17.3% increase in Q3 of 2020.
Comp sales declined 0.6% to the prior year quarter, which translates to a robust 11.6% increase on a two-year stack basis.
From a monthly cadence perspective, comp sales were lowest in September, with October being our strongest month of performance.
And I'm pleased to report that Q4 sales to-date are trending in line with our expectations.
Our third quarter sales results include a year-over-year decline in customer traffic, which was largely offset by growth in average basket size, even as we lap significant growth in average basket size last year.
In addition, during the quarter, we saw an improvement in customer traffic, as compared to Q2 of 2021.
And we continue to be pleased with the retention of the new customers acquired in 2020.
We're also pleased with the market share gains as measured by syndicated data in our frozen and refrigerated product categories.
And even as our market share in total highly consumable product sales decreased slightly in Q3, we feel good about our overall share gains on a two-year stack basis.
Collectively, our third quarter results reflect strong execution across many fronts.
And further validates our belief that we are pursuing the right strategies to enable sustainable growth, while supporting long-term shareholder value creation.
We operate in one of the most attractive sectors in retail.
And as a mature retailer in growth mode, we continue to lay the groundwork for our future initiatives, which we believe will unlock additional growth opportunities as we move forward.
Overall, I've never felt better about the underlying business model and we are excited about the significant growth opportunities we see ahead.
Now that Todd has take 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 Q3 2020 was positively impacted by a significant increase in sales, including net sales growth of 24% in our combined non-consumable categories.
For Q3 2021, gross profit as a percentage of sales was 30.8%, a decrease of 57 basis points, but an increase of 121 basis points, compared to Q3 2019.
The decrease compared to Q3 2020 was primarily attributable to a higher LIFO provision, increased transportation costs, a greater proportion of sales coming from our consumables category 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 22.9%, an increase of 105 basis points.
This increase was driven by expenses that were greater as a percentage of sales in the current year period, the most significant of which were retail, labor and store occupancy costs.
The quarter also included $16 million of disaster-related expenses attributable to Hurricane Ida.
Moving down to income statement.
Operating profit for the third quarter decreased 13.9% to $665.6 million.
As a percentage of sales, operating profit was 7.8%, a decrease of 162 basis points.
And while the unusual and difficult prior year comparison create pressure on our operating margin rate, we're very pleased with the improvement of 78 basis points, compared to Q3 2019.
Our effective tax rate for the quarter was 22.2% and compares to 21.6% in the third quarter last year.
Finally, earnings per share for Q3 decreased 10% to $2.08, which reflects a compound annual growth rate of 21% 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 third quarter, an increase of 5.4% overall and a decrease of 0.1% on a per store basis.
And while we're not satisfied with our overall in-stock levels, we continue to make good progress and are focused on improving our in-stock position particularly in our consumables business.
Looking ahead, we are pleased with our inventory position for the holiday shopping season and our teams continue to work closely with suppliers to ensure delivery of goods for the remainder of the year.
Year-to-date through [Phonetic] the third quarter, we generated significant cash flow from operations totaling $2.2 billion.
Capital expenditures to the first three quarters were $779 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 1.6 million shares of our common stock for $360 million and paid a quarterly dividend of $0.42 per common share outstanding at a total cost of $97 million.
At the end of Q3, the total remaining authorization for future repurchases was $619 million.
We announced today that our Board has increased this authorization by $2 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 in a time of uncertainty regarding the economic recovery from the COVID-19 pandemic, including any changes in consumer behavior and the corresponding impacts on our business.
Despite continued uncertainty, including cost inflation ongoing pressure throughout the supply chain, we are updating our sales and earnings per share guidance, which reflects our strong performance through the first three quarters, as well as our expectations for Q4.
For 2021, we now expect the following: Net sales growth of approximately 1% to 1.5%; a same-store sales decline of approximately 3% to 2.5%, but which reflects growth of approximately 13% to 14% on a two-year stack basis; and earnings per share in the range of $9.90 to $10.20, which reflects a compound annual growth rate in the range of 22% to 24% or approximately 21% to 23%, compared to 2019 adjusted earnings per share over a two-year period.
Our earnings per share guidance now assumes an effective tax rate of approximately 22%.
Let me now provide some additional context as it relates to our outlook.
In terms of sales, we remain cautious in our outlook over the next couple of months, given the continued uncertainties arising from the COVID-19 pandemic, including additional supply chain disruptions and the impact of the end of certain federal aid such as additional unemployment benefits and stimulus payments.
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 rate.
Consistent with Q2 and Q3, we expect continued pressure on our gross margin rate in the fourth quarter, due to a higher LIFO provision, as a result of cost of goods increases, a less favorable sales mix, compared to the prior year quarter, and an increase in markdown rates as we continue to cycle the abnormally low levels in 2020.
We also anticipate higher supply chain costs in Q4 compared to the 2020 period.
Like other retailers our business continues to be impacted by higher costs due to transit and port delays, as well as elevated demand for services at third-party carriers.
However, despite these challenges we are confident in our ability to continue navigating these transitory pressures.
With regards to SG&A, we continue to expect about $70 million to $80 million, an incremental year-over-year investments in our strategic initiatives.
This amount includes $56 million in incremental investments made during the first three quarters of 2021.
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.
Finally, our updated guidance does not include any impact from the proposed federal vaccine and testing mandate, including potential disruptions to the business or labor market or any incremental expense.
In closing, we are pleased with our third quarter results, which are with testament to the strong performance and execution by the team.
As always we continue to be disciplined and how we manage expenses in 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.
The team did a great job this quarter, executing against a robust portfolio of growth initiatives.
Let me highlight some of our more recent efforts.
Starting with our non-consumables initiative or NCI.
The NCI offering was available in nearly 11,000 stores at the end of Q3, and we continue to be very pleased with the strong performance we are seeing across our NCI store base.
Notably, this performance is contributing an incremental 2.5% total comp sales increase on average in NCI stores along with a meaningful improvement in gross margin rate, as compared to stores without the NCI offering.
Overall, we now plan to expand this offering to a total of more than 11,500 stores by year-end, including over 2,000 stores in our light version.
And we expect to complete the rollout of NCI across nearly the entire chain by year-end 2022.
Moving to our pOpshelf concept, 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 unique in-store experience and exceptional value with the vast majority of our items priced at $5 or less.
During the quarter we added 14 new pOpshelf locations, bringing the total number of stores to 30.
Opened our first 14 store within a store concepts and celebrated the one-year anniversary of our first pOpshelf store opening.
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 with an in-store concepts, which incorporate a smaller footprint pOpshelf shop into one of our larger format Dollar General market stores.
Importantly, as Todd noted earlier, we continue to be very pleased with the performance of our pOpshelf stores, which have far exceeded our expectations for both sales and gross margin.
In fact, we anticipate year one annualized sales volumes for our current locations to be between $1.7 million and $2 million per store and expect the initial average gross margin rate for these stores to exceed 40%.
We believe this bodes well for the future as we move toward our goal of about 1,000 pOpshelf locations by year-end 2025.
Turning now to DG Fresh, which is a strategic multiphase shift to self-distribution of frozen and refrigerated goods.
As a reminder, we completed the initial rollout of DG Fresh across the entire chain in Q2, and are now delivering to more than 18,000 stores from 12 facilities.
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 as DG Fresh remains a meaningful contributor to our gross margin rate.
Another goal of DG Fresh is to increase sales in these categories.
And we are very happy with the performance on this front, as overall comp sales of our frozen and refrigerated goods outperformed all other product categories in Q3, even against a difficult prior year sales comparison.
Going forward, we expect to realize additional benefits from DG Fresh, as we continue to optimize our network, further leverage our scale, deliver an even wider product selection and build on our multi-year track record of growth in cooler doors and associated sales.
With regards to our cooler expansion program, during the first three quarters we added more than 52,000 cooler doors across our store base.
In total, we expect to install approximately 65,000 additional cooler doors in 2021.
The majority of which will be in high capacity coolers.
Turning now to an update on our expanded health offering, which consist of about 30% more feet of selling space and nearly 400 additional items, as compared to our standard offering.
This offering was available in nearly 800 stores at the end of Q3, with plans to expand to approximately 1,000 stores by year-end.
Looking ahead, our plans include further expansion of our health offering, with the goal of increasing access to basic healthcare products and ultimately services overtime, particularly in rural America.
In addition to the gross margin benefits associated with the initiatives I just discussed, we continue to pursue other opportunities to enhance gross margin, including improvements in private brand sales, global sourcing, supply chain efficiencies and shrink.
Our second priority is capturing growth opportunities.
We recently celebrated a significant milestone with the opening of our 18,000 stores, which reflects the fantastic work of our best-in-class real estate team, as we continue to expand our footprint and further enhance our ability to serve additional customers.
Through the first three quarters, we completed a total of 2,386 real estate projects, including 798 new stores, 1,506 remodels and 82 relocations.
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.
In addition, we now have produce in approximately 1,900 stores with plans to expand this offering to a total of over 2,000 stores by year-end.
For 2022 we plan to execute 2,980 real estate projects in total, including 1,110 new stores, 1,750 remodels and 120 store relocations.
We also plan to add produce and approximately 1,000 additional stores next year with the goal of ultimately expanding this offering to a total of up to 10,000 stores over time.
Of note, we expect approximately 800 of our new stores in 2022 to be in our larger 8,500 square foot new store prototype, allowing for a more optimal assortment and room to accommodate future growth.
Importantly, we continue to be very pleased with the sales productivity of this larger format, as average sales per square foot continue to trend about 15% above an average traditional store.
Our 2022, real estate plans also include opening approximately 100 additional pOpshelf locations, bringing the total number of pOpshelf stores to about 150 by year-end, as well as, up to an additional 25 store with in-store concept.
As Todd noted, we are also very excited about our plans to expand our footprint internationally for the first time, with plans to open up to 10 stores in Mexico by year-end 2022.
As we look to extend our value and convenience offering to even more communities, while continuing to lay the foundation for future growth.
Overall, our proven high-return, low-risk real estate model continues to be a core strength of our business.
And the good news is, we believe we still have a long runway for new unit growth ahead of us.
In fact, across our Dollar General, pOpshelf and DGX format types, we estimate there are approximately 17,000 new store opportunities potentially available in the Continental United States alone.
Although, these opportunities available to all small box retailers, we expect to continue capturing a disproportionate share as we move forward.
And while still early, we expect our entry into Mexico will ultimately unlock a significant number of additional new unit opportunities in the years to come.
When taken together, our real estate pipeline remains robust and we are excited about the significant new store opportunities ahead.
Next, our digital initiative, which is an important complement to our physical store footprint, as we continue to deploy and leverage technology to further enhance convenience and access for our customers.
Our efforts remain centered around building engagement across our digital properties, including our mobile app.
Of note, we ended Q3 with over 4.4 million monthly active users on the app, and expect this number to grow as we look to further enhance our digital offerings.
As Todd noted, our partnership with DoorDash is another example of meeting the evolving needs of our customers, by providing the savings offered by Dollar General, combined with the convenience of same-day delivery in an hour or less.
And while still early, we are pleased with the initial results, including better-than-expected customer trial, strong repurchase rates, high levels of sales incrementality and a broadening of our customer base.
Our DG Media Network, which we launched in 2018 is also seeing strong results, including significant growth in the number of campaigns on our platform.
Overall, we remain very excited about the long-term growth potential of this business.
And we look to better connect our brand partners with our customers in a way that is accretive to the customer experience.
Going forward, our plans include providing more relevant, meaningful and personalized offerings, with the goal of driving even higher levels of customer engagement across our digital ecosystem.
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 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.
The first phase of Fast Track consisted of both rolltainer and case pack optimization, which has led to 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.
Looking ahead, our plans now include expanding this offering to over 6,000 stores by year-end 2021, and to the majority of our store base 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 in 2022, we plan to create more than 8,000 net new jobs.
In addition, our growth also fosters an environment where employees have opportunities to advance to roles with increasing levels of responsibility and meaningful wage growth in a relatively short timeframe.
In fact, over 75% of our store associates at/or above the lead sales associate position were internally placed.
And we continue to innovate on the development opportunities we offer our teams.
Importantly, we believe these efforts continue to yield positive results across our store base, as evidenced by our robust promotion pipeline, healthy applicant flows and staffing above traditional 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.
We also recently completed our annual community giving campaign, where our employees came together to raise funds for a variety of important causes.
And I was once again inspired by the generosity and compassion of our people.
Our mission of serving others is deeply embedded in the daily culture of Dollar General.
And I'm so proud to be a part of such an incredible team.
In closing, we are making great progress against our operating priorities and strategic initiatives.
And with the actions and multi-year initiatives we have in place, we are confident in our plans to drive long-term sustainable growth and shareholder value creation.

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compname reports q3 earnings per share of $2.08.
q3 earnings per share $2.08.
sees fy sales up about 1 to 1.5 percent.
q3 sales rose 3.9 percent to $8.5 billion.

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