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Text: dollargeneral.com under News & Events.
Such as statements about our strategy, plans, including but not limited to our 2021 real estate outlook, our initiatives, goals, priorities, opportunities, investment, guidance, expectations or beliefs about future matters, including but not limited to, beliefs about COVID-19's future impact on the economy, our business and our customer and other statements that are not limited to historical fact.
We also may reference certain financial measures that have not been derived in accordance with GAAP.
dollargeneral.com under News & Events.
Despite continued significant uncertainty in the operating environment, our team members have been unwavering in their commitment to fulfilling our mission of serving others, by providing affordable, convenient and close to home access to everyday essentials, at a time when our customers need them most.
I could not be more proud of their efforts.
As always, the health and safety of our employees and customer continues to be our top priority.
We continue to closely monitor CDC and other governmental guidelines regarding COVID-19 and are evaluating and adapting our safety protocols as that guidance evolves.
As one of America's essential retailers, we remain committed to being part of the solution during these difficult times.
And we believe we are well positioned to continue supporting our customers through our unique combination of value and convenience, including our expansive network of more than 17,000 stores located within 5 miles of approximately 75% of the US population.
At the same time, we remain focused on advancing our operating priorities and strategic initiatives, as we continue to meet the evolving needs of our customers and further position Dollar General for a long-term sustainable growth.
To that end, and from a position of strength, I'm excited to share an update on some of our more recent plans.
First, as you saw in our release, we plan to further accelerate our pace of new store openings and remodels in 2021.
In total, we expect to execute 2,900 real estate projects next year, as we continue to lay and strengthen the foundation for future growth.
As previously announced, we recently introduced our newest store concept pOpshelf, further building on our proven track record of store format innovation.
We opened our first two locations during the quarter and while still early, we are encouraged by their initial results.
Finally, one of our core values is representing and respecting the dignity and differences of others.
Building on this core value, along with our commitment to diversity and inclusion, we recently updated our fourth operating priority to better capture and express our intent.
We will discuss each of these updates in more detail later in the call.
But first, let's recap some of the results for the third quarter.
The quarter was once again highlighted by exceptional growth on both the top and bottom lines.
We're particularly pleased that for the quarter, our three non-consumable categories once again delivered a combined sales increase, well in excess of our consumable business.
Of note, this represents our 10th consecutive quarter of year-over-year comp sales growth in our non-consumable business, which speaks to the strong and sustained momentum in these product categories.
From a monthly cadence perspective, comp sales for Q3 periods range from the low double digits to mid-teens with the best performance in August followed by modest moderation as we move through the quarter.
Overall, third quarter net sales increased 17.3% to $8.2 billion, driven by comp sales growth of 12.2%.
These results include significant growth in average basket size, partially offset by a decline in customer traffic, as we believe customers continue to consolidate shopping trips in an effort to limit social contact.
Once again this quarter, we increased our market share in highly consumable product sales, as measured by syndicated data, driven by double-digit increases in both units and dollars.
Importantly, our data suggests an increase in new customers this quarter, as compared to Q3 of 2019.
These new customers skew younger, higher income and more ethnically diverse, further underscoring the broadening appeal of our value and convenience proposition.
We are also encouraged by the repurchase rates of new customers and are working hard to retain them, with more targeted marketing and continued execution of our key initiatives.
We're particularly pleased with the -- and how we delivered significant operating margin expansion, which contributed to third quarter diluted earnings per share of $2.31, an increase of 63% over the prior year.
Collectively, our Q3 results reflect strong and disciplined execution across many fronts and further validate our belief that we are pursuing the right strategies to create meaningful long-term shareholder value.
We operate in one of the most attractive sectors in retail and with our unique combination of value and convenience, further enhanced through our initiatives, we believe we are well positioned to successfully navigate the current environment and emerge even stronger than before.
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 meaningful increase in sales including the impact of COVID-19.
Gross profit as a percentage of sales was 31.3% in the third quarter, an increase of 178 basis points and represents our sixth consecutive quarter of year-over-year gross margin rate expansion.
This increase was primarily attributable to a reduction markdowns as a percentage of sales, higher initial markups on inventory purchases, a greater proportion of sales coming from non-consumables categories and a reduction in shrink 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 21.9%, a decrease of 62 basis points.
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 this quarter include, occupancy costs, utilities, retail labor, depreciation and amortization, repairs and maintenance and employee benefits.
These items were partially offset by increases in incentive compensation expense and hurricane-related expenses.
Moving down the income statement, operating profit for the third quarter increased 57.3% to $773 million, compared to $491 million in the third quarter of 2019.
As a percentage of sales, operating profit was 9.4%, an increase of 240 basis points.
Operating profit in the third 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 $25 million in appreciation bonuses for eligible frontline employees.
Year-to-date to the third quarter, we have invested approximately $153 million in COVID-19 related expenses including about $99 million in appreciation bonuses for our frontline employees.
Our effective tax rate for the quarter was 21.6% and compares to 21.7% in the third quarter last year.
Finally, as Todd noted earlier, earnings per share for the third quarter increased 62.7% to $2.31.
Turning now to our balance sheet and cash flow, which remained strong and provide us the financial flexibility to further support our customers and employees during these unprecedented times, while continuing to invest for the long term.
We finished the quarter with $2.2 billion of cash and cash equivalents, a decrease of $760 million compared to Q2 and an increase of $1.9 billion over the prior year.
Merchandise inventories were $5 billion at the end of the third quarter, an increase of 11.8% overall and 5.9% on a per store basis.
While out of stocks remain higher than normal for certain high demand products, we continue to make good progress with improving our in-stock position and are pleased with our overall inventory levels.
Year-to-date to Q3, we generated significant cash flow from operations totaling $3.4 billion, an increase of 103.7%.
Total capital expenditures through the first three quarters were $698 million and included our planned investments in remodels and relocations, new stores and spending related to our strategic initiatives.
During the quarter, we repurchased 4.4 million shares of our common stock for $902 million and paid a quarterly dividend of $0.36 per common share outstanding at a total cost of $88 million.
At the end of Q3, the remaining share repurchase authorization was $1.6 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-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 and are unlikely to resume issuing guidance to the extent such uncertainties persist.
Let me now provide some context as to what we expect in the fourth quarter.
Given the unusual situation, I will elaborate on our comp sales trends thus far in Q4.
From the end of Q3 through December 1, comp sales accelerated increasing approximately 14% during this timeframe, reflecting increased demand in our consumables business.
And while we remain cautious in our sales outlook, we are encouraged with our sales trends, particularly as we move further past government stimulus payments and the expiration of enhanced unemployment benefits under the CARES Act.
That said, significant uncertainty still exists concerning the duration of the positive sales environment, including external factors related to the ongoing health crisis and their potential impact on our business.
Beyond these macro factors, there are number of more specific considerations as it relates to the fourth quarter.
First, we anticipate higher transportation and distribution costs in Q4.
Like other retailers, our business is seeing the effect of higher transportation costs due to a tight carrier market, as a result of driver shortages and a greater demand for services at third-party carriers.
In addition, we are in the process of building, expanding or opening a number of distribution centers across our dry and DG Fresh networks.
And while we expect, these investments will enable us to drive even greater efficiencies going forward and further support future growth, these investments will pressure gross margin rates in Q4.
Also please keep in mind that the fourth quarter represents our most challenging lap of the year from a gross margin perspective filing 60 basis points of rate improvement in Q4 2019.
With regards to our strategic initiatives, we continue to anticipate they will positively contribute to operating margin over time as the benefit to gross margin continues to scale and outpace the associated expense with both NCI and DG Fresh on pace to be accretive to operating margin in 2020.
However, our investment in these initiatives will pressure SG&A rates in the fourth quarter, as we further accelerate their rollouts.
Finally, we expect to make additional investments in the fourth quarter as a result of COVID-19, including up to $75 million in employee appreciation bonuses, which includes our recent announcement to award approximately $50 million in additional bonuses, bringing our full year investment in appreciation bonuses to approximately $173 million, as well as continued investments in health and safety measures.
In closing, we are very proud of the team's execution and service resulting 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 once again did a fantastic job in Q3, executing against a portfolio of growth initiatives.
Let me highlight some of our recent efforts.
Starting with our cooler door expansion program which continues to be our most impactful merchandising initiative.
During the first three quarters, we added approximately 49,000 cooler doors across our store base.
In total, we expect to install more than 60,000 cooler doors this year.
The majority of which will be in our higher capacity coolers, creating additional opportunities to drive higher on-shelf availability and deliver an even wider product selection.
Turning now to private brands, which remain a priority, as we look to drive overall category awareness and even greater customer adoption through rebranding, repositioning and expansion of select brands as well as the introduction of new product lines.
We're very pleased with the continued progress across these fronts, including the successful rebranding of six product lines and the introduction of two new brands so far this year.
And we're excited about the continued momentum we're seeing across the portfolio.
Finally, a quick update on our FedEx relationship.
During the quarter, we completed our initial rollout of this convenient customer package pick-up and drop-off service, which is now available in more than 8,500 stores.
We're very pleased with the reception this offering is receiving from our customers and we continue to explore innovative opportunities to further leverage our unique real estate footprint to provide even more solutions for our customers in convenient and nearby locations.
Beyond these sales driving initiatives, enhancing gross margin remains a key area of focus 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.
The team once again did a great job during the quarter, working with our supply partners to ensure product availability.
Looking ahead, we continue to pursue opportunities to increase our foreign sourcing penetration, while further diversifying our countries of origin.
We also continue to pursue supply chain efficiencies including the continued expansion of our private fleet, the opening of additional DG Fresh facilities and the recent purchase of our future Walton, Kentucky dry distribution center, which should contribute to a further reduction in stem miles beginning early next year.
In addition, we recently began construction on our first ever ground up combination DG Fresh and dry distribution center in Blair, Nebraska.
We anticipate this facility will be completed in early 2022, enabling us to drive even greater efficiencies as we move ahead.
The team is also executing against additional opportunities to enhance gross margin, including further improvements in shrink, as we continue to build on our success with electronic article surveillance.
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.
As previously announced, we recently celebrated a significant milestone with the opening of our 17,000th store.
This is a testament to the fantastic work of our best-in-class real estate team as we continue to expand our footprint and enhance our ability to serve even more customers.
As a reminder, our real estate model continues to focus on five metrics that have served us well for many years in evaluating new real estate opportunities.
These metrics include, new store productivity, actual sales performance, average returns, cannibalization and the payback period.
Of note, we continue to see strong performance across these metrics.
For 2020, we remain on track to open 1,000 new stores, remodel 1,670 stores and relocate 110 stores.
Through the first three quarters, we opened 780 new stores, remodeled 1,425 stores, including more than 1,000 in the higher cooler count, DGTP or DGP formats, and we relocated 76 stores.
We also added produce in more than 140 stores, bringing the total number of stores which carry produce to more than 1,000.
As Todd noted for fiscal 2021, we plan to execute 2,900 real estate projects in total including 1,050 new stores, 1,750 remodels and 100 store relocations.
Additionally, we plan to add produce in approximately 600 stores.
Notably, we expect approximately 50% of our new unit openings and about 75% of our remodels to be in the DGTP or DGP formats.
The remainder of our new store openings and remodels will primarily be in the traditional format with higher capacity coolers.
Our plans also include having approximately 30 stores in our new pOpshelf concept, which Todd will discuss in more detail by the end of fiscal 2021 up from two locations today.
Overall, our real estate pipeline remains extremely robust and we are excited about the significant growth opportunities ahead.
Our third operating priority is to leverage and reinforce our position as a low-cost operator.
Over the years, we've 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 Save to Serve keeps the customer at the center of all we do, while reinforcing our cost control mindset.
We continue to build on our success with Fast Track, which Todd will discuss in more detail later.
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 our recent customer survey results where we continue to see overall satisfaction scores at all time highs.
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.
We have three business operating priorities.
But at the heart of them is our foundational fourth operating priority.
This priority is anchored in our people and it's truly foundational to everything we do at Dollar General.
Our fourth operating priority is investing in our diverse teams through development, empowerment and inclusion.
As Todd noted, this updated language more fully expresses our values and core beliefs and more closely aligns with the investments we continue to make in the development of our people.
Importantly, we believe these investments continue to yield positive results across our store base, as evidenced by continued, record low store manager turnover, record staffing levels, healthy applicant flows and a robust internal promotion pipeline.
As a growing retailer, we also 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 innovate on the development opportunities we can offer our teams.
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 employees across the organization come together to raise funds for a variety of important causes.
I was once again humbled by the generosity and compassion of our people.
This event truly embodies the Serving Others culture that is so deeply embedded at Dollar General.
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 drive continued growth in the years ahead.
I'm proud of the great progress the team has made in advancing our strategic initiatives.
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 5,200 stores at the end of Q3, and given our strong execution to date, we now expect to expand the offering to more than 5,600 stores by the end of 2020.
Including approximately 400 stores in our NCI lite [Phonetic] version.
This compares to our prior expectation of more than 5,400 stores at year end.
We're especially pleased with the strong sales and margin performance our NCI stores once again delivered in the quarter.
We also continue to benefit from incorporating select NCI products and planograms throughout the broader store base.
And we are pleased with the performance of our lite stores which incorporates a vast majority of the NCI assortment, but through a more streamlined approach.
As noted earlier, we are also excited about the recent introduction of pOpshelf and the opening of our first two locations, 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, first, continually refresh merchandise, primarily in targeted non-consumable product categories.
Second, a differentiated in-store experience, including impactful displays of our offering designed to create a highly visual, fun and easy shopping experience.
And third, exceptional value with approximately 95% of our items priced at $5 or less.
Importantly, while pOpshelf delivers many of Dollar General's core strengths, including customer insights, merchandise innovation, operational excellence, digital capabilities and real estate expertise, it is specifically tailored to a different shop indication.
We'll primarily be located in suburban communities and initially targets a higher income customer, potentially unlocking additional and incremental growth opportunities going forward.
We're proud of all of the incredible work the team has done in standing up this concept and with the initial work now behind us, we look forward to welcoming additional customers to pOpshelf, as we move forward, our goal of approximately 30 stores by the end of 2021.
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 gross margin benefit we are realizing from higher initial mark-ups on inventory purchases.
Importantly, 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're pleased with the success we are already seeing on this front, driven by higher overall in-stock levels and the introduction of more than 55 additional items, including both national and private brands in select stores being serviced by DG Fresh.
And while produce is not included in our initial rollout plans, we plan -- we plan and continue to believe DG Fresh could provide a potential path forward to expanding our produce offering to even more stores in the future.
In total, we were self-distributing to more than 13,000 stores from eight DG Fresh facilities at the end of Q3.
We expect to capture benefits from this initiative in more than 14,000 stores from 10 facilities by the end of this year and are well on track to complete our initial rollout across the chain in 2021.
Next, 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.
In an environment where customers continue to seek safe, familiar and convenient experiences, we believe our unique footprint combined with our digital assets, provides a distinct competitive advantage.
More specifically, I'm pleased to note that during the quarter, we expanded DG Pickup, our buy online, pickup in the store offering to nearly 17,000 stores compared to more than 2,500 stores at the end of Q2, providing another convenient access point for those seeking a more contactless customer experience.
In addition to DG Pickup, our plans include further expansion of DG GO checkout, as we look to make this feature available in select stores that includes self checkout further enhancing our convenience proposition.
By leading our channel in digital tools and experiences, we believe we are well positioned to drive more in-store traffic, grow basket size and offer even greater convenience to new and existing customers.
Moving now to Fast Track, where our goals, including 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 around rolltainer optimization and even more shelf-ready packaging.
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.
During the quarter, we accelerated the rollout of self checkout to more than 900 stores, compared to approximately 400 stores at the end of Q2, with plans for further expansion as we move forward.
And while still early, we are pleased with the initial results, including our customer adoption rates as well as positive feedback from both customers and employees.
Overall, we remain focused on controlling what we can control, while taking actions, including the continued execution of our key 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 and continue to believe we are pursuing the right strategies to capture additional growth opportunities in a rapidly changing retail landscape.
In closing, we are very proud of the team's performance and our results through the first three quarters of 2020, which further demonstrate that our unique combination of value and convenience continues to resonate with our customers and positions us well going forward.

user
compname posts q3 earnings per share $2.31.
q3 earnings per share $2.31.
q3 same store sales rose 12.2 percent.
q3 sales $8.2 billion versus refinitiv ibes estimate of $8.15 billion.
declares q4 2020 cash dividend of $0.36 per share.
plan to award a total of up to $75 million in appreciation bonuses to eligible frontline employees in q4.
for fy 2021, co plans to execute 2,900 real estate projects.
since the end of the third quarter, the company has continued to experience elevated demand in its stores.
same-store sales increased about 14% as compared to comparable timeframe in 2019 fiscal year.

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