This summary is based on the first quarter fiscal 2008 earnings call conducted Dollar General Corp. (DG) on June 17, 2008.
Management:
CEO: Richard W Dreiling
CFO: David Tehle
Senior Director of IR: Emma Jo Kauffman
Key Investor Issues:
- Q1 net sales rose 5.6% from $2.3 billion to $2.4 billion.
- The gross profit was $693.1 million versus $633.1 million in the year ago quarter.
- Q1 ending store count was 8,265 versus 8,182 same period last year.
First-Quarter Financial Highlights:
The first quarter gross profit increased by $60 million to $693.1 million.
- The gross profit increased by 102 basis points as a percentage of sales.
- The impact of significantly higher fuel costs was partially offset by logistics efficiencies and other cost savings in the supply chain.
As a percentage of sales, the quarterly SG&A expense dipped 115 basis points to 24.2%.
- This is in comparison with 25.4% in the same period last year.
- The SG&A as a percentage of sales, after excluding certain expenses from each period, improved 44 basis points in the quarter from the prior year period.
- The excluded expenses in 2008 totaled $20.3 million, comprised of amortization of leasehold intangibles capitalized in connection with purchase accounting ($10.3 million), severance and related costs ($6.8 million) and other expenses related to the company’s new ownership, including monitoring, consulting and legal fees ($3.2 million).
- Such excluded expenses in 2007 totaled $35.6 million related to strategic inventory clearance activities and real estate initiatives, including lease contract termination costs, incremental store labor and other expenses associated with the closing of 153 stores in the 2007 quarter ($29.3 million) and legal and consulting expenses associated with the proposed merger ($5.6 million).
The company reported interest income eased by an estimated $1.6 million from the last year quarter.
- The interest income mainly consists of interest on short term investments.
- The interest expense increased by $94.7 million due to interest on long-term obligations incurred to finance the merger.
The effective income tax rate for the 2008 first quarter was 44.5% or 11% higher than the rate of 32.6% for the 2007 quarter.
- The rate increase is due to the reduction in income tax reserves during the 2007 period related to income tax audits that did not recur in the 2008 period.
- The decrease was also a result of the unfavorable impact on the effective tax rate of a relatively fixed expense being divided by a decreased level of income before tax to determine the effective tax rate.
The EBITDA in fiscal 2008 increased by $62.9 million to $168.8 million
- The adjusted EBITDA increased $39.8 million or 28% in fiscal 2008 versus the first quarter of 2007.
As of May 2, 2008 the total merchandise inventories, at cost, were $1.32 billion versus $1.44 billion as of May 4, 2007.
- This represents a decrease of $127 million or about 9% in total and 10% on an average per-store basis.
- The decrease in inventories was mainly driven by the company’s elimination of packaway inventories and inventory management practices.
As at quarter end, the outstanding long-term obligations, including the current portion, were $4.18 billion.
- This is inclusive of $2.30 billion under a senior secured term loan facility.
- There were no borrowings under the company’s assets-based revolving credit facility.
- As of June 16, 2008, the company had no outstanding borrowings under its asset-backed revolving credit facility, with excess availability of $857 million.
- The ratio of long-term obligations to adjusted EBITDA as at the end of the quarter decreased to 5.8 times from 7.1 times since the closing of the merger transaction in July 2007.
