Dollar General Corporation reported record sales, operating profit and net income for its fiscal 2013 first quarter (13 weeks) ended May 3, 2013.
"For the quarter, we achieved same-store sales growth of 2.6 percent reflecting strong growth in our consumables categories offset by softer sales in seasonal and weather-sensitive categories," said Rick Dreiling, Dollar General's chairman and chief executive officer. "Solid SG&A leverage helped to offset gross margin declines in the first quarter. We believe the continued strength in consumables is a sign of the underlying health of our business."
"We have updated our outlook for the year to reflect moderating sales growth and a lower expected gross profit rate than we previously anticipated," Mr. Dreiling continued. "We are well positioned for our same-store sales growth to accelerate to four to five percent for the year as our key initiatives, such as the rollout of tobacco and Phase 5 planogram changes, continue to gain traction through the year.
"Sales of non-consumables are expected to remain challenging, and we anticipate a continued shift to lower margin items within consumables and higher inventory shrink. We believe that our customers' dependence on our everyday low pricing and convenient locations has never been greater."
The Company's net income was $220 million, or $0.67 per diluted share, in the 2013 first quarter, compared to net income of $213 million, or $0.63 per diluted share, in the 2012 first quarter. Adjusted net income, as defined below, increased 8 percent to $232 million in the 2013 first quarter, compared to $215 million in the 2012 first quarter. Adjusted diluted EPS increased 13 percent to $0.71 in the 2013 first quarter from $0.63 in the 2012 first quarter.
Adjusted net income is defined as net income excluding specifically identified expenses. Adjustments include the expenses relating to secondary offerings of the Company's stock in both the 2013 and 2012 periods and losses associated with restructuring the Company's credit facility in 2013 and an amendment of the Company's revolving credit facility in 2012. The income tax effect of adjustments is also excluded from both periods. A reconciliation of adjusted net income to net income is presented in the accompanying schedules.
Net sales increased 8.5 percent to $4.23 billion in the 2013 first quarter compared to $3.90 billion in the 2012 first quarter. Same-store sales increased 2.6 percent resulting from increases in both customer traffic and average transaction amount. Total sales increases in consumables significantly outpaced increases in the Company's non-consumable categories, reflecting the impact of continued financial pressures on consumers as well as unfavorable weather conditions in many of the Company's geographic regions.
Gross profit, as a percentage of sales, was 30.6 percent in the 2013 first quarter, a decrease of 89 basis points from the 2012 first quarter. The gross profit rate was negatively affected by several factors including higher markdowns, a higher mix of consumables, which generally have lower gross profit rates, increased inventory shrinkage, and lower initial markups. These factors were partially offset by improved transportation efficiencies and other logistics initiatives, in addition to modestly lower fuel rates.
Selling, general and administrative expenses ("SG&A"), as a percentage of sales, were 21.3 percent in the 2013 first quarter compared to 21.6 percent in the 2012 first quarter, an improvement of 37 basis points. Decreases in incentive compensation expense and workers' compensation and general liability expenses contributed to the overall decrease in SG&A as a percentage of sales. Retail labor expense increased at a rate lower than the increase in sales, partially due to ongoing benefits of the Company's workforce management system. Costs that increased at a rate higher than the increase in sales include advertising, rent, depreciation and amortization and utilities.
Operating profit was $395 million, or 9.3 percent of sales, in the 2013 first quarter compared to $384 million, or 9.9 percent of sales, in the 2012 first quarter. Operating profit, excluding expenses resulting from secondary offerings of the Company's stock, was $396 million, or 9.4 percent of sales, in the 2013 first quarter compared to $385 million, or 9.9 percent of sales, in the 2012 first quarter.
Interest expense was $25 million in the 2013 first quarter compared to $37 million in the 2012 first quarter. The decrease was due to lower all-in interest rates resulting from the restructuring of the Company's outstanding long-term obligations.
Other expenses include pretax losses of $18.9 million resulting from the restructuring of the Company's credit facilities in the 2013 first quarter and pretax losses of $1.6 million resulting from the amendment of the Company's senior secured revolving credit facility in the 2012 first quarter.
The effective income tax rate in the 2013 first quarter was 37.4 percent compared to 38.2 percent in the 2012 first quarter. The primary reason for the lower effective rate in the 2013 quarter relates to federal jobs credits that the Company receives for certain newly hired employees. The law authorizing these credits was not in effect during the 2012 period.
