Dollar General Q4 net income was $355 million
Article continues below
Net sales increased 9.9 percent to $4.94 billion in the 2014 fourth quarter compared to $4.49 billion in the 2013 fourth quarter. Same-store sales increased 4.9 percent, resulting from increases in both customer traffic and average transaction amount.
Same-store sales increases were driven by strength across all categories with strong growth across candy and snacks, tobacco, perishables and health care.
The Company's gross profit, as a percentage of sales, was 31.7 percent in the 2014 fourth quarter compared to 31.9 percent in the 2013 fourth quarter, a decrease of 23 basis points. The gross profit rate decrease in the 2014 fourth quarter as compared to the 2013 fourth quarter was impacted by increased sales of lower margin consumables, including tobacco products and perishables products.
The slowdown of receipts of higher margin inventory as a result of the longshoreman labor dispute on the U.S. West Coast had an estimated $8.5 million impact ($0.02 per diluted share) on gross profit for the quarter and contributed to lower initial markups. The Company recorded a LIFO provision of approximately $1.1 million in the 2014 fourth quarter compared to a LIFO benefit of $4.5 million in the 2013 fourth quarter.
Selling, general and administrative expenses (SG&A) were $999 million, or 20.2 percent of sales, in the 2014 fourth quarter, compared to $897 million, or 20 percent of sales, in the 2013 fourth quarter, an increase of 27 basis points.
This increase was primarily due to significantly higher incentive compensation expense, as company's 2013 financial results did not satisfy certain performance requirements under the Company's cash incentive compensation program. In addition, the 2014 results reflect increases in rent, as well as repairs and maintenance.
The 2014 period included expenses of $6.1 million related to the attempted acquisition of Family Dollar Stores, Inc. (FDO). These items were offset by convenience fees charged to customers for cash back on debit card transactions, a reduction in workers' compensation and general liability expenses, and retail labor expense, which increased at a rate lower than company's increase in sales.
The effective income tax rate in the 2014 fourth quarter was 34.8 percent compared to 37.5 percent in the 2013 fourth quarter. The 2014 fourth quarter effective tax rate benefited by approximately $9 million, or $0.03 per share, from the retroactive (for employees hired on or after January 1, 2014) reenactment of the Work Opportunity Tax Credit (WOTC).
The estimated amounts that would have been recorded in previous quarters, had WOTC been approved at the beginning of the year, were as follows: $2.7 million in the first quarter, $3.3 million in the second quarter and $3.0 million in the third quarter. The effective tax rate for the fourth quarter of 2014 also benefited from the change in deductibility of expenses incurred in prior quarters associated with the Company's attempted acquisition of FDO.
Full year 2014 net sales increased 8 percent to $18.9 billion compared to net sales of $17.5 billion in 2013. Same-store sales increased 2.8 percent, including increases in both customer traffic and average transaction amount resulting from the refinement of the Company's merchandise offerings, including tobacco products and perishables, and increased utilization of store square footage. In addition, both home and apparel categories contributed to same-store sales growth.
The Company's gross profit rate was 30.7 percent of sales in 2014 compared to 31.1 percent in 2013, a decrease of 36 basis points. The majority of the gross profit rate decrease in 2014 as compared to 2013 was due to an increase in markdowns, primarily due to increased promotions.
In addition, the ongoing trend of consumables comprising a larger portion of net sales, primarily as the result of increased sales of lower margin consumables including tobacco products and expanded perishables offerings, negatively affected the gross profit rate. The Company recorded a LIFO provision of $4.2 million in 2014 compared to a LIFO benefit of $11.0 million in 2013.
Full year SG&A was 21.3 percent of sales in 2014 compared to 21.1 percent in 2013, an increase of 19 basis points. The results reflect a significant increase in incentive compensation expense from 2013 to 2014, as the 2013 financial performance did not satisfy certain performance requirements under the Company's cash incentive compensation program. In addition, the 2014 results reflect increases in rent and utilities.
These items were offset by the effective management of retail labor expense, which increased at a rate lower than the increase in sales, the introduction of convenience fees charged to customers for cash back on debit card transactions and declines in workers' compensation and general liability expenses.
The 2014 results include expenses of $14.3 million related to the attempted acquisition of FDO. In addition, the 2013 results include expenses of $8.5 million for a legal settlement of a previously decertified collective action which did not recur in 2014.
Other (income) expense in 2013 includes pre-tax costs of $18.9 million resulting from the refinancing of the Company's credit facilities in the 2013 first quarter.
The effective income tax rate for 2014 was 36.6 percent compared to 37.0 percent for 2013. The effective income tax rate decreased from 2013 due principally to the favorable resolution of state income tax examinations and other state income tax reserves, which increased by a lesser amount in 2014 compared to 2013.
The Company reported net income of $1.065 billion, or diluted EPS of $3.49, for fiscal year 2014 compared to net income of $1.025 billion, or diluted EPS of $3.17, for fiscal year 2013. Adjusted net income increased 3 percent to $1.069 billion in fiscal 2014 compared to adjusted net income of $1.037 billion in fiscal 2013.
Adjusted EPS increased 9 percent to $3.50 in fiscal 2014 compared to adjusted EPS of $3.20 in fiscal 2013.
Dollar General marked another significant milestone in its company growth by celebrating new store grand openings in Oregon, Maine and Rhode Island, expanding the major retailer's presence to 43 states. ■