Dollar General Corporation
Jun 8, 2010

Dollar General Reports Record First Quarter Sales and Earnings

GOODLETTSVILLE, Tenn., Jun 08, 2010 (BUSINESS WIRE) -- Dollar General Corporation (NYSE: DG) today reported financial results for its fiscal 2010 first quarter (13 weeks) ended April 30, 2010. Net income was $136.0 million, or diluted earnings per share ("EPS") of $0.39, compared to net income of $83.0 million, or diluted EPS of $0.26, in the first quarter (13 weeks) of fiscal 2009. Excluding items totaling approximately $15.0 million relating to a secondary offering of the Company's common stock by certain existing shareholders during the 2010 first quarter, adjusted net income increased 75 percent to $145.4 million, or $0.42 per diluted share.

"Dollar General's first quarter performance marks a great start to the year. Our first quarter sales were ahead of our expectations. Our same-store sales growth of 6.7 percent for the quarter was on top of 13.3 percent growth in the first quarter of 2009," said Rick Dreiling, chairman and chief executive officer.

"We generated these positive results by continuing to provide our customers with a convenient shopping experience at everyday low prices. Our strong first quarter results, coupled with our consistent track record, give us confidence to raise our full-year outlook for 2010."

First Quarter 2010 Financial Results

Sales increased 11.9 percent to $3.11 billion in the 2010 first quarter compared to $2.78 billion in the 2009 first quarter. Same-store sales increased 6.7 percent in the 2010 quarter and 13.3 percent in the 2009 quarter, with customer traffic and average transaction amount contributing to the same-store sales increases in both periods. Sales were strongest in the consumables and seasonal categories.

The 2010 gross profit rate increased by 136 basis points to 32.1 percent of sales from 30.8 percent of sales in the 2009 period. The gross profit rate increase was primarily due to higher net markups, partially offset by increased markdowns. Higher markups were impacted by increased sales volumes and improved global sourcing capabilities which have contributed to the Company's ability to reduce product costs. In addition, an increase in the mix of private brands has contributed to increased markups. Higher markdowns in the quarter were partially attributable to the acceleration of certain planogram resets compared to the prior year. Transportation expenses increased due to the impact of higher average fuel costs in the quarter, and distribution expenses, as a percentage of sales, increased as the result of higher labor costs resulting from recent inventory management initiatives.

Selling, general and administrative expenses ("SG&A") were $709.0 million, or 22.8 percent of sales, in the 2010 first quarter compared to 22.7% in the 2009 first quarter, an increase of 11 basis points. SG&A in the 2010 quarter includes expenses totaling $15.0 million relating to a secondary offering of the Company's common stock by certain existing shareholders during the quarter, including $14.3 million relating to the acceleration of certain equity appreciation rights and $0.7 million of legal and other transaction expenses. Excluding these items, SG&A decreased by 37 basis points, primarily attributable to leverage attained from higher net sales. As a percentage of total sales, other items favorably affecting SG&A during the 2010 period include costs incurred in the 2009 period for productivity initiatives that did not recur in the 2010 period, reductions in utilities costs and increased benefits from the Company's recycling efforts, partially offset by increased retail labor costs due in part to the acceleration of certain merchandising initiatives as well as an increase in certain minimum wage rates.

First quarter 2010 operating profit increased by 29 percent to $290.7 million, or 9.3 percent of sales, compared to $224.9 million, or 8.1 percent of sales, in the 2009 first quarter. Excluding the expenses relating to the secondary offering discussed above, first quarter 2010 operating profit would have been $305.8 million, or 9.8 percent of sales.

Interest expense was $72.0 million in the 2010 first quarter compared to $89.2 million in the 2009 first quarter due to lower average outstanding borrowings resulting from the Company's repurchases of long-term obligations in fiscal 2009.

The effective income tax rate for the 2010 quarter was 37.8 percent compared to a rate of 38.1 percent for the 2009 quarter.

Merchandise Inventories

As of April 30, 2010, total merchandise inventories, at cost, were $1.60 billion compared to $1.45 billion as of May 1, 2009, an increase of ten percent, or four percent on a per-store basis. Inventory turns, based on the most recent four quarters, improved to 5.3 times in 2010 compared to 5.2 times in the comparable prior year period.

Long-Term Obligations

As of April 30, 2010, outstanding long-term obligations, including the current portion, were $3.40 billion, a decrease of $733 million from the prior year. In May 2010, the Company repurchased in the open market an additional $50 million of its 10-5/8% Senior Notes.

Capital Expenditures

Total additions to property and equipment in the 2010 first quarter were $91 million. Additions included $28 million relating to new store openings, $38 million for improvements and upgrades to existing stores, $14 million for remodels and relocations of existing stores, and $7 million for distribution and transportation improvements. During the quarter, the Company opened 155 new stores and relocated or remodeled 128 stores.

2010 Financial Outlook

The Company remains committed to continuing its focus on productive sales growth, increasing gross margins, leveraging process improvements and information technology to reduce costs and strengthening and expanding Dollar General's culture of serving others.

The volatility of the macroeconomic environment, including sustained rates of high unemployment, continues to pressure the consumer in general. Dollar General is closely monitoring how consumers respond to both the economic and the competitive climate.

Based on first quarter results, the Company continues to expect total sales for the 2010 fiscal year to increase eight to ten percent, including an increase in same-store sales of four to six percent. Adjusted operating profit is expected to increase 18 to 22 percent over full year 2009 adjusted operating profit, as compared to the Company's previous guidance of 15 to 20 percent. Adjusted diluted earnings per share for the year are now expected to be $1.62 to $1.69, up from $1.55 to $1.63 previously forecasted, based on weighted average diluted shares of 345 million, and a full year 2010 tax rate in the range of 38 to 39 percent. The calculations of adjusted operating profit and adjusted diluted earnings per share exclude costs related to common stock offerings that have occurred in the relevant periods and the early retirement of long-term obligations, as applicable.

The Company plans to open approximately 600 new stores and to remodel or relocate a total of approximately 500 stores in 2010. Capital expenditures are expected to be in the range of $325 million to $350 million, with approximately 50 percent relating to new stores, remodels and relocations, 25 percent for maintenance capital and 25 percent for special projects, including the expansion of the 78-inch store profile and point-of-sale upgrades.

Conference Call Information

The Company will hold a conference call on Tuesday, June 8, 2010 at 9:00 a.m. CDT/10:00 a.m. EDT, hosted by Rick Dreiling, chairman and chief executive officer, and David Tehle, chief financial officer. If you wish to participate, please call (866) 710-0179 at least 10 minutes before the conference call is scheduled to begin. The pass code for the conference call is "Dollar General." In addition, the call will be available online at www.dollargeneral.com under "Investor Information, Conference Calls and Investor Events." A replay of the conference call will be available through Tuesday, June 22, 2010, and will be accessible online or by calling (334) 323-7226. The pass code for the replay is 69256576.

Forward-Looking Statements

This press release contains forward-looking information, such as the information in the section entitled "2010 Financial Outlook." The words "believe," "anticipate," "project," "plan," "schedule," "expect," "estimate," "objective," "forecast," "intend," "committed," "will likely result," or "will continue" and similar expressions generally identify forward-looking statements. These matters involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from that expressed or implied by these forward-looking statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. Factors that may result in actual results differing materially from such forward-looking information include, but are not limited to:

Forward-looking statements speak only as of the date made. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they were made. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, the Company.

Non-GAAP Disclosure

Certain information provided in this press release and the accompanying tables has not been derived in accordance with generally accepted accounting principles ("GAAP"). Reconciliations of these non-GAAP measures to measures calculated in accordance with GAAP are provided in the accompanying schedules. Non-GAAP information should not be considered a substitute for any information derived or calculated in accordance with GAAP.

The Company believes that providing comparisons to operating profit, net income, diluted earnings per share and SG&A, adjusted for the items shown in the accompanying reconciliations, provides useful information to the reader in assessing the Company's operating performance. The Company believes that the presentation of EBITDA and Adjusted EBITDA is appropriate to provide additional information about the calculation of the senior secured incurrence test, a material financial ratio in the Company's credit agreements. Adjusted EBITDA is a material component of that ratio.

The non-GAAP measures discussed above are not measures of financial performance or condition, liquidity or profitability in accordance with GAAP, and should not be considered as alternatives to net income, operating income, cash flows from operations or any other performance measures determined in accordance with GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments, debt service requirements and replacement of fixed assets. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of the Company's financial results as reported under GAAP.

About Dollar General Corporation

Dollar General Corporation has been delivering value to shoppers for more than 70 years. Dollar General helps shoppers Save time. Save money. Every day!(R) by offering products that are frequently used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, house wares and seasonal items at low everyday prices in convenient neighborhood locations. With 8,965 stores in 35 states as of April 30, 2010, Dollar General has more retail locations than any retailer in America. In addition to high quality private brands, Dollar General sells products from America's most-trusted manufacturers such as Procter & Gamble, Kimberly-Clark, Unilever, Kellogg's, General Mills, Nabisco, Hanes, PepsiCo and Coca-Cola. Learn more about Dollar General at www.dollargeneral.com.

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
April 30, May 1, January 29,
2010 2009 2010
ASSETS
Current assets:
Cash and cash equivalents $ 222,709 $ 434,584 $ 222,076
Merchandise inventories 1,604,754 1,454,692 1,519,578
Income taxes receivable - 3,479 7,543
Prepaid expenses and other current assets 111,115 69,393 96,252
Total current assets 1,938,578 1,962,148 1,845,449
Net property and equipment 1,360,868 1,280,835 1,328,386
Goodwill 4,338,589 4,338,589 4,338,589
Intangible assets, net 1,276,173 1,314,425 1,284,283
Other assets, net 62,868 82,804 66,812
Total assets $ 8,977,076 $ 8,978,801 $ 8,863,519
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 3,547 $ 19,526 $ 3,671
Accounts payable 789,274 700,438 830,953
Accrued expenses and other 332,251 332,722 342,290
Income taxes payable 34,686 28,034 4,525
Deferred income taxes payable 46,282 11,942 25,061
Total current liabilities 1,206,040 1,092,662 1,206,500
Long-term obligations 3,399,887 4,117,190 3,399,715
Deferred income taxes 540,010 554,098 546,172
Other liabilities 277,989 283,916 302,348
Total liabilities 5,423,926 6,047,866 5,454,735
Commitments and contingencies
Redeemable common stock 16,624 14,350 18,486
Shareholders' equity:
Preferred stock - - -
Common stock 298,371 278,159 298,013
Additional paid-in capital 2,928,855 2,492,482 2,923,377
Retained earnings 339,071 186,370 203,075
Accumulated other comprehensive loss (29,771 ) (40,426 ) (34,167 )
Total shareholders' equity 3,536,526 2,916,585 3,390,298
Total liabilities and shareholders' equity $ 8,977,076 $ 8,978,801 $ 8,863,519
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
For the Quarter (13 Weeks) Ended
April 30, % of Net May 1, % of Net
2010 Sales 2009 Sales
Net sales $ 3,111,314 100.00 % $ 2,779,937 100.00 %
Cost of goods sold 2,111,558 67.87

1,924,579 69.23

Gross profit 999,756 32.13

855,358 30.77

Selling, general and administrative 709,033 22.79

630,489 22.68

Operating profit 290,723 9.34

224,869 8.09

Interest income (6 ) (0.00 ) (94 ) (0.00 )
Interest expense 72,018 2.31

89,235 3.21

Other (income) expense 145 0.00

1,667 0.06

Income before income taxes 218,566 7.02

134,061 4.82

Income tax expense 82,570 2.65

51,055 1.84

Net income $ 135,996 4.37 % $ 83,006 2.99 %
Earnings per share:
Basic $ 0.40 $ 0.26
Diluted $ 0.39 $ 0.26
Weighted average shares outstanding:
Basic 340,819 317,870
Diluted 344,397 318,298
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Quarter (13 Weeks) Ended
April 30, May 1,
2010 2009
Cash flows from operating activities:
Net income $ 135,996 $ 83,006

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 63,252 64,531
Deferred income taxes 10,029 15,461
Tax benefit of stock options (4,806 ) -
Non-cash share-based compensation 4,979 2,938
Other non-cash gains and losses 1,633 1,260
Change in operating assets and liabilities:
Merchandise inventories (85,176 ) (39,040 )
Prepaid expenses and other current assets (13,503 ) (3,012 )
Accounts payable (36,954 ) 10,578
Accrued expenses and other (30,961 ) (50,368 )
Income taxes 42,510 23,336
Other (26 ) 203
Net cash provided by operating activities 86,973 108,893
Cash flows from investing activities:
Purchases of property and equipment (90,998 ) (51,825 )
Proceeds from sale of property and equipment 258 152
Net cash used in investing activities (90,740 ) (51,673 )
Cash flows from financing activities:
Issuance of common stock 285 620
Repayments of long-term obligations (463 ) (999 )
Repurchases of equity (228 ) (252 )
Tax benefit of stock options 4,806 -

Net cash provided by (used in) financing activities

4,400 (631 )
Net increase in cash and cash equivalents 633 56,589
Cash and cash equivalents, beginning of period 222,076 377,995
Cash and cash equivalents, end of period $ 222,709 $ 434,584
Supplemental cash flow information:
Cash paid for:
Interest $ 28,394 $ 33,782
Income taxes $ 51,713 $ 34,944
Supplemental schedule of non-cash investing and financing activities:

Purchases of property and equipment awaiting processing for payment, included in Accounts payable

$ 25,669 $ 18,913
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
Sales by Category (in thousands)
For the Quarter (13 Weeks) Ended
April 30, 2010 May 1, 2009 % Change
Consumables $ 2,231,500 $ 1,995,809 11.8 %
Seasonal 430,051 356,452 20.6 %
Home products 224,867 216,883 3.7 %
Apparel 224,896 210,793 6.7 %
Net sales $ 3,111,314 $ 2,779,937 11.9 %
Store Activity
For the Quarter (13 Weeks) Ended
April 30, 2010 May 1, 2009
Beginning store count 8,828 8,362
New store openings 155 104
Store closings (18 ) (4 )
Net new stores 137 100
Ending store count 8,965 8,462
Total selling square footage (000's) 63,679 59,546
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share amounts)
For the Quarter (13 Weeks) Ended
April 30, % of Net May 1, % of Net Increase
2010 Sales 2009 Sales $ %
Net sales $ 3,111.3 $ 2,779.9 $ 331.4 11.9 %
Selling, general and administrative ("SG&A") $ 709.0 22.79 % $ 630.5 22.68 % $ 78.5 12.5 %
Secondary offering expenses (0.7 ) -
Acceleration of equity-based compensation (14.3 ) -
Adjusted SG&A $ 694.0 22.31 % $ 630.5 22.68 % $ 63.5 10.1 %
Operating profit $ 290.7 9.34 % $ 224.9 8.09 % $ 65.9 29.3 %
Secondary offering expenses 0.7 -
Acceleration of equity-based compensation 14.3 -
Adjusted operating profit $ 305.8 9.83 % $ 224.9 8.09 % $ 80.9 36.0 %
Net income $ 136.0 4.37 % $ 83.0 2.99 % $ 53.0 63.8 %
Secondary offering expenses 0.7 -
Acceleration of equity-based compensation 14.3 -
Total adjustments 15.0 -
Income tax effect of adjustments (5.6 ) -
Net adjustments 9.4 0.30 % - -
Adjusted net income $ 145.4 4.67 % $ 83.0 2.99 % $ 62.4 75.2 %
Diluted earnings per share:
As reported $ 0.39 $ 0.26
Adjusted $ 0.42 $ 0.26
Impact of net adjustments $ 0.03 $ -
Weighted average diluted shares outstanding 344.4 318.3
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
(In millions)
Quarter (13 Weeks) Ended Four Quarters (52 Weeks) Ended
April 30, May 1, April 30, May 1,
2010 2009 2010 2009
Net income $ 136.0 $ 83.0 $ 392.4 $ 185.3
Add (subtract):
Interest income (0.0 ) (0.1 ) (0.0 ) (2.2 )
Interest expense 72.0 89.2 328.4 380.2
Depreciation and amortization 60.1 61.2 240.6 238.0
Income taxes 82.6 51.1 244.2 132.6
EBITDA 350.7 284.4 1,205.6 933.9
Adjustments:
(Gain) loss on debt retirements - - 55.3 (3.8 )
(Gain) loss on hedging instruments 0.1 0.7 (0.1 ) 1.5
Contingent gain on distribution center leases - - - (5.0 )

Impact of markdowns related to inventory clearance activities, net of purchase accounting adjustments

- (3.5 ) (3.8 ) (28.4 )
Hurricane-related expenses and write-offs - - - 2.2
Advisory and consulting fees to affiliates 0.1 1.6 62.0 8.0
Non-cash expense for share-based awards 6.1 2.9 21.9 10.6
Indirect costs related to merger and stock offering 0.8 4.4 7.0 17.3
Litigation settlement and related costs, net - - - 32.0
Other non-cash charges (including LIFO) 1.8 0.5 7.9 53.9
Total Adjustments 8.9 6.6 150.2 88.3
Adjusted EBITDA $ 359.6 $ 291.0 $ 1,355.8 $ 1,022.2
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(Dollars in millions)
Senior Secured Incurrence Test
April 30, May 1,
2010 2009
Senior secured debt $ 1,985.9 $ 2,323.5
Less: cash 222.7 434.6
Senior secured debt, net of cash $ 1,763.2 $ 1,888.9
Adjusted EBITDA $ 1,355.8 $ 1,022.2

Ratio of senior secured debt, net of cash, to Adjusted EBITDA

1.3x 1.8x
Calculation of Ratio of Long-Term Obligations to Adjusted EBITDA
April 30, May 1,
2010 2009
Total long-term obligations $ 3,403.4 $ 4,136.7
Adjusted EBITDA $ 1,355.8 $ 1,022.2
Ratio of long-term obligations to Adjusted EBITDA 2.5x 4.0x
Calculation of Ratio of Long-Term Obligations, net of Cash, to Adjusted EBITDA
April 30, May 1,
2010 2009
Total long-term obligations $ 3,403.4 $ 4,136.7
Less: cash 222.7 434.6
Total long-term obligations, net of cash $ 3,180.7 $ 3,702.1
Adjusted EBITDA $ 1,355.8 $ 1,022.2

Ratio of long-term obligations, net of cash, to Adjusted EBITDA

2.3x 3.6x
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share amounts)
For the Year (52 Weeks) Ended
January 28, 2011 January 29, 2010 Forecasted
Forecast of Range Percent Increase
Low End High End Actual Low End High End
Operating profit $ 1,191.0 $ 1,227.0 $ 953.3 25 % 29 %
Sponsor advisory fee termination - - 58.8
Acceleration of equity-based compensation 14.3 14.3 9.4
Secondary offering expenses 0.7 0.7 -
Adjusted operating profit $ 1,206.0 $ 1,242.0 $ 1,021.5 18 % 22 %
Net income $ 544.6 $ 570.6 $ 339.4 60 % 68 %
Sponsor advisory fee termination - - 58.8
Acceleration of equity-based compensation 14.3 14.3 9.4
Secondary offering expenses 0.7 0.7 -
Repurchase of long-term obligations 6.5 6.5 55.3
Total adjustments 21.5 21.5 123.5
Income tax effect of adjustments (8.1 ) (8.1 ) (37.8 )
Net adjustments 13.4 13.4 85.7
Adjusted net income $ 558.0 $ 584.0 $ 425.1 31 % 37 %
Diluted earnings per share:
As reported $ 1.58 $ 1.65 $ 1.04 52 % 59 %
Adjusted $ 1.62 $ 1.69 $ 1.31 24 % 29 %
Impact of net adjustments $ 0.04 $ 0.04 $ 0.26
Weighted average diluted shares outstanding 345.0 345.0 324.8
NOTE: Adjustments included in the range of forecasts for the year (52 weeks) ended January 28, 2011 included items incurred through the first quarter ended April 30, 2010 and an estimated pretax loss of $6.5 million ($4.0 million, net of tax) resulting from the repurchase of $50 million of the Company's Senior Notes on May 6, 2010.

SOURCE: Dollar General Corporation

Dollar General Corporation
Investor Contact:
Mary Winn Gordon, 615-855-5536
or
Emma Jo Kauffman, 615-855-5525
or
Media Contact:
Tawn Miller, 615-855-5209

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