Dollar General 2005 Annual Report Download - page 22

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
18
ed free cash flow of $250.9 million in 2005 compared
to $96.2 million in 2004, as calculated below under
“Non-GAAP disclosures.”
• Inventory turns (cost of goods sold for the year divid-
ed by average inventory balances, at cost, measured at
the end of the latest five fiscal quarters) is an indicator
of how well the Company is managing the largest
asset on its balance sheet. Inventory turns were 4.2
times in 2005, including the 53rd week, compared to
4.0 times in 2004.
• Return on average assets (net income for the year
divided by average total assets, measured at the end
of the latest five fiscal quarters), is an overall indicator
of the Company’s effectiveness in deploying its
resources. Return on assets was 12.1 percent in 2005
and 12.7 percent in 2004.
While the Company is particularly pleased with the
improvement in inventory management and free cash
flow generation, we did not achieve our overall internal
financial goals set out at the beginning of the year.
This shortfall was partially a result of non-controllable
economic and other factors that impacted our customers.
As a result of the Company’s inability to achieve its
financial targets, executives and administrative employees
did not earn a bonus under the Company’s “Teamshare”
bonus program.The Company has identified the following
opportunities aimed at improving financial performance
in 2006.
Key Items for Fiscal 2006. For 2006, the Company has
established the following priorities and initiatives aimed at
continuing the Company’s growth and improving its oper-
ating and financial performance while remaining focused
on serving its customers:
• Improvement in sales performance of same-stores
and new stores through new merchandise additions,
improved in-store presentation, and heightened
promotional energy aimed at increasing customer
traffic and average customer ticket. The Company
plans to strengthen its “treasure hunt” offering and to
execute a variety of new marketing, promotional
and/or advertising strategies.The Company will also
implement a new store floor plan in all new stores,
emphasizing improved merchandising adjacencies,
operational efficiencies and customer service, and will
continue efforts referred to as “Project Gold Standard”
begun in 2005 to improve the shopability and finan-
cial performance of existing stores;
• Further development of the Dollar General Market
concept;
• Continued investment in EZstore, further reducing
store labor and related costs, with the goal of com-
pleting the rollout by the end of 2006;
• Increased efforts to control inventory shrink in the
stores, which remains above acceptable levels as a
percentage of sales;
• Opening a minimum of 800 new traditional Dollar
General stores, while continuing to pursue further
geographical expansion, with increased emphasis on
site selection, approval processes, and lowering rent as
a percentage of sales in new and existing stores; and
• Continued investment in the Company’s infrastruc-
ture, including increasing global sourcing, further
developing our information technology capabilities,
and opening the Company’s ninth distribution center
thereby expanding distribution capacity.
The Company can provide no assurance that it
will be successful in executing these initiatives, nor
can the Company guarantee that the successful
implementation of these initiatives will result in superior
financial performance.