Dollar General 2007 Annual Report Download - page 14

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ratio. Our ability to meet this financial ratio can be affected by events beyond our control, and
we cannot assure you that we will meet this ratio and other covenants.
General economic factors may adversely affect our financial performance.
General economic conditions in one or more of the markets we serve may adversely
affect our financial performance. A general slowdown in the economy, higher interest rates,
higher than expected fuel and other energy costs, inflation, higher levels of unemployment,
higher consumer debt levels, higher tax rates and other changes in tax laws, tightening of the
credit markets, and other economic factors could adversely affect consumer demand for the
products we sell, change our sales mix of products to one with a lower average gross profit and
result in slower inventory turnover and greater markdowns on inventory. Higher interest rates,
higher commodities rates, higher fuel and other energy costs, transportation costs, inflation,
higher costs of labor, insurance and healthcare, foreign exchange rate fluctuations, higher tax
rates and other changes in tax laws, changes in other laws and regulations and other economic
factors increase our cost of sales and selling, general and administrative expenses, and otherwise
adversely affect the operations and operating results of our stores.
Our plans depend significantly on initiatives designed to improve the efficiencies, costs and
effectiveness of our operations, and failure to achieve or sustain these plans could affect our
performance adversely.
We have had, and expect to continue to have, initiatives (such as those relating to
marketing, merchandising, promotions, sourcing, shrink, private label, store operations and real
estate) in various stages of testing, evaluation, and implementation, upon which we expect to rely
to improve our results of operations and financial condition. These initiatives are inherently risky
and uncertain, even when tested successfully, in their application to our business in general. It is
possible that successful testing can result partially from resources and attention that cannot be
duplicated in broader implementation. Testing and general implementation also can be affected
by other risk factors described herein that reduce the results expected. Successful systemwide
implementation relies on consistency of training, stability of workforce, ease of execution, and
the absence of offsetting factors that can influence results adversely. Failure to achieve
successful implementation of our initiatives or the cost of these initiatives exceeding
management’ s estimates could adversely affect our results of operations and financial condition.
Because our business is seasonal to a certain extent, with the highest volume of net sales
during the fourth quarter, adverse events during the fourth quarter could materially affect
our financial statements as a whole.
We generally recognize our highest volume of net sales during the Christmas selling
season, which occurs in the fourth quarter of our fiscal year. In anticipation of this holiday, we
purchase substantial amounts of seasonal inventory and hire many temporary employees. A
seasonal merchandise inventory imbalance could result if for any reason our net sales during the
Christmas selling season were to fall below either seasonal norms or expectations. If for any
reason our fourth quarter results were substantially below expectations, our financial
performance and operating results could be adversely affected by unanticipated markdowns,