Dollar General 2009 Annual Report Download - page 39

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis should be read with, and is qualified in its entirety by, the Consolidated
Financial Statements and the notes thereto. It also should be read in conjunction with the Forward-Looking
Statements/Risk Factors disclosures set forth in the Introduction and in Item 1A of this report, respectively.
Executive Overview
We are the largest discount retailer in the United States by number of stores, with 8,877 stores
located in 35 states as of February 26, 2010, primarily in the southern, southwestern, midwestern and
eastern United States. We offer a broad selection of merchandise, including consumable products such
as food, paper and cleaning products, health and beauty products and pet supplies, and
non-consumable products such as seasonal merchandise, home decor and domestics, and apparel. Our
merchandise includes high quality national brands from leading manufacturers, as well as comparable
quality private brand selections with prices at substantial discounts to national brands. We offer our
customers these national brand and private brand products at everyday low prices (typically $10 or less)
in our convenient small-box (small store) locations.
On July 6, 2007, we completed a merger and, as a result, we are a subsidiary of Buck
Holdings, L.P. (‘‘Buck’’), a Delaware limited partnership controlled by investment funds affiliated with
Kohlberg Kravis Roberts & Co., L.P. (collectively, ‘‘KKR’’). The membership interests of Buck and
Buck Holdings, LLC (‘‘Buck LLC’’), the general partner of Buck, are held by a private investor group,
including affiliates of each of KKR and Goldman, Sachs & Co. and other equity investors (collectively,
the ‘‘Investors’’) The merger consideration was funded through the use of our available cash, cash
equity contributions from the Investors, equity contributions of certain members of our management
and certain debt financings discussed below under ‘‘Liquidity and Capital Resources.’’ On
November 13, 2009, we completed an initial public offering of approximately 39.2 million shares,
including 22.7 million newly issued shares and approximately 16.5 million outstanding shares sold by a
selling shareholder.
The customers we serve are value-conscious, and Dollar General has always been intensely focused
on helping our customers make the most of their spending dollars. We believe our convenient store
format and broad selection of high quality products at compelling values have driven our substantial
growth and financial success over the years. Like other companies, over the past two years, we have
been operating in an environment with heightened economic challenges and uncertainties. Consumers
are facing very high rates of unemployment, fluctuating food, gasoline and energy costs, rising medical
costs, and a continued weakness in housing and credit markets, and the timetable for economic
recovery is uncertain. Nonetheless, as a result of our long-term mission of serving the value-conscious
customer, coupled with a vigorous focus on improving our operating and financial performance, our
2009 and 2008 financial results were strong, and we remain optimistic with regard to executing our
operating priorities in 2010.
At the beginning of 2008, we defined four operating priorities, which we remain keenly focused on
executing. These priorities are: 1) drive productive sales growth, 2) increase our gross margins,
3) leverage process improvements and information technology to reduce costs, and 4) strengthen and
expand Dollar General’s culture of serving others.
Our first priority is driving productive sales growth by increasing shopper frequency and
transaction amount and maximizing sales per square foot. We have enhanced our category management
processes, allowing us to continue expanding our consumables offerings while also improving
profitability, by adding more productive items and eliminating unproductive items. We are utilizing the
space in our stores more productively by raising the height of our merchandise fixtures and
implementing more consistent space planning. In addition, we are making significant progress in
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