Dollar General 2010 Annual Report Download - page 85

10-K
able to obtain alternative sources without experiencing a substantial disruption of our business.
However, such alternative sources could increase our merchandise costs or reduce the quality of our
merchandise, and an inability to obtain alternative sources could adversely affect our sales.
Distribution, Transportation and Inventory Management
Our stores are supported by nine distribution centers located strategically throughout our
geographic footprint. Of these nine, we own six and lease the other three. We lease additional
temporary warehouse space as necessary to support our distribution needs. To support our growth, we
are in the process of constructing our tenth distribution center near Birmingham, Alabama. We expect
this new distribution center to be operational in 2012. Over the past few years we have made significant
investments in facilities, technological improvements and upgrades, and we continue to improve work
processes, all of which increase our efficiency and ability to support our merchandising and operations
initiatives as well as our new store growth. We continually analyze and rebalance the network to ensure
that it remains efficient and provides the service our stores require. See ‘‘—Properties’’ for additional
information pertaining to our distribution centers.
Most of our merchandise flows through our distributions centers and is delivered to our stores by
third-party trucking firms, utilizing our trailers. Our agreements with these trucking firms are based on
estimated costs of diesel fuel, with the difference in estimated and current market fuel costs passed
through to us. The costs of diesel fuel are significantly influenced by international, political and
economic circumstances, and have risen in recent months, including considerable increases in early
2011. If such increased prices remain in effect, or if further price increases were to arise for any reason,
including fuel supply shortages or unusual price volatility, the resulting higher fuel prices could
materially increase our transportation costs.
In addition, we believe that there remains opportunity to improve our inventory turns. Initiatives in
process include operational efforts to optimize presentation levels and decrease excess quantities
shipped to our stores. We continue to focus on SKU optimization in an attempt to ensure that we can
meet our customers’ demands for our most popular products as well as for product assortment. We are
also in the early stages of implementing an improved supply chain solution to assist in ordering,
monitoring and tracking inventory from purchase order to receipt to maintain efficient levels of
inventory. We turned our inventory approximately 5.2 times over the most recent four quarters.
Seasonality
Our business is seasonal to a certain extent. Generally, our highest sales volume occurs in the
fourth quarter, which includes the Christmas selling season, and the lowest occurs in the first quarter.
In addition, our quarterly results can be affected by the timing of new store openings and store
closings, the amount of sales contributed by new and existing stores, as well as the timing of certain
holidays. We purchase substantial amounts of inventory in the third quarter and incur higher shipping
costs and higher payroll costs in anticipation of the increased sales activity during the fourth quarter. In
addition, we carry merchandise during our fourth quarter that we do not carry during the rest of the
year, such as gift sets, holiday decorations, certain baking items, and a broader assortment of toys and
candy.
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