Dollar General 2011 Annual Report Download - page 129

10-K
A significant percentage of our outstanding common stock is held by Buck Holdings, L.P., a
Delaware limited partnership controlled by investment funds affiliated with Kohlberg Kravis
Roberts & Co. L.P. (collectively, ‘‘KKR’’). The membership interests of Buck Holdings, L.P. and Buck
Holdings, LLC, the general partner of Buck LP, 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 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, we have been operating in an
environment with heightened economic challenges and uncertainties. Consumers are facing high rates
of unemployment, fluctuating food, gasoline and energy costs, rising medical costs, and a continued
weakness in housing and consumer credit markets, and the timetable and strength of any 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
2011 and 2010 financial results were strong, and we remain optimistic with regard to executing our
operating priorities in 2012.
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. In 2011, sales in same-stores increased by
6.0%, due to increases in traffic and average transaction, and, to a lesser extent, the impact of inflation.
Sales in same-stores were aided by continued enhancements to our category management processes
which help us determine the most productive merchandise offerings for our customers. Specific sales
growth initiatives in 2011 included: improvement in merchandise in-stock levels; the completion of the
final phase of raising the shelf height in our stores to 78 inches, which impacted health and beauty aids;
further emphasis on the $1.00 price point; the expansion of the number of coolers in approximately
500 existing stores; and the impact of 575 remodeled and relocated stores during the year. In addition
to same-store sales growth, we opened 625 new stores in 2011. Our small box stores offer consumable
items, including packaged and refrigerated foods, to communities that might not otherwise have
convenient access at value prices. To further expand this opportunity, we opened 12 new Dollar
General Market stores in 2011.
Our second priority is to increase gross profit through effective category management, the
expansion of private brand offerings, increased foreign sourcing, shrink reduction, distribution
efficiencies and improvements to our pricing and markdown model, while remaining committed to our
everyday low price strategy. We constantly review our pricing strategy and work diligently to minimize
product cost increases as we focus on providing our customers quality merchandise at great values. In
our consumables category, we strive to offer the optimal balance of the most popular nationally
advertised brands and our own private brands, which generally have higher gross profit rates than
national brands. Throughout 2011, we experienced increased product costs, primarily as the result of
increases in the costs of certain commodities which were passed through to us. These increased product
costs negatively affected gross profit and resulted in an increased LIFO provision. In addition, elevated
costs of diesel fuel affected our overall merchandise costs in 2011. Our shrink reduction efforts were
successful in 2011 and we believe we have additional opportunities to reduce shrink in our stores.
Our third priority is leveraging process improvements and information technology to reduce costs.
We are committed as an organization to extract costs that do not affect the customer experience. In
2011, much of our focus was on decreasing our store labor costs while improving our store standards
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