Dollar General 2012 Annual Report Download - page 107

10-K
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 Cautionary
Disclosure Regarding Forward-Looking Statements and the 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 10,557 stores
located in 40 states as of March 1, 2013, 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 basic 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.
The customers we serve are value-conscious, many with low or fixed incomes, and Dollar General
has always been intensely focused on helping them 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 for approximately four years in an environment with ongoing economic challenges and
uncertainties. Consumers are facing sustained 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 economic recovery remains uncertain. The longer our
customers have to manage under such difficult conditions, the more difficult it is for them to stretch
their spending dollars, particularly for discretionary purchases. Nonetheless, as a result of our long-term
mission of serving these customers, coupled with a vigorous focus on improving our operating and
financial performance, our 2012 and 2011 financial results were strong, and we remain optimistic with
regard to executing our initiatives in 2013.
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 2012, sales in same-stores increased by
4.7%, due to increases in both traffic and average transaction. Inflation had a lesser impact in 2012
than in 2011. 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 2012 included: continued improvement in merchandise in-stock
levels; the expansion of the number of coolers for refrigerated and frozen foods in approximately 1,400
existing stores; further progress on our beer and wine rollout; merchandising initiatives for electronics
and domestic goods; and the impact of 592 remodeled and relocated stores during the year. In addition
to same-store sales growth, we opened 625 new stores, including 41 Dollar General Market stores and
35 Dollar General ‘‘Plus’’ stores in 2012. Plus stores are our newest store format, which are slightly
larger than our traditional stores with a significantly expanded frozen and refrigerated food section.
Our second priority is to increase gross profit through effective category management, the
expansion of private brand offerings, increased foreign sourcing, shrink reduction, distribution and
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