Dollar General 2013 Annual Report Download - page 107

improvement in our net sales from these initiatives will outweigh the corresponding reduction in our
gross profit rate. In addition, we have ongoing efforts to reduce product costs including effective
category management, utilization of private brands, shrink reduction, distribution and transportation
efficiencies and additional improvements to our pricing and markdown business model, among others,
while remaining committed to our everyday low price strategy. 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. We believe that our core
customer is continuing to seek out and purchase goods at entry level price points and are doing so with
greater frequency. Commodities cost inflation was minimal in 2013 and, in some instances, we
experienced a decrease in such costs. Accordingly, overall price increases passed through to our
customers were minimal. We remain committed to our seasonal, home, and apparel categories, and
although consumables sales trends are weaker than we would like, we expect the growth of
consumables to continue to outpace the non-consumables categories again in 2014 due to the
anticipated continued economic pressures discussed above.
Our third priority is leveraging process improvements and information technology to reduce costs.
We are committed as an organization to reduce costs, particularly selling, general and administrative
expenses (‘‘SG&A’’) that do not affect the customer experience. In 2013, the most significant decrease
in SG&A as a percentage of sales as compared to 2012 resulted from our failure to reach our 2013
threshold financial performance level required under our annual cash incentive compensation program,
which would have reduced cash incentive compensation for eligible employees to zero. However, the
Company will pay a nominal discretionary amount to members of this group who are not Company
officers. In addition, we again successfully lowered our store labor costs as a percentage of sales, in
part, by simplifying various tasks performed in the stores. Going forward, we will continue to simplify
or eliminate unnecessary work in our stores and elsewhere in the company and believe we have
additional opportunities to reduce costs through our focused procurement efforts. Certain costs, such as
new legislation and regulations related to health care insurance requirements, present a unique
challenge to our ability to leverage expenses. Because of the significance of the reduction in incentive
compensation in 2013, compliance with certain provisions of the Affordable Care Act in 2014, and an
increase in 2014 store occupancy costs resulting from the recent completion of a sale-leaseback
transaction, we expect overall SG&A to be a higher percentage of sales in 2014 than in 2013.
Our fourth priority is to strengthen and expand Dollar General’s culture of serving others. For
customers this means helping them ‘‘Save time. Save money. Every day!’’ by providing clean,
well-stocked stores with quality products at low prices. For employees, this means creating an
environment that attracts and retains key employees throughout the organization. For the public, this
means giving back to our store communities through our charitable and other efforts. For shareholders,
this means meeting their expectations of an efficiently and profitably run organization that operates
with compassion and integrity.
Although we did not meet all of our financial goals in 2013, our continued focus on these four
priorities, coupled with strong cash flow management and share repurchases, resulted in solid overall
operating and financial performance in 2013 as compared to 2012 as follows. Basis points, as referred
to below, are equal to 0.01 percent of total sales.
• Total sales in 2013 increased 9.2% over 2012. Sales in same-stores increased 3.3%, with increases
in both customer traffic and average transaction amount. Consumables represented 75% of sales
in 2013 and drove 89% of the total increase. Departments with the most significant increases
were tobacco, perishables and candy and snacks. Average sales per square foot in 2013 were
$220, up from $216 in 2012.
• Operating profit increased 4.9% to $1.74 billion, or 9.9% of sales, compared to $1.66 billion, or
10.3% of sales in 2012. The decrease in our operating profit rate was attributable to a 69 basis-
point decrease in our gross profit rate, partially offset by a 27 basis-point reduction of SG&A.
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