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The New Dollar GeneralWinning with value and convenience. Every day!2009 Annual Report
2009 Financial Highlights(In millions, except per share and operating data)As Reported20092008Adjustments20092008Adjusted (Non-GAAP)20092008Summary of OperationsNet sales 11,796 10,458 11,796 10,458Gross profit 3,690 3,061 3,690 3,061% of sales31.3%29.3% 31.3% 29.3%Selling, general andadministrative expenses 2,737 2,449( 68) 2,668 2,449% of sales23.2%23.4%22.6% 23.4%Operating profit 953 580 68 32 1,022 613% of sales8.1%5.6%8.7%5.9%Net Income 339 108 86 34 425 142Per Share ResultsDiluted earnings per share 1.04 0.34 0.26 0.11 1.31 0.45Financial PositionTotal assets 8,864 8,889Long-term obligations,including current portion 3,403 4,137Shareholders’ equity 3,390 2,832Operating DataRetail stores at end of year8,8288,362Reconciliation of Non-GAAP Financial Measures:This annual report contains certain adjusted financial measures that are notcomputed in accordance with generally accepted accounting principles(GAAP). Adjustments to selling, general and administrative expenses andoperating profit in 2009 include 59 million relating to the termination of asponsor advisory agreement and 9 million resulting from the acceleration ofcertain equity-based compensation. The adjustment to operating profit in2008 relates to the settlement of merger-related litigation. In addition,adjusted net income excludes amounts related to the early retirement oflong-term obligations (a 55 million loss in 2009 and a 4 million gain in2008) and the related tax effect of all of these adjustments of 38 million ofexpense in 2009 and a 5 million credit in 2008. A reconciliation of adjustedEBITDA to net income is located on page 45 of the Annual Report on Form10-K included in this annual report. The Company believes discussion of thesenon-GAAP measures provides useful information about the operations of theCompany. These should not be considered a substitute for any measurecomputed in accordance with GAAP.Follow Dollar General atdollargeneral.com
hello!1Welcome to the New Dollar GeneralAt Dollar General, we have been servingbasic everyday home, apparel andcustomers with our unique combinationseasonal merchandise, and we go aof value and convenience for over 70step farther, by providing a comfort-years. Today, with more than 8,800able, personal and friendly shoppingstores in 35 states and nearly 80,000environment. Our customer is anyonemembers of the Dollar General team,who can appreciate our great valuewe are serving more customers thanproposition to “Save time. Save money.ever. Dollar General stores offer greatEvery day!” and, we believe, thatvalues on quality consumables andshould be just about everyone.
To Our Fellow Shareholders,Customers, and Employees:Welcome to the New Dollar General! That’s right! Without question,we have entered a new era at Dollar General and have laid the rightfoundations to support our continuing evolution. In doing so, I believewe have made great progress in redefining small-box retailing.A Great Year for Dollar GeneralRick DreilingChairman and CEO2We have worked a great deal on elevating the look and feelof our stores and enhancing the customer shopping experience. We’ve also improved our operations and infrastructure,implemented a new private branding strategy, introduced amore sophisticated real estate strategy and developed amore disciplined approach to cost control. As a result,Dollar General is becoming known as a new and improveddestination for value-conscious, convenience-seekingcustomers who are looking for time-saving solutions.Our efforts not only improved our business andstrengthened our relationships with customers but they alsoallowed us to achieve a critical milestone. On November 13,2009, we rejoined the public equity market, strengtheningour capital structure and providing access to investors, inorder to help us to execute our growth strategy. Havingoperated as a private company since July 2007, our initialpublic offering was yet another step in a long track recordof success at Dollar General and, notably, was the largestretail IPO in nearly 14 years.Our long history of profitable growth is founded on acommitment to a relatively simple business model: providinga broad base of customers with their basic everyday needs,and helping them make the most of their spending dollarswith a wide selection of quality items at everyday lowprices in conveniently located, easy-to-shop stores. It is byadhering to this model that we were once again able toproduce exceptional operating results in 2009.Dollar General accomplished a great deal in 2009.Highlights from the year include: A sales increase of 12.8% to a record 11.8 billion. Same-store sales growth of 9.5%. Notably, we marked our20th consecutive year of positive same-store salesgrowth, which is almost unheard of in the retail industry. Expanded gross margin, which increased 201 basis pointsto 31.3%. A reduction in adjusted selling, general and administrativeexpenses as a percentage of sales by 79 basis points. Net income of 339.4 million, or 1.04 per diluted share.Adjusting for several charges related mainly to the IPO,net income for the full year was 425.1 million, or 1.31 perdiluted share. Adjusted Earnings before Interest Taxes, Depreciation andAmortization (EBITDA) growth of 41%. Debt reduction of 734 million. The opening of 500 new stores and remodeling orrelocation of an additional 450 stores, which createdabout 4,000 new jobs throughout the year.Our results are testament to the fact that our existing andnew customers are responding extremely well to our valueand convenience proposition.Our Continued Commitment to Our AssociatesAt Dollar General we are focused on attracting, developingand retaining talented employees. This commitment andthe dedication of our store associates were key driversof our accomplishmentsin 2009.Through enhancedtraining initiatives and aclear focus on developingcareer paths for our storeassociates, we have beenable to improve employeeretention at all levels. Ourfirst employee engagementsurvey proved that we have
Net SalesSame-Store Sales GrowthEnding Store CountSales Per Square Foot(in billions) 11.8 10.5128,8289.5%9.0%8,19410000 1958,362 180 16510 80707090800120908070809010100008800010successfully cultivated anengaged workforce, asDollar General placed in thetop quartile in the retailindustry. Additionally, ourimproved resources andtraining programs enabledus to reduce store managerturnover to its lowest levelin 16 years. We also maintained our commitment tohelping our associates grow within Dollar General. In 2009,46 percent of available store manager opportunities werefilled by internal promotions.Our employees are Dollar General’s most importantasset. Across the Company, associates in our more than8,800 stores nationwide work tirelessly every day to deliverour value and convenience proposition to our customers.With about one billion customer transactions a year, theseassociates strive to exceed the expectations of each andevery one of our customers. It is because of the commitment and dedication of our 80,000 associates that we wereable to accomplish such great things in 2009, and I haveconfidence that their engagement will lead to an evenbetter 2010.86420Dollar General’s Future is BrightIt’s evident that consumers have made significant behavioral changes during the current recession, and most havereset their spending norm. As we work to enhance theDollar General experience and maintain an intense focus onour customer service standards, we are confident thatconsumers will continue to turn to Dollar General for theireveryday needs, even as the economy begins to recover.As a result of our fine-tuned strategic direction as wellas the operating improvements that we have made over therecent timeframe, we are now better positioned than everto meet customers’ needs. And while we have made agreat deal of progress toward meeting new and evolvingconsumer needs, opportunities to improve our businessremain. We believe we have the right strategy andexecution capabilities in place to do so and to capitalizeon the considerable growth opportunities afforded by ourbusiness model.In 2010 we will stay focused on the four key operatingpriorities that have been instrumental in our success overthe past two years: Driving productive sales growth; Increasing gross margin; Leveraging process improvements and informationtechnology to reduce costs; and Strengthening and expanding Dollar General’s cultureof serving others.66000440002200000We are very excited about the future of Dollar General, aswe believe that we have significant opportunities for stableand consistent growth going forward. Notably, we believethat we still have significant store growth potential and areaccelerating new stores, relocations and remodels in 2010.Importantly, we occupy an ideal position in the marketplacethat we expect will continue to make us a compellinginvestment proposition going forward.I am confident about the prospects for Dollar Generalin 2010, and I think it is fair to say that in some ways theDollar General story is just beginning. We have tremendousopportunities in front of us and will pursue these opportunities with every available resource.We are grateful for our customers, partners, employeesand shareholders, and we want to thank all of you for yoursupport. As Dollar General embarks on its first full year as apublic company, there is much to look forward to, and weare excited about continuing the journey with you.Sincerely,Richard W. DreilingChairman and Chief Executive OfficerApril 16, 20103
Building the New Dollar GeneralDollar General was built on a solid foundation of helping customers “Savetime. Save money. Every day!” We remain strongly committed to our customers as we continue creating the New Dollar General, driven by four keyoperating priorities: 1) Driving productive sales growth; 2) Increasing grossmargin; 3) Leveraging process improvements and information technologyto reduce costs; and 4) Expanding our culture of serving others.Driving Productive Sales Growth4We are driving productive sales growth on two fronts. First,we are improving the productivity of our existing stores.Second, we are accelerating our new store growth. Importantly, we have plenty of opportunities on both fronts.Simple changes to the way our stores look and operateare resulting in a big impact on our sales. Our goal is todeliver a consistent, fresh, well-merchandised look and feelacross all of our stores. We are making good progress inthat effort, and customers are responding.Whether for convenience, value, or both, many of ourcustomers depend on us for their everyday shopping trips.Others shop our stores for specific household items orlast-minute needs, and some simply visit us to see what’snew. We listen to our customers and evaluate and adjustour merchandise assortment to best meet their needs andoptimize our store productivity. Sophisticated categorymanagement processes are critical to our efforts toincrease shopper frequency and expand basket sizeand led us to our decision to raise the shelf height throughout our stores. This increased selling space has allowed usto broaden our selections of packaged foods, snacks andbeverages, and in 2010 we are expanding health and beautyaids and transforming our home and apparel areas.With regard to new store expansion, relocations andremodels, our comprehensive real estate processes requireus to be more analytical in our site selection, and, as aresult, our new stores are more productive. In 2009 weNew Customer-Centric StoresOur new customer-centric formatis designed with improvedmerchandise adjacencies, wideraisles and more convenientcheckout to make shoppingeasier for our customers.
Significant Opportunityfor GrowthIn 2010, we plan to open 600 newcustomer-centric neighborhoodstores within our existing 35states. In fact, we have significantopportunity for future growthboth in our current states and innew markets.24722444081718092358912548,828stores in35 states816326 334161289334329160 256312565507450353243283 4861013483499352454as of January 29, 2010developed a new customer-centric format for our newstores, relocations and remodels, dramatically enhancingin-store convenience and the overall shopping experience.The fresh, bright, clean look of our store branding initiativeresonates “the NEW Dollar General,” with our new logo,bright yellow carts and baskets, updated outdoor signs andstrong messaging throughout our stores communicatingour value and convenience.Increasing Gross MarginWe’ve made important positive changes to the processeswe use to manage our gross margin. Under new leadershipand with the help of more sophisticated and comprehensive category management processes and analyses, weexpanded our gross profit rate to record levels in 2009,even while managing a higher mix of consumable items,which typically have lower gross profit rates. Notably, wehave plans to continue to improve.Non-Consumables andSeasonal Products are Partof Our Image RevolutionQuality, trend-relevant designsand colors, updated brands andattractive new packaging defineour strategy to drive sales ofnon-consumables with merchandise our customers trust.5We Proudly Sell Top National BrandsOur customers trust us to always have their favorite brands in food,candy, pet supplies, health and beauty, home cleaning and paperproducts. Dollar General sells products from America’s most-trustedmanufacturers such as Procter & Gamble, Kimberly-Clark, Unilever,Kellogg’s, General Mills, Nabisco, PepsiCo and Coca-Cola, to name a few.Our category management processes help guide us inmerchandise selection, pricing decisions and cost optimization, including our net purchase costs from vendors, as wellas our distribution and transportation costs, and handlingcosts in the stores. These processes also encompassmerchandise placement and presentation in the stores,assisting us in our efforts to increase sales of higher marginitems and reduce inventory shrinkage.We are committed to our strategy of providing nationalbrands at competitive everyday low prices. We acceptvendor coupons and work closely with our national brandsuppliers in promoting their products. However, we are alsosharply focused on expanding our private brands, whichgenerally contribute to higher gross profit rates. In additionto the upgraded quality of our private brand items, we havecompletely redesigned the packaging of our brands toconvey that our products are fresh and inviting. In twoyears, we have more than doubled the number of private
Improving Our PrivateBrand OfferingWe have over 1,300 items acrossall consumables categories, so ourcustomers can depend on usmore than ever to provide greatvalue on high-quality privatebrand alternatives to their favoritenational brands. If they arenot 100% satisfied, werefund the purchase price.6brand consumables we carry in our stores to over 1,300items in nearly every consumable category, includingpackaged food items, beverages, candy and snacks, petsupplies, paper products, home cleaning products andhealth and beauty aids.In 2010, our brands will be more visible across apparel,home and seasonal merchandise. We are re-launchingseveral proprietary brands in apparel, including the BobbieBrooks brand for women and girls and Open Trails formen and boys, with improved quality across fit and fabricBasic ApparelWe carry apparel items youneed every day, including Hanesunderwear basics, Fisher Priceapparel and accessories forbabies and toddlers, BobbieBrooks for women and girls andOpen Trails for men and boys.at price points attractive to our customers. We are alsolaunching our new trueliving home brand across homedécor, including kitchen and bath, trueliving outdoorsfor lawn and garden products, and trueliving kids,our outdoor toy line. All trueliving brands will havecoordinated packaging, with a fresh crisp color scheme.The production of many of these items and others willbe coordinated through our expanded direct sourcingoperations, where we believe we have additionalopportunities for gross margin improvement.Finally, we believe we can further streamline ourdistribution systems and continue to reduce inventoryshrinkage. Efforts on both of those fronts contributedmeaningfully to our gross profit rate improvement in 2009.Providing Convenience for Busy LivesCoolers and freezers are stocked with dairy products, juice, eggs, and afocused selection of packaged convenience foods. In addition to cashand checks, our customers are welcome to use EBT and credit cards.
New TechnologyIn 2009 we added voice picksystems in our distributioncenters, significantly improvingour efficiency in filling storeorders for small quantity items.Efficiencies in Distributionand TransportationApproximately 85 percent of ourmerchandise is shipped throughour nine distribution centerswhere we are continuallyimproving our processes toincrease efficiencies and to betterserve our stores.Leveraging Process Improvements and InformationTechnology to Reduce CostsOver the last several years we have developed a culture ofmining the organization to reduce costs that are not criticalto the customer experience. For example, we have significantly reduced our workers’ compensation expense bypromoting a culture of safety, also making Dollar Generala better, safer place to work.We began recycling cardboard in July 2008, and infiscal 2009, we recycled 136 thousand tons of paper andcardboard, saving over 2.3 million trees. This effort not onlybenefits the environment but also helps us save money.We are adding energy management systems in ourstores and enhancing our preventive maintenance programsto help control utilities costs while monitoring the comfortand performance of our store heating, air conditioning andlighting equipment.New training initiatives, including in-store e-learningmodules, are helping us develop our store managers.Strong, talented, well-trained managers are the key tooperating profitable stores and are critical to our abilityto successfully expand our store base. Dollar Generalcontinues to offer employees significant opportunitiesto grow in their careers.In addition to the benefits from our improved real estatesite selection systems and processes, our recently upgradedlease management system helps us identify opportunities toimprove and optimize our store leases.Expanding Our Culture of Serving OthersWe are strongly committed to being a part of and helpingour local, national and international communities. In 2009,Dollar General and the Dollar General Literacy Foundationdonated more than 29 million through grant programsand fundraising initiatives to more than 1,900 charitableorganizations. While most of our initiatives are focused onincreasing literacy in the United States, we have also madesignificant contributions to Red Cross relief efforts andSt. Jude Children’s Research Hospital.Supporting Adult LiteracyDollar General and the DollarGeneral Literacy Foundation havehelped more than 2.1 million peoplelearn to read, prepare for the GEDor learn to read and speak Englishas a second language. Throughcash cube contributions in ourstores, our customers are able tohelp us improve literacy in theircommunities.7
Dollar GeneralDirectors and OfficersDirectorsOfficersRichard W. Dreiling†Chairman and Chief ExecutiveOfficerDollar General CorporationChairman and ChiefExecutive OfficerRichard W. Dreiling†Vice PresidentsRaj K. Agrawal (2)(3)†DirectorKohlberg Kravis Roberts & Co.Executive Vice PresidentsJ. Leland Bandlow, Jr.TransportationDavid M. Tehle†Chief Financial OfficerWilliam C. BassStore OperationsJohn W. Flanigan, Jr.†Global Supply ChainStephen J. BrophyGovernment AffairsKathleen R. Guion†Division President, StoreOperations & StoreDevelopmentChristine L. ConnollyCorp
Adjusting for several charges related mainly to the IPO, net income for the full year was 425.1 million, or 1.31 per diluted share. Adjusted Earnings before Interest Taxes, Depreciation and Amortization (EBI
