PART��PART I—FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

See notes to condensed consolidated financial statements.

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moderately seasonal, the results for interim periods are not necessarily indicative of the results to be expected for the entire year.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued comprehensive new accounting standards related to the recognition of revenue, which specified an effective date for annual reporting periods beginning after December 15, 2016, with early adoption not permitted. In August 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, with earlier adoption permitted only for annual reporting periods beginning after December 15, 2016. The new guidance allows for companies to use either a full retrospective or a modified retrospective approach in the adoption of this guidance. The Company is currentlyformed a project team to assess and implement the standard by compiling a list of the applicable revenue streams, evaluating these transition approaches, as wellrelevant contracts and comparing the Company’s current accounting policies to the new standard. As a result of the efforts of this project team, the Company has identified customer incentives and gross versus net considerations as the potential timingareas in which it would most likely be affected by the new guidance. The Company is continuing to assess all the impacts of adoptionthe new standard and the design of internal control over financial reporting, but based upon the terms of the Company’s agreements and an evaluation of the materiality of these transactions related to customer incentives and gross versus net considerations, the Company does not expect the adoption to have a material effect on the Company’s consolidated results of adoptionoperations, financial position or cash flows. The Company currently expects to complete this work in 2017 and to adopt this guidance on its consolidated financial statements.February 3, 2018 using the modified retrospective approach.

2.Earnings per share

Earnings per share is computed as follows (in thousands, except per share data):

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined based on the dilutive effect of share-based awards using the treasury stock method.

Share-based awards that were outstanding at the end of the respective periods, but were not included in the computation of diluted earnings per share because the effect of exercising such awards would be antidilutive, were 1.32.6 million and 1.01.3 million in the 2016respective 2017 and 20152016 13-week periods, respectively, and were 1.42.6 million and 1.11.4 million in the respective 2017 and 2016 and 2015 26-week periods, respectively.periods.

3.3.Income taxesIncome taxes

Under the accounting standards for income taxes, the asset and liability method is used for computing the future income tax consequences of events that have been recognized in the Company’s consolidated financial statements or income tax returns.

Income tax reserves are determined using the methodology established by accounting standards for income taxes which require companies to assess each income tax position taken using the following two-step approach.            

income tax examinations that are currently in progress. Generally, the Company’s 20112012 and later tax years remain open for examination by the various state taxing authorities.

As of July 29, 2016,August 4, 2017, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $6.6$3.1 million, $1.0$0.9 million and $0.9$0.8 million, respectively, for a total of $8.5$4.8 million. This total amount is reflected in noncurrent Other liabilities in the condensed consolidated balance sheet.

The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $2.1$2.2 million in the coming twelve months principally as a result of the effective settlement of uncertain tax positions. As of July 29, 2016,August 4, 2017, approximately $6.6$3.1 million of the reserve for uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

The effective income tax rates for each of the 13-week and 26-week periods ended July 29, 2016August 4, 2017 were 36.8% and 36.1%37.2%, respectively, compared to rates of 38.0%36.8% and 37.8%36.1%, respectively, for the 13-week and 26-week periods ended July 31, 2015. 29, 2016.  The tax raterates for the 20162017 13-week period was lowerand 26-week periods were higher than for the comparable 2015 period2016 periods primarily due to the retroactive enactmentrecognition of a tax benefit in 2015 of federal jobs tax credits (principally the Work Opportunity Tax Credit or “WOTC”) for employees hired after December 31, 2014.  The tax rate for the 2016 26-week period was lower than for the comparable 2015 period primarily dueperiods associated with stock based compensation that did not reoccur to the 2016 adoption of amendments to accounting guidance for share-based payment discussedsame extent in Note 1, as well as the retroactive enactment2017 periods.

4.Current and long-term obligations

Current and long‑term obligations consist of the WOTC. Whilefollowing:

On February 22, 2017, the Company eventually did benefit from the WOTC associated with employees hired in the 13-weekentered into an unsecured amended and 26-week periods ended July 31, 2015, the benefit could not be recognized until the federal laws authorizing the credits were retroactively reenacted in December 2015.

4.Current and long-term obligations

The Company’s senior unsecuredrestated credit facilities (the “Facilities”) consist ofagreement for a $425.0$175.0 million senior unsecured term loan facility (the “Term Facility”) and a $1.0$1.25 billion senior unsecured revolving credit facility (the “Revolving Facility”) which(collectively, the “Facilities”) that provides for the issuance of letters of credit up to $175.0 million. The Facilities areTerm Facility is scheduled to mature on October 20, 2020.2020, and the Revolving Facility is scheduled to mature on February 22, 2022.

Borrowings under the Facilities bear interest at a rate equal to an applicable interest rate margin plus, at the Company’s option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of August 4, 2017 was 1.10% for LIBOR borrowings and 0.10% for base-rate borrowings. The Company is also required to pay a facility fee, payable on any used and unused commitment amounts of the Facilities, and customary fees on letters of credit issued under the Revolving Facility.  As of August 4, 2017, the

program, the Company may issue the CP Notes from time to time in an aggregate amount not to exceed $1.0 billion outstanding at any time.  The CP Notes willmay have maturities of up to 364 days from the date of issue and will rank equal in right of payment with all of the Company’s other unsecured and unsubordinated indebtedness.  The Company has agreedintends to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time. As of August 4, 2017, the outstanding CP Notes had a weighted average borrowing rate of 1.5%. 

On April 11, 2017, the Company issued $600.0 million aggregate principal amount of 3.875% senior notes due 2027 (the “2027 Senior Notes”), net of discount of $0.4 million, which are scheduled to mature on April 15, 2027. Interest on the 2027 Senior Notes is payable in cash on April 15 and October 15 of each year, commencing on October 15, 2017. The Company incurred $5.2 million of debt issuance costs associated with the issuance of the 2027 Senior Notes. The net proceeds from the offering of the 2027 Senior Notes were used to repay all of the Company’s outstanding senior notes due in 2017 as discussed below and for general corporate purposes.

On April 27, 2017, the Company redeemed $500.0 million aggregate principal amount of outstanding 4.125% senior notes due 2017 (the “2017 Senior Notes”), resulting in a pretax loss of $3.4 million which is reflected in Other (income) expense in the condensed consolidated statement of income for the 26-weeks ended August 4, 2017. The Company funded the redemption price for the 2017 Senior Notes with proceeds from the issuance of the 2027 Senior Notes.

5.Assets5.Assets and liabilities measured at fair value

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The Company does not have any fair value measurements categorized within Level 3 as of July 29, 2016.August 4, 2017.

candidates and employees in violation of Title VII of the Civil Rights Act of 1964, as amended (“Title VII”).

The Company and the EEOC engaged in the statutorily required conciliation process, and despite the Company’s good faith efforts to resolve the matter, the Commission notified the Company on July 26, 2012 of its view that conciliation had failed.

On June 11, 2013, the EEOC filed a lawsuit in the United States District Court for the Northern District of Illinois entitled Equal Opportunity Commission v. Dolgencorp, LLC d/b/a Dollar General in which the Commission alleges that the Company’s criminal background check policy has a disparate impact on “Black Applicants” in violation of Title VII6.Commitments and seeks to recover monetary damages and injunctive relief on behalf of a class of “Black Applicants.”  The Company filed its answer to the complaint on August 9, 2013.contingencies

The court has bifurcated the issues of liability and damages for purposes of discovery and trial.  Fact discovery related to liability is to be completed on or before November 16, 2016. In response to various discovery motions, the court has entered orders requiring the Company’s production of documents, information and electronic data for the period 2004 to present.Legal proceedings

Currently pending is the EEOC’s Motion for Partial Summary Judgment relating to two of the Company’s defenses challenging the sufficiency of the Commission’s conciliation efforts and the scope of its investigation. The Company has opposed this motion as prematurely-filed in light of the status of various discovery issues.

The Company believes that its criminal background check process is both lawful and necessary to a safe environment for its employees and customers and the protection of its assets and shareholders’ investments.  The Company also does not believe that this matter is amenable to class or similar treatment.  However, at this time, it is not possible to predict whether the action will ultimately be permitted to proceed as a class or in a similar fashion or the size of any putative class.  Likewise, at this time, it is not possible to estimate the value of the claims asserted, and no assurances can be given that the Company will be successful in its defense of this action on the merits or otherwise.  For these reasons, the Company cannot estimate the potential exposure or range of potential loss.  If the matter were to proceed successfully as a class or similar action or the Company is unsuccessful in its defense efforts as to the merits of the action, the resolution of this matter could have a material adverse effect on the Company’s consolidated financial statements as a whole.

On May 23, 2013, a lawsuit entitled Juan Varela v. Dolgen California and Does 1 through 50 (“Varela”) was filed in the Superior Court of the State of California for the County of Riverside.  In the original complaint, the Varela plaintiff alleges that he and other “key carriers” were not provided with meal and rest periods in violation of California law and seeks to recover alleged unpaid wages, injunctive relief, consequential damages, pre-judgment interest, statutory penalties and attorneys’ fees and costs and seeks to represent a putative class of California “key carriers” as to these claims.  The Varela plaintiff also asserts a claim for unfair business practices and seeks to proceed under California’s Private Attorney General Act (the “PAGA”).

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On November 4, 2014, the Varela plaintiff filed an amended complaint to add Victoria Lee Dinger Main as a named plaintiff and to add putative class claims on behalf of “key carriers” for alleged inaccurate wage statements and failure to provide appropriate pay upon termination in violation of California law.

The Company filed answers to both the complaint and amended complaint.  A court-ordered mediation held in November 2015 was unsuccessful.

Plaintiffs’ motion for class certification is due to be filed on or before October 17, 2016.  The Company’s response is due to be filed on or before December 9, 2016.  Plaintiffs’ reply brief is due to be filed on January 20, 2017.

On January 15, 2015, a lawsuit entitled Kendra Pleasant v. Dollar General Corporation, Dolgen California, LLC, and Does 1 through 50 (“Pleasant”) was filed in the Superior Court of the State of California for the County of San Bernardino in which the plaintiff seeks to proceed under the PAGA for various alleged violations of California’s Labor Code.  Specifically, the plaintiff alleges that she and other similarly situated non-exempt California store-level employees were not paid for all time worked, provided meal and rest breaks, reimbursed for necessary work related expenses, and provided with accurate wage statements and seeks to recover unpaid wages, civil and statutory penalties, interest, attorneys’ fees and costs. In March 2015 the Company asked the court to stay all proceedings in the Pleasant matter pending issuance of a final judgment in the Varela matter.  The court granted the Company’s request and stayed proceedings until resolution of the Varela matter. Subsequently, the Pleasant plaintiff moved to transfer this matter to the Superior Court of the State of California for the County of Riverside where the Varela matter is pending, which the Company opposed.  The court denied the Pleasant plaintiff’s motion to transfer.

On February 20, 2015, a lawsuit entitled Julie Sullivan v. Dolgen California and Does 1 through 100 (“Sullivan”) was filed in the Superior Court of the State of California for the County of Alameda in which the plaintiff alleges that she and other similarly situated Dollar General Market store managers in the State of California were improperly classified as exempt employees and were not provided with meal and rest breaks and accurate wage statements in violation of California law.  The Sullivan plaintiff also alleges that she and other California store employees were not provided with printed wage statements, purportedly in violation of California law.  The plaintiff seeks to recover unpaid wages, including overtime pay, civil and statutory penalties, interest, injunctive relief, restitution, and attorneys’ fees and costs.

On April 8, 2015, the Company removed this matter to the United States District Court for the Northern District of California and filed its answer on the same date.  On April 29, 2015, the Sullivan plaintiff amended her complaint to add a claim under the PAGA.  The Company’s response to the amended complaint was filed on May 14, 2015.

The plaintiff’s motion for class certification was filed in March 2016.  Plaintiff subsequently conceded that her exemption claim is not amenable to class certification but continued to pursue her individual misclassification claim and class certification of her wage statement claim.

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On June 14, 2016, the parties reached a preliminary agreement, which must be submitted to and approved by the court, to resolve this matter for an amount not material to the Company’s consolidated financial statements as a whole.  At this time, although probable, it is not certain that the court will approve the settlement.  If the court does not approve the settlement and the case proceeds, it is not possible to predict whether Sullivan ultimately will be permitted to proceed as a class action with respect to the wage statement claim, and no assurances can be given that the Company will be successful in its defense on the merits or otherwise.

On July 8, 2016, a lawsuit entitled Eric Farley and Dane Rinaldi v. Dolgen California, LLC (“Farley”) was filed in the Superior Court of the State of California for the County of San Joaquin.  The Farley plaintiffs allege they and other similarly situated “key carriers” in California were not provided with meal and rest periods, accurate wage statements, and appropriate pay upon termination in violation of California law. The Farley plaintiffs seek to recover alleged unpaid wages, injunctive relief, consequential damages, pre-judgment interest, statutory penalties and attorneys’ fees and costs.  The Farley plaintiffs have also asserted a claim for unfair business practices and have indicated their intention to seek penalties under the PAGA.

The Company believes that its policies and practices comply with California law and that the Varela, Pleasant, Sullivan, and Farley actions are not appropriate for class or similar treatment.  The Company intends to vigorously defend these actions; however, at this time, it is not possible to predict whether the Varela, Pleasant, Sullivan or Farley action ultimately will be permitted to proceed as a class, and no assurances can be given that the Company will be successful in its defense of these actions on the merits or otherwise. Similarly, at this time the Company cannot estimate either the size of any potential class or the value of the claims asserted in the Varela, Pleasant, Sullivan or Farley action. For these reasons, the Company is unable to estimate any potential loss or range of loss in these matters; however, if the Company is not successful in its defense efforts, the resolution of any of these actions could have a material adverse effect on the Company’s consolidated financial statements as a whole.

On August 2, 2016, a lawsuit entitled Matthew Debinder v. Dolgencorp, LLC (“Debinder”) was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida.  The Debinder plaintiff alleges on behalf of himself and a putative class of “applicants” that certain of the Company’s background check procedures violate the Fair Credit Reporting Act (“FCRA”).

The Company believes its background check procedures comply with the FCRA and intends to vigorously defend the Debinder matter.  However, at this time, it is not possible to predict whether the court ultimately will permit the Debinder matter to proceed as a class under the FCRA or the size of any putative class.  Likewise, at this time it is not possible to estimate the value of the claims asserted, and no assurances can be given that the Company will be successful in its defense of this action on the merits or otherwise.  For these reasons, the Company is unable to estimate the potential loss or range of loss in this matter; however, if the Company is not successful in its defense efforts, its resolution could have a material adverse effect on the Company’s consolidated financial statements as a whole.

In December 2015, the Company was notified of seven lawsuits in which the plaintiffs allege violation of state consumer protection laws relating to the labeling, marketing and sale of

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Dollar General private-label motor oil.  Six of these lawsuits were filed in various federal district courts of the United States: Bradford Barfoot and Leonard Karpeichik v. Dolgencorp, LLC (filed in the Southern District of Florida on December 18, 2015) (“Barfoot”); Milton M. Cooke, Jr. v. Dollar General Corporation (filed in the Southern District of Texas on December 21, 2015) (“Cooke”); William Flinn v. Dolgencorp, LLC (filed in the District Court for New Jersey on December 17, 2015) (“Flinn”); John J. McCormick, III v. Dolgencorp, LLC (filed in the District Court of Maryland on December 23, 2015) (“McCormick”); David Sanchez v. Dolgencorp, LLC (filed in the Central District of California on December 17, 2015) (“Sanchez”); and Will Sisemore v. Dolgencorp, LLC (filed in the Northern District of Oklahoma on December 21, 2015) (“Sisemore”).

The seventh matter, Chuck Hill v. Dolgencorp, LLC (“Hill”), was filed in Orleans County Superior Court in Vermont on December 22, 2015, and subsequently removed to the United States District Court for the District of Vermont on February 8, 2016.

In February, March and May 2016, the Company was notified of fourteen additional lawsuits alleging similar claims concerning Dollar General private-label motor oil. All of these lawsuits were filed in various federal district courts of the United States: Allen Brown v. Dollar General Corporation and DG Retail, LLC (filed in the District of Colorado on February 10, 2016) (“Brown”); Miriam Fruhling v. Dollar General Corporation and Dolgencorp, LLC (filed in the Southern District of Ohio on February 10, 2016) (“Fruhling”); John Foppe v. Dollar General Corporation and Dolgencorp, LLC (filed in the Eastern District of Kentucky on February 10, 2016) (“Foppe”); Kevin Gadson v. Dolgencorp, LLC (filed in the Southern District of New York on February 8, 2016) (“Gadson”); Bruce Gooel v. Dolgencorp, LLC (filed in the Eastern District of Michigan on February 8, 2016) (“Gooel”);  Janine Harvey v. Dollar General Corporation and Dolgencorp, LLC (filed in the District Court for Nebraska on February 10, 2016) (“Harvey”); Nicholas Meyer v. Dollar General Corporation and DG Retail, LLC (filed in the District of Kansas on February 9, 2016) (“Meyer”); Robert Oren v. Dollar General Corporation and Dolgencorp, LLC (filed in the Western District of Missouri on February 8, 2016) (“Oren”); Scott Sheehy v. Dollar General Corporation and DG Retail, LLC (filed in the District Court for Minnesota on February 9, 2016) (“Sheehy”); Gerardo Solis v. Dollar General Corporation and DG Retail, LLC (filed in the Northern District of Illinois on February 12, 2016) (“Solis”); Roberto Vega v. Dolgencorp, LLC (filed in the Central District of California on February 8, 2016) (“Vega”); Matthew Wait v. Dollar General Corporation and Dolgencorp, LLC (filed in the Western District of Arkansas on February 16, 2016) (“Wait”); James Taschner v. Dollar General Corporation and Dolgencorp, LLC (filed in the Eastern District of Missouri on March 15, 2016) (“Taschner”); and Jason Wood and Roger Barrows v. Dollar General Corporation and Dolgencorp, LLC (filed in the Northern District of New York on May 9, 2016) (“Wood”).

The plaintiffs in the Taschner, Vega and Sanchez matters seek to proceed on a nationwide and statewide class basis, while the plaintiffs in the other matters seek to proceed only on a statewide class basis.  Each plaintiff seeks, for himself or herself and the putative class he or she seeks to represent, some or all of the following relief: compensatory damages, injunctive relief prohibiting the sale of the products at issue and requiring the dissemination of corrective

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advertising, certain statutory damages (including treble damages), punitive damages and attorneys’ fees.

On February 1, 2016, the Sanchez plaintiff voluntarily dismissed his complaint without prejudice.

On June 2, 2016, the United States Judicial Panel on Multidistrict Litigation granted the Company’s motion to centralize the Motor Oil Lawsuits in a matter styled In re Dollar General Corp. Motor Oil Litigation, Case MDL No. 2709, before the Western District of Missouri (“Motor Oil MDL”). The plaintiffs in the Motor Oil MDL are required to file their consolidated amended complaint by August 29, 2016, and the Company must file its responsive pleading to such complaint by October 28, 2016.

In July 2016, the Company was notified of an additional lawsuit, Brandon Raab v. Dolgencorp, LLC and Dollar General Corporation (filed in the Western District of North Carolina on July 15, 2016), alleging similar claims on a statewide class basis concerning Dollar General private-label motor oil. This matter has also been transferred to the Motor Oil MDL.

The Company believes that the labeling, marketing and sale of its private-label motor oil complies with applicable federal and state requirements and is not misleading.  The Company further believes that these matters are not appropriate for class or similar treatment.  The Company intends to vigorously defend these actions; however, at this time, it is not possible to predict whether any of these cases will be permitted to proceed as a class or the size of any putative class.  Likewise, at this time, it is not possible to estimate the value of the claims asserted, and no assurances can be given that the Company will be successful in its defense of these actions on the merits or otherwise.  For these reasons, the Company is unable to estimate the potential loss or range of loss in these matters; however if the Company is not successful in its defense efforts, the resolution of any of these actions could have a material adverse effect on the Company’s consolidated financial statements as a whole.

From time to time, the Company is a party to various other legal actionsmatters involving claims incidental to the conduct of its business, including actions by employees, consumers, suppliers, government agencies, or others through private actions, class actions, administrative proceedings, regulatory actionsothers.  The Company has recorded accruals with respect to these matters, where appropriate, which are reflected in the Company’s consolidated financial statements. For some matters, a liability is not probable or other litigation, including without limitation under federalthe amount cannot be reasonably estimated and state employment laws and wage and hour laws. Thetherefore an accrual has not been made.

Except as described below, the Company believes, based upon information currently available, that such other litigation and claims,matters, both individually and in the aggregate, will be resolved without a material adverse effect on the Company’s consolidated financial statements as a whole. However, litigation involvesand other legal matters involve an element of uncertainty. Future developments could cause these actions or claims to have a material adverse effect on the Company’s results of operations, cash flows, or financial position. In addition, certain of these lawsuits,matters, if decided adversely to the Company or settled by the Company, may result in liability material to the Company’s financial position or may negatively affect operating results if changes to the Company’s business operation are required.

Wage and Hour Litigation

The Company is defending the following wage and hour matters (collectively the “Wage/Hour Litigation”):

9.9.Subsequent eventAcquisition of facilities

In July 2016,Subsequent to August 4, 2017, Hurricane Harvey made landfall on the Company acquired 41 former Walmart Express store locations. MostTexas coast. The storm has resulted in extensive damage and flooding in Texas and Louisiana, especially in the coastal areas of these stores are locatedstates. A full assessment of the extent of the damage is expected to be completed in rural markets where the Company has existing stores, and the Company plans to relocate certain of its existing stores into 40 of these new store locations. The Company expects to incur pretax selling, general, and administrative expenses of approximately $11 million during the third quarter of 2016, primarily for lease termination costs relatedweeks ahead. Currently there is uncertainty as to the existing stores that will be closed upon relocation.magnitude of the losses associated with this event and whether such losses would have a material effect on the Company’s consolidated financial statements.

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We seek to drive profitable sales growth through initiatives such as improvement in our in-stock position,aimed at increasing customer traffic and average transaction amount, as well as an ongoing focus on enhancing our margins while maintaining both everyday low price and affordability.

In the first half of 2017, consistent with historical performance, our sales of consumables, which tend to have lower gross margins, have been the key drivers of net sales and customer traffic, while sales of non-consumables, which tend to have higher gross margins, have contributed to profitable sales growth.  In addition, during the first half of 2017, our mix of consumables sales has shifted somewhat toward lower margin consumable departments such as perishables

opening 261 stores and remodeling or relocating a total of 293 stores during the 2016 second quarter. Also in the 2016 second quarter,opportunities. In 2017, we purchased 41 former Walmart Express store locations. Forty of these acquired stores will serve as relocation sites for existing stores, and 37 of the 41 purchased stores will offer fueling stations. In conjunction with the purchase, we anticipate expenses resulting in a reduction of approximately $0.02 to $0.03 in diluted earnings per share (“EPS”) during the third quarter of 2016, primarily related to closed store lease obligations.

For fiscal 2016, we planintend to open 900approximately 1,285 stores, and,which includes our originally planned 1,000 new stores as well as store locations acquired in June 2017 in 35 states from a result of the Walmart Express stores purchased,small-box multi-price point retailer. Additionally, we have increased the number of stores we plan to remodel or relocate to 900 stores in 2016. We intend to accelerate square footage growth in 2017 with plans to open about 1,000 stores and to relocate or remodel an additional 900approximately 760 stores.  We plan to convert the acquired store sites to the Dollar General banner by the end of November 2017. There can be no assurance that the store sites will be converted to the Dollar General banner within the timeframe anticipated.

We continue to innovate within our channel and during 2016are able to utilize the most productive of our various store formats based on the specific market opportunity.  As has been the case throughout the first half of 2017, we began the implementation ofexpect that our traditional 7,300 square foot store format will continue to be built with the DG16 store format. This new store format offers a total of 22 cooler doors, an increase of six cooler doors as compared to our previous new store format, and is being utilizedlayout for all new stores, relocations and remodels. The DG16 store format also offers a redesigned queueing area and other enhancements that are focused on meeting the evolving demands ofremodels in 2017. In addition, our core customer while also delivering on our operating priorities. We also continue to test a smaller format store (fewer(less than 6,000 square feet) which we believe could allowallows us to capture growth opportunities in metropolitan areas as well as rural areas with a low number of households. We continue to incorporate into our existing store base lessons learned from our various store formats and layouts with a goal of driving increased customer traffic, average transaction amount, same-store sales and overall store productivity.

To support our new store growth and drive productivity, we are makingcontinue to make investments in our distribution center network. ConstructionOur fifteenth distribution center in Jackson, Georgia is proceeding as planned on our Janesville, Wisconsin distribution centerunder construction with a goal to begin shipping from this facility in earlylate 2017. More recently, we have begun workWe began construction on our 15thsixteenth distribution center in Jackson, Georgia.Amsterdam, New York in June 2017 to support our northeast growth.

We have established a position as a low-cost operator, continuously seeking ways to reduce or control costs that do not affect our customer’scustomers’ shopping experience. We have enhancedplan to continue enhancing this position during 2016 through our zero-based budgeting initiative, streamliningover time as we aim to continually streamline our business while also reducing expenses. Our goal isemploying ongoing cost discipline to reduce certain expenses as a percentage of sales. We believe these actions will assist in maintaining our ability to leverage SG&A expenses at a lower the same-store sales growth required to leverage selling, general and administrative (“SG&A”) expenses. The first and second quarters of 2016 exhibited early success with this initiative.percentage over the long term.  In addition, we remain committed to simplifying or eliminating various

Furthermore,To further enhance shareholder return in 2017, we believe that reducing our store manager turnover likely results in improved store financial performance in key areas such as shrink and sales. We have also implemented training programs for high-potential employees, and believe that these and other efforts will produce a more stable, engaged workforce.

We also plan to continue to repurchase shares of our common stock, although we expect to do so in a lower amount than in 2016, and we expect to pay quarterly cash dividends, subject to Board discretion to further enhance shareholder return in 2016.and approval.

Subsequent to August 4, 2017, Hurricane Harvey made landfall on the Texas coast. The following include highlightsstorm has resulted in extensive damage and flooding in Texas and Louisiana, especially in the coastal areas of these states. A full assessment of the extent of the damage is expected to be completed in the weeks ahead. Currently there is uncertainty as to the magnitude of the losses associated with this event and whether such losses would have a material effect on our consolidated financial statements.

Highlights of our 2017 second quarter results of operations compared to the 2016 second quarter and our financial results compared to the comparable 2015 period.condition at August 4, 2017 are set forth below. Basis points amounts referred to below are equal to 0.01% as a percentage of net sales.

·                  Gross profit, as a percentage of sales, increased by 2 basis points and was 31.2% in both the 2016 and 2015 periods,

·                  SG&A expense, as a percentage of sales, was 21.7% in the 2016 period compared to 21.8% in the 2015 period, a decrease of 8 basis points, reflecting reductions in administrative labor and advertising

Highlights forof the first half of 20162017 include:

·                  Total cash dividends of $142.2 million, or $0.50

·                  Inventory turnover was 4.7 times on a rolling four-quarter basis. On a per store basis, inventories at July 29, 2016 increased by 1.6%

The above discussion is a summary only. Readers should refer to the detailed discussion of our operating results below for the full analysis of our financial performanceoperations below in the current year periodperiods as compared with the prior year period.periods as well as our financial condition at August 4, 2017.

The following table contains results of operations data for the most recentsecond 13-week and first 26-week periods of 20162017 and 2015,2016, and the dollar and percentage variances among those periods: