Exhibit 99.1
Dollar General Reports First Quarter 2007 Earnings
GOODLETTSVILLE, Tenn.--(BUSINESS WIRE)--June 7, 2007--Dollar
General Corporation (NYSE: DG) today reported net income of $34.9
million, or $0.11 per share, for the first quarter ended May 4, 2007,
compared to net income of $47.7 million, or $0.15 per share, for the
prior year first quarter ended May 5, 2006.
Net sales were $2.28 billion, a 5.8 percent increase over net
sales of $2.15 billion for the first quarter of fiscal 2006. The
increase in sales primarily reflects a same-store sales increase of
2.4 percent and the opening of 104 net new stores since the end of the
prior year first quarter. This same-store sales increase in 2007
compares with 1.6 percent in the fiscal 2006 first quarter. Net sales
in the quarter were aided by markdowns from retail taken in the 2007
first quarter and the 2006 fourth quarter, primarily in the seasonal,
home and apparel categories, in connection with the Company's efforts
to minimize the amount of inventory carried over from prior seasons
and to allow for a greater mix of newer, fresher inventory going
forward. The Company has made significant progress toward its goal of
eliminating its historical packaway strategy by the end of fiscal
2007.
The Company's gross profit increased 8.3 percent to $633.1 million
in the 2007 quarter from $584.3 million in the 2006 quarter. As a
percent of sales, the gross profit rate increased by 66 basis points
in the 2007 period as compared with the 2006 period due to a number of
factors, including but not limited to: an increase in markups on
purchases during the period; a reduction in receipts of highly
consumables, which generally have lower average markups, during the
2007 period as compared to the 2006 period; and higher sales (as a
percentage of total sales) in seasonal and basic clothing categories,
which generally have higher average markups. These factors were
partially offset by lower average markups on our beginning inventory
in the 2007 period as compared with the 2006 period and an increase in
our shrink rate. The gross profit rate was also unfavorably impacted
by higher markdowns in the 2007 period, which were partially offset by
a reduction of the lower of cost or market inventory impairment
estimate at the end of the first quarter of 2007.
Selling, general and administrative ("SG&A") expenses increased
from the prior year period by $74.7 million, to 25.4 percent of sales
in the 2007 period from 23.4 percent in the 2006 period. This increase
includes approximately $29.6 million of expenses relating to the
Company's previously announced strategic real estate initiatives,
including lease contract termination costs, incremental store labor
and other expenses associated with the closing of 153 stores in the
first quarter of 2007. In addition, SG&A in the 2007 period includes
approximately $6.1 million of expenses, primarily legal and consulting
fees, associated with the proposed Merger, discussed below. Also
contributing to the increase in SG&A in 2007 over 2006, as a percent
of sales, were store rent expense, hurricane-related insurance
recoveries during the prior year period, health benefits costs due
primarily to increased claims, store repairs and maintenance, and
incentive compensation expense. These increases were partially offset
by a reduction in workers' compensation insurance costs, primarily
related to the impact of changes in estimates of loss development
factors, and a decrease in depreciation expense.
Income Taxes
The effective income tax rate for the 13-week period ended May 4,
2007 was 32.6 percent, or 5.1 percent lower than the rate of 37.7
percent for the 13-week period ended May 5, 2006. The decrease in the
effective tax rate was primarily due to an approximate 1.2 percent
decrease as a result of the renewal, in late 2006, of the federal laws
which allow the Company to claim federal job credits for certain newly
hired employees, and an approximate decrease of 6.3 percent in the
2007 period related to the settlement of income tax contingencies that
did not occur in the 2006 period. These decreases were partially
offset by an approximate 0.7 percent increase due principally to state
income tax expense resulting from state law changes in the States of
New York and Texas; an approximate 0.1 percent increase due to lower
state job related tax credits; an increase of approximately 1.7
percent due to the post-FIN 48 inclusion of income tax related
interest expense in the amount reported as income tax expense in 2007;
and an increase of approximately 0.7 percent related to non-deductible
expenses incurred in connection with the proposed Merger.
The Company adopted the provisions of the Financial Accounting
Standards Board ("FASB") Interpretation 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement 109"
("FIN 48") effective February 3, 2007. The adoption resulted in an
$8.9 million decrease in retained earnings and a reclassification of
certain amounts between deferred income taxes and other noncurrent
liabilities to conform to the balance sheet presentation requirements
of FIN 48.
Merchandise Inventories
Total merchandise inventories at the end of the 2007 first quarter
were $1.44 billion compared to $1.64 billion at the end of the fiscal
2006 first quarter, a decrease of 11.7 percent, based on overall
inventories, and a decrease of 12.8 percent on a per-store basis. This
substantial decrease reflects the results of the Company's accelerated
efforts, initiated in the fiscal 2006 fourth quarter, to minimize
packaway inventory by the end of fiscal 2007. As of May 4, 2007,
approximately $100 million, at cost, of the inventory targeted by this
initiative remained in the stores. Inventory turns, calculated on an
annualized basis, were 4.3 times for the latest twelve months ended
May 4, 2007 compared to 4.1 times in the comparable year ago period.
The Company intends to sell or dispose of the remaining targeted
packaway inventory by the end of the fiscal year and expects to
continue using seasonal markdowns to minimize merchandise to be
carried over in the future to allow for the addition of newer, fresher
home, apparel and seasonal merchandise in its stores.
Store Development
During the 2007 first quarter, the Company opened 124 new stores,
remodeled 25 stores, relocated 15 stores, and closed 171 stores,
including 153 stores identified in fiscal 2006 as low-potential stores
to be closed in connection with the Company's strategic review. As of
May 4, 2007, 281 of the approximately 400 stores identified in this
review have been closed. The majority of the remainder are expected to
close in the Company's 2007 fiscal second quarter. The Company
continues to focus its efforts on revitalizing its existing store
base. As a part of that effort, the Company is implementing, where
possible, its recently developed and tested "racetrack" format, with
improved merchandise adjacencies and greater visibility of higher
margin seasonal items, in its new, relocated and remodeled stores. As
of May 4, 2007, the Company operated 8,182 neighborhood stores,
including 57 Dollar General Markets. To date, the Company has
implemented the racetrack format in 459 stores.
Agreement and Plan of Merger
On March 11, 2007, the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Buck Holdings L.P., a Delaware
limited partnership ("Parent") and Buck Acquisition Corp., a Tennessee
corporation and wholly-owned subsidiary of Parent ("Merger Sub").
Pursuant to the Merger Agreement, Merger Sub will be merged with and
into the Company (the "Merger"), with the Company surviving the Merger
as a wholly owned subsidiary of Parent. Merger Sub and Parent are
affiliates of Kohlberg Kravis Roberts & Co., L.P. ("KKR").
Pursuant to the Merger Agreement, at the effective time of the
Merger, each outstanding share of common stock of the Company, other
than any shares held by any wholly-owned subsidiary of the Company and
any shares owned by Parent or Merger Sub or held by the Company, will
be cancelled and converted into the right to receive $22.00 in cash,
without interest (the "Merger Consideration"). In addition,
immediately prior to the effective time of the Merger, all shares of
Company restricted stock and restricted stock units will, unless
otherwise agreed by the holder and Parent, vest and be converted into
the right to receive the Merger Consideration. All options to acquire
shares of Company common stock will vest immediately prior to the
effective time of the Merger and holders of such options will, unless
otherwise agreed by the holder and Parent, be entitled to receive an
amount in cash equal to the excess, if any, of the Merger
Consideration over the exercise price per share of Company common
stock subject to the option.
The Board of Directors of the Company unanimously approved the
Merger Agreement and amended the Company's Shareholder Rights Plan to
exempt the Merger from that Plan's operation.
Consummation of the Merger is not subject to a financing condition
but is subject to customary closing conditions, including approval of
the Merger Agreement by the Company's shareholders, regulatory
approval and other customary closing conditions. The Merger Agreement
places specified restrictions on certain of the Company's business
activities, including but not limited to: acquisitions or dispositions
of assets, capital expenditures, modifications of debt, leasing
activities, compensatory changes, dividend increases, investments and
share repurchases. The accompanying condensed consolidated financial
statements do not include any financial reporting impacts related to
the potential consummation of the Merger, including but not limited to
potential changes in the basis of accounting and acceleration of
vesting of restricted stock, stock units or options. A special meeting
of shareholders has been scheduled for June 21, 2007 for the purpose
of voting on the proposed Merger. If the shareholders vote in favor of
the Merger, the transaction is expected to close in early July.
Subsequent to the announcement of the Merger Agreement, the
Company and its directors were named in seven putative class actions
alleging claims for breach of fiduciary duty arising out of the
proposed sale of the Company to KKR. More information on these claims
can be found in the Company's filings with the SEC.
Important Additional Information About Dollar General's Announced
Merger With Buck
In connection with the proposed Merger, Dollar General has filed a
definitive proxy statement with the Securities and Exchange Commission
(the "SEC"). INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE
PROXY STATEMENT BECAUSE IT CONTAINS IMPORTANT INFORMATION ABOUT THE
MERGER AND THE PARTIES TO THE MERGER. Investors and security holders
may obtain a free copy of the proxy statement and other documents
filed by Dollar General at the SEC Web site at www.sec.gov or at the
Company's Web site at www.dollargeneral.com. The proxy statement and
other documents also may be obtained for free from Dollar General by
directing such request to Dollar General Corporation, Investor
Relations, 100 Mission Ridge, Goodlettsville, Tennessee, 37072,
telephone (615) 855-5528, or by submitting a request on the Company's
Web site at www.dollargeneral.com, under "Investing-Information
Requests."
Participants in the Solicitation
Dollar General and its directors, executive officers and other
members of its management and employees may be deemed participants in
the solicitation of proxies from its shareholders in connection with
the proposed Merger. Information concerning the interests of Dollar
General's participants in the solicitation, which may be different
than those of Dollar General shareholders generally, is set forth in
Dollar General's proxy statements and Annual Reports on Form 10-K,
previously filed with the SEC, and also are set forth in the
definitive proxy statement relating to the Merger.
Cautionary Statement Regarding Forward-Looking Statements
Certain information provided in this press release may include
"forward-looking statements." You can identify these statements by the
fact that they do not relate strictly to historical or current facts.
These statements generally contain words such as "may," "will,"
"project," "might," "expect," "believe," "anticipate," "intend,"
"could," "should," "would," "estimate," "continue," "contemplate" or
"pursue," or the negative or other variations thereof or comparable
terminology. These forward-looking statements are based on current
expectations and projections about future events, and actual events
could differ materially from those projected. You are cautioned that
forward-looking statements are not guarantees of future performance or
results and involve risks, assumptions and uncertainties that cannot
be predicted or quantified. These risks, assumptions and uncertainties
include, but are not limited to: the occurrence of any event, change
or other circumstances that could give rise to the termination of the
Merger Agreement; the outcome of any legal proceedings that have been
or may be instituted against Dollar General and others relating to the
proposed Merger; the inability to complete the Merger due to the
failure to obtain shareholder approval or the failure to satisfy other
conditions to the completion of the Merger, including the failure to
obtain the necessary debt financing arrangements set forth in
commitment letters received in connection with the Merger; risks that
the proposed transaction disrupts current plans and operations and the
potential difficulties in employee retention as a result of the
Merger; the ability to recognize the benefits of the Merger; the
amount of the costs, fees, expenses and charges related to the Merger
and the actual terms of certain financings that will be obtained for
the Merger; the impact of the substantial indebtedness incurred to
finance the consummation of the Merger; and other business and other
risks, assumptions and uncertainties detailed from time to time in
Dollar General's SEC reports, including Dollar General's most recent
Annual Report on Form 10-K. Many of the factors that will determine
the outcomes in this press release are beyond Dollar General's ability
to control or predict. There can be no assurance that the Merger
described above will be consummated. Forward-looking statements made
herein speak only as of the date hereof, and Dollar General assumes no
obligation to update such statements.
Readers are cautioned not to place undue reliance on
forward-looking statements made in this press release, since the
statements speak only as of the date of this release. The Company has
no obligation, and does not intend, to publicly update or revise any
of these forward-looking statements to reflect events or circumstances
occurring after the date of this release or to reflect the occurrence
of unanticipated events. Readers are advised, however, to consult any
further disclosures the Company may make on related subjects in its
documents filed with or furnished to the SEC or in its other public
disclosures.
About Dollar General
Dollar General is a Fortune 500(R) discount retailer with over
8,000 neighborhood stores. Dollar General stores offer convenience and
value to customers by offering consumable basic items that are
frequently used and replenished, such as food, snacks, health and
beauty aids and cleaning supplies, as well as a selection of basic
apparel, housewares and seasonal items at everyday low prices. The
Company store support center is located in Goodlettsville, Tennessee.
Dollar General's Web site can be reached at www.dollargeneral.com.
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
May 4, February 2,
2007 2007
--------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 204,417 $ 189,288
Short-term investments 27,371 29,950
Merchandise inventories 1,444,313 1,432,336
Income taxes receivable 14,624 9,833
Deferred income taxes 37,860 24,321
Prepaid expenses and other current assets 57,572 57,020
- ----------------------------------------------------------------------
Total current assets 1,786,157 1,742,748
- ----------------------------------------------------------------------
Property and equipment, at cost 2,445,133 2,430,811
Less: accumulated depreciation and
amortization 1,232,935 1,193,937
- ----------------------------------------------------------------------
Net property and equipment 1,212,198 1,236,874
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Deferred income taxes 12,418 -
- ----------------------------------------------------------------------
Other assets, net 63,536 60,892
- ----------------------------------------------------------------------
Total assets $ 3,074,309 $ 3,040,514
======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 7,186 $ 8,080
Accounts payable 484,949 555,274
Accrued expenses and other 258,090 253,558
Income taxes payable 48 15,959
- ----------------------------------------------------------------------
Total current liabilities 750,273 832,871
- ----------------------------------------------------------------------
Long-term obligations 260,373 261,958
- ----------------------------------------------------------------------
Deferred income taxes - 41,597
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Other liabilities 266,886 158,341
- ----------------------------------------------------------------------
Shareholders' equity:
Preferred stock - -
Common stock 157,298 156,218
Additional paid-in capital 525,830 486,145
Retained earnings 1,114,170 1,103,951
Accumulated other comprehensive loss (941) (987)
Other shareholders' equity 420 420
- ----------------------------------------------------------------------
Total shareholders' equity 1,796,777 1,745,747
- ----------------------------------------------------------------------
Total liabilities and shareholders' equity $ 3,074,309 $ 3,040,514
======================================================================
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
For the Quarter (13 Weeks) Ended
---------------------------------------
May 4, % of May 5, % of
Net Net
2007 Sales 2006 Sales
------------------- -------------------
Net sales $ 2,275,267 100.00% $ 2,151,387 100.00%
Cost of goods sold 1,642,207 72.18 1,567,113 72.84
- ----------------------------------------------------------------------
Gross profit 633,060 27.82 584,274 27.16
Selling, general and
administrative 577,692 25.39 502,989 23.38
- ----------------------------------------------------------------------
Operating profit 55,368 2.43 81,285 3.78
Interest income (2,573) (0.11) (2,450) (0.11)
Interest expense 6,167 0.27 7,247 0.34
- ----------------------------------------------------------------------
Income before income taxes 51,774 2.28 76,488 3.56
Income taxes 16,899 0.74 28,818 1.34
- ----------------------------------------------------------------------
Net income $ 34,875 1.53% $ 47,670 2.22%
======================================================================
Diluted earnings per share $ 0.11 $ 0.15
=========================================== ============
Weighted average diluted shares 315,928 315,233
=========================================== ============
Basic earnings per share $ 0.11 $ 0.15
=========================================== ============
Weighted average basic shares 313,567 313,997
=========================================== ============
Dividends per share $ 0.05 $ 0.05
=========================================== ============
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
For the Quarter (13
Weeks) Ended
----------------------
May 4, May 5,
2007 2006
---------- -----------
Cash flows from operating activities:
Net income $ 34,875 $ 47,670
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 50,451 48,778
Deferred income taxes (4,948) 5,602
Non-cash share-based compensation 3,469 1,740
Tax benefit from stock option exercises (3,529) (1,461)
Change in operating assets and liabilities:
Merchandise inventories (11,977) (161,704)
Prepaid expenses and other current assets (552) (12,429)
Accounts payable (62,870) 69,467
Accrued expenses and other 25,647 6,118
Income taxes (1,736) (20,236)
Other 456 339
- ----------------------------------------------------------------------
Net cash provided by (used in) operating
activities 29,286 (16,116)
- ----------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (34,101) (77,102)
Purchases of short-term investments - (10,476)
Sales of short-term investments 6,000 6,000
Purchases of long-term investments (5,670) (10,809)
Proceeds from sale of property and equipment 169 303
- ----------------------------------------------------------------------
Net cash used in investing activities (33,602) (92,084)
- ----------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under revolving credit facility - 116,500
Repayments of borrowings under revolving
credit facility - (51,500)
Repayments of long-term obligations (2,653) (2,364)
Payment of cash dividends (15,712) (15,686)
Proceeds from exercise of stock options 34,281 10,934
Repurchases of common stock - (79,947)
Tax benefit from stock option exercises 3,529 1,461
Other financing activities - 69
- ----------------------------------------------------------------------
Net cash provided by (used in) financing
activities 19,445 (20,533)
- ----------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 15,129 (128,733)
Cash and cash equivalents, beginning of period 189,288 200,609
- ----------------------------------------------------------------------
Cash and cash equivalents, end of period $ 204,417 $ 71,876
======================================================================
Supplemental schedule of noncash investing and
financing activities:
Purchases of property and equipment awaiting
processing for payment, included in Accounts
payable $ 10,639 $ 16,344
Purchases of property and equipment under
capital lease obligations $ 163 $ 877
======================================================================
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
Selected Additional Information
(Unaudited)
Sales by Category (in thousands)
- ----------------------------------------------------------------------
For the Quarter (13 Weeks) Ended
-----------------------------------
May 4, 2007 May 5, 2006 % Change
----------- ----------- -----------
Highly consumable $1,523,793 $1,455,984 4.7%
Seasonal 336,449 309,583 8.7%
Home products 215,046 211,665 1.6%
Basic clothing 199,979 174,155 14.8%
----------- ----------- -----------
Total sales $2,275,267 $2,151,387 5.8%
=========== =========== ===========
New Store Activity
- ----------------------------------------------------------------------
For the Quarter (13
Weeks) Ended
-----------------------
May 4, 2007 May 5, 2006
----------- -----------
Beginning store count 8,229 7,929
New store openings 124 182
Store closings (1) 171 33
Net new (closed) stores (47) 149
Ending store count 8,182 8,078
Total selling square footage (000's) 57,090 55,937
(1) 2007 store closings include 153 stores closed in connection with
the Company's strategic decision in 2006 to close approximately 400
stores in addition to those closed in the ordinary course of
business.
CONTACT: Dollar General Corporation
Investor Contact:
Emma Jo Kauffman, 615-855-5525
or
Media Contact:
Tawn Earnest, 615-855-5209