Investors Eagerly Anticipate Dollar General IPO

| About: Dollar General (DG)

Dollar General (NYSE:DG), a KKR-backed small-box discount retailer with 8,700 stores in 35 states, is expected to float its IPO at the end of the week. The company is apparently booming despite, or because of, the economic crisis. According to the Wall Street Journal: "Through the worst of the economic downturn through 2008 and 2009, Dollar General did nothing but grow: Its sales, same store sales, total number of stores, and profits all rose."

Business Overview (from prospectus)

We are the largest discount retailer in the United States by number of stores, with 8,577 stores located in 35 states as of July 31, 2009, 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 décor and domestics, and apparel. Our merchandise includes high quality national brands from leading manufacturers, as well as comparable quality private brands 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. From 1968 through the end of 2008, we grew our store base from 215 in 13 states to 8,362 in 35 states and grew our annual sales from $40 million to $10.5 billion, which represents compound annual growth rates of 9.6% and 14.9%, respectively.

Offering: 34.1 million shares at $21 - $23 per share. Net proceeds of approximately $467.8 million will be used to repay debt.

Lead Underwriters: Citi (NYSE:C), Goldman Sachs (NYSE:GS), KKR

Financial Highlights:

The net sales increase in the 2009 year-to-date period reflects a same-store sales increase of 10.8% compared to the same period in 2008... The gross profit rate as a percentage of sales was 31.0% in the 2009 period compared to 28.9% in the 2008 period... G&A decreased to 22.9% as a percentage of sales in the 2009 period from 23.9% in the 2008 period, a decrease of 94 basis points, primarily attributable to leverage attained from significantly higher net sales as discussed above. As a percentage of sales, waste management costs declined primarily as a result of cardboard recycling efforts, electricity, store payroll and occupancy costs decreased, and professional fees (primarily legal expenses) were lower in the 2009 period. In addition, workers' compensation costs and general liability insurance expense decreased as a result of our continued cost reduction and safety efforts.


We operate in the basic consumer packaged goods market, which is highly competitive with respect to price, store location, merchandise quality, assortment and presentation, in-stock consistency, and customer service. We compete with discount stores and with many other retailers, including mass merchandise, grocery, drug, convenience, variety and other specialty stores. These other retail companies operate stores in many of the areas where we operate, and many of them engage in extensive advertising and marketing efforts. Our direct competitors include Family Dollar (NYSE:FDO), Dollar Tree (NASDAQ:DLTR), Fred's (NASDAQ:FRED), 99 Cents Only (DND) and various local, independent operators as well as Wal-Mart (NYSE:WMT), Walgreens (WAG), CVS (NYSE:CVS), Rite Aid (NYSE:RAD), Target (NYSE:TGT) and Costco (NASDAQ:COST) among others. Certain of our competitors have greater financial, distribution, marketing and other resources than we do.

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