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Executives

Mary Winn Gordon – Vice President of Investor Relations and Public Relations

Rick Dreiling – Chairman & CEO

David Tehle – Chief Financial Officer

Analysts

Mark Montagna – Avondale Partners

John Heinbockel – Guggenhiem Securities

Deborah Weinswig – Citi

Dan Wewer – Raymond James

Paul Simenauer – JPMorgan

Wayne Hood – BMO Capital

Edgar Roesch – Nomura Securities

Teresa Dillon – Wells Fargo Securities

Charles Grom - Deutsche Bank

Scot Ciccarelli with RBC Capital Markets

Denise Chai - Bank of America

John Connor – Barclays Capital

Colin McGranahan - Bernstein

Trey Schorgl – Credit Suisse

David Mann – Johnson Rice

Dollar General Corporation (DG) Q4 2011 Earnings Conference Call March 22, 2012 10:00 AM ET

Operator

Ladies and gentlemen, this is the Dollar General Corporation fourth quarter 2011 conference call on Thursday, March 22nd, 2012, at 9 AM Central Time. Good morning and thank you for your participation in today’s call, which is being recorded by Conference America. No other recordings or rebroadcast of this session are allowed without the company’s permission.

It is now my pleasure to turn the conference over to Ms. Mary Winn Gordon, Dollar General’s Vice President of Investor Relations and Public Relations.

Mary Winn Gordon

Thank you, Linsey, and good morning everyone. Linsey, are you there?

Operator

Yes, ma’am.

Mary Winn Gordon

Okay, just we heard a noise here. So, thank you and good morning everyone. On the call today are Rick Dreiling, our Chairman and CEO; and David Tehle, our Chief Financial Officer. We will first go through our prepared remarks and then we will open the call up for questions.

Let me caution that today’s comments will include forward-looking statements about our expectations, plans, objectives, anticipated financial and operating results and other matters. For example, our 2012 forecasted financial results and initiatives, expectations regarding potential debt and share repurchases, debt refinancing and capital expenditures and comments regarding expected consumer economic trends are forward-looking statements.

You can identify forward-looking statements because they do not relate solely to historical matters or they contain words such as believe, anticipate, project, plan, expect, forecast, guidance, experience will likely result, or will continue.

Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our fourth quarter earnings release issued this morning and in our 2011 10-K, which we also filed this morning and in the comments that are made on this call. You should not unduly rely on these statements, which speak only as of today’s date. Dollar General disclaims any obligation to update or revise any information discussed in this call.

We will also reference certain financial measures not derived in accordance with GAAP. The calculation of ROIC can be located on our Website at dollargeneral.com under Investor Information, Conference Calls and Investor Events, below the link the webcast for this call.

All other reconciliations to the most comparable GAAP measures are included in this morning’s release, which can be found on our Website under Investor Information press releases. This information is not a substitute for the GAAP measures and may not be comparable to similarly titled measures of other companies.

Finally, before I turn the call over to Rick, I would like to mention to all of the analysts and investors on the call to hold the date for our Analyst Day in Nashville, beginning on Monday evening, June 25th through Tuesday, June 26th. We will be sending out invitations with more details in the next couple of weeks. So, please call us if you think you are not on our list to get the invitation.

Now, it’s my pleasure to turn the call over to Rick.

Rick Dreiling

Thank you, Mary Winn and thanks to everyone for joining our call today. 2011 was another great year for Dollar General. We were very pleased with our financial results for the full year and for the fourth quarter. The results indicate that we are becoming even more relevant to our customers as we once again saw increases in our overall market share in consumables in both units and dollars.

David is going to talk about the details of the fourth quarter, but I would like to quickly reflect on our financial accomplishments for the year. Full-year sales increased 13.6% to a record $14.8 billion. Excluding the 53rd week, full-year sales increased to 11.4% and sales per square foot increased to $209 compared to $201 a year ago. Sales for average store topped $1.5 million.

2011 marked our 22nd consecutive year of same-store sales growth. Same-store sales were up 6% for the year, with all of our operating regions again turning in positive comps. Our adjusted operating profit grew 17% over last year to a record $1.5 billion and a record 10.2% of sales.

Gross margin rate contraction of 31 basis points for the year was more than offset by strong adjusted SG&A leverage of 62 basis points. Although the rate is down year-over-year, I should remind you that a 31.7% gross margin rate represents expansion of 246 basis points over 2008, just three years ago. This is a significant accomplishment during a sustained difficult economic environment.

Interest expense was down $69 million for the year as we made additional progress to reducing our high interest rate debt. On the bottom line, our adjusted net income increased 26% over 2010. In addition, we produced over $1 billion of cash growth from operations, a 27% increase over last year, and we further strengthened our balance sheet to significant debt reduction.

For the year, we generated an impressive return on invested capital of 22.1%. Our financial results continue to be a testament to the strength of our business model. It is clear that our strategy of small box convenience combined with great value resonates with consumers.

In addition to our impressive financial results, we accomplished a great deal in 2011 on the business side as well, laying for groundwork for 2012 and beyond. We continue to strengthen our infrastructure and upgrade the systems and technologies we use to operate the business. Across the board, we are better equipped to grow than we were a few years ago. We hit our target of opening 625 new stores and remodeling or relocating 575 stores in 2011, increasing our selling square footage by 7%. Most of this growth was in our existing 35 states, but in 2011, we expanded our footprint into Connecticut, New Hampshire and Nevada, our first new state since 2006, and we also launched our e-commerce site.

We expanded testing of our Dallas Dollar General market concept, remodeling an additional 25 market stores and opening 12 new locations, including seven in Nevada. We ended the year with 69 markets and are pleased with the preliminary results from our new and remodeled stores. This concept is a significant part of our initial California strategy.

Next weekend, we will celebrate the grand opening of our 10,000th store, a Dollar General market in Merced, California. This is our fifth store in the state and we expect to have 50 stores in California by year end. These stores as well as our stores in Nevada, Arizona and New Mexico will be served by our new distribution center near Bakersfield beginning in April.

To support expansion of our existing markets, we also built a new distribution center in Alabama, which began shipping to stores earlier this month. On the merchandising front, we continue to enhance our category management efforts and expand our merchandise offerings at the dollar price point, with a focus on health and beauty in 2011.

We increased the number of coolers in approximately 500 stores by adding four cooler doors on average, bringing our chain average to nine cooler doors per store. According to syndicated data, we continue to grow our market share in consumables by high-single digits in units and 10% to 12% in dollar share over a four-week, 12-week, 24-week and 52-week basis.

As part of our ongoing efforts to increase our gross margin rate, we added 16 seats of core health and beauty products in 2011, with a big push in our Rexall proprietary brand and continue to expand other private and proprietary brand in consumables. We now carry nearly 1,900 private brand SKUs in consumables, with strong sales growth in food, perishables, candy and snacks, carbonated beverages, home cleaning and healthcare. Throughout the store, nearly 2,900 SKUs are a Dollar General private or proprietary brand now.

Overall, sales of seasonal items were strong for the year. We had great success in party supplies, balloons and arts and craft. We have also seen sales growth in novelty items, seasonal candles and holiday storage. Our focus on being trend relevant while maintaining great value is continuing to pay off for us.

Sales growth in house wares and domestics have been encouraging. We have been focused on improving product quality and better meeting our customers’ needs. Sales in the second half of the year were very good, once many of our merchandising improvements became more visible to our customers. Areas such as bedding and bath, which had been slow for sometime had a comeback late in the year and that trends have continued into the new year.

We believe that our improved quality as well as improved branding and packaging and presentation have contributed to our overall growth in home sales. Through focused initiatives, we have improved our in-stock positions throughout the chain, which is very important to our customers. For the year, the number of items that our customers couldn’t find in the store shelves was down 14%, gaining significant traction in the third and fourth quarters, which has continued into 2012. This effort has dramatically improved the customer experience in our stores as indicated by record-high customer satisfaction scores.

From an expense reduction standpoint, we implemented a workforce management system in our stores, which contributed significantly to our ability to leverage store labor in the second half of the year, by helping us better align customer service with our customers’ needs and shopping trends. This new system provides our store managers with an electronic system that assist them as they prioritize and manage work, allowing them to be smarter in how they manage their staff and their stores.

We also made further inroads with regard to hiring and developing our employees. In 2011, about 55% of our positions were filled from internal candidates. The investment in our employees is an important investment in our future. As Dollar General grows, our employees have the opportunity to grow both personally and professionally with the company. And finally, our strong cash flow for the year allowed us to pay off our 10.625% Senior Notes, reducing our interest expense and further strengthening our balance sheet. We also repurchased 4.9 million shares of our common stock.

Before I turn the call over to David, I wanted to provide some color on our fourth quarter sales, which were up 20% from the prior year, or an increase of 11.8%, excluding the 53rd week. Same-store sales increased a strong 6.5%, a further acceleration of trends during the year exceeding the 5% expectation that we shared with you on the third quarter call. Comps in the month of January were very strong in part due to the better-than-expected weather compared to January of 2011. Consistent with the rest of the year, fourth quarter sales were primarily driven by consumables, with snacks, beverages, and perishables leading the way.

Additional coolers and the expansion of $1 items contributed to the increase in perishables. Sales of convenience items such as carbonated beverages, salty snacks and candy, including both seasonal and core were strong in the quarter. Health and beauty grew year-over-year as well, in part due to the addition of more $1 price point items and the expansion of this area to the 17 inch profile in early 2011.

In addition, refits in our pet category implemented earlier in the year generated solid results and stronger trends in our high penetration home cleaning and paper categories were driven by our merchandising strategies. We were very encouraged by the continued positive comps in our home category. Comp growth in house wares and domestic such as bedding, bath, floor coverings, exceeded our overall comp percentage for the quarter.

Apparel continued to struggle. We are comfortable that the decision that we made last year to focus more on infants and children and men’s apparel was prudent, but without a doubt apparel, especially women’s remains our toughest category to manage and we were disappointed with our overall results.

As you have heard across various retail channels, holiday seasonal sales were challenging as consumers remain cautious with their discretionary spending. Pricing and promotions were very competitive during the holiday season, and like most retailers, we responded to the market and took some early pricing actions on our seasonal merchandise to drive sales in our stores.

Other items included in our seasonal categories such as stationary, pre-recorded CDs and DVDs and automotive all performed well. All in all, we were very pleased with our fourth quarter sales.

Now, David will share a more detailed review of our overall fourth quarter financial performance and our guidance for 2012.

David Tehle

Thank you Rick, and good morning everyone. As Rick said, we had a great year and we had very strong financial performance in the fourth quarter, with sales above our expectations.

Fourth quarter sales were again driven by consumables, which generally have a lower gross margin than non-consumables. Our fourth quarter gross profit rate was 32.2%, a decrease of 25 basis points from the 2010 fourth quarter, which as a reminder was the highest gross margin performance we have ever achieved. Purchase costs were up year-over-year, particularly on some of our food items such as sugar, coffee and nuts, resulting in a likely charge of $22 million for the quarter, much higher than we had anticipated at the end of Q3 as inflation continued at a higher rate than expected. Overall though, we are pleased with our gross margin results for the quarter.

SG&A as a percentage of sales was 20% in the 2011 fourth quarter compared to 20.7% in the 2010 quarter. Excluding adjustments detailed in our press release, our SG&A rate was 19.8% in the 2011 quarter versus 20.6% in the 2010 quarter, a 79 basis point year over year improvement, primarily due to increased sales, including the Easter week and a significant increase in store labor productivity resulting from our new workforce management initiatives. To a lesser extent, lower incentive compensation expense resulting from a more aggressive bonus target and lower employee benefit costs along with other cost reduction and productivity initiative also impacted SG&A favorably. Excluding secondary operating expenses from both years, operating profit increased 26% to $519 million or 12.4% of sales compared to $413 million or a 11.8% of sales in the 2010 quarter. We are very pleased with this improvement and with our ability to balance gross margin and generated expense leverage as we accelerated our investments in new store developments. Even without the leverage benefited the 53rd week in 2011 we had strong operating profit performance.

Interest expense was $40 million for the quarter, a reduction of $26 million from last year’s fourth quarter primarily due to our debt reduction. Excluding adjustments for comparability detailed in our press release, net income increased 33% to $299 million, including an estimated $0.06 for the 53rd week in 2011. Adjusted earnings per share increased 34% to $0.87 in the 2011 quarter compared to $0.65 in the 2010 quarter.

Turning to our cash flow. We generated more than $1 billion of cash from operating activity through the year. That’s an increase of 27% year-over-year. Total capital expenditures were $515 million, including a $120 million for distribution centers, $114 million for new lease stores, $80 million for improvements and upgrades to existing stores, $80 for stores purchased or built by us, $73 million for remodels and relocations of existing stores, $28 million for information systems upgrades and technology-related projects, and $15 million for transportation-related capital. As of the end of the year, total inventories at cost were $2 billion, up 7% on a per store basis, just slightly above our same-store sales growth with inventory churns of 5.3 times for the 53-week year. Total outstanding debt at the end of the year was $2.62 billion, a decrease of $670 million from 2010. Net of cash, our ratio of long term obligations to adjusted EBITDA was 1.4 times at the end of fiscal 2011, compared to 1.8 times at the end of 2010.

On March 15th, our revolving credit facility was amended and restated increasing the maximum amounts permitted to be borrowed to $1.2 billion and extending the maturity of the facility from 2013 to 2014. In addition, we have recently commenced efforts to amend our term loan facility to extend the maturity of a portion of the facility from 2014 to 2017. We continue to deploy capital efficiently with our top tier return on invested capital of 22.1% in 2011.

To summarize, we have continued to deliver strong financial performance in a volatile environment including exceptional cash flow generation and return on capital.

Over the last several months we have finalized our plans for 2012. We are anticipating another strong year and we are very excited about making key investments to grow the business for the long term, while still delivering top tier financial results. We expect top line sales for 2012 to increase 8% to 9% or 10% to 11% excluding the 53rd week from 2011. Overall, square footage is expected to grow approximately 7% in 2012 and same-store sales on a comparable 52-week basis are expected to increase 3% to 5%. Operating profit is forecasted to be between $1.6 billion and $1.65 billion excluding certain adjustments comparable to 2011.

In the first half of the year, we expect modest contraction of our gross margin rate and higher expenses related to strategic investments including cost associated with the opening and ramp-up of operations of our two new distribution centers and start up cost related to our initial entrance into California. In the second half of the year we expect these headwinds to moderate as our new distribution centers become more efficient.

New stores expansion into new geographies and an expansion of our distribution network are solid example of investing to drive productive sales growth for the long term. We are forecasting net interest expense for the year to be in the range of $145 to $155 million as we intend to refinance our senior subordinated notes on or after the first call date in July of 2012. We expect our full-year tax rate to be in the range of 38% to 39%, although it may likely vary quarter to quarter.

Finally, we expect adjusted diluted earnings per share of $2.65 to $2.75. We are assuming about 335 million weighted average diluted shares outstanding for the year which assumes the repurchase of $315 million of our common stock under our remaining share repurchase authorization.

2012 capital expenditures are forecasted to be in the range of $600 to $650 million with approximately 65% for investments in store growth and development, including new stores, remodels, relocations and purchases of existing store locations. Approximately 15% for transportation, distribution and special projects, the remaining 20% is for maintenance capital. Our capital expenditures are increasing this year as we take advantage of opportunities to test additional potential avenues of growth. Rick will share more details about those opportunities with you in a minute.

Again for 2012 reflects another growth year for Dollar General. While we're seeing some indications of positive trends in the economy we believe our customers’ discretionary spending will continue to be constrained in 2012. As our track record demonstrates, Dollar General is well-positioned to serve our customers regardless of how the economy plays out. We are starting the year off on the strong note with same-store sales growth coming in very nicely in February and to date in March.

Now I would like to turn the call back over to Rick to summarize our 2012 initiatives that support our guidance.

Richard Dreiling

Thanks David. We outlined some of our 2012 initiatives for you in our third-quarter conference call. So I'd like to expand upon those today. But first I would like to reiterate our four operating priorities, driving productive sales growth, increasing gross margin, leveraging process improvement in information technology to reduce cost, and strengthening and expanding Dollar General’s culture of serving others. We believe that adherence to these priorities and our focus on multiple leverage to drive sustainability of results will continue to separate Dollar General from the competition and allow us to provide our customers with the consistent low prices that they trust.

Let's start with our first priority of driving productive sales growth. The returns on our new stores remain some of the best in retail, thanks to the disciplines we have developed in our real estate model. In 2012, we expect to open approximately 625 new stores. We also plan to continue our remodel and relocation program including an additional 550 stores in 2012. In total, we expect square footage growth of approximately 7%. I should point out that a higher percentage of our new stores next year will be in our newer states, including an estimated 50 stores in California. The vast majority of our new stores and relocations will be traditional Dollar General stores. However, our plans also include in addition of approximately 40 new Dollar General Markets which will take us to more than 100 market stores by the end of next year. We have dedicated resources for further development and ongoing assessment of the Dollar General Market concept. We are excited about the opportunity to introduce the concept in both new and existing markets with a focus on the many food desert areas that are far away from the traditional grocery store. The results of the market remodels we have completed to date and of our 12 new market stores are encouraging. Albeit, still very early.

We are continuing to make tweaks in our product selection, store design and capital investment and we expect that 2012 will provide many helpful earnings.

In addition we plan to expand our test of the larger format Dollar General store that we refer to internally as DG plus. This format has expanded coolers but no fresh meat and produce. These stores have about 10,000 square feet of selling space and while it is still very early, customer response has been very strong to this format. We are excited about the potential growth opportunities for both this larger Dollar General and Dollar General Market as we continue our work to maximize profitability and returns on both of these formats.

We will continue to enhance our category management efforts and are focused on optimizing our planogram productivity. We have embarked upon Phase 5 of our evolution in merchandising. In Phases 1 through 4 we have raised the shelf height across the stores increasing our shelf space. In Phase 5 we plan to use this space even more effectively by developing region or demographic specific plants to ensure that we have the right balance of offerings based on the population demographics and the stores sale logistics. We expect to continue to expand our merchandise offering at the $1 price point and plan to add more items in food, in snacks, as well as seasonal in 2012.

Additionally, we plan to future expand our cooler presence. Currently, our new stores are opening with 14 to 16 coolers and we plan to install 4 additional cooler doors in approximately 1200 existing locations to better serve our time conscious customer. Fresh and refrigerated foods help us drive customer traffic and increase basket size by serving a greater share of our customer’s needs. Across non-consumables, our strategy is continue to be trend relevant as price points our core customer expects from us. We have a fresh approach to apparel pricing, adding more in season promotional events. Based on our focus group research, we believe this approach is more consistent with how our customer purchases apparel.

Also, we plan to flow new apparel to the stores more frequently, so that our customer sees new fresh merchandize more often. We will continue to take an aggressive stand towards improving our in stock position. This is a never ending effort, which requires focus on store level perpetual inventory accuracy as well as improved execution across ordering, fulfillment, delivery and stocking.

With regard to expanding our gross margin, we expect our mix to continue to be pressured by macro economic factors. However, we believe we have additional opportunity to capture margin in 2012 from further shrink reduction, expansion of foreign sourcing and the addition of private ran SKUs as we move into new category. We intend to take additional steps in our price optimization efforts and expect to utilize multiple price zones while remaining true to our EDLP strategy in 2012.

Our third priority is to leverage process improvement in IT to reduce cost. We expect to continue to leverage our new workforce management system that was completely rolled out in 2011. We are making a multiple year investment in our supply chain system. Over the next few years we expect to benefit incrementally from the phased rollout of our supply chain solution. This is more than a IT project. It impacts our people, our processes, and our systems, helping us to ensure that we have the right product at the right place at the right time and most importantly in the right quantity. Over time we believe this project will benefit our inventory levels at the DC than in the stores, our allocation of merchandizing the stores and our overall in stock position on the shelf.

We expect 2012 to be another strong year for Dollar General. We look forward to our expansion into California and our learnings from Dollar General Market and we believe that we have the right plans and the right team in place to achieve our goal.

We continue to strengthen our financial position and importantly we are building loyalty with our customers. Our customer research indicate that our base of loyal customers is growing as we retain a greater percentage of our non-traditional or higher income customers. Both trips and dollars spent per trip have increased with our shoppers and we are outperforming the channel in customer spending growth among both our routine shoppers and new shoppers. In summary, the data shows that our stores are meeting the needs of an expanding customer base.

As a team we are excited to welcome Greg Sparks to Dollar General as our new Executive Vice President of Store Operations. I have known Greg for over 20 years. He is a strong leader, an exceptional operator with a proven background given his more than 36 years in retail. He will be a great addition to Dollar General. Finally, my personal thanks to over 90,000 Dollar General Employees who are committed to serving our customers every day. Dollar General is a strong company because of our employees. We have a solid foundation for growth and we are continuing to innovate and lead the channel in order to capture multiyear growth opportunities on both the top line and bottom line with the investments we are making. Our strong track record of executing our key initiatives gives me great confidence that the Dollar General team can successfully execute our 2012 goals and can continue to deliver long-term sustainable growth.

With that, Mary Winn, I would like to open it up to questions.

Mary Winn Gordon

Great. Operator, we will take the first question, please.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions) Our first question comes from Mark Montagna with Avondale Partners.

Rick Dreiling

Good morning, Mark.

Mark Montagna – Avondale Partners

Hi, good morning. I was hoping to just kind of get a feel for your cost increases that you are facing in 2012 in the first half, how would that compare to the cost increases that you faced in the first half of 2011? Is it less of an increase, more or about the same, perhaps?

Rick Dreiling

That’s a great question, Mark. We are actually seeing inflation moderate in the first quarter. I would guesstimate that it’s about half of what it was in the first quarter of last year. So, around 1% reducing right now.

Mark Montagna – Avondale Partners

All right. That’s fantastic. Is there a great pressure on the discretionary or the non-discretionary product?

Rick Dreiling

It’s about the same, I would say. It’s about the same on both sides.

Mark Montagna – Avondale Partners

Okay, that’s great. I will jump out. Thanks.

David Tehle

Thanks, Mark.

Mary Winn Gordon

Operator, we will move to next question, please.

Operator

Our next question comes from John Heinbockel with Guggenhiem Securities.

Rick Dreiling

Good morning, John.

John Heinbockel – Guggenhiem Securities

Hi, how are you? Couple of things. When you think about the discretionary part of the mix, and you are clearly doing some things to tweak that and generate some sales. When you step back and think about the store and those categories longer term, how do you think about how much space you are dedicating to those categories? Should there be a pullback in some of those categories in terms of your commitment to them? How do you think about the longer term?

Rick Dreiling

Yes, great question. One of the things we work very hard on, John, is not to be a 7,600 square foot grocery store. We believe the non-consumable side to us is as important as the consumable. Now, as I look back over the last four years, we have made some decisions, made some changes and pulled back on some of the non-consumable categories. We are very encouraged with what we have seen on just about all of the non-consumable categories with the exception of apparel, and we still think that has a long term, but we heat map [ph] the store, we understand how the categories are performing, and as we walk through the year, we will make the necessary decisions we need to make.

John Heinbockel – Guggenhiem Securities

Okay. Secondly, just on DG Market, it’s early yet, but when you think about the changes you have made, how close do you think you can get the ROI on that to a traditional Dollar store? It will probably never be as good, but how close can you get it? And I have always thought of it as being complementary, do you think we ever get to a point we are opening several hundred DG Markets a year?

Rick Dreiling

I will take the back half of that question and let David take the front half.

David Tehle

Yes, I think, John, you are right. I mean, we don’t ever see the returns equaling what we have in the traditional stores, but as we work on the merchandise mix and as we work on the capital that we have invested in, we see that gap closing somewhat from where it is today. Again, the play on that, if you remember, is we are going into food desserts where we think we can drive a lot of volume, and then they generate a lot of raw profit dollars in terms of generating EBITDA for the model, which certainly is something we are very happy to see.

Rick Dreiling

And regards to the back half, we believe it’s a part of our future, it’s a little early to stand up and say how many stores we think it’s going to be, but I will tell you, John, the ones that we have opened and the ones we have remodeled, but we have got a lot of work to do, yet. We are very pleased with what we are seeing.

John Heinbockel – Guggenhiem Securities

And then, just one final thing, when you look at the moderation in the comp you guys have guided to, is the bulk of that disinflation or if not, is it a guess price-related or something else?

Rick Dreiling

What we always try to do is put our best view on it. It’s a little early yet, to be honest. And what I will promise you, we will do what we have done for the last two years, every quarter we will give you an update based on the results we have.

John Heinbockel – Guggenhiem Securities

Okay, thanks.

Mary Winn Gordon

All right. Operator, we will go on to the next question, please.

Operator

Our next question comes from Deborah Weinswig with Citi.

Rick Dreiling

Good morning, Deborah.

Deborah Weinswig – Citi

Good morning. Congratulations.

Rick Dreiling

Thank you very much.

Deborah Weinswig – Citi

If you look back at 2011, what were the biggest surprises?

Rick Dreiling

What a great question. I think the LIFO charge to me, having to work with inflation, I will tell you I was very pleased with sales, and the way sales ramped up through the year, which I think is really – I think that’s very telling and that it says that we are broadening our appeal to a broader customer base and still growing our share of wallet with our existing customers.

And I got to tell you, as far as the organization goes, I would say that we continue to demonstrate that we have multiple levers that we can pull. If you think about the LIFO charge we took in the fourth quarter and we were still able to manage the business and exceed the Street’s expectations.

Deborah Weinswig – Citi

Great. And then, one last question for you. I know it’s very early, but can you talk about your experience thus far with e-commerce?

Rick Dreiling

Yes, it is a little early, yet. We are continuing to expand a number of items that are on there. I think we have almost two-and-a-half times the number of items we had before. So, we are approaching 3,000 items. We are getting some hits. We are measuring the re-hits where people come back to us. We are pleased with what we see, but it’s a little early, yet.

Deborah Weinswig – Citi

And are you finding that those are customers, are those people who are in existing markets, or are those people on new markets?

Rick Dreiling

Believe it or not, all across the United States. It has been very interesting that we have had hits from states we are not in.

Deborah Weinswig – Citi

Great.

Rick Dreiling

But not Hawaii, by the way.

Deborah Weinswig – Citi

Not Hawaii, not yet.

Rick Dreiling

I am sorry.

Deborah Weinswig – Citi

Thanks so much and best of luck.

Rick Dreiling

Thank you.

Mary Winn Gordon

Operator, we will take the next question, please.

Operator

Our next question comes from Dan Wewer with Raymond James.

Rick Dreiling

Hi Dan.

Dan Wewer – Raymond James

Hi Rick, how are you doing?

Rick Dreiling

Good.

Dan Wewer – Raymond James

So, you noted that your operating margin of 10.2% is a lifetime high in the year just ended. You are also guiding to a little bit of operating margin pressure during the first half of 2012. With your operating margins now at record levels, but also mindful, this is discount store retailing, it’s not Williams-Sonoma, do you think we are at a point now where DG has to start reinvesting some of that operating margin to grow market share at a faster rate thinking that future operating margin gains from this point forward to be very difficult to achieve?

Rick Dreiling

I look at it, Dan, we still have opportunities in sourcing private brands, shrink, warehouse and transportation. There is a lot of room there, and the one thing I think it’s a real key takeaway for us the improvement that we have driven has not been from raising prices, it’s been by doing a better job around the acquisition and the moving of products. So, I feel comfortable there is still some room. David, I don’t know if you would like to add anything to that?

David Tehle

Yes, I think particularly as we look at private label and sourcing and we know we have got a long run rate to go in both of those. And sourcing anyway is something we tell we control obviously private label customer has to vote on it. But the things internally sourcing, and shrink, and distribution and transportation, those are things that we have total control over, and we know that we have room for advancement in those areas.

Rick Dreiling

And you know, Dan, I would tell you this, too. If you look at the syndicated data, I mean, on a four-week, 12-week, 24-week, 52-week, I mean, we are growing our share 10% to 12% now.

Dan Wewer – Raymond James

That’s right. I mean, totally fine with sacrificing some margin if it’s more than an ample payback in market share. One other question I would ask, this is a very significant growth in the number of coolers that DG is adding whether to hit the market, the DG Plus stores or even your core stores. Yet, the company still does not have any refrigerated distribution capacity. At what point do you start rethinking that part of your supply chain?

Rick Dreiling

Yes, I think that’s a really fair question, Dan. Even though we are adding a lot of cooler doors, we still, we are not – it’s not a big case business for us yet, the growth is phenomenal, but the people we are using deliver by the piece for us, which makes it much more better for our inventories. It is something that we are watching, something that we are monitoring, something we are thinking about to be honest, and I will give you an update when we decide to make that move.

Dan Wewer – Raymond James

Okay, great. Thank you.

Rick Dreiling

Thank you, Dan.

Mary Winn Gordon

Operator, we will move on to the next question.

Operator

Thank you. Our next question comes from Carla Casella with JPMorgan.

Rick Dreiling

Hi, Carla

Paul Simenauer – JPMorgan

Hi, this is actually Paul Simenauer on for Carla.

Rick Dreiling

Good morning, Paul.

Paul Simenauer – JPMorgan

Good morning. First off, when you look at the assortment of brands at the Dollar stores, we are starting to see more brands out in the past, guys were not selling through that channel. Have most of the CPG companies overcome this aversion to the channel?

Rick Dreiling

Yes, I mean, actually if you look at it, we are in the top 10 with most of the CPG companies out there now. And the advantage, Paul, to national brands for us, it gives us relevancy with the trade down and the trade-in customer. And the merchandising team has been able to develop a very strong private brand program and a very strong national brand, but works out good.

Paul Simenauer – JPMorgan

Got you. And are there any brands that you would like to carry that cannot at this point?

Rick Dreiling

I am very pleased with the selection overall. When you think about the national brands that we carry, we really focus on the ones that our customers can afford and relate to.

Paul Simenauer – JPMorgan

Got it. And finally, what are the biggest CPG partners for you today in terms of growth and adding to your mix?

Rick Dreiling

Yes, I would look out to you and tell you, you could pick any one you wanted to on that. We enjoy the same relationship with them as all of the bigger players do.

Paul Simenauer – JPMorgan

Got it. Okay, thank you very much.

Rick Dreiling

Thank you.

Mary Winn Gordon

All right. Operator, we will move on to the next question.

Operator

The next question comes from Wayne Hood with BMO Capital.

Wayne Hood – BMO Capital

Yes, good morning everyone.

Mary Winn Gordon

Hi, Wayne.

Wayne Hood – BMO Capital

A maintenance question I guess before I get to an ROIC question, what is the LIFO accrual that’s embedded in your guidance for the coming year?

David Tehle

Yes, we have – I am not going to give you an exact number there, Wayne, but we have what I would call moderate amount of LIFO played into the number, our guidance is $2.65 to $2.75. Certainly not as large as what we saw in 2011, something more moderate than that.

Wayne Hood – BMO Capital

Okay. And my second question relates to return on capital on the 10,000 square foot store kind of capacity you have in DG Market. Can you speak a little bit about how you are trying to lower the capital investment spread between the $180,000 you might spend on a traditional store on what you are spending on these, and what level of capital does it have to come down to, to make the return on investment non-dilutive to the overall capital that you might be deploying?

Rick Dreiling

Yes, I think it’s more than just looking at the capital. As we look at, you certainly have to look at the revenue that’s coming out of that box and the mix of products, because the product mix is skewed a little heavier towards the consumables. So, we have to work the top part of the equation as well as the bottom part of it on the capital. So, I think we are working all sides of it right now. It’s still early, we are still learning, we are doing a lot of value engineering in the stores in terms of trying to figure out what makes sense from a capital point of view.

Wayne Hood – BMO Capital

When you talk about meaningfully above the $180,000, are you talking twice that or can you put some parameters around the magnitude of the difference and again how you get more specifically how you are bringing that down?

Rick Dreiling

Yes, I think until we really put a stake in the ground on the model and are willing to say we have it perfected, we are still experimenting and we would rather not lay a number out there and certainly, when we feel like we have got it where we want it, we are willing to get a little more guidance on that.

Wayne Hood – BMO Capital

All right, thanks guys. Great quarter.

Rick Dreiling

Thanks Wayne.

Mary Winn Gordon

Thanks Wayne. Operator, we will move on to the next question, please.

Operator

Our next question comes from Aram Rubinson with Nomura Securities.

Edgar Roesch – Nomura Securities

Hi, good morning. It’s actually Ed sitting in for Aram. First of all, congrats on 10,000th store mark. Quite an achievement.

Rick Dreiling

Thank you. Ed, actually I am going there myself to see that one happen.

Edgar Roesch – Nomura Securities

Excellent. Having been in one of these Plus stores, just one observation I had is it seemed to be a bit removed from the heart of the retail trade areas, at least anecdotally, and I was wondering if that’s part of the strategy or is that just a one-off observation?

Rick Dreiling

I would tell you, it’s just a one-off observation. I didn’t see where that store was at the time when we were going to remodel it, and we took advantage of it.

Edgar Roesch – Nomura Securities

Okay. And then, how many of the 2012 openings would you think might be these Plus DGs?

Rick Dreiling

Approximately 80.

Edgar Roesch – Nomura Securities

Approximately 80, okay. And then, last question related to it, do they include any produce items? I don’t recall that part of it.

Rick Dreiling

No. The Plus store is a major commitment to just to refrigerated and the frozen and then some expanded sets within the store.

Edgar Roesch – Nomura Securities

Okay. And is the DG market giving you lessons on produce that might lead you to want to expand that category throughout the chain to any degree?

Rick Dreiling

Yes, actually we are learning a lot about produce and meat, and again, it’s too soon to stand up and make a commitment on that. You got to remember that’s brand new for us, and we are not new in our Dollar General Markets, but really understanding the quality, the selection, the variety. So, we have a lot to learn there, yet, but we will stay tuned, we will see down the road.

Edgar Roesch – Nomura Securities

Alright, thanks.

Rick Dreiling

That number on the DG plus includes relocations and remodels by the way.

Edgar Roesch – Nomura Securities

Okay, terrific. Thank you.

Mary Winn Gordon

Alright. Operator, next question please.

Operator

Our next question comes from Matt Nemer with Wells Fargo.

Rick Dreiling

Good morning, Matt.

Teresa Dillon – Wells Fargo Securities

Good morning. It’s actually Teresa Dillon for Matt.

Rick Dreiling

Well, good morning, Teresa.

Teresa Dillon – Wells Fargo Securities

Good morning. Congrats on a great quarter.

Rick Dreiling

Thank you.

Teresa Dillon – Wells Fargo Securities

Just a few quick questions. I am just curious on your plan to add more merchandize at the $1 price point. You have talked about it for the past couple of calls and just wanted to dig into this a little bit more. How big do you expect this to be and how should we think about the profitability of these items, particularly, if they are skewed more towards consumables?

Rick Dreiling

Yes, that’s a great question. Actually, not only consumables but we are also doing a lot of work on the non-consumable side. We introduced many SKUs of $1 HVA items in the course of the year. In terms of the profitability, they still carry a very solid profit and that’s equal to the stuff we are actually selling -- the merchandize we are selling in the store. The real key takeaway on the addition of the $1 merchandize is that it’s not eroding the category, it’s become incremental. So we actually believe that was a sale we weren’t getting that we are now getting.

Teresa Dillon – Wells Fargo Securities

Okay. And then outside of the supply chain initiative you mentioned on the call, I am just wondering what sort of left on the agenda or the wish list from a technology perspective?

David Tehle

Yes, I think as we look at that several things. Certainly the supply chain is the biggest one as we move forward and we think that will do a lot for us in terms of inventory churn in stock, demand forecasting. We have got some enhancements, we will be making to our handheld in the stores which is kind of the lifeline for the stores, again in terms of managing inventory and helping increase our sales. Two new distribution centers this year, obviously there is a lot of IT work involved when you open a distribution center. We are doing some pricing system enhancements with the demand tech and again, we think as we refine our pricing that will have some major benefits for the company. And then we have got some things going on in transportation and distribution, including expanding our transportation routing. So, kind of a whole bunch of different things, touching many different parts of the business and we still think there is a lot of technology that we can inject in the business to help drive more sales and drive more profitability.

Teresa Dillon – Wells Fargo Securities

Alright. Thanks very much.

Rick Dreiling

Thank you.

Mary Winn Gordon

Operator, we will move on to the next question please.

Operator

The next question comes from Charles Grom with Deutsche Bank.

Rick Dreiling

Good morning, Chuck.

Charles Grom - Deutsche Bank

Good morning, thanks. Just on the acceleration of your comps in January and then so far into February and March. Just wondering, how much that’s been driven by traffics versus ticket and how broad-based that’s been by category? And then, how would you expect the pace of comps to look in 2012 in light of the 3% to 5% comp that you guys gave this morning?

David Tehle

Yes, traffic is definitely – has been trending higher than the basket. However, the basket is still contributing. I don’t want to mislead you, we are so happy with what we are seeing in basket, but traffic clearly is the bigger piece of that, particularly in the more current (inaudible).

Rick Dreiling

And in terms of the comps through the year, I mean, we are looking for a pretty consistent role through the year Chuck, not that’s going to be heavier at one end or the other.

Charles Grom - Deutsche Bank

Okay. Fair enough. Could you just quantify for us these investments that you are making here in front half of the year, both the DC investments in California? And then when you think about store capacity, once you get these two DCs up and running, what does it look like for the total company? In other words, are you going to be looking to open up another couple of DCs in the out years or is it set for a few years?

David Tehle

We are not going to be that granular in terms of actually quantifying it. I think what we have said is that we do see some pressure on the gross margin percentage in the first half of the year and one of the big reason is because of the inefficiencies as we have two new distribution centers coming up. We do have a little bit more SG&A, also in some of the startup cost hits that and then we have the investment in California that we mentioned. So we do have a moderate impact related to that. I think as we move forward in our model we see ourselves adding a distribution center every 1000 stores. So, as we open 1000 stores it’s probably time to add a DC. I will also say as we look at our five-year strategy on distribution in transportation we look at where we are today and we look at where we see ourselves in five years, we see these investments that we are making being positive and being accretive to that line item. When we look at DC in trans where we are today versus five years from now, we see ourselves leveraging that. So I think these are great investments that we are making for the long term growth of our business.

Rick Dreiling

I think Chuck the way to think about it is we expect both gross margin and SG&A leverage for the full year.

Charles Grom - Deutsche Bank

Got you. Okay. And then just on the total capacity, where you guys are today and where these two DCs position you?

Rick Dreiling

Yes, I think a fair question. This will obviously give us some room for a period of time. We really like the run of our DC that is at 85% capacity. That gives us the fluctuation to deal with incoming fees and all that. So that’s why the 1000 stores is a real good rule of thumb.

Charles Grom - Deutsche Bank

Okay. Alright, great. Congrats again.

David Tehle

Thank you.

Mary Winn Gordon

Operator, we will take the next question please.

Operator

Your next question comes from Scot Ciccarelli with RBC Capital Markets.

Rick Dreiling

Good morning, Scot.

Scot Ciccarelli with RBC Capital Markets

Good morning, guys. How are you?

Rick Dreiling

Good.

Scot Ciccarelli with RBC Capital Markets

Good. First, you guys talked about you think you are retaining more of your non-traditional customers, that certainly makes sense to me, but how do you actually know that or how do you measure those, that’s just kind of a belief?

David Tehle

Yes, actually it’s exit research where the customer comes out of the store right, I mean, we also use Nielsen Panel data. So it’s not a guess. There is some rigor around it.

Scot Ciccarelli with RBC Capital Markets

Perfect. Okay. And then, presumably, stores in new markets aren’t nearly as profitable as opening up the existing marketing. As you move into places like California, a little bit different market obviously for you guys, is that a noticeable drag on profits for some time and so they kind of ramp-up to a more mature level or what’s the right way to think about that?

David Tehle

Yes, there is definitely some drag when we go into a new market. Again, keep in mind we still have a lot of opportunities in our existing markets when we talk about the number of stores long term that we can open. So of course, part of our goal is to try to balance that out in terms of our store openings and where we open them. Yes, clearly there is a little bit of a startup when you go into a new state.

Rick Dreiling

Scot, I would also throw out to that. The real estate team has taken a much different approach to entering a market. You think back into the old days we put a store in Northern Arizona, Southern Arizona, Eastern Arizona and Western Arizona and wonder why no one knew who we were. The team real estate team here now is going in putting the stores together where the merchants can effectively put a marketing and merchandizing strategy around to make bigger impression quicker and get the sales moving faster.

Scot Ciccarelli with RBC Capital Markets

Got it. Thanks a lot, guys.

Rick Dreiling

Thank you.

Mary Winn Gordon

Thank you. Operator, our next question please.

Operator

Your next question comes from Denise Chai with Bank of America.

Rick Dreiling

Good morning, Denise.

Denise Chai - Bank of America

Hi, good morning. Congratulations on a great quarter and a great year.

Rick Dreiling

Thank you.

Denise Chai - Bank of America

Just wanted to dig a little bit more into your planogram optimization with phase 5 coming on now. So can you kind of give us some examples of what different demographic segments you will be targeting, when the rollups is going to be complete and how much of the mix source due count will this affect?

Rick Dreiling

Yes, let me give you the easiest example. Think in terms of a younger demographic versus an older. So traditionally today we have an incontinent set that is the same in every store in the chain and a diaper set that is the same in every store in the chain. What we will be able to do based on age obviously is go in and alter the size of those sets. So I might say that’s a very easy example. Think in terms of seasonal, Halloween for example does very well in rural, doesn’t do quite as well in urban environment and we will be able to go in and adjust those sets. It will ultimately over time affect every store in the chain and every market and every category.

Denise Chai - Bank of America

Okay, that’s great thank you. And then I also wanted to ask – I know that you are increasing coolers, that’s a big commitment, but when do you expect to see an inflection in the sales mix. Now that the consumer is getting a little bit better, when do you think that non-consumables will start to go a little bit faster than consumables?

Rick Dreiling

Yes, I think the non-consumable side of the table Denise is being driven by the macroeconomic environment out there. We are very comfortable with the decisions we are making on the non-consumable side. As I said on the call, we are starting to get some traction in a lot of areas, you know, home and stationary. We are very very pleased with the changes we made on infants and toddlers. We still have some work to do but we are not willing to give up on it yet. So, I think it will help when the economy will get us going in the right direction.

Denise Chai - Bank of America

Great. Thank you.

Rick Dreiling

Thank you.

Mary Winn Gordon

Operator, next question?

Operator

Our next question comes from Emily Shanks with Barclays Capital.

Rick Dreiling

Good morning, Emily.

John Connor – Barclays Capital

Hi, this is John Connor filing in for Emily. Thanks for taking the question.

Rick Dreiling

You bet, John.

John Connor – Barclays Capital

What factors did you consider when evaluating whether your free cash flow or new debt to refinance the senior notes?

David Tehle

I am sorry, can you repeat question?

John Connor – Barclays Capital

Sure. I was wondering if you could just let us know what factors did you consider when evaluating whether to use free cash flow or issuing new debt to refinance the senior notes?

David Tehle

Yes, I think as we look at it right now, we are pretty satisfied with our current debt level. We had mentioned that our goal was to drive our debt to EBITDA below 3.0, which we did in the quarter, it’s either at Q8 or Q9 depending upon if you put cash in there. So, our belief is that it’s a buck holding ownership comes down we should become investment grade. So we are about where we want to be in terms of the debt level. So our current thought process is that we will refinance the $450 million sub-debt sometime around the July call date or thereafter. And certainly we’ll get much lower debt since that’s at a (inaudible) and you know what the going debt rate would be for a company of our nature. So I think our current thoughts is that we’ll definitely use debt to and keep that debt out there.

John Connor – Barclays Capital

Great, thanks. If I could ask one more question to circle back on inflation. Can you give us the rate of inflation you experience in 4Q ’11 and which category specifically had the highest rates?

David Tehle

Yes. It was approximately 2% in the fourth quarter. Nuts come to mind, peanut butter, a lot of basic commodity items.

Mary Winn Gordon

Okay. Operator we’ll go ahead and take the next question please in the interest of time.

Operator

Thank you. Our next question comes from Colin McGranahan with Bernstein.

Rick Dreiling

Good morning, Colin.

Colin McGranahan - Bernstein

Good morning, guys. One of the focus on gross margin and first just looking at the fourth quarter, I know you talked a little about LIFO but the $22 million charge was certainly more than I think we expected more than you had expected and just seems all the coffee, sugar, nuts would drive that much of it. So maybe if you could just give us a little bit more detail about that? But then also if we exclude that charge, that looks like the other line gross margins were up 25 to 30 basis points, which should be a very good performance give the negative mix in consumables. So, if you could give us a little bit more detail on what some of the drivers were there, how much shrink might have contributed, etc.?

Rick Dreiling

Yes, obviously we continue to make good inroads in shrink. Remember, our warehouse and transportation is in the margin line and we are working very hard on that also. And so you know, remember there is a lot of levers here that we are working on. Our margin improvement is not coming from raising prices, it’s doing a better job of managing the overall business. And I think as you guys think about it that’s our story, that we have multiple levers to pull which is why our growth is so sustainable. It’s funny – I don’t know if you look at the can and nuts on the shelf but I believe the 60 ounce can is down to about 8 or 9 ounces now, where everybody is really downsizing that type of product. Peanut butter, I mean a jar of peanut butter is $6 now. Coffee, I believe we saw some increases there. Creamers we saw increase. So it’s just a lot of broadbased items.

David Tehle

Yes, I think Colin, it was items that we also have a lot of inventory if it’s a good item for us and we sell a lot of them and that has an impact on the life of calculation as how much inventory you have in the items of coffee, battery, peanuts, peanut butter, egg, motor oil, some paper products, charcoal. I mean, you name it, we just had a lot of products. Yes, it did – it came in a little bit higher then we had planned and clearly a little bit deeper than we had planned. If you look at the margins for the quarter, a couple of things to keep in mind, the LIFO was clearly the biggest factor but also you have that mix faster that we talked about where our consumable business in the quarter was higher than it was in the previous quarter, 71.4% of the business versus 69.6% last year. So we continue to have a bit of a negative impact on mix. And then transportation, the fuel prices again are something that hit us in the quarter overall versus the last year. As we look forward on it we still have some headwinds there in terms of – as we mention, we got a certain amount of LIFO played in, we still see the mix being an issue and we still seeing the fuel cost being an issue as we move forward in the model.

Colin McGranahan - Bernstein

David, thank you. I mean, that was exactly my point, you had those headwinds and you had LIFO. The gross margin is still up nearly 30 basis points. So, I guess my second question is looking forward, as you look at the first quarter especially, I know you have the DC costs in there and you have these other headwinds, but you are anniversarying it down 63 and I believe at the time you said the most significant factor in that was the markdowns from last spring, obviously the weather is very unfavorable, discretionary was weak on high gas prices. The conflict is the first quarter is off to a great start so far, so I would expect markdowns to be dramatically better year-over-year. And then as you move through the year, you are going to be anniversarying these increasingly large LIFO charges. So, I was just trying to get a better handle on the outlook for gross margin through the year.

Rick Dreiling

Yes. We are calling out that we will have some margin improvements for the year. And again, I would turn it over to David here. I don't want a short change that ramping up of two distribution centres in the first quarter of the year. They don't come out flying shipping to 1,000 stores and then in terms of markdowns, what I would like to say about markdowns is we have a new apparel strategy in place in which we are focused on selling apparel more like the customers used to buying it. So, we do believe we are going to get SG&A leverage for the year. We do believe we are going to have margin expansion for the year.

Colin McGranahan - Bernstein

Okay. Great, thank you very much.

Rick Dreiling

You bet.

Mary Winn Gordon

Operator, we will take the next call, please.

Operator

Your next question comes from Michael Exstein with Credit Suisse.

Rick Dreiling

Hi, Michael.

Trey Schorgl – Credit Suisse

Hi. This is actually Trey Schorgl for Michael today. Thanks for taking the question.

Rick Dreiling

You bet.

Trey Schorgl – Credit Suisse

We are just wondering, it looked like apparel trend is a little bit better in the fourth than it is in the prior couple of quarters and we are just wondering if there was anything that was driving that?

Rick Dreiling

Yes, we have reallocated space in the department and 50% of that now is infants and toddlers. There is a real focus in the organization on basics and cohesion, but I don’t want to mislead you that we think we have figured it all out and the trends are heading in the right direction. We have got a lot of work to do there, we have got a great team in place there now and we are going to let that play out.

Trey Schorgl – Credit Suisse

All right, well, thank you very much.

Rick Dreiling

Thank you.

Mary Winn Gordon

Operator, in the interest of time, we will take one more question.

Operator

Thank you. Our final question comes from David Mann with Johnson Rice.

Rick Dreiling

Good morning, David.

David Mann – Johnson Rice

Good morning. Thank you for taking my question under the wire.

Rick Dreiling

My pleasure, David.

David Mann – Johnson Rice

Couple of things. I don’t think you talked about beer and wines. So, can you just talk a little bit about that initiative and what you expect from it in 2012?

Rick Dreiling

Yes. We have almost 3,500 stores complete now. We continue to be pleased with what we are seeing, not only in regards to the basket, but also what it does to the comp in the store. What has been really exciting for us is, we have launched our private brand wine, and it is doing very good, very pleased with what we are seeing there, and of course, as we move into California, it is in Las Vegas why we are working our way into it, we will also be selling spirits.

David Mann – Johnson Rice

That’s great. In terms of the remodels that you are doing, can you just update us on the performance that you are expecting to see from them in terms of self business [ph]?

Rick Dreiling

Yes, we have been pretty consistent with what we have been seeing out of both of our remodels and relocations on sales with the relocations somewhere around 20% to 25% sales lift and then the remodels were somewhere around 5%, and as like I said that has been fairly consistent for us.

David Mann – Johnson Rice

Great. And then the last question related to the gas prices that we are continuing to see go up. Obviously, you are talking about a strong start to the quarter, any sense that you are seeing any kind of impact from the gas price on the consumer and when you might expect that to happen?

Rick Dreiling

Yes, my observation, I have tried really hard to try and correlate what happens to our sales and our customers with spikes in gasoline prices, and I always come back to we have completed 22 consecutive year of same-store sales growth. There has been high gas prices, low gas prices, there has been rough economy and bad economy, and I think what happens when the gas prices get higher, more customers need it. Now, I do think the gas prices put pressure on the non-consumable side of the business, but I think that is more than offset by other people coming in on the consumable side.

David Mann – Johnson Rice

Great good luck in ’12.

Rick Dreiling

Thank you very much. Mary Win?

Mary Winn Gordon

Operator, thank you very much and thanks to everyone for joining us today. I know we have left many people in the queue. I am available and around, if anybody has any questions or wants to give a call or email me, and again, please keep in mind, our Analyst Day here in Nashville on June 25th and 26th. So, thank you for joining us.

Operator

Thank you, ladies and gentlemen, this concludes today’s teleconference. You may now disconnect.

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