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Dollar General moves to stabilize merchandising

Goodlettsville,Tenn.– Two weeks since announcing a strategic plan to shift its merchandise management and close underperforming stores, Dollar General offered updates during its third-quarter conference call this morning.

The 8,276-store deep discount chain reported a net loss of $5.3 million for the quarter, compared to net income of $64.4 million for the same period one year ago. Net sales were $2.21 billion, up 7.6% from $2.06 billion last year. Comp sales rose 2.0%.

As a percentage of sales, gross profit for quarter was 23.8% compared to 28.1% one year ago. This drastic drop resulted from the company’s decision to make below-cost inventory adjustments of approximately $63.5 million. Those adjustments were tied to the company's recent decision to eliminate packaway inventory by the end of fiscal 2007 and a cost of $7.8 million for inventory in units Dollar General plans to close.

David Tehle, evp and cfo, said the company has “already taken significant steps forward in the execution” of the new plan. He said, “The first of the store closure process started last week and is moving forward as planned.” Chairman and ceo David Perdue added, “It has started very successfully.”

“We believe we’re better prepared for holidays this year,” Tehle pointed out. “We’ve flowed merchandise to stores differently this year, allowing us to manage in-stocks. We have more treasure hunt than last year, and we’re pleased with our sales results from our holiday circular.”

For the quarter, comps for the seasonal category were up 13.7%, and home also rose, although more modestly, at 0.5%.

“Seasonal made significant changes in the first quarter this year that we didn’t see until the third quarter, and we’re now seeing very encouraging positive comp sales in that category, which gives us some hope that home and apparel will follow suit as we go forward,” Perdue said.

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