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Dollar General Corporation Reports Strong Second Quarter Results

Operating profit increased by 10.6 percent to $387 million and was essentially unchanged at 9.8 percent of sales. Excluding expenses resulting from secondary offerings of the Company’s common stock of $0.9 million in the 2012 period, operating profit increased 10.9 percent to $388 million.

Gross profit, as a percentage of sales, was 32.0 percent in 2012 period compared to 32.1 percent in the 2011 period. The most significant factors positively affecting the gross profit rate in the 2012 second quarter were higher initial inventory markups, transportation efficiencies coupled with lower fuel cost, and the impact of a significant LIFO charge in the 2011 period. A heavier consumables weighting within the sales mix, higher markdowns and a lesser impact from price increases offset the improvements to the gross profit rate. The 2012 period reflects a LIFO benefit of $0.5 million compared to a provision of $10.7 million in the 2011 quarter.

Selling, general and administrative expenses (“SG&A”), as a percentage of sales, was 22.2 percent compared to 22.3 percent in the 2011 quarter, a decrease of 15 basis points (a decrease of 17 basis points, excluding the items described above relating to operating profit). The improvement in SG&A, as a percentage of sales, is primarily due to the impact of additional efficiencies in workforce utilization and lower workers’ compensation, general liability and benefits expenses, in addition to the impact of increased sales. Higher advertising costs, in part due to the Company’s entrance into new markets, and fees associated with the continued increase in debit card usage partially offset the improvements.

Interest expense was $36 million in the 2012 second quarter, a decrease of $25 million from the 2011 second quarter, due to lower average outstanding borrowings and a lower average interest rate. During the second quarter, the remaining $451 million of the Company’s 11.875%/12.625% senior subordinated notes was redeemed and $500 million of 4.125% senior notes were issued. Other (income) expense in the 2012 second quarter includes a non-operating loss of $29.0 million ($17.7 million, net of income taxes, or approximately $0.05 per diluted share) resulting from the redemption, partially offset by a $2.5 million pretax gain resulting from the settlement of interest rate swaps. Other (income) expense in the 2011 second quarter includes a loss of $58.1 million ($35.4 million, net of income taxes, or approximately $0.10 per diluted share) resulting from the redemption of $839.3 million aggregate principal amount of the Company’s 10.625% senior notes due 2015.

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