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Dollar General Shifts Store Plans

The retailer will close 400 stores next year and decelerate growth.

Dollar General

(DG) - Get Dollar General Corporation Report

unveiled a plan Wednesday to close hundreds of stores and slow down growth in an effort to boost profitability and refocus its real estate.

The Goodlettsville, Tenn.-based discount retailer said it will close about 400 stores in fiscal 2007, in addition to its normal store closings. The company also said it will evaluate its store base for additional closure candidates.

This year, Dollar General plans to open about 600 new stores, but it will decelerate that growth and open 300 new stores in fiscal 2007 and 400 stores in 2008. Dollar General also plans to relocate or remodel about 300 stores in each of those years.

The company plans to pick up the growth pace in 2009, opening about 700 new stores.

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The retailer also will eliminate its "packaway" inventory management model by the end of fiscal 2007. That will involve taking markdowns to eliminate existing seasonal, home and apparel packaway merchandise.

In addition, beginning in fiscal 2007, the company plans to clear virtually all current-year non-replenishable merchandise by taking end-of-season markdowns, allowing for increased levels of newer, current-season merchandise.

"These strategic changes are designed to enhance the shopping experience for our customers and put the company on a solid foundation for profitable and sustainable growth in the future," David Perdue, chairman and CEO, said in a statement. "Fiscal 2007 will be a year of transition for us as our team will be highly focused on executing this plan. We expect these changes will ultimately strengthen our store base, improve our long-term profitability and create value for our shareholders."

Dollar General said it expects to record charges of about $138 million related to the moves. About $80 million will be reflected in the company's third-quarter report.

Dollar General also said Wednesday that it named David L. Bere as president and chief operating officer. Bere, who has been on Dollar General's board since 2002, most recently was corporate vice president of Ralcorp Holdings and president and CEO of Bakery Chef, which was acquired by Ralcorp in December 2003.

Additionally, the company said its board of directors authorized the repurchase of up to $500 million of its outstanding stock over the next two years.

Shares of Dollar General recently were down 98 cents, or 5.9%, to $15.73. The stock jumped 5% Tuesday on speculation that the company may be a private equity buyout target.