Dollar General Reports Third Quarter EPS OF $0.23

GOODLETTSVILLE, Tenn., Dec. 4 /PRNewswire-FirstCall/ -- Dollar General Corporation (NYSE: DG) today reported net income for the third quarter of fiscal 2003 of $77.9 million, or $0.23 per diluted share, compared to $68.6 million, or $0.20 per diluted share, in the third quarter of fiscal 2002, an increase of 13.6 percent. Excluding restatement-related items from the prior year's results, net income in the quarter increased 46.3 percent when compared against net income of $53.2 million, or $0.16 per diluted share, in 2002. In the third quarter of 2002, the Company recorded approximately $24.3 million of net restatement-related pre-tax income, primarily from insurance proceeds.

Net sales during the third quarter of 2003 increased 12.5 percent to $1.69 billion compared to $1.50 billion in the third quarter of 2002. The increase resulted primarily from 577 net new stores and a same-store sales increase of 3.8 percent.

Gross profit during the quarter was $516.9 million, or 30.7 percent of sales, versus $428.6 million, or 28.6 percent of sales, in the prior year. The increase in the gross margin rate as a percent to sales is attributable to higher average markup on inventories, a decrease in distribution and transportation expenses as a percentage of sales, a decrease in the Company's provision for inventory shrinkage, strong sales of high margin seasonal inventories and a $7.8 million favorable non-recurring inventory adjustment primarily representing a change in the Company's estimated provision for inventory shrinkage. The non-recurring adjustment resulted from using an improved inventory ownership estimate due to the implementation, for financial reporting purposes, of an item level perpetual inventory system. The Company reiterated that it anticipates a challenging gross margin rate comparison versus last year's performance in its fourth quarter, which ends on January 30, 2004.

Selling, general and administrative expenses ("SG&A") for the quarter were $385.6 million, or 22.9 percent of sales, in the current year, versus $335.2 million, or 22.4 percent of sales, in the prior year. The increase in SG&A as a percent to sales is primarily due to increases in workers' compensation and general liability costs, store training expenses, and the accrual for bonuses.

Net interest expense during the current year period decreased by 30.9 percent to $8.0 million in the current year quarter compared to $11.5 million in the prior year. The decrease is primarily attributable to lower average debt outstanding in the current year quarter. The Company had $285.7 million in debt outstanding at October 31, 2003, compared to $518.3 million at November 1, 2002.

For the 39-week year-to-date period, net income was $198.2 million in fiscal 2003, or $0.59 per diluted share, compared to $156.9 million, or $0.47 per diluted share, in the comparable prior year period, an increase of 26.3 percent. Excluding net restatement-related items from both years, year-to-date net income increased 40.1 percent to $198.4 million, or $0.59 per diluted share, in fiscal 2003 compared to net income of $141.6 million, or $0.42 per diluted share, in the comparable prior year period. Year-to-date net sales increased 13.0 percent, including a same-store sales increase of 4.3 percent.

Return on invested capital for the trailing year increased to 13.8 percent from 12.6 percent in the previous year. Excluding restatement-related items, return on invested capital for the trailing year increased to 13.9 percent from 12.4 percent in the previous year. Return on assets for the trailing year increased to 12.7 percent from 10.3 percent in the previous year. Excluding restatement-related items, return on assets for the trailing year increased to 12.8 percent from 10.0 percent in the previous year.

Conference Call

The Company will host a conference call on Thursday, December 4, 2003, at 10 a.m. ET to discuss the quarter's results. The security code for the conference call is "Dollar General." If you wish to participate, please call 334-260-2280 at least 10 minutes before the conference call is scheduled to begin. A webcast of the call can also be accessed live on Dollar General's Web site at www.dollargeneral.com by clicking on the home page spotlight item. A replay of the conference call will be available until 5 p.m. ET on Thursday, December 18, online or by calling 334-323-7226. The access code for the replay is 40954 and the pass code is 86362.

About Dollar General

Dollar General is a Fortune 500® discount retailer with 6,709 neighborhood stores in 27 states as of November 28, 2003. Dollar General stores offer convenience and value to customers, by providing consumable basics, items that are frequently used and replenished, such as food, snacks, health and beauty aids and cleaning supplies, as well as an appealing selection of basic apparel, housewares and seasonal items at everyday low prices.

Non-GAAP Disclosures

This release includes certain financial information not derived in accordance with generally accepted accounting principles ("GAAP"), including net income, diluted earnings per share, SG&A expenses, operating profit margin, return on assets and return on invested capital, excluding restatement-related items. The Company includes these non-GAAP financial measures in order to indicate more clearly for investors the Company's comparative year-to-year operating results. The Compensation Committee of the Company's Board of Directors may use portions of this information for compensation purposes to ensure that employees are not inappropriately penalized or rewarded as a result of unusual items affecting the Company's financial statements. Management may also use this information to better understand the Company's underlying operating results. In addition, the return on invested capital, included in this release, may be considered a non-GAAP financial measure. Management believes that return on invested capital provides investors with additional useful information for evaluating the efficiency of the Company's capital deployed in its operations. None of this information should be considered a substitute for any measures derived in accordance with GAAP. The Company has included its calculation of return on invested capital and reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures in the accompanying schedules.

Forward-looking Information

This press release may contain forward-looking information, such as information regarding gross margin rate expectations. The words "believe," "anticipate," "project," "plan," "expect," "estimate," "objective," "forecast," "goal," "intend," "will likely result," or "will continue" and similar expressions generally identify forward-looking statements. The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate and, therefore, actual results may differ materially from those projected by, or implied in, the forward-looking statements. The factors that may result in actual results differing from such forward-looking information, include, but are not limited to: the Company's ability to maintain adequate liquidity through its cash resources and credit facilities; the Company's ability to comply with the terms of the Company's credit facilities (or obtain waivers for non-compliance); transportation and distribution delays or interruptions; the impact on transportation costs from the "driver hours of service" regulations adopted by the Federal Motor Carriers Safety Administration, which are scheduled to become effective on January 4, 2004; the Company's ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; changes in product mix; interruptions in suppliers' businesses; costs and potential problems and interruptions associated with implementation of new or upgraded systems and technology; fuel price and interest rate fluctuations; a deterioration in general economic conditions caused by acts of war or terrorism; temporary changes in demand due to weather patterns; seasonality of the Company's business; delays associated with building, opening and operating new stores; delays associated with building, opening, expanding and converting new or existing distribution centers; the impact of the SEC inquiry related to the restatement of certain of the Company's financial statements; and other risk factors discussed in our SEC filings, including in our most recent Annual Report on Form 10-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Except as may be required by law, the Company disclaims any obligation to publicly update or revise any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this release or to reflect the occurrence of unanticipated events. Readers are advised, however, to consult any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC.

  

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)

October 31, November 1, January 31, 2003 2002 2003 (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $138,470 $ 37,101 $121,318 Merchandise inventories 1,373,200 1,249,120 1,123,031 Deferred income taxes 21,729 43,095 33,860 Other current assets 65,301 61,077 45,699 Total current assets 1,598,700 1,390,393 1,323,908

Property and equipment, at cost 1,667,438 1,581,427 1,577,823 Less accumulated depreciation and amortization 687,951 581,162 584,001

Net property and equipment 979,487 1,000,265 993,822

Other assets, net 11,007 20,506 15,423

Total assets $2,589,194 $2,411,164 $2,333,153

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $17,295 $ 15,834 $16,209 Accounts payable 440,505 410,426 341,303 Accrued expenses and other 287,724 247,015 239,898 Income taxes payable 14,553 -- 67,091

Total current liabilities 760,077 673,275 664,501

Long-term obligations 268,357 502,498 330,337 Deferred income taxes 59,100 45,040 50,247 Total liabilities 1,087,534 1,220,813 1,045,085

Shareholders' equity: Preferred stock -- -- -- Common stock 168,415 166,691 166,670 Additional paid-in capital 363,767 313,023 313,269 Retained earnings 975,255 714,800 812,220 Accumulated other comprehensive loss (1,206) (1,382) (1,349) 1,506,231 1,193,132 1,290,810 Less other shareholders' equity 4,571 2,781 2,742

Total shareholders' equity 1,501,660 1,190,351 1,288,068

Total liabilities and shareholders' equity $2,589,194 $2,411,164 $2,333,153

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited)

13 Weeks Ended October 31, % of Net November 1, % of Net 2003 Sales 2002 Sales

Net sales $1,685,346 100.00% $1,497,702 100.00% Cost of goods sold 1,168,449 69.33 1,069,119 71.38 Gross profit 516,897 30.67 428,583 28.62

Selling, general and administrative 385,551 22.88 335,152 22.38 Insurance proceeds -- -- (25,041) (1.67) Operating profit 131,346 7.79 118,472 7.91

Interest expense, net 7,976 0.47 11,537 0.77 Income before income taxes 123,370 7.32 106,935 7.14

Provision for taxes on income 45,467 2.70 38,365 2.56 Net income $77,903 4.62% $68,570 4.58%

Earnings per share: Basic $0.23 $0.21

Diluted $0.23 $0.20

Weighted average shares: Basic 335,411 333,227

Diluted 339,238 334,970

Dividends per share $0.035 $0.032

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited)

39 Weeks Ended October 31, % of Net November 1, % of Net 2003 Sales 2002 Sales

Net sales $4,905,504 100.00% $4,340,841 100.00% Cost of goods sold 3,463,871 70.61 3,144,539 72.44 Gross profit 1,441,633 29.39 1,196,302 27.56

Selling, general and administrative 1,105,493 22.54 946,123 21.80 Insurance proceeds -- -- (29,541) (0.68) Operating profit 336,140 6.85 279,720 6.44

Interest expense, net 25,286 0.51 33,306 0.77 Income before income taxes 310,854 6.34 246,414 5.67

Provision for taxes on income 112,683 2.30 89,554 2.06 Net income $198,171 4.04% $156,860 3.61%

Earnings per share: Basic $0.59 $0.47

Diluted $0.59 $0.47

Weighted average shares: Basic 334,175 332,986

Diluted 336,892 335,180

Dividends per share $0.105 $0.096

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)

39 Weeks Ended October 31, November 1, 2003 2002 Cash flows from operating activities: Net income $198,171 $156,860 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 113,114 102,302 Deferred income taxes 20,912 68,424 Tax benefit from stock option exercises 10,780 2,278 Litigation settlement -- (161,800) Change in operating assets and liabilities: Merchandise inventories (250,169) (118,097) Other current assets (19,602) (2,774) Accounts payable 99,202 87,963 Accrued expenses and other 49,039 10,105 Income taxes (52,538) (3,137) Other 1,974 (14,124) Net cash provided by operating activities 170,883 128,000

Cash flows from investing activities: Purchase of property and equipment (96,923) (104,727) Purchase of promissory notes (49,582) -- Proceeds from sale of property and equipment 195 379 Net cash used in investing activities (146,310) (104,348)

Cash flows from financing activities: Net borrowings under revolving credit facilities -- 168,400 Repayments of long-term obligations (11,808) (393,378) Payment of cash dividends (35,136) (31,972) Proceeds from exercise of stock options 39,660 4,844 Other financing activities (137) 4,030 Net cash used in financing activities (7,421) (248,076)

Net increase (decrease) in cash and cash equivalents 17,152 (224,424) Cash and cash equivalents, beginning of period 121,318 261,525

Cash and cash equivalents, end of period $138,470 $37,101

Supplemental schedule of noncash investing and financing activities: Purchase of property and equipment under capital lease obligations $551 $8,134

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Selected Additional Information

Sales by Category (in thousands) (Unaudited)

13 Weeks Ended 39 Weeks Ended October 31, November 1, % October 31, November 1, % 2003 2002 Change 2003 2002 Change Highly consumable $1,076,913 $959,873 12.2% $3,094,797 $2,703,617 14.5% Seasonal 237,365 196,213 21.0% 737,952 627,303 17.6% Home products 207,570 187,250 10.9% 614,746 566,634 8.5% Basic clothing 163,498 154,366 5.9% 458,009 443,287 3.3% Total sales $1,685,346 $1,497,702 12.5% $4,905,504 $4,340,841 13.0%

New Store Activity (Unaudited)

39 Weeks Ended October 31, 2003 November 1, 2002 Beginning store count 6,113 5,540 New store openings 601 575 Store closings 61 39 Net new stores 540 536 Ending store count 6,653 6,076 Total selling square footage (000's) 44,998 41,011

Customer Transaction Data (Unaudited)

13 Weeks Ended 39 Weeks Ended October 31, November 1, October 31, November 1, 2003 2002 2003 2002 Same-store customer transactions +3.4% +6.5% +3.9% +6.2% Average customer purchase $8.38 $8.31 $8.37 $8.33

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Reconciliation of Non-GAAP Disclosures (In thousands, except per share amounts) (Unaudited)

13 Weeks Ended 39 Weeks Ended October 31, November 1, October 31, November 1, 2003 2002 2003 2002 Net Income and Earnings Per Share Net income in accordance with GAAP $77,903 $68,570 $198,171 $156,860 Restatement-related items in SG&A 2 783 371 5,406 Restatement-related insurance proceeds -- (25,041) -- (29,541) Total restatement-related items 2 (24,258) 371 (24,135) Tax effect (13) 8,924 (146) 8,879 Total restatement-related items, net of tax (11) (15,334) 225 (15,256) Net income, excluding restatement-related items $77,892 $53,236 $198,396 $141,604

Weighted average diluted shares outstanding 339,238 334,970 336,892 335,180 Diluted earnings per share, excluding restatement-related items $0.23 $0.16 $0.59 $0.42

Selling, General and Administrative Expenses SG&A in accordance with GAAP $385,551 $335,152 $1,105,493 $946,123 Less restatement-related items 2 783 371 5,406 SG&A, excluding restatement-related items $385,549 $334,369 $1,105,122 $940,717

SG&A, excluding restatement-related items,% to sales 22.9% 22.3% 22.5% 21.7%

Operating Profit Margin Operating profit in accordance with GAAP $131,346 $118,472 $336,140 $279,720 Restatement-related items 2 (24,258) 371 (24,135) Operating profit, excluding restatement-related items $131,348 $94,214 $336,511 $255,585

Operating profit, excluding restatement-related items, % to sales 7.8% 6.3% 6.9% 5.9%

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Non-GAAP Disclosures Return on Invested Capital (Unaudited) (a)

($ in thousands, except per share amounts)

52 Weeks Ended 52 Weeks Ended October 31, 2003 November 1, 2002 Net income: 39 weeks ended third quarter 2003 and 2002 $198,171 $156,860 13 weeks ended fourth quarter 2002 and 2001 108,086 97,443 52 weeks ended third quarter 2003 and 2002 306,257 254,303 Interest expense, net: 39 weeks ended third quarter 2003 and 2002 $25,286 $33,306 13 weeks ended fourth quarter 2002 and 2001 9,333 10,752 52 weeks ended third quarter 2003 and 2002 34,619 44,058 Interest expense, net of tax 22,131 28,112 Rent expense: 39 weeks ended third quarter 2003 and 2002 182,192 158,444 13 weeks ended fourth quarter 2002 and 2001 57,900 46,961 52 weeks ended third quarter 2003 and 2002 240,092 205,405 Rent expense, net of tax (52 weeks) 153,486 131,064

Return, net of tax (52 weeks) $481,874 $413,479

Restatement-related items, net of tax: 39 weeks ended third quarter 2003 and 2002 225 (15,256) 13 weeks ended fourth quarter 2002 and 2001 1,183 6,526 52 weeks ended third quarter 2003 and 2002 1,408 1,408 (8,730) (8,730) Return, net of tax, excluding restatement-related items (52 weeks) $483,282 $404,749

Invested Capital: Average long-term obligations (b) $356,499 $649,108 Average shareholders' equity (c) 1,343,994 1,081,049 Average rent expense multiplied by eight (d) 1,781,988 1,539,496 Invested capital $3,482,481 $3,269,653

Return on invested capital 13.8% 12.6% Return on invested capital, excluding restatement-related items 13.9% 12.4%

(a) The Company believes that the most directly comparable ratio calculated solely using GAAP measures is the ratio of net income to the sum of average long-term obligations, including current portion, and average shareholders' equity. This ratio was 18.0% and 14.7% for the 52 weeks ended October 31, 2003, and November 1, 2002, respectively.

(b) Average long-term obligations is equal to the average long-term obligations, including current portion, measured at the end of each of the last five fiscal quarters.

(c) Average shareholders' equity is equal to the average shareholders' equity measured at the end of each of the last five fiscal quarters.

(d) Average rent expense is computed using a rolling 2-year period. Average rent expense is multiplied by a factor of eight to capitalize operating leases in the determination of pretax invested capital. This is a conventional methodology utilized by credit rating agencies and investment bankers.

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES Non-GAAP Disclosures Return on Assets (Unaudited)

($ in thousands, except per share amounts)

52 Weeks Ended 52 Weeks Ended October 31, 2003 November 1, 2002 Net income: 39 weeks ended third quarter 2003 and 2002 $198,171 $156,860 13 weeks ended fourth quarter 2002 and 2001 108,086 97,443 52 weeks ended third quarter 2003 and 2002 306,257 254,303

Restatement-related items, net of tax: 39 weeks ended third quarter 2003 and 2002 225 (15,256) 13 weeks ended fourth quarter 2002 and 2001 1,183 6,526 52 weeks ended third quarter 2003 and 2002 1,408 1,408 (8,730) (8,730) Net Income, excluding restatement-related items (52 weeks) $307,665 $245,573

Average Assets (a) $2,410,972 $2,457,355

Return on Assets 12.7% 10.3% Return on Assets, excluding restatement-related items 12.8% 10.0%

(a) Average assets is equal to the average total assets measured at the end of each of the last five fiscal quarters.

SOURCE  Dollar General Corporation CONTACT:  Investor - Emma Jo Kauffman, +1-615-855-5525, or Media - Andrea Turner, +1-615-855-5209, both of Dollar General Corporation