Dollar General Goes Upscale

Pressured by rising fuel and other costs, higher income customers are flocking to the retail outlet to become the chain's fastest growing demographic, a company official told members of the investment community at Wednesday's Bear Stearns Retail Investor Outing in New York.

David Perdue, chairman and chief executive officer of the Goodlettsville, TN-based chain said economic pressures are driving more middle and upper income families to Dollar General stores as they attempt to cut costs on home consumables.

"They're finding ways to cut costs," says Perdue of the surprising influx in upscale buyers.

But while upper income shoppers are moving to the value outlet, the chain's core customer base remains the low to middle income families whose disposable income has been especially hard hit by a tightening economy.

"We remain concerned about the economic environment and what effect it may have on the spending or our poor or low income customers," said David Tehle, the firm's executive vice president and chief financial officer.

Yet despite the softening economy, sales at Dollar General stores remain strong. Year to date sales have increased 12% over last year with net income up 18% and net per share earnings up 21 percent during the second quarter, which ended in August.

The Goodlettsville, TN-based company, which has 7,781 stores in 31 states, said it also is moving to the national stage, adding 553 new stores this year, including 23 Dollar General markets which offer low-cost food items in addition to general merchandise.

"What we're learning," says Perdue, "is that Dollar General can become a destination."

The company, which will invest $100 million to upgrade its stores over the next two years, said it is also working to better site its stores, improve product placement and pare back its inventory to reduce costs.

The retailer also announced that it recently repurchased 8.4 million shares of its stock for more than $172 million and has authorized a new 10 million share stock buyback program that will run through September 2006.