達樂 (DG) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for participating in today's call.

This call is being recorded by Conference America.

No other recording or rebroadcast of this session is allowed without the Company's permission.

It is now my pleasure to turn the call over to Mary Winn Gordon, Dollar General's Vice President of Investor Relations and Public Relations.

Ms.

Gordon, you may begin.

Thank you, Brandon.

Good morning everyone.

In a moment, Rick Dreiling, our Chairman and Chief Executive Officer, and David Tehle, Chief Financial Officer, will discuss the Company's 2009 third quarter financial results and deliver a brief update on our operating priorities.

After they speak you'll have an opportunity to ask questions.

I would ask that you keep your line of questioning to one topic and get back in the queue for additional questions.

Before they begin, let me take a moment to reference the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

Today's comments will include forward-looking statements, such as those about operating initiatives, sales and store growth, margin expansion, expense management, inventory levels, capital expenditures and future operating and financial performance.

Because such statements are subject to significant risk and uncertainties, we cannot assure you that they will prove to be correct or that any trends will continue.

Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our Amendment Number Four to our Registration Statement on Form S-1 filed with the SEC on November 9, 2009, and our third quarter 10-Q, and our third quarter financial results press release issued this morning and in the comments that will be made on this call.

Statements made in this call are accurate only as of today's date and cannot remain correct at a later time.

Dollar General undertakes no obligation to update any information discussed in this call.

In addition, we will reference certain measures not derived in accordance with GAAP, including EBITDA and adjusted EBITDA, as well as 2008 third quarter and year-to-date net income, earnings per share, and operating profit excluding a litigation settlement and related expenses.

Reconciliations of these measures to net income and the calculations of certain ratios using adjusted EBITDA are included in this morning's third quarter press release which can be located on our website at dollargeneral.com under Investor Information Press Releases.

EBITDA and adjusted EBITDA and net income earnings per share and operating profit excluding the litigation settlement and related expenses should not be considered alternatives to net income, earnings per share, operating income, operating cash flows or any other performance measure determined in accordance with GAAP.

Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.

We encourage you to consult our most recent Form 10-Q for our definition of EBITDA and adjusted EBITDA along with the limitations on the use of these measures as analytical tools.

Now with that it's my pleasure to turn the call over to Rick Dreiling.

Good morning, everyone, and thank you for joining us today.

We would like to start off by welcoming our new shareholders and analysts that have recently begun to follow our stock.

We're very pleased to report strong results for the third quarter.

David will provide more details in just a moment but I wanted to review some of the key highlights for the quarter.

Total sales were up 12.7% with same-store sales up 9.2%.

Total consumables and seasonal sales both increased by about 15%, apparel sales increased by 3% and home was up slightly from last year which is not surprising in the difficult economy.

For the most recent 12 months, average sales per store per square foot were up 9% from a year ago to $192.

Both increased traffic and average ticket contributed to our third quarter sales increase with comps remaining very strong in every geographic region where we operate.

We expanded our gross margin rate for the quarter by 112 basis points to 30.8%.

We reduced our SG&A as a percentage of sales by 95 basis points.

We reported net income of $76 million or $0.24 per share.

Our adjusted EBITDA increased over last year by 23% to $280 million.

Year-to-date, we've opened 386 new stores creating over 3,000 new jobs.

We've also remodeled or relocated 332 stores.

We are committed to serving the needs of our customers through improved store execution, category management, and the overall appeal of our stores.

We remain focused throughout the organization on four key operating priorities.

One, driving productive sales growth.

Two, increasing gross margin.

Three, leveraging process improvements and information technology to reduce costs.

And, four, strengthen and expanding Dollar General's culture of serving others.

I'll return in a bit to go over more details about our progress but first I'd like to turn the call over to David to take you through the financial results.

David?

Thank you, Rick, and good morning, everyone.

On Friday, November 13, Dollar General began trading on the New York Stock Exchange.

We completed an initial public offering of 39.2 million shares with the Company issuing 22.7 million shares and existing shareholders selling 16.5 million shares of previously outstanding stock.

The Company received net proceeds from the IPO of approximately $446 million which we are using during the fourth quarter to redeem $196 million aggregate principal amount of our senior notes and $205 million of our senior subordinated notes.

Now let's talk about the third quarter.

As Rick noted, we are very pleased with our third quarter results.

Sales for the third quarter were $2.93 billion up $330 million or 12.7% from last year, with a same-store sales increase of 9.2%.

Same-store sales in the '08 third quarter increased 10.6% so that results in a two year stack of 19.8%.

We had sales increases across all four merchandise categories led by 15% growth in both consumables and seasonal and we continue to see strong sales performance across all geographic regions where we operate.

Through the quarter, gross profit as a percentage of sales was 30.8%, an increase of 112 basis points from the prior year quarter.

Several factors contributed significantly to our gross profit rate expansion including the impact of a $1 million LIFO credit in the '09 quarter compared to a $15.7 million LIFO provision in the '08 quarter.

This change reflects a flattening of merchandise cost increases for comparable items based on trends in our current estimates for the full year 2009.

In addition, average purchase markups were higher as we continued to focus on improving our gross profit rate while maintaining an every day low price strategy.

For example, changes to the mix of merchandise sold, including an increase in sales of private brand items which generally deliver higher gross profit rates, have added to our overall gross profit rate.

In addition, distribution and transportation costs as a percentage of sales decreased as a result of lower fuel costs, higher sales volumes, and improved process efficiency.

Higher merchandise markdowns partially offset these increases.

SG&A decreased 95 basis points to 23.5% as a percentage of sales in the '09 third quarter from 24.4% in the '08 third quarter resulting from leverage attained for significantly higher net sales and our continued cost reduction efforts.

As a percentage of sales, professional fees, rent, utilities, repairs and maintenance, workers compensation, and general liability insurance expenses all decreased.

In addition, the '08 period included hurricane related losses and a fixed asset impairment charge that did not recur in the '09 third quarter.

An increase in advertising costs partially offset these improvements in SG&A.

For the third quarter of '09, net income increased by $83 million to $75.6 million or $0.24 per diluted share compared to a 2008 third quarter reported net loss of $7.3 million or a loss of $0.02 per share.

Excluding a $34.5 million pre-tax charge in '08 related to a shareholder lawsuit, our net income for the quarter increased by $45 million or 151%.

Operating profit in the '09 third quarter was $216.2 million up 108% from the '08 quarter or 56% excluding the litigation settlement in '08.

Adjusted EBITDA, which is defined in our credit agreement and is considered a material component to the calculation of certain covenants, was $280.4 million in the '09 quarter up $51.8 million or 23% from last year's third quarter which was up 61% over the '07 third quarter.

Now I'd like to comment briefly on our year-to-date results.

Year-to-date net sales were $8.6 billion, up 13.1% from the prior year including a same-store sales increase of 10.3% on top of an 8.8% increase in the comparable '08 period.

That's a two year stack of 19.1%.

Year-to-date gross profit increased by $441 million to 30.9% of sales compared to 29.2% of sales in the '08 period, an increase of 173 basis points.

Cost of goods sold in the '08 year-to-date period included a $31.8 million increase in our LIFO reserve compared to a $0.5 million reduction in the '09 period.

Other major contributors to our year-to-date gross margin expansion included higher average overall purchase markups including the results of merchandise mix changes and increased private brand penetration, as well as leverage on our distribution and transportation costs and decreases in inventory shrink.

SG&A decreased to 23.1% as a percentage of sales in the '09 period from 24.1% in the '08 period, a decrease of 95 basis points primarily attributable to leverage attained from significantly higher sales.

We continue to see good results from our safety initiatives, cardboard recycling, and energy management efforts, to name a few.

For the year-to-date period our interest expense decreased by $32 million to $267 million due to lower interest rates on our variable rate debt primarily on our term loan and lower outstanding borrowings as the result of the repurchase of $44.1 million of senior subordinated notes in the fourth quarter of 2008.

The effective tax rate for the '09 year-to-date period was 38.2% compared to a rate of 56.8% in the '08 period.

The 2009 rate benefited from a reduction in a deferred tax valuation allowance related to state income tax credits that did not occur in 2008.

In addition, the 2008 period was negatively impacted by the non-deductible settlement of the shareholder litigation related to the '07 merger.

2009 year-to-date net income was $252 million or $0.79 per diluted share compared to net income of $26 million or $0.08 per diluted share for the 2008 period, an increase of $226 million.

Excluding the shareholder litigation settlement in 2008, our 2009 year-to-date net income increased by $189 million or 296%.

Year-to-date operating profit was $674 million, up 89% from the '08 period or 72% excluding the litigation settlement in '08.

Our adjusted EBITDA was $878 million for the '09 year-to-date period, up 38%.

Now moving to the balance sheet.

As of October 30, total inventories were $1.68 billion, a 4% increase in total and a 1% decrease on a per store basis from the year ago time period.

Inventory turns on a four quarter basis were 5.2 times compared to 5.0 times a year ago and our accounts payable at the inventory ratio increased to 51% at the end of the third quarter, up from 44% in the year ago time period.

As of October 30, 2009, outstanding long term obligations including the current portion of debt were $4.13 billion, including $2.29 billion outstanding under our senior secured term loan facility.

There were no borrowings under the Company's asset based revolving credit facility.

The ratio of long term obligations net of cash to adjusted EBITDA based on adjusted EBITDA of $1.15 billion for the most recent four quarters decreased to 3.3 to 1 as of October 30, 2009 from 4.5 to 1 as of October 31, 2008.

At October 30, 2009, the senior secured incurrence test as defined in the senior secured credit agreement was 1.7 to 1.

Year-to-date through the third quarter, we generated $391 million of cash flow from operating activities, up 50% from $261 million that we generated in the '08 period.

We have spent $187 million on capital expenditures including the opening of 386 new stores and the remodel or relocation of 332 stores.

In September, our Board declared and we paid a special dividend to shareholders of $239 million.

We ended the quarter with cash of $337 million and no borrowings under our ABL facility.

We expect to end the year with approximately 500 new stores and a combined 450 remodels and relocations and anticipate total capital expenditures for the year in the range of $275 million to $300 million.

We currently estimate we will have excess cash which we plan to use in January to pay down an additional debt of approximately $300 million.

Going forward, we continue to believe that investing in our business provides the best return and we expect to continue to invest in our capital expenditures and in our inventory to drive productive sales growth.

One final comment before I turn it over to Rick on the tax rate for the quarter.

Our tax rate for the quarter came in at around 41% which was a little bit higher than our anticipated tax rate as we look at our model over the future of 38% to 39%.

This tax rate was a little bit higher due to some settlements that we had on state income tax audits.

With that I will turn the call back over to Rick.

Thank you, David.

As David just highlighted, we had an excellent third quarter.

We are pleased with the progress that we have made over the recent time frame and I want to take just a moment to walk you through some of that progress.

We continue to upgrade the customer experience in our stores.

We are selecting better and more convenient site locations for our new and relocated stores.

We continue to strengthen category management processes and we continue to introduce new products and expand our private brand offering.

We've significantly improved our hiring and training practices in the field and we are retaining and developing more customer service oriented employees.

We've made dramatic improvements to the appearance of our stores.

They're cleaner, neater, more organized and improved in store signage makes them easier to navigate.

We currently have over 500 stores with our new decor package which rebrands our store.

As part of our plan to drive square footage productivity, we have completed Phase II of a four year, four phase strategy to raise our store profile to 78 inches.

As some of you know, in 2008, we raised the height of our gondolas in the food area giving us the capacity to broaden both our national brand and private brand offerings, expanding our appeal to a wider range of customers.

In 2009, our second year of the 78-inch profile rollout, we completed Phase II, raising the shelf height in candy, snacks, party, and stationery.

These changes contributed significantly to the strong performance of our consumables and seasonal categories in the third quarter.

Our category management efforts have extended beyond the 78-inch profile initiative.

For example,, in the third quarter, our planogram updates in health and beauty contributed significantly to our sales growth.

We introduced Rexall as our private brand in vitamins, expanded cosmetics and introduced a line of foot care products.

In addition, we are continuing to grow our private brand penetration.

In consumables we now carry nearly 1,300 private brand items accounting for over 21% of our consumable sales.

Our strong seasonal sales in the third quarter reflect our emphasis on becoming more trend relevant in our non-consumable categories.

Back-to-school, Halloween and harvest merchandise were well received by our customers with strong sales increases over last year and sell-throughs exceeding our expectations.

We recently completed a comprehensive employee survey which reflects strong job satisfaction among our employees and a high level of engagement throughout the organization.

We continue to see longer employee retention, especially at the crucial store manager level.

The progress we are making in store level execution, overall store appearance and customer service is being noticed by our customers as evidenced by the positive responses we are getting from customer surveys.

Two of the most exciting initiatives we have underway involve the rollout of our new customer centric store format and the expansion of our private brand portfolio.

Both of these help us communicate our message of value, convenience, and freshness to the customer.

Our new store format creates a compelling shopping environment and is based on extensive customer insights from focus groups and from proprietary market basket data.

We are completely rebranding our new stores through the use of signage and visuals that explain our value proposition to the customer at the point-of-sale.

The new store formats have new layouts and adjacencies that significantly improve the customers' ability to shop.

Going forward, all new stores, relocations, and remodels will be in the new customer centric format.

By the end of 2010 fiscal year, we anticipate having approximately 1,500 stores with the new format.

Another area where we are driving significant change is in our private brand offerings.

We are committed to national brand equivalent strategy for our private brands and have well defined quality standards.

In addition to improving the quality, our private brand packaging has been completely redesigned to reflect a fresh and inviting product.

In non-consumables, we are developing an arsenal of brands across multiple product categories.

Holiday Style and Perfect Harvest are our exclusive seasonal brands that are trend relevant and solve our customers needs for the holidays.

We are rebranding our Bobbie Brooks apparel for women and girls and Open Trails for men and boys.

For home and outdoors we will begin launching a brand that is new and exclusive to Dollar General, True Living.

All of these brands will be fully implemented in our stores by April of 2010.

Separately, I thought it would be worthwhile to share with you some perspective on the start of the holiday selling season, recent consumer trends, and how we are positioning Dollar General for the fourth quarter and beyond.

We are pleased with the start of the holiday selling season and our sales to date in the fourth quarter.

Customer response to our Thanksgiving and Black Friday ad was very favorable.

Again, this year, our stores opened early on both Thanksgiving and Black Friday.

We've added some great gift items for the holidays.

We carry over 400 exciting toys in our stores at great price points and we believe our holiday gift wrap, lights and decor are better than ever and offer a great value to our customers.

Turning to the consumer, as each of you is keenly aware, the economic environment continues to be very challenging for the average customer as unemployment remains high.

Year-over-year unemployment is up 47%, up from 6.8% in November of 2008 to 10% in November of 2009 causing consumers to be very concerned about job security.

As a result, consumers are watching their financial health closely and delaying or avoiding discretionary purchases.

The retail environment generally remains highly competitive as companies continue their aggressive promotional efforts.

We believe that Dollar General is well positioned to meet the challenges presented by the economic environment and we remain optimistic about the remainder of 2009 fiscal year.

We will continue to focus on delivering the highest level of execution throughout the holidays and beyond.

Going forward we believe we have significant runway for continued growth in sales, continued growth in margins as we implement our operating priorities.

In Summary, I believe we have the right team and the right strategies to position Dollar General for future growth.

Our team is energized and excited about the holiday selling season.

And with that I'd be happy to take your questions.

Operator?

(Operator Instructions) Our first question will come from Colin McGranahan of Sanford Bernstein.

Good morning.

I wanted to focus on the gross margin a little bit.

If you could talk maybe more specifically about the markdowns and what those were related to in the quarter, anything you can provide in terms of how shrink trended during the quarter and a year-over-year benefit, private label, any contribution from that.

And then just thinking forward, the fuel and the transportation benefit probably starts to weigh in, at least the fuel does, so how should we be thinking about gross margin into the fourth quarter and beyond?

Let me comment a little bit -- this is David -- a little bit on the markdowns first of all.

We did have increased markdowns in our seasonal and clothing.

And the main reason for that, we're very excited about the new selection that we're putting into our stores, that we put into our stores in the fourth quarter and we wanted to make sure we had room in the stores for this new non-consumable merchandise.

Our new merchandise reflects items that are trend relevant, they have improved quality, and in apparel better fitting products.

So we're very excited about getting those into the stores and we believe that it was the right thing to do in terms of taking those markdowns and making sure that we were extremely clean going into the quarter.

We had planned this for quite a while also .

This was not a surprise to us.

When we put our budget together for the year, we knew this particular quarter would be a little bit heavy in the markdowns, again, as we made room for that merchandise.

In talking a little bit about the distribution and transportation and the things that happen going forward, clearly, we have had some help from fuel costs on DC and transportation costs.

I will say also though there are a lot of things we've done internally that are paying off for us.

Right sizing that happened earlier in the year in the DCs in terms of taking people out and getting those facilities to be a little more efficient.

We also have done outsourcing where we needed to do outsourcing, and then insourcing where we wanted to insource items again to save money.

As we move forward, we see more room in distribution in particular as we looked at putting in engineered labor standards which is something that we're just beginning so we think there's a lot of path there as we move forward in distribution.

If you look at the other areas of margin, again when we were on the road show we talked about our efforts going on in foreign sourcing, private brand and shrink.

And again, as we look forward in our model, we see lots of opportunity in those three areas to help our margin more as we move forward into

And then just a quick follow-up on that.

Obviously as you go to the fourth quarter you were anniversarying a little bit of elevated markdowns from last year but I think seasonally the fourth quarter tends to have a slightly higher gross margin sequentially from the third quarter just as the mix shifts toward more higher margin seasonal product.

Should we expect something similar thinking about the sequential change from the third quarter to the fourth quarter?

Directionally your thought process is obviously correct there in that we do have a lot of seasonal merchandise that we sell in the fourth quarter that tends to be a little bit of a higher margin.

Again we're not going to give specific guidance, Colin, on the fourth quarter but your thought process on the types of items we sell in the fourth quarter is absolutely correct.

Thank you, good luck guys.

Thank you for your question.

Our next question will come from Michael Baker of Deutsche Bank.

Please go ahead.

Thanks guys.

I was going to focus a little bit on the same-store sales.

Can you discuss or are you willing to discuss the trend through the quarter, and then is there any reason to believe that the two year stack which you guys like to talk about changes at all as we head into the fourth quarter?

Yes, Michael, I'm going to give you a little color here.

I'll come back to what I said in the opening here.

We are pleased with what happened over the Black Friday selling season.

As I look at what happened through November, we have not seen any major changes in what has taken place.

The only cautionary thing I throw out there is the environment right now is very uncertain.

I am saying that we are positioned very nicely and I think we should let the quarter play out.

Okay, fair enough.

And through the third quarter, you talk about, were all of the months relatively similar or were some better than the others?

As a matter of fact, as has been the story for us for almost two years now, all of the months are pretty similar.

Okay, and then one last question on the same-store sales.

You talked about the phases of raising the store profile, you talked about Phase I or Phase II.

I imagine 2010 is then there for Phase III and so what does Phase III entail?

Phase III will primarily be focused around health and beauty and the non-consumable side of the business.

Phase IV the following year will be the seasonal side of the business.

And one last one on that, so is it safe to assume that since you did it in '08 and '09 and you're getting a lift from that type of raising the profile but you would get a similar lift in '08 as you got in '09, so on a year-over-year basis, the experience in '09 is no different than in '08?

Yes, I'll leave that up to you, but I would say your thinking is pretty accurate.

Okay, thank you very much.

Thank you for your question.

Our next question will come from Bill Reuter of Bank of America.

Good morning guys.

In your press release you guys note that you'll be paying down, or expect to pay down, $300 million of debt in January.

Do you have a sense for which portion of your debt you'll be paying down then?

Yes, we're looking at that right now to try to determine what makes sense there and we're not quite ready to announce what that is going to be.

Obviously it will either be the term loan or the notes that we have outstanding.

We're going to run some models and see what makes sense.

We're going to also see in January what the price is on the notes and try to make an informed decision on what has the best return for the Company.

And looking past that longer term, now that leverage is fairly manageable, can you speak to what your use of free cash flow would be and the priorities there?

Yes, and that hasn't changed from what we've talked about in the past here, for those of you that have been on these calls.

Our number one priority continues to be investing in our business whether it be the capital expenditures that we need to grow the business, particularly to grow our sales, as well as the inventory that we need to make sure we're serving our customers.

The money that's left over, and obviously the model generates a lot of cash, will be used to pay down debt.

And, again, as we move forward we'll do the same analysis that we're going to do in January to figure out what is the proper pay down in terms of what should be taking down, whether it be the term loan or the notes outstanding.

Okay, that's all for me.

Thanks guys.

Thank you for your question.

Our next question will come from Dan Wewer of Raymond James.

Please go ahead.

Thanks, good morning.

During the last two years, Dollar General needed about a 6% same-store sales growth to maintain a flat SG&A expense rate, and that was running about the same breakeven threshold during the first half of this year.

This quarter, we estimate that only about a 4% comp would have been needed to maintain a flat expense rate.

Are we at the point now where the reinvestment needs, which obviously have paid for themselves quite nicely in the past couple years, but are we at the point where the Company can get better leverage on expense rates than it has in the last two years?

Yes, I think as we look at our model and as we look to the future, we're seeing more of a 3% comp in terms of what we need to leverage.

I will say we have made investments as you say, in the business, particularly in our developing our private label, our foreign sourcing and our real estate.

The majority of those investments are behind us.

We're very happy with the investments and what they've done and how the future looks for Dollar General in those areas and obviously those areas will help drive both growth and profitability in our business.

So I think directionally you're correct in your thought process.

And then just one follow-up.

Entering the third quarter Dollar General had about 1% more inventory per store than a year ago.

You finished the quarter with about 1% less inventory, but at the same time you've been continuing to add risers to the shelves in the stores which would lead one to believe you have more inventory dollars in a store because of the expansion in the shelf height.

Trying to figure out at what point would the inventory per store begin to increase.

Yes, I think as I look back on it, you'd think in terms of the inventory that we're putting in the stores as being more productive, we're continuing to turn product faster.

I think as we introduce our non-consumables strategy toward the end of the first quarter you could see the stores bump up a little again.

Do you think there will be some diminishing returns on the sales benefit as you complete adding space to things like consumables and now you're in future years you'll be expanding space to things like party items or HB&A?

Would you expect the return from adding the risers to be a bit less?

I'm actually more bullish on adding the risers to the non-consumable side and the HBC side because of the margin of the product, and also in all honesty, you get a higher ring on those items also.

Right.

Great.

Thanks and good luck.

Thank you for your question.

Our next question comes from Charles Grom of JPMorgan.

Please go ahead.

Thanks, good morning.

Just with the markdowns in the third quarter, are you anticipating another charge in the fourth quarter as you reset for next year?

What we're doing right now, Chuck, is we're monitoring our sales and markdown activity literally twice a week now, and what we're doing is we're focused on what's going on in the markets around us.

The move we made in the third quarter was very deliberate, it was part of what we were intending to do all year long.

We did not want to enter the first quarter and have markdown product competing against our new non-consumable strategy.

We will follow our markdowns through the course of the quarter like we did last year and I don't anticipate anything out of the ordinary as we go through the quarter.

Right, but it's safe to say you got through the inventory that you wanted to to prepare for that first quarter, or is there still some to come here?

Yes, as I look at the inventory in the fourth quarter, the markdown management would be more around seasonal merchandise than making way for our new product line in the first part of the year, that's correct.

Okay, great.

And then just on the LIFO credit, I could go back but just since I'm asking was this the first quarter we saw a credit from you guys year-to-date?

We've had a couple of very small adjustments in first and second quarter.

I can't remember if they were positive or negative.

They were very very very small so we haven't had a lot of change in that all year long.

We can get that information to you, Chuck.

Okay.

And then just last one from a modeling perspective, can you give us the ending share count fully diluted?

Over what time period, Chuck?

Just at the end of the quarter?

At the end of the quarter, it was 320 million, and we're thinking that on a full year basis we'll be probably closer to about 325 million and then for Q4 it will probably be closer to 340 million to 341 million.

Okay, great.

Thank you.

Thank you for your question.

Our next question comes from Emily Shanks of Barclays Capital.

Please go ahead.

Hi, good morning.

I just wanted to ask around the new store leases that you're looking at locking into, how have costs been trending particularly as you look into the ones for fiscal year 2010?

Yes, there's no doubt on renewals and relocations, we're seeing rates come down.

However we have also stepped back and taken a position where we're using the decline in rates to allow us to move into better locations, so we're using the opportunity to come up with a better store site.

Great.

Can you give us a sense of what your CapEx plans are for fiscal year 2010.

Apologies, I wasn't sure if the $275 million to $300 million was for 2010, as well.

That is for 2009, the $275 million to $300 million is for 2009.

We will give our 2010 guidance for capital when we let the end of the year go in March.

Okay, and then one last question.

Is it common in terms of what you're seeing -- you accept food stamps correct?

Yes, we accept food stamps.

It's approximately 4% of our business, and our food stamp usage is growing at almost the exact same rate as our same-store sales are.

Actually slightly north of that.

Perfect.

Thanks.

Best of luck during the holidays.

Thank you for your question.

Our next question comes from John Zolidis of Buckingham Research.

Hi, good morning.

Two quick questions.

One, it looks like you're going to come close to approximately $200 in sales per square foot for the overall chain this year.

When you look at just the new stores, what level of sales productivity are those stores tracking to?

And then my second question is on the first year increase in the risers, obviously you got a lift when you do the initial increase.

Do those comp?

So in the second year, are you still seeing an above chain average increase or in line with chain average increase in same-store sales in the categories that were in Phase I of the higher riser rollout?

Thank you.

Yes, and John, your first question is in regards to our new store productivity, our new stores now are opening up at about 91% of our average volume.

And then regards to your question on cycling the 78-inch profile, we're very excited by the fact that we continue to see above average comps in those categories when they hit year two.

Great.

Thank you very much and good luck for the rest of the holiday.

Just a follow-up on the LIFO question, in first quarter it was 0.8 charge and second quarter was a 0.3 benefit and third quarter was a 1.0 benefit.

All right, Operator?

Thank you for your question.

Our next question will come from John Bishop, a Private Investor.

Please go ahead.

Good morning.

Thank you for taking my call.

I just had one question.

What is Dollar General's exposure to consumer electronics, stuff like smartphones, maybe TVs, some of the compact small minicomputers?

Yes, virtually none.

Is this something that as this is showing strong growth for some time, are you all looking into this or moving into this into the future?

You know, John, we at Christmas, we had a camera we sold and a video camera and a DVD player.

That is a very very hard business and our strategy right now on that sort of thing is if we can make an opportunistic buy we'll play in and out but no real strategy right now to get into that business.

Okay, well thank you so much for your time.

Operator, we'll take the next question please?

Thank you.

(Operator Instructions) Our next question comes from Alan Rifkin of Banc of America.

Yes, thank you very much.

Rick, what was the comp performance of categories that were included in Phase I of your program in their first year, and how would that compare to the categories in Phase II in their first year?

Yes, that is actually a great question.

We continue to see all of the categories that we worked with n Phase I continue to comp at slightly higher rates.

Obviously, when we made our strategy and put it together, you went where you would get the biggest bang for the quickest.

We're excited about what we're seeing in Phase II but Phase I obviously comped just a little bit higher.

We think that Phase III and Phase IV should comp about where we are in Phase II.

Okay, so sticking within the Phase I categories, did you see a meaningful deceleration in comps in year two of the Phase I categories versus year one?

Absolutely not.

The second year of Phase I has continued to comp at really solid rates.

Okay, maybe a question for David if I may.

David, are you at liberty to give the benefits on the gross margin line which was obviously very impressive, up 110, the benefits from reduced shrink, distribution and private label?

Are you able to break those out?

We don't break those out separately, Alan.

I can tell you that if you look at our gross margin for the quarter, obviously if you get by the LIFO impact, we had some nice impact from the mix that we had in, particularly, private brand helped us.

And just generally all of the positive things going on in purchase markups that we've been able to get from Todd Vasos and his group in terms of working with vendors.

So those are the key items that impacted the quarter.

One last question if I may, and then I'll pass it on.

So relative to the $55 million reduction in shrink, which is pretty admirable, that you saw last year, where are you on a run rate this year versus that number?

Should we expect the number to not be as great as that in absolute terms simply because you've already had such a meaningful reduction?

I think, Alan, I'll answer that one for you in the fourth quarter.

We've still got part of this quarter to go and we are focused on shrink.

We, as I've said publicly, I am so proud of the progress we've made but we got a long way to go yet.

Let us finish the year.

Sure.

Thank you very much.

Thank you for your question.

(Operator Instructions) Our next question comes from Matt Nimmer of Wells Fargo Securities.

Good morning, everyone.

My first question is could you talk to the cadence of the new product rollout in the first quarter?

Is it front end loaded or what percentage of new product ships in January versus February, March, et cetera?

You're talking about planogram activity for 2010?

Exactly.

Non-consumables primarily.

Yes, the non-consumables, we'll see that product roll out by the end of April 2010.

So you would start to see, you would really start to see the full force of what's going on on that side of the business probably towards the end of March, the middle of April.

Okay, great.

And then secondly, can you talk to the impact that the higher markdowns may have had on the comp in the quarter?

Is it material or is it pretty small?

It's not material.

That's all I've got, thanks.

Operator, any other questions?

At this time we have no further questions.

With that, again, for our first call as a public company thanks for everybody's interest and we'll talk to you in March.

Thank you.

This concludes today's teleconference.

You may now disconnect.