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Dollar General Reports June Same-Store Sales up 2.5%

GOODLETTSVILLE, Tenn., Jul 06, 2006 (BUSINESS WIRE) -- Dollar General Corporation (NYSE: DG) today reported total retail sales for the June five-week period ended June 30, 2006, equaled $876.7 million compared with $808.4 million last year, an increase of 8.5 percent. For the June period, same-store sales increased 2.5 percent compared to an increase of 4.5 percent in the five-week period ended July 1, 2005. The sales increase for the period was attributable to strong sales increases in the categories of food, seasonal merchandise (driven by hardware and sundries), paper products, home cleaning products and pet supplies. Same-store sales decreased in the categories of home products and apparel.

For the nine-week period ended June 30, 2006, Dollar General total retail sales increased 7.9 percent to $1.6 billion from $1.4 billion for the nine-week period ended July 1, 2005. Same-store sales for the 2006 nine-week period increased 2.0 percent.

For the 22-week period ended June 30, 2006, Dollar General total retail sales increased 8.0 percent to $3.7 billion from $3.4 billion for the 22-week period ended July 1, 2005. Same-store sales for the 2006 22-week period increased 1.7 percent...

The numbers show a slowly rising trend of SSS (same-store sales) and the shares jumped back over $14.00 on the news. I am not totally convinced the shares have bottomed out but I do feel they offer good value below $15 as long as profit growth can be resumed. I am currently wondering what group of companies offers better value: "dollar stores" like DG or big-cap retailers like WMT and/or COST or traditional supermarkets like AHO or SVU or KR...?

I feel there are two conflicting trends at work in DG - their low-income consumer is pressured by high gas and oil prices and by rising interest rates while their cost of doing business is also rising. On the other hand this company has a good longer-term record of increasing the number of stores they operate and growing overall sales and profits. Compared to a company like Rite-Aid, which is substantially larger in terms of sales, but has lower profits and a lot more debt I prefer DG's solid record of profits and much stronger balance sheet. But I do worry if they can compete with larger supermarkets and/or entities like Wal-Mart or Costco.

I have not been able to sort out the multitude of conflicting signals, but I do feel that eventually DG will be revealed to be an inferior player or will bottom-out and will start to show improving results. I had looked at the chart and decided that dropping below $15 would be a pre-requisite to me becoming more interested in the company. At this point I wonder if the shares will rise above $15 or perhaps becaome an even better value in the weeks ahead?

JT :-)
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