Ladies and gentlemen, this is the Dollar General Corporation Fourth Quarter 2011 Conference Call on Thursday, March 22, 2012, at 9:00 a.m. Central Time. Good morning and thank you for your participation in today's call, which is being recorded by Conference America. No other recordings or rebroadcasts of this session are allowed without the company's permission. It is now my pleasure to turn the conference over to Ms. Mary Winn Gordon, Dollar General's Vice President of Investor Relations and Public Relations.

Thank you, Lindsay, and good morning, everyone. Lindsay, are you there? [Technical Difficulty]

So thank you and good morning, everyone. On the call today are Rick Dreiling, our Chairman and CEO; and David Tehle, our Chief Financial Officer. We will first go through our prepared remarks, and then we will open the call up to questions. Let me caution that today's comments will include forward-looking statements about our expectations, plans, objectives, anticipated financial and operating results and other matters. For example, our 2012 forecasted financial results and initiatives, expectations regarding potential debt and share repurchases, GAAP refinancings and capital expenditures and comments regarding expected consumer economic trends are forward-looking statements. You can identify forward-looking statements because they do not relate solely to historical matters or they contain words such as believe, anticipate, project, plan, expect, forecast, guided, intend, will likely result or will continue. Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our fourth quarter earnings release issued this morning and in our 2011 10-K, which we also filed this morning, and in the comments that are made on this call. You should not unduly rely on these statements, which speak only as of today's date. Dollar General disclaims any obligation to update or revise any information discussed in this call. We will also reference certain financial measures not derived in accordance with GAAP. The calculation of ROIC can be located on our website at dollargeneral.com under Investor Information, Conference Calls and Investor Events, below the link for the webcast for this call. All other reconciliations to the most comparable GAAP measures are included in this morning's release, which can be found in our website under Investor Information, Press Releases. This information is not a substitute for the GAAP measures and may not be comparable to similarly titled measures of other companies. Finally, before I turn the call over to Rick, I'd like to mention to all of the analysts and investors on the call to hold the date for our Analyst Day in Nashville beginning on Monday evening, June 25, through Tuesday, June 26. We'll be sending out invitations with more details in the next couple of weeks, but please call us if you think you were -- are not on our list to get the invitation. Now it's my pleasure to turn the call over to Rick.

Thank you, Mary Winn, and thanks to everyone for joining our call today. 2011 was another great year for Dollar General. We were very pleased with our financial results for the full year and for the fourth quarter. The results indicate that we are becoming even more relevant to our customers as we once again saw increases in our overall market share in consumables in both units and dollars. David is going to talk about the details of the fourth quarter, but I'd like to quickly reflect on our financial accomplishments for the year. Full year sales increased 13.6% to a record $14.8 billion. Excluding the 53rd week, full year sales increased 11.4%, and sales per square foot increased to $209 compared to $201 one year ago. Sales per average store topped $1.5 million. 2011 marked our 22nd consecutive year of same-store sales growth. Same-store sales were up 6% for the year, with all of our operating regions again turning in positive comps. Our adjusted operating profit grew 17% over last year to a record $1.5 billion and a record 10.2% of sales. Gross margin rate contraction of 31 basis points for the year was more than offset by strong adjusted SG&A leverage of 62 basis points. Although the rate is down year-over-year, I should remind you that a 31.7% gross margin rate represents expansion of 246 basis points over 2008 just 3 years ago. This is a significant accomplishment during the sustained difficult economic environment. Interest expense was down $69 million for the year as we made additional progress from reducing our high interest rate debt. On the bottom line, our adjusted net income increased 26% over 2010. In addition, we produced over $1 billion of cash flow from operations, a 27% increase over last year. And we further strengthened our balance sheet through significant debt reduction. For the year, we generated an impressive return on invested capital of 22.1%. Our financial results continue to be a testament to the strength of our business model. It is clear that our strategy of small-box convenience combined with great value resonates with consumers. In addition to our impressive financial results, we accomplished a great deal in 2011 on the business side as well, laying the groundwork for 2012 and beyond. We continue to strengthen our infrastructure and upgrade the systems and technologies we use to operate the business. Across the board, we are better equipped to grow than we were a few years ago. We hit our target of opening 625 new stores and remodeling or relocating 575 stores in 2011, increasing our selling square footage by 7%. Most of this growth was in our existing 35 states. But in 2011, we expanded our footprint into Connecticut, New Hampshire and Nevada, our first new states since 2006, and we also launched our e-commerce site. We expanded testing of our Dollar General Market concept, remodeling an additional 25 market stores and opening 12 new locations, including 7 in Nevada. We ended the year with 69 markets and are pleased with the preliminary results from our new and remodeled stores. This concept is a significant part of our initial California strategy. Next weekend, we will celebrate the grand opening of our 10,000th store, a Dollar General Market in Merced, California. This is our fifth store in the state, and we expect to have 50 stores in California by year end. These stores, as well as our stores in Nevada, Arizona and New Mexico, will be served by our new distribution center near Bakersfield beginning in April. To support expansion in our existing markets, we also built a new distribution center in Alabama, which began shipping to stores earlier this month. On the merchandising front, we continue to enhance our category management efforts and expand our merchandise offerings at the dollar price point, with a focus on health and beauty in 2011. We increased the number of coolers in approximately 500 stores by adding 4 cooler doors on average, bringing our chain average to 9 cooler doors per store. According to syndicated data, we continue to grow our market share in consumables by high single digits in units and 10% to 12% in dollar share over a 4-week, 12-week, 24-week and 52-week basis. As part of our ongoing efforts to increase our gross margin rate, we added 16 feet of core health and beauty products in 2011, with a big push in our Rexall proprietary brand and continued to expand other private and proprietary brands in consumables. We now carry nearly 1,900 private brand SKUs in consumables, with strong sales growth in food, perishables, candy and snacks, carbonated beverages, home cleaning and health care. Throughout the store, nearly 2,900 SKUs are a Dollar General private or proprietary brand now. Overall, sales of seasonal items were strong for the year. We had great success in party supplies, balloons and arts and crafts. We have also seen sales growth in novelty items, seasonal candles and holiday storage. Our focus on being trend relevant, while maintaining great value, is continuing to pay off for us. Sales growth in housewares and domestics has been encouraging. We have been focused on improving product quality and better meeting our customers' needs. Sales in the second half of the year were very good once many of our merchandising improvements became more visible to our customers. Areas such as bedding and bath, which had been slow for some time, had a comeback late in the year, and that trend has continued into the new year. We believe that our improved quality, as well as improved branding and packaging and presentation, have contributed to our overall growth in home sales. Through focused initiatives, we have improved our in-stock position throughout the chain, which is very important to our customers. For the year, the number of items that our customers couldn't find in the store shelves was down 14%, gaining significant traction in the third and fourth quarters, which has continued into 2012. This effort has dramatically improved the customer experience in our stores as indicated by record-high customer satisfaction scores. From an expense reduction standpoint, we implemented a workforce management system in our stores, which contributed significantly to our ability to leverage store labor in the second half of the year by helping us better align customer service with our customers’ needs and shopping trends. This new system provides our store managers with an electronic tool that assists them as they prioritize and manage work, allowing them to be smarter in how they manage their staff and their stores. We also made further inroads with regard to hiring and developing our employees. In 2011, about 55% of our positions were filled from internal candidates. The investment in our employees is an important investment in our future. As Dollar General grows, our employees have the opportunity to grow both personally and professionally with the company. And finally, our strong cash flow for the year allowed us to pay off our 10.625% senior notes, reducing our interest expense and further strengthening our balance sheet. We also repurchased 4.9 million shares of our common stock. Before I turn the call over to David, I wanted to provide some color on our fourth quarter sales, which were up 20% from the prior year or an increase of 11.8%, excluding the 53rd week. Same-store sales increased a strong 6.5%, a further acceleration of trends during the year, exceeding the 5% expectation that we shared with you on the third quarter call. Comps in the month of January were very strong, in part due to better-than-expected weather compared to January of 2011. Consistent with the rest of the year, fourth quarter sales were primarily driven by consumables, with snacks, beverages and perishables leading the way. Additional coolers and the expansion of $1 items contributed to the increase in perishables. Sales of convenience items such as carbonated beverages, salty snacks and candy, including both seasonal and core, were strong in the quarter. Health and beauty grew year-over-year as well, in part due to the addition of more $1 price point items and the expansion of this area to the 78-inch profile in early 2011. In addition, resets in our pet category implemented earlier in the year generated solid results, and stronger trends in our high penetration home cleaning and paper categories were driven by our merchandising strategies. We were very encouraged by the continued positive comps in our home category. Comp growth in housewares and domestics, such as bedding, bath, floor coverings, exceeded our overall comp percentage for the quarter. Apparel continued to struggle. We are comfortable that the decision we made last year to focus more on infants and children and men's apparel was prudent. But without a doubt, apparel, especially women's, remains our toughest category to manage, and we were disappointed with our overall results. As you've heard across various retail channels, holiday seasonal sales were challenging as consumers remained cautious with their discretionary spending. Pricing and promotions were very competitive during the holiday season. And like most retailers, we responded to the market and took some early pricing actions on our seasonal merchandise to drive sales in our stores. Other items included in our seasonal categories, such as stationery, prerecorded CDs and DVDs and automotive, all performed well. All-in-all, we were very pleased with our fourth quarter sales. Now David will share a more detailed review of our overall fourth quarter financial performance and our guidance for 2012.

Thank you, Rick, and good morning, everyone. As Rick said, we had a great year, and we had very strong financial performance in the fourth quarter, with sales above our expectations. Fourth quarter sales were again driven by consumables, which generally have a lower gross margin than nonconsumables. Our fourth quarter gross profit rate was 32.2%, a decrease of 25 basis points from the 2010 fourth quarter, which, as a reminder, was the highest gross margin performance we have ever achieved. Purchase costs were up year-over-year, particularly on some of our food items, such as sugar, coffee and nuts, resulting in a LIFO charge of $22 million for the quarter, much higher than we had anticipated at the end of Q3 as inflation continued at a higher rate than expected. Overall, though, we're pleased with our gross margin results for the quarter. SG&A as a percentage of sales was 20% in the 2011 fourth quarter compared to 20.7% in the 2010 quarter. Excluding adjustments detailed in our press release, our SG&A rate was 19.8% in the 2011 quarter versus 20.6% in the 2010 quarter, a 79 basis point year-over-year improvement, primarily due to increased sales, including the extra week, and a significant increase in store labor productivity resulting from our new workforce management initiatives. To a lesser extent, lower incentive compensation expense resulting from a more aggressive bonus target and lower employee benefit costs, along with other cost reduction and productivity initiatives, also impacted SG&A favorably. Excluding secondary offering expenses from both years, operating profit increased 26% to $519 million or 12.4% of sales compared to $413 million or 11.8% of sales in the 2010 quarter. We're very pleased with this improvement and with our ability to balance gross margin and generate expense leverage as we accelerated our investment in new store development. Even without the leverage benefit of the 53rd week in 2011, we had strong operating profit performance. Interest expense was $40 million for the quarter, a reduction of $26 million from last year's fourth quarter, primarily due to our debt reduction. Excluding adjustments for comparability detailed in our press release, net income increased 33% to $299 million, including an estimated $0.06 for the 53rd week in 2011. Adjusted earnings per share increased 34% to $0.87 in the 2011 quarter compared to $0.65 in the 2010 quarter. Turning to our cash flow. We generated more than $1 billion of cash from operating activities for the year. That's an increase of 27% year-over-year. Total capital expenditures were $515 million, including $120 million for distribution centers, $114 million for new leased stores, $80 million for improvements and upgrades to existing stores, $80 million for stores purchased or built by us, $73 million for remodels and relocations of existing stores, $28 million for information systems upgrades and technology-related projects and $15 million for transportation-related capital. As of the end of the year, total inventories at cost were $2 billion, up 7% on a per-store basis, just slightly above our same-store sales growth, with inventory turns at 5.3x for the 53-week year. Total outstanding debt at the end of the year was $2.62 billion, a decrease of $670 million from 2010. Net of cash, our ratio of long-term obligations to adjusted EBITDA was 1.4x at the end of fiscal 2011 compared to 1.8x at the end of 2010. On March 15, our revolving credit facility was amended and restated, increasing the maximum amount permitted to be borrowed to $1.2 billion and extending the maturity of the facility from 2013 to 2014. In addition, we recently commenced efforts to amend our term loan facility to extend the maturity of a portion of the facility from 2014 to 2017. We continued to deploy capital efficiently, with a top-tier return on invested capital of 22.1% in 2011. To summarize, we have continued to deliver strong financial performance in a volatile environment, including exceptional cash flow generation and return on capital. Over the last several months, we have finalized our plans for 2012. We're anticipating another strong year, and we're very excited about making key investments to grow the business for the long term, while still delivering top-tier financial results. We expect top line sales for 2012 to increase 8% to 9% or 10% to 11%, excluding the 53rd week from 2011. Overall square footage is expected to grow approximately 7% in 2012, and same-store sales on a comparable 52-week basis are expected to increase 3% to 5%. Operating profit is forecasted to be between $1.6 billion and $1.65 billion, excluding certain adjustments comparable to 2011. In the first half of the year, we expect modest contraction of our gross margin rate and higher expenses related to strategic investments, including costs associated with the opening and ramp-up of operations of our 2 new distribution centers and startup costs related to our initial entrance into California. In the second half of the year, we expect these headwinds to moderate as our new distribution centers become more efficient. New stores, expansion into new geographies and expansion of our distribution network are solid examples of investing to drive productive sales growth for the long term. We're forecasting net interest expense for the year to be in the range of $145 million to $155 million as we intend to refinance our senior subordinated notes on or after the first call date in July of 2012. We expect our full year tax rate to be in the range of 38% to 39%, although it may likely vary quarter-to-quarter. And finally, we expect adjusted diluted earnings per share of $2.65 to $2.75. We're assuming about 335 million weighted average diluted shares outstanding for the year, which assumes the repurchase of $315 million of our common stock under our remaining share repurchase authorization. 2012 capital expenditures are forecasted to be in the range of $600 million to $650 million, with approximately 65% for investments in store growth and development, including new stores, remodels, relocations and purchases of existing store locations. Approximately 15% is for transportation, distribution and special projects. The remaining 20% is for maintenance capital. Our capital expenditures are increasing this year as we take advantage of opportunities to test additional potential avenues of growth. Rick will share more details about those opportunities with you in a minute. Our guidance for 2012 reflects another growth year for Dollar General. While we are seeing some indications of positive trends in the economy, we believe our customers' discretionary spending will continue to be constrained in 2012. As our track record demonstrates, Dollar General is well positioned to serve our customers regardless of how the economy plays out. We are starting the year off on a strong note, with same-store sales growth coming in very nicely in February and to date in March. Now I'd like to turn the call back over to Rick to summarize our 2012 initiatives that support our guidance.

Thanks, David. We outlined some of our 2012 initiatives for you in our third quarter conference call, so I'd like to expand upon those today. But first, I would like to reiterate our 4 operating priorities: driving productive sales growth, increasing gross margins, leveraging process improvements in information technology to reduce costs; and strengthening and expanding Dollar General's culture of serving others. We believe that our adherence to these priorities and our focus on multiple levers to drive sustainability of results will continue to separate Dollar General from the competition and allow us to provide our customers with the consistent low prices that they trust. Let's start with our first priority of driving productive sales growth. The returns on our new stores remain some of the best in retail, thanks to the disciplines we have developed in our real estate model. In 2012, we expect to open approximately 625 stores -- new stores. We also plan to continue our remodel and relocation program, including an additional 550 stores in 2012. In total, we expect square footage growth of approximately 7%. I should point out that a higher percentage of our new stores next year will be in our newer states, including an estimated 50 stores in California. The vast majority of our new stores and relocations will be traditional Dollar General stores. However, our plans also include an addition of approximately 40 new Dollar General Markets, which will take us to more than 100 market stores by the end of next year. We have dedicated resources to further develop -- for further development and ongoing assessment of the Dollar General Market concept. We are excited about the opportunity to introduce the concept in both new and existing markets, with a focus on the many food desert areas that are far away -- far, far away from a traditional grocery store. The results of the market remodels we have completed to date and of our 12 new market stores are encouraging, albeit still very early. We're continuing to make tweaks in our product selection, store design and capital investment. And we expect that 2012 will provide many helpful earnings. In addition, we plan to expand our test of a larger-format Dollar General store that we refer to internally as DG Plus [ph]. This format has expanded coolers but no fresh meats and produce. These stores have about 10,000 square feet of selling space. And while it's still very early, customer response has been very strong to this format. We are excited about potential growth opportunities for both this larger Dollar General and Dollar General Market as we continue our work to maximize profitability and returns on both of these formats. We will continue to enhance our category management efforts and are focused on optimizing our planogram productivity. We have embarked upon Phase 5 of our evolution in merchandising. In Phases 1 through 4, we raised the shelf heights across the stores, increasing our shelf space. In Phase 5, we plan to use this space even more effectively by developing region or demographic-specific plans to ensure that we have the right balance of offerings based on the population demographics and the store's sales statistics. We expect to continue to expand our merchandise offerings at the $1 price point and plan to add more items in food and snacks, as well as seasonal in 2012. Additionally, we plan to further expand our cooler presence. Currently, our new stores are opening with 14 to 16 coolers, and we plan to install 4 additional cooler doors in approximately 1,200 existing locations to better serve our time-conscious customer. Fresh and refrigerated foods help us drive customer traffic and increase basket size by serving a greater share of our customers' needs. Across nonconsumables, our strategy has continued to be trend relevant at price points our core customer expects from us. We have a fresh approach to apparel pricing, adding more in-season promotional events. Based on our focus group research, we believe this approach is more consistent with how our customer approaches -- purchases apparel. Also, we plan to flow new apparel to the stores more frequently so that our customer sees new fresh merchandise more often. We will continue to take an aggressive stance towards improving our in-stock position. This is a never-ending effort, which requires focus on store level, perpetual inventory accuracy, as well as improved execution across ordering, fulfillment, delivery and stocking. With regard to expanding our gross margin, we expect our mix to continue to be pressured by macroeconomic factors. However, we believe we have additional opportunity to capture margin in 2012 from further shrink reduction, expansion of foreign sourcing and the addition of private brand SKUs as we move into new categories. We intend to take additional steps in our price optimization efforts and expect to utilize multiple price zones while remaining true to our EDLP strategy in 2012. Our third priority is to leverage process improvements in IT to reduce cost. We expect to continue to leverage our new workforce management system that was completely rolled out in 2011. We are making a multiple year investment in our supply chain system. Over the next few years, we expect to benefit incrementally from the phased rollout of our supply chain solutions. This is more than an IT project. It impacts our people, our processes and our systems, helping us to ensure that we have the right product at the right place at the right time and most importantly, in the right quantity. Over time, we believe this project will benefit our inventory levels at the DCs and in the stores, our allocation of merchandise to the stores and our overall in-stock position on the shelf. We expect 2012 to be another strong year for Dollar General. We look forward to our expansion into California and our learnings from Dollar General Market, and we believe that we have the right plans and the right team in place to achieve our goals. We continue to strengthen our financial position. And importantly, we are building loyalty with our customers. Our customer research indicates that our base of loyal customers is growing as we retain a greater percentage of our nontraditional or higher income customers. Both trips and dollars spent per trip have increased with our shoppers, and we are outperforming the channel in customer spending growth among both our retained shoppers and new shoppers. In summary, the data shows that our stores are meeting the needs of an expanding customer base. As a team, we're excited to welcome Greg Sparks to Dollar General as our new Executive Vice President of Store Operations. I have known Greg for over 20 years. He's a strong leader, an exceptional operator, with a proven background given his more than 36 years in retail. He will be a great addition to Dollar General. Finally, my personal thanks to over 90,000 Dollar General employees who are committed to serving our customers every day. Dollar General is a strong company because of our employees. We have a solid foundation for growth, and we are continuing to innovate and lead the channel in order to capture multi-year growth opportunities on both the top line and bottom line with the investments we are making. Our strong track record of executing our key initiatives gives me great confidence that the Dollar General team can successfully execute our 2012 goals and can continue to deliver long-term sustainable growth. With that, Mary Winn, I'd like to open it up to questions.

Great. Operator, we will take the first question please.

[Operator Instructions] Our first question comes from Mark Montagna with Avondale Partners.

I was hoping to just kind of get a feel for your -- the cost increases that you're facing in 2012 in the first half. How would that compare to the cost increases that you faced in the first half of 2011? Is it less of an increase, more or about the same perhaps?

That's a great question, Mark. We're actually seeing inflation moderate in the first quarter. I would guesstimate that it's about 1/2 of what it was in the first quarter of last year, so around 1% is what we're seeing right now.

All right, that's fantastic. Is there are a greater pressure on the discretionary product or the non-discretionary product?

It's about the same, I would say. It's about the same on both sides.

Our next question comes from John Heinbockel with Guggenheim Securities.

Couple of things. So when you think about the discretionary part of the mix and you're clearly doing some things to tweak that and generate some sales, when you step back and think about the store and those categories longer term, how do you think about how much space you're dedicating to those categories? Should there be a pullback in some of those categories in terms of your commitment to them? How do you think about them longer term?

Yes, great question. One of the things we've worked very hard on, John, is not to be a 7,600-square-foot grocery store. We believe the nonconsumable side to us is as important as the consumables. Now as I look back over the last 4 years, we have made some decisions, made some changes and pulled back on some of the nonconsumable categories. We're very encouraged with what we've seen on just about all of the nonconsumable categories, with the exception of apparel. And we still think that has a long term. But we heat map the store. We understand how the categories are performing. And as we roll through the year, we'll make the necessary decisions we need to make.

Okay. Secondly, just on DG Market, it's early yet, but when you think about the changes you’ve made, how close do you think you can get the ROI on that to a traditional dollar store? It will probably never be as good, but how close can you get it? And I've always thought of it as being complementary. Do you think we ever get to a point where you're opening several hundred DG Markets per year?

I'll take the back half of that question and let David take the front.

Yes, I think John, you're right. I mean, we don't ever see the returns equaling what we have in the traditional stores. But as we work on the merchandise mix and as we work on the capital that we invested in it, we see that gap closing somewhat from where it is today. Again, the play on that, if you remember, is we're going into food deserts, where we think we can drive a lot of volume. And then they generate a lot of raw profit dollars in terms of just generating EBITDA for the model, which certainly is something we're very happy to see.

And in regards to the back half, we believe it's a part of our future. It's a little early to stand up and say how many stores we think it's going to be. But I will tell you, John, the ones that we've opened and the ones we've remodeled, while we've got a lot of work to do yet, we're very pleased with what we're seeing.

All right. And then just one final thing, when you look at the moderation in the comp you guys have guided to, is the bulk of that just inflation? Or if not, is it gas price-related or something else?

It's -- what we always try to do is put our best view on it. It's a little early yet to be honest. And what I will promise you, we'll do what we've done for the last 2 years. Every quarter, we'll give you an update based on the results we have.

Our next question comes from Deborah Weinswig with Citi.

If you look back at 2011, what were the biggest surprises?

What a great question. I think the LIFO charge, to me, having to work with inflation. I will tell you, I was very pleased with sales and the way sales ramped up through the year, which I think is very -- I think that's very telling, and that it says that we're broadening our appeal to a broader customer base and still growing our share of wallet with our existing customers. And I got to tell you, as far as the organization goes, I would say that we continue to demonstrate that we have multiple levers that we can pull. If you think about the LIFO charge we took in the fourth quarter and we were still able to manage the business and exceed the Street's expectation.

Great. And then one last question. I know it's very early, but can you talk about your experience so far with e-commerce?

Yes, it is a little early yet. We're continuing to expand the number of items that are on there. I think we have almost 2.5x the number of items we had before, so we're approaching 3,000 items. We're getting some hits. We're measuring the re-hits, where people come back to it. We're pleased with what we see, but it's a little early yet.

And are you finding that those are customers -- are those people who are in existing markets or are those people in new markets?

Believe it or not, all across the United States. It's been very interesting that we've had hits from states we're not in. Not Hawaii, by the way.

Our next question comes from Dan Wewer with Raymond James.

So you noted that your operating margin of 10.2% is a lifetime high in the year just ended. You're also guiding to a little bit of operating margin pressure during the first half of 2012. With your operating margins now at record levels but also mindful, this is discount store retailing, it's not Williams-Sonoma. I mean, do you think we're at the point now where DG has to start reinvesting some of that operating margin to grow market share at a faster rate, thinking that future operating margin gains from this point forward could be very difficult to achieve?

I look at it -- Dan, we still have opportunities in sourcing, private brands, shrink, warehouse and transportation. There's a lot of room there. And the one thing I think is the real key takeaway for us, the improvement that we've driven has not been from raising prices. It's been doing -- by doing a better job around the acquisition and the moving of product. So I feel comfortable there's still some room. David, I don't know if you'd like to add anything to that.

Yes, I think, and particularly as we look at private label and sourcing, we know we've got a long runway to go in both of those. And sourcing, anyway, is something we totally control. Obviously, private label, the customer has to vote on it. But the things internally, sourcing, and shrink and distribution and transportation, those are things that we have total control over. And we know that we have room for advancement in those areas.

And Dan, I would tell you this, too. If you look at the syndicated data, I mean, on a 4-week, 12-week, 24-week, 52 -- I mean, we're growing our share 10% to 12% now.

Well, no, that's right. I'm totally fine with sacrificing some margin if it's more than an ample payback in market share. One other question I would ask. There's a significant growth in the number of coolers that DG is adding, whether it's with the markets, the DG Plus [ph] stores or even your core stores. Yet the company still does not have any refrigerated distribution capacity. At what point do you start rethinking that part of your supply chain?

Yes, I think that's a really fair question, Dan. Even though we're adding a lot of cooler doors, we still -- we're not -- it's not a big case business for us yet. The growth is phenomenal, but the people we're using deliver by the piece for us, which makes it much more better to control our inventory. It is something that we're watching, something that we're monitoring, something we're thinking about, to be honest. And I'll give you an update when we decide to make that move.

Our next question comes from Carla Casella with JPMorgan.

This is actually Paul Simenauer on for Carla. First, when we look at the assortment of brands at the Dollar stores, we're starting to see more brands than in the past guys would not consider selling through the channel. Have most of the CPG companies overcome this aversion to the channel?

Yes, I mean, actually, if you look at it, we're in the top 10 with most of the CPG companies out there now. And the advantage, Paul, to national brands for us, it gives us relevancy with the trade down and the trade-in customer. And the merchandising team has been able to develop a very strong private brand program and a very strong national brand. So it works out good.

Got you. And are there any brands that you'd like to carry that you cannot at this point?

I'm very pleased with the selection overall. And when you think about the national brands that we carry, we really focus on the ones that our customers can afford and relate to.

Got it, got it. And finally, what are the biggest CPG partners for you today in terms of growth and adding to your mix?

Yes, I would look at you and tell you, you could pick anyone you wanted to on that. We enjoy the same relationship with them as all of the bigger players do.

Our next question comes from Wayne Hood with BMO Capital.

A maintenance question, I guess, before I get to an ROIC question. What is the LIFO accrual that's embedded in your guidance for the coming year?

I'm not going to give you an exact number there, Wayne. But we have what I would call a moderate amount of LIFO played into the number of our guidance, our $2.65 to $2.75, certainly not as large as what we saw in 2011, something more moderate than that.

Okay. And my second question relates to return on capital on the 10,000-square foot store, kind of tests you have in DG Market. Can you just speak a little bit about how you're trying to lower the capital investment spread between the $180,000 you might spend on a traditional store and what you're spending on these? And what level of capital does it have to come down to, to make the return on investment non-dilutive to the overall capital that you might be deploying?

Yes, I think it's more than just looking at the capital. As we look at it, you certainly have to look at the revenue that's coming out of that box, the mix of products because the product mix is skewed a little heavier towards the consumables. So we have to work the top part of the equation, as well as the bottom part of it on the capital. So I think we're working all sides of it right now. It's still early. We're still learning, and we're doing a lot of value engineering in the stores in terms of trying to figure out what makes sense from a capital point of view.

When you talk meaningfully above the $180,000, are you talking twice that or can you put some parameters around the magnitude of the difference and again, how you get -- more specifically, how you're bringing that down?

Yes, I think until we really put a stake in the ground on the model and are willing to say we have it perfected, we're still experimenting. And we'd rather not lay a number out there. And certainly, when we feel like we've got it where we want it, we'll be willing to give a little more guidance on that.

Our next question comes from Aram Rubinson with Nomura Securities.

It's actually Ed sitting in for Aram. First of all, congrats on the 10,000-store mark, quite an achievement.

Thank you, Ed. I'm actually going to go there myself to see it open up.

Excellent. Having been in one of these Plus [ph] stores, just one observation I had is it seemed to be a bit removed from the heart of the retail trade areas, at least anecdotally. And I was wondering, is that part of the strategy or is that just a one-off observation?

Okay, that's -- I would tell you in all honesty, that's just a one-off observation. It happens to be where that store was at the time when we were going to remodel it, and we took advantage of it.

Okay. And then how many of the 2012 openings would you think might be these Plus DGs [ph]?

Approximately 80.

Approximately 80, okay. And then last question related to it. Do they include any produce items? I don't recall that part of it.

No, the Plus [ph] store is a major commitment to just the refrigerated and the frozen and then some expanded sets within the store.

Okay. And is the DG Market giving you lessons on produce that might lead you to want to expand that category throughout the chain to any degree?

Yes. Actually, we're learning a lot about produce and meats. And again, it's too soon to stand up and make a commitment on that. You got to remember, that's brand new for us. And we're not new in the Dollar General Markets, but really understanding the quality, the selection, the variety. So we have a lot to learn there yet but stay tuned. We'll see down the road.

That number on the DG Plus [ph] includes relocations and remodels, by the way.

Our next question comes from Matt Nemer with Wells Fargo.

It's actually Trisha Dill in for Matt. Just a few quick questions. I'm just curious on your plan to add more merchandise at the dollar price point. You've talked about this in the past a couple of calls, and I just wanted to dig into this a little bit more. How big do you expect this to be and how should we think about the profitability of these items, particularly if they're skewed more towards consumables?

That's a great question. It's actually not only consumables, but we're also doing a lot of work on the nonconsumable side. We introduced many SKUs of Dollar HBA items in the course of the year. In terms of the profitability, they still carry a very solid profit. And it's equal to the stuff we're actually selling, the merchandise we're selling in the store. The real key takeaway on the addition of the dollar merchandise is that it's not eroding the category. It's become incremental. So we actually believe it was the sale we weren't getting that we're now getting.

Great. And then outside of the supply-chain initiative you mentioned on the call, I'm just wondering what's sort of left on the agenda or the wish list from a technology perspective.

Yes, I think as we look at that, several things. Certainly, the supply chain is the biggest one as we move forward, and we think that will do a lot for us in terms of inventory turns, in-stock, demand forecasting. We've got some enhancements we'll be making to our handhelds in the store, which is kind of a lifeline for the stores again in terms of managing inventory and helping increase our sales. Two new distribution centers this year, obviously, there's a lot of IT work involved when you open a distribution center. We're doing some pricing system enhancements with DemandTec. And again, we think as we refine our pricing, that will have some major benefits for the company. And then we've got some things going on in transportation and distribution, including expanding our transportation routing. So kind of a whole bunch of different things touching many different parts of the business, and we still think there's a lot of technology that we can inject in the business to help drive more sales and drive more profitability.

Our next question comes from Charles Grom with Deutsche Bank.

Just on the acceleration here of comps in January and then so far into February, March. Just wondering how much of that's been driven by traffic versus ticket and how broad-based it's been by category? And then how would you expect the pace of comps to look in 2012 in light of the 3% to 5% comp that you guys gave this morning?

Yes, traffic is definitely has been trending higher than the basket. However, the basket is still contributing. I don't want to mislead you. We're still happy with what we're seeing in basket, but traffic, clearly, is the bigger piece of that, particularly in the more current time period.

And in terms of the comps through the year, I mean we're looking for a pretty consistent role through the year, Chuck, not that's going to be heavier in one end or the other.

Okay, fair enough. And then you could just quantify for us these investments that you're making here in the front half of the year, both the DC investments in California? And then when you think about store capacity, once you get these 2 DCs up and running, what does it look like for the total company? In other words, are you going to be looking to open up another couple of DCs in the out-years or is this set for a few years?

Yes, we're not going to be that granular in terms of actually quantifying. And I think what we've said is that we do see some pressure on the margin -- the gross margin percentage the first half of the year, and one of the big reasons is because of the inefficiencies as we have 2 new distribution centers coming up. We do have a little bit more SG&A also and some of the startup cost hits that, and then we have the investment in California that we mentioned. So we do have a moderate impact related to that. I think as we move forward in our model, we see ourselves adding a distribution center every 1,000 stores. So as we open 1,000 stores, it's probably time to add a DC. I will also say as we look at our 5-year strategy on distribution and transportation, we look at where we are today and we look at where we see ourselves in 5 years, we see these investments that we're making being positive and being accretive to that line item. We look at DC and trends where we are today versus 5 years from now, we see ourselves leveraging that. So I think these are great investments that we're making for the long-term growth of our business.

I think, Chuck, the way to think about it is we expect both gross margin and SG&A leverage for the full year.

Got you, okay. And then just on the total capacity, where you guys are today and where these 2 DCs position you?

Yes, I think a fair question, this will obviously give it some room for a period of time. We like -- we really like to run our DCs at about 85% capacity. That gives us the fluctuation to deal with incoming seasonal and all that. So that's why the 1,000 stores is a real good rule of thumb.

Our next question comes from Scot Ciccarelli with RBC Capital Markets.

First, you guys talked about you think you're retaining more of your nontraditional customers. That certainly makes sense to me. But how do you actually know that or how do you measure it? Or is that just kind of a belief?

Yes, actually, it's exit research, where the customer comes out of the store. Right? And we also use Nielsen panel data, so it's not a guess. There's some rig around it.

Perfect. And then, presumably, stores in new markets aren't nearly as profitable as opening up in existing markets. As you move into places like California, a little bit of a different market obviously for you guys, is that a noticeable drag on profits for some time until they kind of ramp up to a more mature level? Or what's the right way to think about that?

Yes, there's definitely some drag when we go into a new market. Again, keep in mind, we still have a lot of opportunities in our existing markets when we talk about the number of stores long term that we can open. So of course, part of our goal is to try to balance that out in terms of our store openings and where we open them. But yes, clearly, there is a little bit of a startup when you go to a new state.

Scot, I'd also throw out, too, that the real estate team is taking a much different approach to entering a market. When you think you back into the old days, we put a store in Northern Arizona, Southern Arizona, Eastern Arizona and Western Arizona and wonder why no one knew who we were. The real estate team here now is going in putting the stores together where the merchants can effectively put a marketing and merchandising strategy around them to make a bigger impression quicker and get the sales moving faster.

Our next question comes from Denise Chai with Bank of America.

Just wanted to dig a little bit more into your planogram optimization with Phase 5 coming on now. So can you kind of give us some examples of what different demographic segments you'll be targeting, when the rollout is going to be complete and how much of the mix or SKU count will this affect?

Yes, let me give you the easiest example. Think in terms of a younger demographic versus an older, so traditionally, today, we have an incontinent set that is the same in every store in the chain and a diaper set that is the same in every store in the chain. What we'll be able to do based on age, obviously, is go in and alter the size of those sets. So as I said, that's a very easy example. Think in terms of seasonal, Halloween, for example, does very well in rural, doesn't do quite as well in urban environments, and we'll be able to go in and adjust those sets. It will ultimately, over time, affect every store in the chain and every market and every category.

Okay. Okay, that's great. And then I also wanted to ask, I know that you're increasing coolers and that's a big commitment. But when do you expect to see an inflection in the sales mix? Now that the consumer is getting a little bit better, do you -- when do you think that non-discretionary will start to -- sorry, I mean, nonconsumables will start to grow a little bit faster than consumables?

Yes, I think the nonconsumable side of the table, Denise, is being driven by the macroeconomic environment out there. We're very comfortable with the decisions we're making on the nonconsumable side. As I said on the call, we're starting to get some traction in a lot of areas, home and stationery. And we're very, very pleased with the changes we made on infants and toddlers. And we still have some work to do, but we're not willing to give up on it yet. So I think a little help from the economy will get us going in the right direction.

Our next question comes from Emily Shanks with Barclays Capital.

This is John Connor, who is filling in for Emily. What factors would you consider when evaluating whether to use free cash flow or new debt to refinance the senior sub?

I'm sorry, can you repeat the question?

Sure. I was wondering if you could just let us know what factors that you would consider when you're evaluating whether you'd use free cash flow or issuing new debt to refinance the senior sub?

Yes, I think as we look at it right now, we're pretty satisfied with our current debt levels. We had mentioned that our goal was to drive our debt to EBITDAR below 3.0, which we did in the quarter. It's either a 2.8 or 2.9 depending upon if you put cash in there. So our belief is that as the Buck Holdings ownership comes down, we should become investment grade. So we're about where we want to be in terms of the debt level. So our current thought process is that we'll refinance the $450 million sub debt sometime around that July call date or thereafter. And certainly, we'll get much lower debt since that's at 11.875%, and you know what the going debt rate would be for a company of our nature. So I think our current thought is that we'll definitely use debt to -- and keep that debt out there.

And if I could ask one more question to circle back on inflation. Can you give us the rate of inflation you experienced in 4Q '11 and what the category specifically had the highest rate?

Yes, it was approximately 2% in the fourth quarter. And nuts come to mind, peanut butter, a lot of basic commodity items.

Our next question comes from Colin McGranahan with Bernstein.

I wanted to focus on gross margin. And first, just looking at the fourth quarter, I know you talked a little bit about LIFO, but the $22 million charge was certainly more than I think we expected and more than you had expected. And it just seems odd that coffee, sugar and nuts would drive that much of it. So maybe if you could just give us a little bit more detail about that. But then also, if we exclude that charge, that looks like the underlying gross margins were up 25 to 30 basis points, which should be a very good performance, given the negative mix in consumables. So if you could give us a little bit more detail what some of the drivers were there, how much shrink might have contributed, et cetera?

Yes, I mean, we, obviously -- we continue to make good inroads on shrink. Remember, our warehouse and transportation is in the margin line, and we're working very hard on that also. And so remember, there's a lot of levers here that we're working on. We're not -- our margin improvement is not coming from raising prices. It's doing a better job of managing the overall business. And I think, as you guys think about us, that's our story, that we have multiple levers to pull, which is why our growth is so sustainable. It's funny. I don't know if you've looked at the can of nuts on the shelf, but I believe the 16-ounce can is down to about 8 or 9 ounces now, where everybody is really downsizing that type of product. Peanut butter -- I mean, a jar of peanut butter is $6 now. So it's coffee, I believe, we saw some increases there. Creamers, we saw increase. So just a lot of broad-based items.

Yes, I think, Colin, it was items that we also have a lot of inventory because they're good items for us, and we sell a lot of them. And that has an impact on the LIFO calculation, is how much inventory you have in items of coffee, batteries, peanuts, peanut butter, eggs, motor oil, some paper products, charcoal, I mean, you name it. We just have a lot of products. And yet it came in a little bit higher than we had planned and clearly, a little bit deeper than we had planned. If you look at the margins for the quarter, a couple of things to keep in mind, the LIFO was clearly the biggest factor. But also you have that mix factor that we've talked about, where our consumable business in the quarter was higher than it was in the previous quarter, 71.4% of the business versus 69.6% last year. So we continue to have a bit of a negative impact on mix. And then transportation, the fuel prices, again, are something that hit us in the quarter overall versus the last year. As we look forward on it, we still have some headwinds there in terms of, as we mentioned, we've got a certain amount of LIFO played in. We still see the mix being an issue, and we're still seeing the fuel costs being an issue as we move forward in the model.

I mean, that was exactly my point. You had those headwinds and you had x LIFO, the gross margin was still up nearly 30 basis points. So I guess my second question is looking forward -- as you look at the first quarter, especially I know you have the DC costs in there and you have these other headwinds but you're anniversary-ing it down 63, and I believe at the time you said the most significant factor in that was the markdowns from last spring. Obviously, the weather's very unfavorable. Discretionary was weak on high gas prices. It sounds like the first quarter is off to a great start so far. So I would expect markdowns to be dramatically better year-over-year. And then as you move through the year, you're going to be anniversary-ing these increasingly large LIFO charges. So I was trying to get a better handle on the outlook for gross margin through the year.

Yes, we're calling out that we will have some margin improvement for the year. And again, I'll turn it over to David here. I don't want to shortchange the ramping up of 2 distribution centers in the first quarter of the year. They don't come out flying shipping 1,000 stores. And then in terms of markdowns, what I would like to say about markdowns is we have a new apparel strategy in place in which we are focused on selling apparel more like the customer is used to buying it. So we do believe we're going to get SG&A leverage for the year. We do believe we're going to have margin expansion for the year.

Our next question comes from Michael Exstein with Crédit Suisse.

This is actually Trey Schorgl in for Michael today. We're just wondering, it looked like apparel trend is a little bit better in the fourth quarter than it did in the prior couple of quarters, and we're just wondering if there's anything that was driving that.

Yes, we've reallocated space in the department. 50% of it now is infants and toddlers. There's a real focus in the organization on basics and collegians. But I don't want to mislead you that we think we've figured it all out, and the trends are heading in the right direction. We've got a lot of work to do there. We've got a great team in place there now, and we're going to let that play out.

Our final question comes from David Mann with Johnson Rice.

A couple of things. I don't think you talked about beer and wine. So can you just talk a little bit about that initiative and what you expect from it in 2012?

Yes, we have almost 3,500 stores complete now. We continue to be pleased with what we're seeing, not only in regards to the basket, but also what it does to the comp in the store. What's been really exciting for us is we've launched our private brand wine, and it's doing very good, very pleased with what we're seeing there. And of course, as we move into California and Las Vegas, while we're working our way into it, we'll also be selling spirits.

That's great. In terms of the remodels that you're doing, can you just update us on the performance that you're expecting to see from them in terms of sales lift?

Yes, we've been pretty consistent with what we have been seeing out of both of our remodels and our relocations on sales lift. The relocations are somewhere around the 20% to 25% sales lift, and then the remodels are somewhere around 5%. And like I said, that's been fairly consistent for us.

Great. And then the last question relates to the gas prices that we're continuing to see go up. Obviously, you're talking about a strong start to the quarter. Any sense that you're seeing any kind of impact from the gas price on the consumer and when you might expect that to happen?

Yes, my observation, I have tried really hard to try and correlate what happens to our sales and our customers with spikes in gasoline prices. And I always come back to we've completed 22 consecutive years of same-store sales growth. There's been high gas prices, low gas prices. There's been rough economy and bad economy. And I think what happens when the gas prices get higher, more customers need it. Now I do think the gas prices put pressure on the nonconsumable side of the business. But I think that's more than offset by other people coming in on the consumable side. Mary Winn?

Operator, thank you very much and thanks to everyone for joining us today. I know we have left many people in the queue. I'm available and around if anybody has any questions or wants to give me a call or email me. And again, please keep in mind, our Analyst Day here in Nashville on June 25 and 26. So thank you for joining us.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.