Good morning, ladies and gentlemen, and welcome to Dollar General Corporation Fourth Quarter and Fiscal Year 2012 Earnings Conference Call on Monday, March 25, 2013, at 9:00 a.m. Central Time. Good morning, and thank you for participating in today's call, which is being recorded by Conference America. No other recordings or rebroadcast of this session are allowed without the company's permission. It is now my pleasure turn the conference call over to Ms. Mary Winn Gordon, Dollar General's Vice President of Investor Relations and Public Relations.

Thank you, Kate, and good morning, everyone. On the call today are Rick Dreiling, our Chairman and CEO; and David Tehle, our CFO. We will first go through our prepared remarks, and then we will open up the call for questions. Our earnings release can be found on our website at dollargeneral.com under Investor Information, Press Releases. Let me caution you that today's comments will include forward-looking statements about our expectations, plans, objectives, anticipated financial and operating results and other nonhistorical matters. Some examples of forward-looking statements discussed in this call include our 2013 forecasted financial results and anticipated capital expenditures, our planned operating and merchandising initiatives for fiscal 2013, comments regarding the expected refinancing of our credit facility, expected ongoing share repurchases and future consumer economic trends. Important factors that could cause actual results to differ materially from those reflected in our forward-looking statements are included in our earnings release issued this morning, our 2012 10-K, which was filed this morning and in the comments that are made on this call. We encourage you to read these. You should not unduly rely on forward-looking 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. Reconciliations to the most comparable GAAP measures are included in this morning's earnings release. This information is not a substitute for any GAAP measures and may not be comparable to similarly titled measures of other companies. Now, it is my pleasure to turn the call over to Rick.

Thank you, Mary Winn, and thanks to everyone for joining our call today. 2012 was another great year for Dollar General. We're very pleased with the financial results for the fourth quarter and for the full year. The results indicate that we are continuing to increase our overall market share in consumables in both units and dollars even as our customers face a sustained difficult economic environment. While there remain significant factors facing our core customers, I believe that Dollar General is more viable today than ever before. Our track record of improvements and gains over the last 5 years gives us the ability to capture the significant growth opportunities ahead of us. We remain committed to controlling what we can control. Dave is going to talk about the details of the fourth quarter, but I'd like to quickly reflect on our financial accomplishments for the full year. Full year sales increased 8.2% to a record $16 billion. Excluding the 53rd week in 2011, full year sales increased 10.4% and sales per square foot increased to $216 compared to $209 a year ago. Sales per average store reached a record $1.57 million. 2012 marked our 23rd consecutive year of same-store sales growth. Same-store sales were up 4.7% for the year. For the fourth quarter, same-store sales were up 3% against a very strong prior year performance of 6.5% comp growth. Operating profit, excluding certain items, grew 9% over last year to a record $1.66 billion and an impressive 10.3% of sales. Gross margin rate was flat compared to 2011, and we had solid SG&A leverage. For the fourth quarter, we had gross margin expansion of 34 basis points that was better than anticipated, primarily due to improved transportation efficiencies and higher incoming markups. Interest expense was down $77 million for the year, due to the combination of lower interest rates and lower debt levels. On the bottom line, our adjusted net income increased 19% over 2011. In addition, we produced over $1 billion of cash flow from operations, an 8% increase over last year. And we deployed cash to repurchase 14.4 million shares of stock for $671 million. We also announced today the expansion of our share repurchase authorization by $500 million as we plan to be consistent in our return of cash to shareholders through ongoing share repurchases. We currently have a total repurchase authorization of $644 million remaining. Our track record of strong financial results continues to be a testament to the structural advantage of our business model. Our strategy of small box convenience, combined with great value, resonates with consumers. EDLP, the cornerstone of our relationship with our customers, is more relevant than ever as shoppers look to make the most of their household budgets. In addition to our financial results, we accomplished a great deal in 2012 on the business side as well as laying the groundwork for 2013 and beyond. We hit our target of opening 625 new stores and exceeded our target with combined remodels and relocations of 592 stores in 2012, increasing our selling square footage by 7%. Most of this growth was in our existing 38 states with new store openings in 2 new states. A milestone for the company in 2012 was the expansion of our footprint into California, opening our 10,000th store in Merced back in March of 2012. We also opened our first 3 stores in Massachusetts. We now have more than 100 stores in both the Dollar General Market and Dollar General Plus formats. We plan to spend time in 2013 analyzing trends and refining our approach to these formats as we better understand how to make them as profitable as possible. As part of this effort, we have also added resources to determine the right locations and right product offerings to drive sales and returns. We are already seeing steady progress in sales growth and our inability -- in our ability to manage costs in these formats. To support expansion into new and existing markets, we also opened a new distribution center in Alabama and built out a lease facility in California. From the expansion of our distribution network to enhancing and upgrading our IT systems, we continue to elevate the processes and technology we use to operate the business. On the merchandising front, we continue to innovate and maximize the sales productivity of our stores. We added additional coolers in approximately 1,400 stores, bringing our chain average to about 11 cooler doors per store. At the end of the year, more than 40% of the stores in the chain were licensed to sell beer or beer and wine. According to syndicated data, we continue to grow our market share in consumables by high single digits in both units and 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 more than 200 private brand items in 2012 and continue to expand other private and proprietary brands in consumables. We now carry nearly 2,100 private brand SKUs in consumables with strong sales growth in food, perishables, candy and snacks, home cleaning and health and beauty. We exited 2012 with a private brand penetration of 23.6%, and private brands grew faster than overall sales. Across our non-consumable categories, our focus on improving product quality and better meeting our customers' needs has resulted in strong sales through the year. We believe that our improved quality, as well as our improved branding, packaging and presentation have contributed to our growth in both the seasonal and home categories. In apparel, we are seeing progress with the merchandising and the in-season promotional strategy we implemented earlier in 2012. Through focused initiatives, we've improved our in-stock position throughout the chain, which is very important to our customers and our positioning of convenience. For the year, the number of items that our customers couldn't find on the store shelves improved by 25%. In 2012, we saw the highest results ever in our customer service program, Customer Connect, which measures the overall shopping experience, including customers' perceptions of in-stock levels and store standards. From an expense reduction standpoint, we continue to leverage our work force management system implemented throughout 2011. This system provides our store managers with an electronic tool that assists them as they prioritize and manage work, allowing them to be more effective in how they manage their staff and their stores. We also made further inroads with regard to hiring and developing our employees. In 2012, about 62% of our management positions were filled from internal candidates. This represent continuous improvement over the last 3 years as we have made this a priority for our company. I am pleased to report that our store manager turnover is at its lowest level in 5 years and continues to trend in the right direction. As Dollar General grows, we want our employees to have the opportunity to build their careers and grow both personally and professionally with the company. Our strong cash flow for the year allowed us to receive investment grade status with S&P, and most recently, a review for upgrade from Moody's on their current rating of BA1. And finally, we were added to the S&P 500 in November. Before I turn the call over to David, I want to provide some color on our fourth quarter sales. We were very pleased with our performance throughout the quarter given the more difficult overlaps we had in January. Sales were fairly consistent throughout the quarter with the strongest growth in December. Consistent with the rest of the year, fourth quarter sales were primarily driven by consumables, with perishables leading the way. Additional coolers contributed to the increase in perishables. Sales of convenience items, such as carbonated beverage, salty snacks and candy were strong in the quarter. Sales of health care products were up nicely, thanks in part to the cold and cough offerings, including our exclusive Rexall brand for the flu season and other product initiatives. As you've heard across various retail channels, holiday seasonal sales were challenging as consumers remain cautious with their discretionary spending. Pricing and promotions were competitive, although not irrational, and consumers searched for value during the holiday season. We believe our customers were very careful with their holiday spending in the fourth quarter. For us, this impacted our seasonal and home categories. Across the entire spectrum of non-consumables, we saw some bright spots. We had good performance across ladies clothing, sleepwear, shapewear, infants and toddlers, men's work wear and accessories. We are all -- we are making progress with the merchandising and markdown strategy we implemented earlier in 2012. All in all, even when considering the impact of the payroll tax increases and delay of income tax refunds, we are pleased with our fourth quarter sales. Now David will share a more detailed review of our overall fourth quarter financial performance and 2013 guidance.

Thank you, Rick, and good morning, everyone. As Rick said, we had another great year and we had better-than-anticipated performance in the fourth quarter. These strong quarterly results were attributable to better-than-anticipated gross margin expansion. Interest expense was $27.5 million for the quarter, a reduction of $12.6 million from last year's fourth quarter, primarily due to our debt refinancing. Please note that our fourth quarter 2012 earnings per share also includes a $0.02 benefit related to the retroactive reinstatement of the Work Opportunity Tax Credit from prior quarters. We provided the detail by quarter in our press release for modeling purposes. Turning to our cash flow. We generated more than $1.1 billion of cash from operating activities for the year, an increase of 8% year-over-year. Total capital expenditures were $572 million, including $155 million for new leased stores; $132 million for stores purchased or built by us; $83 million for distribution centers; $80 million for remodels and relocations of existing stores; $71 million for improvements and upgrades to existing stores; $27 million for information systems upgrades and technology-related projects; and $17 million for transportation-related capital. At the end of the year, total inventory at costs were $2.4 billion, up 12.8% on a per-store basis, above our same-store sales growth with inventory turns at 5.0x for the year. Inventory increased for the quarter, due primarily to new core items introduced in 2012, improved presentation levels of select categories and the receipt of 2013 items related to the Phase Five planogram resets. We are taking actions to ensure that the rate of growth will moderate throughout the course of 2013. The quality and aging of our inventory continues to be in good shape. Total outstanding debt at the end of the year was $2.8 billion, an increase of $154 million from 2011. We exited the year with a ratio of adjusted debt-to-EBITDAR at 3.0x assuming rent capitalized at 8x. We continue to be pleased with the efficiency of our capital spending with a top tier return on invested capital of 21.1% in 2012. 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 2013. We are anticipating another strong year and are excited about making investments to grow the business for the long term while still delivering excellent financial results. We expect top line sales for 2013 to increase 10% to 12%. Overall square footage is expected to grow approximately 7% in 2013. And same-store sales on a comparable 52-week basis are expected to grow 4% to 6%. Operating profit is forecasted to be in the range of $1.78 billion to $1.845 billion. Given the rollout of tobacco, we expect contraction of our gross margin rate throughout the course of the year. Excluding the impact from tobacco, we would expect that our underlying gross margin rate would actually expand slightly in 2013. At the same time, we expect that our gross margin in the first quarter of 2013 will contact at a greater rate than the rest of the year. The expected first quarter contraction is attributable to anticipated higher inventory strength, higher markdowns and lower incoming markups, which are due mainly to the overall anticipated sales mix and the rollout of tobacco. The rate of gross margin contraction is expected to moderate as we move through the year. For the second half of the year, we expect stronger sales and earnings performance than the first half as we gain traction from our merchandising initiatives such as the Phase Five planogram implementation, tobacco rollout and further cooler installations. As you model the first quarter, also keep in mind that we will be lapping a strong 6.7% same-store sales growth in 2012 and that the major sales drivers should kick in as the year progresses. We're forecasting net interest expense for the year to be in a range of $100 million to $110 million. We have commenced efforts to refinance our secured term loan and revolver with a new unsecured long-term debt that will consist of a new senior unsecured revolving credit facility, a senior unsecured term loan and additional senior unsecured notes. We are committed to managing our leverage ratios to achieve and maintain investment grade ratings. We are continuing to target an adjusted debt-to-EBITDAR ratio of at -- excuse me, at or below 3.0x, which we believe will provide our most efficient capital structure. At the same time, if circumstances in the debt and equity markets are such that we deem it prudent to temporarily increase or decrease our debt levels, we may do so. We expect our full year tax rate to be in the range of 38%, although it will likely vary from quarter-to-quarter. Finally, we expect adjusted diluted earnings per share of $3.15 to $3.30, growth of 10% to 15% on an adjusted basis excluding the discrete tax item in the 2012 second quarter of $0.04 per share. We're assuming about 327 million weighted average diluted shares outstanding for the year, which assumes the anticipated repurchase of more than $500 million of our common stock. 2013 capital expenditures are forecasted to be in the range of $575 million to $625 million. Approximately 50% will be for investments in store growth and development including new stores, remodels, relocations and purchases of existing store locations. Approximately 30% is for transportation, distribution and special projects, including the new distribution center in Pennsylvania. The remaining 20% is for maintenance capital. In 2013, our capital spending for store growth is lower than 2012, due to fewer DG Plus and DG Markets. Our guidance for 2013 reflects our expectation of another strong year for Dollar General. As has been the trend for the last several years, we believe our customers' discretionary spending will continue to be constrained in 2013. As our track record demonstrates, Dollar General is well positioned to serve our customers regardless of our the economy plays out. Now, I'd like to turn the call back over to Rick.

Thanks, David. We outlined our 2013 key sales driving initiatives for you in our third quarter conference call, so I will not expand upon those today. Rather, I thought I would share with you what excites me and the rest of the management team about Dollar General's prospects. Dollar General has a strong pipeline of growth available to us. We have a unique position across retail given our low cost to build and low cost operate. Our new traditional stores have a capital requirement of only $170,000. With a very fast sales ramp-up, our new stores are typically cash flow-positive in year 1 and have an average cash payback in under 2 years. This model provides us with continued great store economics. Despite our remarkable store growth over the past 4 years, we believe there still remains substantial opportunity for store growth in new and existing states. Today, our 4 operating priorities are as relevant as ever. We're committed to driving productive sales growth, enhancing gross margin, leveraging process improvements and information technology to reduce costs and strengthening and expanding Dollar General's culture of serving others. We believe that 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 a consistent low prices that they trust. The Dollar General management team has a proven track record with the organizational capability in place to enable future growth. Dollar General has a robust financial outlook for 2013, and we are committed to returning cash to shareholders. We have an efficient capital structure, and we'll look to repurchase shares with our operating free cash flow. Finally, my personal thanks to over 90,000 Dollar General employees who are committed to serving our customers every day. The tremendous results we have driven over the last 5 years could be attributed to the dedication and commitment of our employees. My sincere thanks goes out to the team for all that has been accomplished and the energy the team is applying to our 2013 goals. Our strong track record over the last 5 years gives me great confidence that Dollar General team can successfully execute our 2013 goals. We've built a solid foundation for growth and we are continuing to capture multi-year opportunities on both the top line and bottom line with our focused strategies and the investments we are making. With that, Mary Winn, I'd now like to open the line up for questions.

Okay, Kate. We'll take the first question, please.

Our first question comes from John Heinbockel with Guggenheim Securities.

So 2 broad questions, first on Dollar General Plus. What do you guys need to see to be comfortable -- more comfortable with the format to accelerate the growth? Could you get up to a couple hundred openings a year? And then as part of that, even if the ROI were lower than a Dollar General store, would it not make sense to accelerate the growth even if you took a little bit of a hit on percent ROI?

Yes, to answer your question, the Dollar General Plus format, we are pleased with what we're seeing, very pleased with sales. And what we're working on is managing that costs that it takes to construct the facility, as well working on the margins. We think, as this continues to play out, they will never be as profitable as a DG -- just a DG traditional. But your theory is 100% right. They'll drive enough dollars that will make it up -- make up the shortfall in the percent.

Okay. I guess and then secondly, where are we on employee and manager turnover and shrink because I know there's a close correlation between the 2 and I think there's opportunity there. Where are you with both of those?

Another great question. Our -- actually, our store manager turnover is the lowest it's been in the entire 5 years I've been here. Our shrink has started moving up slightly over the last couple of quarters. However, the number of units that are actually shrinking out of the store is down substantially. And what we're seeing is that we've introduced some higher-value SKUs. And while units are down, dollars are going up. We've spent the last 1.5 quarters rolling out some defensive fixtures, particularly in the health and beauty aid area, and we feel very confident as we get that installed and completed at retail as we move through the back half of next year we'll see shrink start to come back down.

So it's a big opportunity for '13 assuming you've built some improvement in, right?

That's correct.

Our next question comes from Meredith Adler with Barclays.

First, I'd like to see if you can comment at all about what you're seeing so far in the first quarter of '13.

Yes, right now, I would look at you and say, as David called out a couple of things: number one, there's no doubt that there's $18 billion worth of tax refunds that are still working their way into the system. There's, what is it, $180 billion in payroll tax adjustments that are out there. And Meredith, those don't just affect Dollar General or the dollar channel, that affects all of retailing in general. We're up against our stiffest quarter of the year last year in terms of sales comp. And my chief merchant was reminding me just this morning that last week the temperatures in United States were about 70 degrees, and this year (sic) [week] they're about 38. So you had that significant weather factor we're dealing with. We are incredibly confident that as we move through the year and our merchandising initiatives get put in place and we come up against softer comps, that we're going to see our results begin to accelerate as we move through the year.

Great. And then I have a question for David about how you account for the tobacco inventory as it comes in. I believe you guys use retail accounting. And is there a separate pool for tobacco? Or is it going to put in with other consumables? And I guess that would imply -- that's one of the reasons the gross margin would be down so much in the first quarter because you bring the inventory in even though you haven't sold any of it, is that right?

Yes, there is a separate pool that it goes into, Meredith, for accounting reasons. It's a different enough product that we felt like it deserved to have its own department. So we added another department for tobacco. And obviously, it's going to be a low-margin department because tobacco is a low margin and then that'll get into the consumable overall margin. So again, even though it isn't in -- put in a department -- an existing department, it still has that impact of lowering the overall consumable margin because it is a low-margin item.

Even before the product sells, you mean?

Well, it comes in and gets put into its own department. Yes, that's right. Overall, it averages down our margin percent.

Okay. And then, I have a question back to you, sorry, Rick, about the competitive environment. I think you said in the third quarter that you saw it being a bit more competitive and you were going to make selective price investments. Can you talk about how the quarter actually played out and what you're seeing now?

Yes, the quarter actually played out relatively consistent period-over-period. December was actually strong for us. I would call it the best of the 3 periods. The competitive environment, while I would say it was competitive, it was certainly not irrational. I think people were concerned about protecting margin as we move through the quarter.

And now?

I think the competitive environment right now is reasonable. It's competitive, but it's not irrational.

Our next question comes from Deborah Weinswig with Citigroup.

So as we look at where you are with zone pricing, can you talk about kind of where we are right now and where we're going?

Yes, I -- we talked about zone pricing on the last call about 12 weeks ago, and we have begun the process of implementing a couple of price zones. To be quite frank with you, we're very pleased with what we're seeing.

Great. And then trends of the -- I thought it was an interesting call out in terms of the increased use of debit cards is one that pressured expenses. Would that tell you you're getting a different customer in your store? Or what does that tell you?

Yes, I think the increase in debit really more reflects just the change in society, I think, and how they deal with cash. I don't know necessarily if we're attracting a different customer or our customers moving up. I think it's just a social change that's taking place.

Okay. And then lastly, with regards to global sourcing, how is that starting to change what you're seeing in your stores and also impact your margins?

Yes, I think, and I'll let David tag team on this, I look back on sourcing last year in 2012, we probably had one of our better years in terms of the amount of product we brought in. Obviously, that helps us with our margin. And we're starting to broad -- be more broad based in the countries we deal with and the categories we're dealing with. David, I...

Yes, we almost had $2 billion of receipts overall for the year. And again, we set up new satellite offices in Vietnam; Istanbul; Monterrey, Mexico; and then West Central China. So we're getting more specific on our overall sourcing and we're very pleased with where it's going. The other thing that it does for us, obviously, is it helps us as we deal with domestic vendors because they know we have a very viable foreign sourcing program and make sure that they have to be very sharp on their pricing.

Our next question comes from Matt Nemer with Wells Fargo Securities.

So my first question is can you comment on comps in the seasonal, home and apparel categories relative to the total comp for the quarter?

You're talking about in quarter 4?

Yes.

Yes, I mean, overall, we were pleased with what we had in apparel. We made traction in women's hanging apparel, shapewear, accessories. Men's work clothing was good, and infants and toddlers were good. We did, in the fourth quarter, feel a little bit of pressure on the seasonal and I believe it was home decor, both of which we think reflects the customer probably being just a little more cautious on what they were buying for the Christmas holiday.

Okay. And then as we look at the early receipts of Phase Five items in the quarter, does that imply that Phase Five has more sort of non-consumables merchandising? Can you just talk about the mix of sales anticipated after you roll out Phase Five?

Yes, great question. It's actually, it's more on the consumables side, particularly focused on HBA. We had several categories that we continue to be under-penetrated on the HBA, and we believe that's where we have the greatest opportunity for sales growth, and ultimately, margin enhancement down the road. We are actually, for the first time, Matt, working very hard to get a lot of this work done earlier than we have traditionally. We've tended to let our initiatives roll out through the year. We're working very hard to be complete by the middle of the second quarter. And I think you'll see the traction, as David called out, not only in sales, but in margin as we move towards the back half of the year.

Great. And then just lastly, as we model in the impact of the new Pennsylvania distribution center, when should we anticipate that hitting the model and kind of where are the pressure points?

I would say the late 2014, David? Or 2013, excuse me.

Yes, late '13, yes. Very late in the year is what we're looking at right now. Maybe early 2014, but very late. Very, very late, yes.

Our next question, comes from Colin McGranahan with Bernstein.

First question, just on gross margin. In Q4, obviously, came in better-than-expected and it sounds like a couple of things were levers to the upside. I was hoping you can maybe give a little bit more color on where you exceeded your plan and a little bit more info on the transportation efficiency and the markup piece, especially?

Sure, David?

Yes, on the transportation, clearly the 2 things that -- obviously, the LIFO we got a favorable from and we pretty much knew that was going to happen. I think the items where we got a little more help than we were anticipating would be transportation and then the incoming markups. On transportation, cartons per load, we did a little bit better on the cartons per load. We reduced our stem miles, again a little bit more than we even anticipated, which is great news because obviously that's why we're adding new distribution centers. And then the cost with the various carriers came down a little bit also in terms of just a little better work that we've done with the carriers to minimize the costs. So transportation, in general, managed very, very well, and we saw the results of that in the quarter. And then on the incoming markups, that's really just a mix of receipts. In terms of what was received in the quarter, a little bit richer on the receipts in terms of helping our margin on that.

Okay, that's helpful. Then thinking about the gross margin x tobacco into 2013, you implied it would be up. Is it more of the same? Are some of these transportation benefits kind of structural and sticky and that's what's driving it up?

Yes, I think as we look at -- forward next year, clearly, tobacco is the #1 reason that we see the margin not leveraging. We're pretty clear saying that without tobacco, we would see a little bit of leverage in our margins. So really, it's just the impact of tobacco that's the reason that the margin doesn't leverage next year.

No, no, help me understand that. I was asking, excluding tobacco, an up margin is a pretty good result given what I would assume is still going to be negative mix. In the current environment, I was just trying to understand what that was the upward benefit.

It could be private -- go ahead, David, private brands, transportation.

Private brand, transportation, foreign sourcing and then the back half of the year shrink where we're modeling shrink to do better. So for the full year, we'll get a little bit of a positive impact out of shrink.

Great. And then final question. Just the pace of tobacco, any changes to that being completed by mid-year, and any further insights as to how that category you think will perform?

We anticipate having the rollout sometime between the very end of April and first part of June. So yes, the first part of the year. Of the stores that we've had up and running now in Florida for a while, we continue to be excited about what we see in terms of traffic and what it's doing.

Our next question comes from David Mann with Johnson and Rice (sic) [Johnson Rice].

Just following up on that last question on gross margin. You've laid that out as one of your objectives, to grow margin over the longer term. Margin's kind of been, I guess, flattish for the last several years. Can you just talk about that longer-term opportunity, x tobacco? Do you expect it to continue to grow next several years?

Yes, we still believe, as we've mentioned, that we have opportunity, David, in the -- probably in order of importance, the private brand, #1; foreign sourcing, a very close #2; shrink; and then transportation. So as we look at it, those are all multiyear initiatives that we have. And again, there's still plenty of room in all of those in terms of adding to our long-term growth in our margin.

Great. In terms of remodels that you've done, can you just update us on how they've been performing and what you would expect from the remodel activity in '13?

Yes, our remodels continue to be on pace to what we've demonstrated over the last 5 years. David?

Yes, we continue to see a nice sales lift, a 4% to 5% sales lift, nice payback. Again, payback less than 3 years and about $80,000 of capital expenditures that are put into it, and again a nice IRR that we experienced out of that. So still very bullish on what we're doing there.

Okay. Then, last question. With California stores now under the belt for a year or so, can you just compare the performance there versus other new store openings?

Yes, I mean, we have 50 stores operating in California right now. We'll add at least another 50 over the course of 2013 and we are pleased with what we're seeing. Certainly, a higher-cost operating market, but we're seeing a higher sales volumes there also.

Our next question comes from Mark Montagna with Avondale Partners.

Just a question with the Social Security taxes. Are you seeing -- we've seen a lot of restaurants posting bad results. Are you seeing evidence of that -- those customers shifting purchases to buy at-home meals like pizzas and other items that could be a substitute?

Our perishable business continues to be on fire. So I think you could make a logical leap there. I would say this, Mark, that when times get tough is when our customer needs us even more. I think part of the reason that I was so bullish on '13, it's very probable things are going to be a little harder out there. You take that, the convenience, the EDLP pricing, the consistency, when our customers -- when they need us, we're there. And when they have a little more money, they have little more money to spend.

So if you're saying it's on fire, is it fair to assume that you're seeing a spike in that type of purchase?

With the amount of coolers we've added over the years, it's very, very consistent. It's doing really well.

Okay. And then, just with the interest expense. You've got the new credit agreement that it sounds like you're close to closing on. Do you expect that to reduce interest rate and the -- if so, is that factored into the guidance?

The new deal is factored into our guidance. We gave an interest expense, I think, of $100 million to $110 million. Right now, look at -- we're trying to figure out as we close the deal out what the best place is to put our money. We're definitely -- we're refinancing the existing senior term loan and the existing $1.2 billion secured asset base revolving credit facility. And we see ourselves coming out with a new unsecured bank facility as well as some new senior unsecured notes. So we're trying to decide particularly -- we'll definitely have a term loan A out there and the new cash flow revolver. And then we're trying to decide on the senior unsecured notes, particularly between 5-year and 10-year notes where the best place is to put our money. And quite frankly, the interest rates are so low. Right now, on the 10-year notes, we may get a little heavier on that, which may actually be a little bit higher than the interest rate on the 5-year notes. But long term, it's the right decision for the company to lock in those historically very, very low debt rates.

Our next question comes from John Zolidis with Buckingham Research.

I was wondering if you could talk about what is giving you such confidence that you can drive sales later in the year given the tax refund impact and the payroll tax that you're seeing now? And then, as part of that, could you talk about the trade-down customer versus the core customer? Is there anything to report there in terms of difference in trends or something that you've seen anecdotally or you have any data behind that can help you understand the dynamic of the business?

Yes, John, when I think about sales as we move through the year, I want to start off with the initiatives we have in place and the fact that we're trying to get them done earlier than we have historically. So you're rolling out cigarettes, which we know drives transactions. We have Phase Five, which we are very excited about, which is the idea of going into our legacy stores and getting our best planograms put in place in there entirely. We're going to continue to add coolers. We'll finish and continue to work on, probably get close to finish our beer and wine initiative in 2013. The preliminary indications on zone pricing where we have gone in and have been able to adjust some retail to drive sales have been very, very exciting, to be honest about it. And our in-stock initiative, I don't want to sell short the fact of how hard the retail team is working on getting all of those things in place. I think that as I think about the shortfall and the income tax refund, that's sooner or later going to make its way back into the system as we move through the year. And I want to come back to this, the shortfall on the payroll tax. This is yet another perfect example of when times get tough, our customer needs us even more. And the fact that the box is getting so much more viable, the trade-down opportunity continues. We've seen no erosion in what's happening with the trade-down customer. That continues to be one of the higher-income segments or one of those that we continue to grow. So very, very, very bullish. And I'll leave you with this thought. I don't want to get round -- long-winded on this. But when you're in retailing, there's nothing more than unit share growth. That is the most important thing. And our unit share growth continues to be in the high single digits.

Our next question comes from Paul Trussell with Deutsche Bank.

Just a follow-up on John's question with the top line expectations for 4% to 6%. Could you just give us some color on how we should think about first half versus second half and how significant the benefits are from the initiatives later in the year?

Yes, I think, as David called out, what we're seeing is you've got the weather change, you have all these initiatives rolling out that our margin and our same-store sales will gain traction as we move through the year. And this -- I was actually thinking about this the other night. This is very similar to 2008. And I actually believe 2010 or '11, when we gained speed as we moved through the year because we were able to get these things done. So we plan on some pretty great performance towards the back half of the year.

And so does that suggest that first half should be a little bit below the top line guidance or maybe at the low end?

Yes, we only give year-to-date guidance. I'm sorry on that, Paul. We just kind of stay focused on the entire year.

Understood. And then from an inventory standpoint, you gave us some color in the 10-K released this morning. Seems like consumables and apparel inventories are in pretty good shape. If you can just speak a little bit more to home and what you're doing there from a presentation standpoint and then how we should think about seasonal inventory need for markdowns and how that will carry out over the balance of the year?

Yes, yes. If we look at the increased inventory that we saw in the fourth quarter, the 3 biggest reasons for that increase: first of all, the new items that were introduced; early receipt of the Phase Five because we really want to get that set up in 2013 and get that in place; and then department initiatives that we talked about in terms of presentation levels. If you look specifically at home, we definitely increased the presentation levels particularly for bath, for bed and for window treatment because we think there's a lot of sales growth that we can drive there overall. And I'm sorry, your question on seasonal?

Just is the seasonal -- do you feel good about the content of the seasonal inventories?

Yes, we do, we do. I mean, most of it is core. Again, one of the key points, the inventory that was brought in, in the fourth quarter was core inventory, which means it's everyday inventory that should sell along with everything else that we sell. So yes -- no, we feel good about our seasonal.

Our next question comes from Austin Pauls with RBC Capital Markets.

My question is on shrink. I understand that you would expect to see some increased strength as you roll out cigarettes to the chain. But I think you said earlier that you've also seen some increased shrink on higher-dollar SKUs. And I'm curious what product categories that is and if that's something you've started to see recently?

Yes, Austin, what has happened is over the course of the year is we began to broaden the mix of items in categories to increase the level of penetration that we have in those categories. And primarily, what you would see as you look at our shrink numbers, those higher-value items are in clothing and particularly HBA. And the good thing, particularly about HBA is there's defensive merchandising structures that you can put in place, and we began the roll-out of those fixtures. And that's why we're so confident we're going to get back ahead of this as we move towards the back half of the year. And I would also, Austin, like to reiterate our actual units that we're shrinking are down. And we've seen this probably over the last 2 or 3 quarters. We've seen this a little bit of a trend.

Okay, understood. And so do these increased shrink numbers, does that give you any hesitation against adding more higher-dollar SKUs to your assortment? Or is that something you think you can offset?

No, I think it boils down to we're adding the right SKUs. We didn't -- we weren't quite smart enough that we had to do a little bit better job protecting them, and I think we've figured that out.

Our next question comes from Patrick McKeever with MKM Partners.

Question on tobacco. The last -- during the last call, you talked a little bit about the distribution agreement with Nash Finch and you mentioned that it didn't require you to sacrifice margin from other categories, candy and health and beauty aids, I guess, to subsidize the distribution of tobacco and cigarettes. So I was just wondering if you could elaborate on that particular dynamic and just talk about the distribution agreement that is in place for tobacco?

Yes, I would rather not give you the specifics of the agreement. But I think what we've been able to do, Patrick, is negotiate a deal with Nash Finch that's focused solely on the movement of cigarettes. And most of the time, when you enter into a third-party agreement with that kind of an item, the fact that it's low growth [ph] for you, it's also low growth [ph] for the provider. And they want candy or HBA items to go with it to make it more valuable to them to do business with you. The exciting thing about it is the merchants here not only negotiated that deal, they negotiated a deal with FedEx to move the products through the system. And the combination of those 2 items has made it very beneficial for us to be in the cigarette business or more beneficial than, I guess, you would historically fall into.

Okay, got it. And then just your California stores, maybe. I'm just wondering if you could give us -- it's been -- you've had them in place for a little bit longer and I'm wondering if you could give us some more color either on sales and/or mix or profits, whatever it might be.

Yes, we got 50 stores open there now. We'll get another 50 stores open in 2013. I would say the fact that we've entered a new market, we entered it at clustering stores. Rather than having one in Northern, one in Southern, one in Eastern and Western California, we came in and clustered them, started off with, I think, is an incredibly solid marketing program in terms of positioning the stores in the eyes of the consumer. We're happy with sales, and we believe that we have a lot of opportunity there. And we're working on the portfolio there in order to, like I said, you go into a new market, you always try to -- you don't want to get in there too fast. You want to make sure you've got everything moving in the right direction. And we're very pleased with where we're going.

And I think you -- you had said that the mix of stores in California would be more -- a little bit more skewed toward the Dollar General Market stores -- store counts. Is that still the case with this lower kind of growth expectation for that concept overall?

Patrick, we went in there and we took the opportunity to plant all 3 concepts there. I would look at you and say, as I look out into the future, the Dollar General Market will have virtually the same role there as it does across the chain. We're going in there very balanced. And always remember, our Dollar General traditional is the bread-and-butter of this chain, and those 2 other concepts are designed to enhance certain opportunities in certain markets.

Our next question comes from Aram Rubinson with Nomura Securities.

This is Ed actually. And I want to ask you, Rick, as the perishables have accelerated, are you feeling good about your supply chain for those items from the perspective of the service levels you're getting from your providers and also the in-stock levels that you can keep in those 11 coolers?

Yes, what has happened as that business has matured, we started to actually installing in our higher-volume stores reserved stock refrigerated and frozen coolers in the backroom to keep us in stock. Part of the reason we've expanded the number of coolers is to give us an incremental shelf-holding power also. When I got here 5 years ago, you'd have 3 coolers in the store and 2 of them would be milk and it still wouldn't satisfy the needs of the store. So in terms of the set, what we're putting the -- in the backroom, we think that's keeping us in stock. And right now, we're very pleased with the supply agreement that we have with the providers that are taking care of it. I think over the last 5 years, they have really stepped to the plate in terms of service and in terms of getting the items we want to be serviced with in place for us.

It sounds great. And then maybe this is a question for David. You spent $130 million on purchasing or building stores last year. It's not a huge amount, but there's more budgeted in 2013. So just wondering, 2 questions. Is this more often employed when you're building a DG Market or a Plus store? Is that relevant? And then also, what's kind of the future for this program?

Yes, we continue to experiment with both fee development, as well as store purchases and that number includes both of those categories as we move forward. And I think we'll continue to do some of both, probably a little heavier on the fee development as we look into 2013. It really helps us learn the cost structure and obviously helps us deal with our developers when we're doing it ourselves and checking out different -- we try to check this out in different markets because again, it gives us a good look at what the true costs are in various markets.

Are you happy just kind of owning those stores? Or do you expect maybe a sale-leaseback to free up some cash?

Yes, we'll continue to look at that. Certainly, at some point in the future, there might be a sale-leaseback done. We don't have any plans for that right now. Most -- we're very careful when we buy stores to make sure that they're stores that we're willing to keep for a long period of time, that they're high-performing stores and that everything we see in them makes it an asset that we'd want to own and get -- ultimately get a good return off of.

Our next question comes from Anthony Chukumba with BB&T Capital Markets.

I had a question related to tobacco. Now that you've been selling for a few months, was just wondering, first off, is that in any way, shape or form contributing to the uptick in the shrink? And then second off, if you can just tell us anything just in terms of the tobacco basket, in other words is that accretive to the total basket size? Are people substituting from that basket? Are people just coming in and just picking up tobacco and walking out the store? Any color would be appreciated.

Yes, I'll give you a couple of things. First off, the incremental shrink that we're experiencing has nothing to do with tobacco at this stage of the game. We're just now starting to roll it out. And it really and truly falls back to the higher retail-priced HBA items and some clothing items. In regards to tobacco, I'll give you a couple. It's a little early in the game, but I'll give you a couple high-level thoughts or takeaways here. In our test stores, we're selling 33% more tobacco than we thought we would sell. That's point #1. Point #2, 1/3 of the cigarette transactions we have are cigarettes only, which we look at as that person coming in and exploring us for the first time and seeing the store. Other than that, the basket is definitely higher. There's no doubt about that. It's not as high as the basket plus the cigarettes, and we're still working on that. But what we are seeing is a nice comp increase and more importantly, a nice increase in traffic. And once we get 1,500 or a couple of thousand stores on the deck, Anthony, I think I can give you a little more information. But we are excited with what we're seeing in regards to traffic.

Our next question comes from Mark Wiltamuth with Morgan and Stanley (sic) [Morgan Stanley].

On your guidance here for the gross margins x tobacco to be up, what are you assuming there on your discretionary sales? Are you expecting them to remain in line with recent trends? Or does that assume some improvement as the year progresses?

It's pretty much in line with what we've been seeing. I don't think we'd see a big change one way or another...

No, yes.

In that, yes.

Are you contemplating breaking out the gross margin with and without tobacco throughout the year so we can see how the core is doing?

No, we really wanted to do that for you all to give you a flavor of how we're seeing the year. So we we'll leave it -- we're not going to break it out going forward.

Okay. And just as the year -- as you look at the whole year here, which is more impactful on sales and margin, the tobacco or the Phase Five project?

I think, if I was going to call it right now, I'd say in terms of sales, tobacco; in terms of margin, though, it will be Phase Five.

Our last question comes from Joe Feldman with Telsey Advisory Group.

Most of ours were asked already, but the one other thing I did want to get on and ask was on the cigarette and tobacco rollout, I know it's supposed to be in all stores by mid-summer, so where are you today in terms of the number of stores, I guess, versus that goal? And how will it be rolled? Is it just kind of like each week a bunch more stores? Or is it -- what are the waves like?

Yes, good question. We anticipate we'll be done by June 1, if not a little bit before. And right now, we are on track. Obviously, there's licensing requirements and all that's being taking care of. The purchasing agreement, all of that has been taking care of. And what we'll see is -- the fixtures have actually been built and shipped to the stores. And over the course of the next couple of months, we'll see a gradual wave-out. I don't really want to commit to x number of stores per week yet. We'll kind of -- these things kind of start off slow and gain a lot of traction as you get to the end of the roll-out.

Got it. And then also just a similar kind of question on the alcohol. Because I know you're in around 40% of the stores where you actually have licenses. And I know, if I recall correctly, 60% is sort of the max potential just based on licenses and things. How does that roll out? And how should we think about the phasing of that?

Yes, it'd probably be in the area of 50% to 60% probably where we'll actually go. We are staying away from any community that has any kind of problem with anything. And of course, we have dry counties we're dealing with. But we do anticipate that we'll get the final tranche done toward the end of 2013.

Thank you very much. So that concludes our call today. Emma Jo and I are available all day at any point in time if you need anything, so please don't hesitate to call us. And thank you for your interest in Dollar General.