Private Equity Case Study: Dollar General

How Dollar General increased EBITDA by +153% in three years during a KKR turnaround.

In the late 2000s, Dollar General stood as a prominent player in the discount retail sector, with 41% market share and more than 8,000 stores. However, the company was not as profitable compared to even smaller competitors, and sales growth relied almost entirely on new store openings. In the first nine months of 2006, Dollar General reported negative same-store sales growth and began missing analysts’ expectations. During this time, the company’s stock price underperformed the broader retail index and reached a 52-week low.

These issues, coupled with the impact of the economic downturn from the Great Financial Crisis, highlighted the need for a strategic overhaul to reinvigorate Dollar General’s full potential. KKR acquired the company for $7.3 billion (including debt) in 2007, which represented a multiple of 10.9x off of $670 million of EBITDA. 

Following the buyout, KKR and Dollar General embarked on a restructuring to replace senior management, divest poor-performing stores, modernized the stores that were left, invested in supply chain capabilities, and overhauled merchandising to focus on fast-moving consumables. Between the time that KKR acquired Dollar General and oversaw its re-IPO in 2009, total sales had grown +28.2% (same-store sales +18.2%), sales per square foot had increased +18.5%, and EBITDA had more than doubled.

This case study summarizes the key value creation efforts that helped transform Dollar General between 2007-2009. It’s a good example of a turnaround in the retail sector, because large retailer buyouts typically involve companies experiencing diminishing returns in store expansion, and require a strategic pivot to improve operational efficiency and realize more sales per customer and square foot.

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