Red To Black

In July 2007, Kohlberg Kravis Roberts took over Dollar General for $7.2 billion, borrowing about $4.7 billion (or about 7.1 times Dollar General’s EBITDA — earnings before interest, taxes, depreciation and amortization) to finance the transaction. By the end of its latest fiscal year, that ratio was down to about 4.5.

Good things were happening, primarily because the country’s economy was going through bad times. Consumers began pinching pennies and, with about 30 percent of the goods in its stores priced at $1, Dollar General attracted more and more of them. Additionally, Dollar General’s meat, produce and other grocery offerings lured customers away from traditional supermarkets.

KKR not only cut back on the retailer’s traditional torrid store-opening pace but for a time closed more stores than it opened. It also brought in Rick Dreiling, who previously led Duane Reade drug stores, to be the point man at DG. Among his initiatives are reducing shrinkage by 20 percent, eliminating many of the multiple size and brand options in a number of merchandise classifications and introducing 500 products with much higher margins.

Two other companies that returned to profitability last year after sustaining losses the year before are The Children’s Place which, among other things, reversed itself on a decision to try to operate stores selling merchandise licensed by the Disney Co., and Kirkland’s, whose return to basics and its target audience resulted in a 5.3 percent gain in same-store sales and a tenfold earnings increase in Q4.