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Dollar General Files IPO

Dollar General here said it would seek to raise up to $750 million in a public stock offering, just two years after going private. The move reflects both a return to confidence in the stock market and the ongoing pressures on consumer spending at retail, as the massive discount chain drove strong sales gains during the recession. Dollar General, which operates about 8,577 stores

GOODLETTSVILLE, Tenn. — Dollar General here said it would seek to raise up to $750 million in a public stock offering, just two years after going private.

The move reflects both a return to confidence in the stock market and the ongoing pressures on consumer spending at retail, as the massive discount chain drove strong sales gains during the recession.

Dollar General, which operates about 8,577 stores across the U.S., generated about $10.5 billion in sales in the most recent fiscal year. KKR & Co., an affiliate of buyout firm Kohlberg Kravis & Roberts, purchased the chain in 2007 for about $7.3 billion, including $380 million in debt.

“KKR, when they took it over, had a very organized, very structured plan about what they wanted to do with it, and that's what they have done,” said Dave Marcotte, director of retail insight at Management Ventures, Cambridge, Mass. “They closed all the smaller stores that were not suitable for what they felt they needed to carry, they opened up stores in new markets, with new concepts, they cleaned up the overall presentation, and they hired a very experienced and very professional staff to surround all this.”

Rick Dreiling, the longtime Safeway veteran, has been leading Dollar General's management team as chairman and chief executive officer.

In the first quarter of this year, the company posted comparable-store sales gains of 13.3%, and saw adjusted EBITDA rise 59% to $291 million.

Marcotte noted that with the strong success that the dollar-store channel has enjoyed, it appears KKR's timing might be just right for the Dollar General stock offering.

“They are in a channel that has a high glow, they have a banner that is outperforming anything else in the market, and it is populated by a lot of names,” he said. “With that combination, taking it out in the market — that's good stuff.”

While the stock market has been rising in recent months, IPOs have been scarce, and investors are “looking for a bull,” Marcotte said.

“There definitely is money that is chasing opportunity,” he said. “It is a good moment.”

Although the recession appears to have driven much of the recent gains at dollar stores, the companies in the channel, including Dollar General, also have taken steps to strengthen their operations for long-term growth, Marcotte pointed out.

And, while Dollar General will have about 9,000 stores by the end of the year, “they are nowhere near saturation,” he said.