The ratings on Dollar General Corp. reflect its very highly leveraged capital structure, recent execution difficulties that have resulted in falling operating margins, and the company's participation in the highly competitive discount retail environment. Gross margins have steadily declined since early 2005 as a result of rapid growth, uneven merchandising, a lack of focus on store-level profitability, and inventory markdowns incurred during 2006 related to the Goodlettsville, Tenn.-based company's elimination of its "packaway" inventory management model. Kohlberg Kravis Roberts&Co. L.P. seeks to improve Dollar General's performance through a number of initiatives centered on merchandising, inventory management, and real estate optimization. The company has closed 403 stores this year and could close an additional 60. In addition, the company
