DOLLAR GENERAL CORP

The Company is vigorously defending these matters and believes that the labeling, marketing and sale of its private-label motor oil comply with applicable federal and state requirements and are not misleading. The Company further believes that these matters are not appropriate for class or similar treatment. At this time, however, it is not possible to predict whether these matters ultimately will be permitted to proceed as a class or in a similar fashion or the size of any putative class or classes. Likewise, no assurances can be given that the Company will be successful in its defense of these matters on the merits or otherwise. The Company now believes that a loss in this matter is both probable and reasonably estimable, and during the 13-week period ended August 2, 2019, recorded an accrual for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

Tariffs on products from China, as applied to both our direct imports and domestic purchases, did not have a material impact on our financial results in the first half of 2019. Effective May 10, 2019, tariff rates on certain products from China increased from 10% to 25%, and these rates are scheduled to increase to 30% on October 1, 2019. Additionally, a 15% tariff on a fourth list of products is anticipated to go into effect, in part, on September 1, 2019, with the tariff on the remaining items on this list going into effect on December 15, 2019. We believe we can mitigate the potential sales and margin impact of such increased tariffs on our financial results for the remainder of 2019, particularly in light of our performance through the end of the second quarter of 2019, through various sourcing, merchandising and pricing efforts. However, these and additional increases in tariff rates or expansions of products subject to tariffs, if any, may have a more significant impact on our business. Further, as noted above, changes in trade policy that result in higher prices for our customers may negatively impact their budgets, and consequently, their spending. There can be no assurance we will be successful in our efforts to mitigate the impacts of existing or future tariffs in whole or in part, including but not limited to any impacts on customer spending.

Gross Profit. For the 2019 period, gross profit increased by 8.2%, and as a percentage of net sales decreased by 5 basis points to 30.5% compared to the 2018 period. Increased distribution costs, and a greater proportion of sales of consumables, which generally have a lower gross profit rate than our other product categories, and the sales of lower margin products comprising a higher proportion of consumables sales, contributed to the decrease in the gross profit rate. These factors were partially offset by a reduction in markdowns as a percentage of net sales and higher initial markups on inventory purchases.

PART II—OTHER INFORMATION