Rob: Good morning. My name is Rob, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Dollar General first quarter 2026 earnings call. Today is Tuesday, June 2nd, 2026. All lines have been placed on mute to prevent any background noise. This call is being recorded. Instructions for listening to the replay of the call are available in the company's earnings press release issued this morning. Now I'd like to turn the conference over to Mr. Kevin Walker, Vice President of Investor Relations. Kevin, you may begin your conference.
Kevin Walker: Thank you, and good morning, everyone. On the call with me today are Todd Bezos, our CEO, and Donnie Lau, our CFO. After our prepared remarks, we'll open the call up for your questions, and Emily Taylor, our Chief Operating Officer, will join us for the Q&A session. To allow us to address as many questions as possible in the queue, please limit yourself to one question. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News and Events. Let me caution you that today's comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our financial guidance, long-term financial framework, strategy, initiatives, plans, goals, priorities, opportunities, expectations, or beliefs about future matters, and other statements that are not limited to historical fact. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These factors include, but are not limited to, those identified in our earnings release issued this morning, under risk factors in our 2025 Form 10-K filed on March 20, 2026, and any later filed periodic report, and in the comments that are made on this call. You should not unduly rely on forward-looking statements which speak only as of today's date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law. Now, it is my pleasure to turn the call over to Todd.
Todd Bezos: Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our teams and our stores, distribution centers, private fleet, and store support center for their continued commitment and dedication to serving our customers. Overall, we're pleased with our first quarter performance, particularly our EPS result, which exceeded our expectations as strong operating margin expansion more than offset the impact of severe weather and higher fuel costs. For today's call, I'll start by recapping highlights from our first quarter performance. Donnie will then walk through our financial results and outlook, and I'll close with an update on our strategic growth pillars. Turning to our first quarter performance, net sales for the quarter increased 3.4% to $10.8 billion. compared to net sales of $10.4 billion in last year's first quarter. We grew market share in both dollars and units in highly consumable product sales once again during the quarter, in addition to growing market share in non-consumable product sales. Importantly, in an environment where customers are feeling more pressure on their household budgets, we believe this market share growth reflects the essential role Dollar General serves, particularly in small town communities across America. Same store sales increased 2% during the quarter, primarily driven by customer traffic growth of 1.4% and supported by average basket growth of a half a point. Notably, this marks the fourth consecutive quarter of growth in customer traffic as our combination of value and convenience continues to resonate with customers. In addition, all four merchandising categories delivered positive comp sales for the fifth consecutive quarter, with growth rate in non-consumables once again outpacing consumables. From a monthly cadence perspective, all three periods of the quarters were positive, led by March, which includes a benefit from the Easter holiday shift. And while winter storm activity, including periods of temporary store closures, negatively impacted results during the first two weeks of the quarter in February, we were pleased with our sales performance across the balance of the quarter. Looking ahead, we are confident about our plans to drive continued growth in sales and customer traffic. Moving to an update on our core customer. While there are a variety of puts and takes on customer budgets during Q1, our core customer continues to be financially constrained. as any benefit from tax benefits was largely offset by higher fuel prices and reductions in SNAP benefit payment. Importantly, while there has been a significant reduction in overall SNAP dollars distributed in 2026, we grew share of wallet with SNAP customers during Q1, further demonstrating the strength and relevance of our value propositions. notably during the quarter many of our core customers reporting cutting back on other household expenses including food purchases due to rising gas prices this pressure has been more pronounced on customers in rural communities as they work to minimize trip distance and make trade-offs in their search for everyday affordability and value and with our expansive real estate footprint of more than 21,000 stores located within five miles of 75% of the U.S. population, as well as our growing delivery presence, we are uniquely positioned to serve these customers as they further prioritize value and convenience. From a value perspective, we continue to be pleased with our pricing position, which is within three or four percentage points of mass retailers, as well as our extensive offering of more than 2,000 items across the store at or below the $1 price point. As part of our overall approach to this price point, we continue to emphasize and strengthen our Value Valley offering, which is comprised of more than 500 rotating items, all at $1. Of note, this offering once again outperformed the chain average in Q1 with a comp sales increase of 18.4%. driven by broad-based performance across many sections and exceptional performance in health and beauty. Beyond our Value Valley program, we also introduced several new $1 private label items during the quarter, as well as a new frozen section, which now features a full door dedicated to new frozen items at the $1 price point. We believe this price point continues to be important to our customers, and are excited about the opportunity to continue providing tremendous value through these offerings. In addition, we are seeing customer penetration growth across low-, middle-, and high-income segments as customers across all income cohorts seek value at increasing rates. Notably, across these cohorts, the largest increase in customer count came from the highest income segment. which earns more than $100,000 annually, contributing to a significant increase in trade-in customer households during the quarter. We know that value and convenience are always important to our customers, but even more so right now. And as America's neighborhood general store, we are well positioned to help customers across all income levels save time and money every day. Overall, Our consistent and balanced top-line performance with both new and existing customers further underscores our belief that Dollar General is a trusted partner in the communities we call home, with significant opportunity for ongoing growth. In summary, we are pleased with the start of the year and proud of our team's execution. We are committed to serving our customers while driving profitable sales growth and capturing growth opportunities. With that, let me now turn the call over to Donnie.
Donnie Lau: Thank you, Todd. Good morning, everyone. Now that Todd has taken you through the top-line results of the quarter, let me take you through some of the other important financial details. Unless we specifically note otherwise, all comparisons are year-over-year, all references to EPS refer to diluted earnings per share, and all years noted refer to the corresponding fiscal year. For Q1, gross profit as a percentage of sales was 31.6%. an increase of 65 basis points. This increase was primarily attributable to higher inventory markups, lower shrink, and lower inventory damages, partially offset by an increase in markdowns and transportation costs. Our shrink mitigation efforts once again contributed to strong gross margin expansion in the quarter, as we delivered a 28 basis points reduction in shrink versus prior year, even while lapping a 61 basis point improvement from Q1 2025. We were also pleased with the improvement in damages during the quarter, which exceeded our expectations and reflects strong in-store execution by the team. Turning to SG&A, which is a percentage of sales with 25.7%, an increase of 25 basis points. The primary expenses that were a greater percentage of sales in the quarter include depreciation and amortization, utilities, and property taxes. partially offset by lower incentive compensation. Moving down the income statement, operating profit for the first quarter increased 10.8% to $638.5 million. As a percentage of sales, operating profit increased 40 basis points to 5.9%, even with higher than anticipated field costs, as we continue to build on our progress towards the annual target of 6% to 7% as contemplated in our long-term financial framework. Net interest expense for the quarter decreased to $47.2 million compared to $64.6 million in last year's first quarter. Our effective tax rate for the quarter was 24.9% compared to 23.4% in the prior year. The increase was primarily due to the expiration of the work opportunity tax credit on December 31st, 2025, partially offset by lower stock based compensation expense. Finally, EPS for the quarter increased 12.4% to $2, which exceeded the high end of our internal expectations. Turning now to our balance sheet and cash flow, where we continue to make significant progress in strengthening our financial position. Merchandise inventories were $6.6 billion at the end of Q1, essentially flat compared to the prior year and represents a decline of 1.6% on an average per store basis. Importantly, The team has done a terrific job reducing inventory to a level we believe is appropriate to support strong sales growth and higher in-stock levels going forward. Overall, we're pleased with our inventory position and for fiscal 2026, continue to expect inventory to grow at a rate below our sales growth. In Q1, we've generated significant cash flow from operations of $716.2 million, providing flexibility to reinvest in the business and return meaningful cash to shareholders, all while further strengthening our balance sheet and liquidity position. Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in the business, including our existing store base, as well as other high return growth opportunities, such as new store expansion and strategic initiatives. Next, we seek to return cash to shareholders through a quarterly dividend payment, and when appropriate, shared purchases, all while maintaining our goal of less than three times adjusted debt to adjusted EBITDA in support of our commitment to middle BBB ratings by S&P and Moody's. Moving to an update on our financial outlook for fiscal 2026. Our update reflects our strong Q1 results and outlook for the remainder of the year, while also considering our efforts to mitigate ongoing inflationary pressures as well as the potential for continued uncertainty, particularly in consumer behavior. With all of this in mind, we now expect the following for 2026. Net sales growth in the range of 3.7% to 4.2%. Same-store sales growth in the range of 2.2% to 2.7%, and EPS in the range of $7.20 to $7.45, which compares to our previous range of $7.10 to $7.30. Our EPS guidance now assumes an effective tax rate of approximately 24.5%. Our expectations for capital spending and real estate projects are unchanged from what our previously stated amounts. In addition, our board of directors recently approved the quarterly cash dividend payment of 59 cents per share for Q2, 2026. And while our guidance does not contemplate share repurchases this year, they remain an important part of our broader capital allocation strategy at the appropriate time. Now, let me provide some additional context around our updated outlook for 2026. Despite higher than anticipated field costs, we continue to expect gross margin expansion for the full year, driven by continued progress against our key gross margin initiatives, many of which are still early in their maturity curves. As a reminder, Our initiatives include continued improvements and shrinking damages, growth in our DG media network, non-consumables merchandising, supply chain productivity, and category management. On the expense side, we still expect modest SG&AD leverage in 2026, even as we plan to accelerate investments in key initiatives, including AI, as we look to build on our momentum and progress for the achievement of our long-term financial framework growth. Finally, While we have received an immaterial amount of IEPA tariff refund payments to date, our guidance does not include any impact from tariff refunds, as the exact timing and amount of any future potential refunds remains uncertain. In closing, we are pleased with our first quarter results and strong start to the year. Looking ahead, we're excited about our plans to drive continued growth while delivering against our long-term financial framework goals. Overall, we're confident in our business model and approach to driving profitable sales growth, high returns on invested capital, strong operating cash flow, and long-term shareholder value. With that, I'll turn the call back over to Todd.
Todd Bezos: Thank you, Donnie. I'll take the next few minutes to provide an update on our four strategic growth pillars, which are supported by targeted initiatives to drive long-term sustainable growth and value creation. As a reminder, these pillars include enhancing the customer experience, elevating our brand, driving greater enterprise-wide efficiencies, and extending our reach. First, we remain focused on enhancing the customer experience. Our efforts to improve the non-consumable product offering continues to resonate with customers as evidenced by the 4.6% increase in combined non-consumable comp sales during Q1. This performance was led by strong growth in toys, including many on-trend items that are resonating with our customers. In addition, we continue to evolve and expand our successful brand partnerships during the quarter, launching three brands, including Holly Williams in our home category. These new brands have been popular with our customers, along with other brands launched last year, such as Dolly Parton. as we continue to deliver compelling value while creating a sense of newness and excitement in our discretionary category. Beyond our in-store initiatives, we are also advancing our digital initiatives as we seek to further enhance the omnichannel customer experience at Dollar General. Our robust digital ecosystem, which includes our popular DG app and a suite of delivery offerings, is an important complement to our expansive physical store network and continues to be a key driver of incremental value and convenience for our customers. As we look to drive future growth in this area, we are focused on scaling our delivery options, personalizing the experience for customers, and growing the DG Media network. We continue to grow the reach of our delivery options available to customers. and are now delivering from approximately 18,000 stores with our own MyDG delivery offering, as well as through third-party partners, DoorDash and Uber Eats. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers with the ability to deliver from stores to their homes within minutes. To that point, once again during the quarter, more than 80% of the orders were delivered in one hour or less, with approximately half of those orders delivered under 30 minutes, further underscoring the strength of our convenience proposition. Our rapidly growing delivery platform are becoming a more meaningful sales driver as we continue to see larger basket sizes than an average in-store transaction and strong repeat visit rate. In fact, We estimate delivery sales contributed approximately 70 basis points to our comp sales growth of 2% in Q1. Looking ahead, we are targeting continued incremental sales growth through customer experience enhancements, increased customer awareness, and expanded loyalty opportunities, including the plan pilot of a delivery subscription program later this year. Building on the growth within this ecosystem, One of the most significant components of our digital initiative is our DG Media Network, which enables a more personalized experience for our customers while delivering a higher return on ad spend for our partners. Our DG Media Network strategy is focused on accelerating on-site performance through improved search, sponsored products, and a stronger e-commerce experience. while expanding our ability to capture emerging offsite spend across social, connected TV, and video. We're also creating more opportunities for advertisers to participate inside our stores, including our recently expanded in-store radio network, ultimately providing better connection between our digital and physical experiences. Overall, we believe this approach positions our advertising network as a strategic lever to drive profitable growth, enhance the customer experience, and strengthen loyalty across our digital ecosystem. Overall, digital strategy is an important component to our in-store customer experience and a key driver within our long-term financial framework. Our second strategic growth pillar is elevating our brand. We have a mature store base that uniquely enables us to serve customers in smaller and more rural communities. We continue to make strategic investments in our mature stores, particularly through our project renovate and elevate remodel programs, which we believe can drive significant sales and profit growth. As a reminder, project renovate is our traditional remodel program. which impacts the entire store and includes adding or replacing coolers as well as upgrading to our latest store format. These projects are focused primarily on stores that are seven or more years removed from opening or their last full remodel, while Project Elevate is designed to further grow sales and market share in portions of our mature store base that are not yet old enough to be part of a full remodel pipeline. These projects include physical asset enhancements, merchandising updates, product adjacency adjustments, and category refreshes, all of which generally impact up to 80% of the total store. We continue to expect to execute a total of 2,000 project renovate remodels and 2,250 project elevate remodels this year. We made significant progress on these goals in the first quarter, completing 659 project renovate remodels and 711 Project Elevate remodels. We continue to target annualized comp sales lifts of approximately 6% in Project Renovate stores and approximately 3% in Project Elevate stores. These projects are not only enhancing the customer experience, but also our store associate experience. In turn, we believe we can continue to improve customer satisfaction, store manager turnover, and sales. Our third strategic growth pillar is driving greater enterprise-wide efficiency. We continue to pursue opportunities to drive greater efficiencies while lowering costs across the organization, including increased supply chain productivity, further simplification in our stores, inventory optimization, and increased use of artificial intelligence. Within our supply chain, we increased productivity in both our distribution and transportation functions during the quarter, which helped us mitigate a portion of the substantial increase in our fuel costs. Additionally, while we are still early in our AI journey, we are building an AI operating system for the enterprise, focused on reshaping our workflows to improve productivity and enablement. Overall, we are making meaningful progress advancing our AI goals, including creating shared enterprise-wide foundations and building momentum around new AI operating models. These steps have allowed us to accelerate adoption of high-value use cases, and we believe will improve how we engage with customers and how they shop with us, as well as drive greater cost efficiencies throughout the business. Our final strategic growth pillar is extending our reach. We continue to extend our unique combination of value and convenience to new communities across the country. In Q1, we opened 190 new stores in the US as part of our continued plan to open a total of 450 new stores in 2026. Importantly, these projects continue to be one of our best uses of capital, delivering healthy returns while also expanding our access to new customers and communities. In addition to our new Dollar General store growth, we continue to test, learn, and refine our strategies for international growth in Mexico. As part of our plans to open a total of approximately 10 stores in Mexico in 2026, we opened five MeSuper Dollar General stores in Q1, bringing us to a total of 21 stores in Mexico. While our core business proposition of value and convenience continues to resonate with customers in Mexico, we are leveraging our customer, real estate, and merchandising insights to further expand our reach and capture more of those exciting growth opportunities. Overall, we are confident in our strategy and excited about our plans to build on our progress toward these goals laid out in our long-term financial framework. In closing, we are pleased with our Q1 performance and proud of the team's efforts to start this year. Our people are our greatest strategic advantage, and I want to thank our approximately 195,000 employees for their ongoing commitment and dedication to serving our customers and communities every day. Looking ahead, we believe we are well positioned to continue advancing our progress while fulfilling our mission of serving others. With that operator, we would now like to open the lines for questions.
Rob: Thank you. We'll now be conducting the question and answer session. We ask you to please zoom yourself to one question to as many analysts as possible to ask questions. To ask a question at this time, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you, and our first question is from the line of Matthew Boss with J.P. Morgan. Please proceed with your question.
Matthew Boss: Thanks, and congrats on a nice quarter.
Rob: Thank you. Thank you.
Matthew Boss: So, Todd, could you elaborate on the consistency of comps despite the backdrop with positive comps I think you cited in all three periods of the quarter? Have you seen any change in trends in May to kick off the second quarter? And just larger picture, how do you believe gas prices, if they remain elevated, will impact your results and opportunities you see to amplify value if we just use history as a guide for your business?
Todd Bezos: Thank you, Matt. Yeah. So a couple of things. Let's concentrate real quickly on Q1 here. And I would tell you, You know, starting out, we were in the hole. We had two weeks of negative comp with thousands of stores closed at any given time, especially during week one. And then as expected, and the team did a great job rallying our transportation, warehousing group, our stores. What we saw for the balance of the quarter, so 11 of the 13 weeks, was on the upper end of our range. And so that was good to see. And then, you know, as we entered and exited May, that trend continued. So here in the Q2. So really pleased with where we are on the top line. What we're seeing, though, is we are seeing an accelerated rate of trade-in. We have seen that the upper end, while all cohorts are trading in, we're seeing that The upper end is trading in the most, and we're seeing that as well. Reminder, that's that 100K plus cohort that's trading in. And I believe that, you know, the pressures that had persisted prior to fuel prices, so, you know, sustained inflation, and now those elevated fuel prices. And we've always said, Matt, that, you know, when that price hits that $4 mark, and then crosses it and then sustains for a while, you start to see that trade-in come in and you start to see that our core customer needs us most. That's exactly what's happening. So history repeats itself pretty well as you mentioned. So what we do here at Dollar General is we try to capitalize on that because we're here for our customer and that's the way we work. And so When you think about that value convenience is paramount all the time, but during this time, especially, and what you're already seeing and what we're doing is we're actually working hard to ensure that value equation is front and center for not only our core customer, but those trading customers. So when you think about that you know, think about things like you know, our everyday price is very strong. across all classes of trade. And then we have been targeting promotional activity, very targeted to drive additional traffic into our stores. And you're seeing that at an accelerated rate as well. And then lastly, and I can't emphasize this enough, that $1 price point has turned out to be a real savior for our core customer and is really resonating with the trading customer We're seeing that accelerate at a great rate, 18.4% comp and value value. New entrances into the $1 price point across the store. And in my prepared remarks that you heard, we talked about that frozen door that we put in, which is all exclusively $1 in the frozen food area. And it's been doing very well since launch. So a lot to be proud about, but also a lot that we're doing to be here for our customer. Like we always said, when she needs us most, we step up. And that's exactly what we're doing. And then lastly, I'll say that the team has already launched areas where we can ensure that we're grabbing that trading customer and actually marketing to her specifically. to ensure that as things start to settle out, which they usually always do, we want to make sure we retain that customer. So all those retention elements that we know how to do pretty well is already in full bloom for that customer to make sure we continue to engage her as she trades in, but also think about Dollar General when times start to get a little bit better.
Rob: Our next question is from the line of Michael Lassert with UBS. Let's just see if there are questions.
Michael Lassert: Good morning. Thank you so much for taking my question. Todd, you just mentioned that you're being a little bit more promotional in order to support your overall traffic growth. There's a perception out there based on the commentary from some other consumable retailers that the overall environment in the broader space is becoming more competitive. And there's a prospect that the various players in the space are going to have to sacrifice some profitability in order to maintain or grow market share. So A, are you seeing any evidence of that? Is that what is driving your decision to be a bit more promotional? And B, how do you expect this to play out over the next couple of quarters, especially as your traffic comparisons will get a little bit more difficult? You may have to work the model a little bit harder in order to drive the top line. Sorry for all the words out there.
Todd Bezos: No, that's no problem. You know, the crux of your question, you know, is, you know, the promotional piece. And I would tell you that, you know, our promotional activity, while increased during the quarter and will probably continue to increase, has been very targeted and, by the way, very proactive, not reactive. So we're really being very prudent on where we promote, how we promote, and the value that we're showing. And at this point, the consumer is definitely looking for value, seeking value, all cohorts. You can see it in the everyday business, and you can see it in our seasonal and our discretionary areas as well, which, as you saw, we really did a nice job balancing consumables and non-consumables. Matter of fact, non-consumables is on its fifth consecutive quarter of nice growth. So, you know, I think value wins all the time. I believe that, yeah, you'll see some others probably start to play catch up a little bit because we're already ahead on value every day in really great shape. Now this nice cadence of promotional activity that we layered in should continue to move the needle and promote that traffic that we all look for. Very proud of that 1.4% traffic gain in the quarter. But also that $1 price point. Again, I can't emphasize enough how that is the anchor to a lot of our everyday pricing here at Dollar General.
Rob: Our next question is from the line of Jihan Ma with Bernstein.
Jihan Ma: Hi, thank you for taking my question. Shifting gears on the margin side of things, could you help us understand as you start to lap some of the tougher shrink comparisons as the year goes on, how to think about a cadence of margin from here? And longer term, I think your long-term algo implies a growth margin level that you haven't really achieved sustainably before outside of quarter or two during COVID. So what gives you the confidence level that that's going to be sustainable longer term? Thank you.
Donnie Lau: Yeah, no, very much appreciate the question. This is Donnie. I'll take that one. I think maybe we'll start with the Q1 gross margin. I think that'll help contextualize a little bit about how we're thinking about balance of year and then a little bit from a longer term perspective. And so from a Q1 perspective, very pleased with our gross margin performance. As you saw in the release, 65 basis points of improvement versus prior year, which is exceeded our expectations, and it's even with higher than anticipated fill costs. And, you know, I think the primary drivers that we called out are markups as the team continues to do a really great job with category management. I do think it's important to note here that, you know, on the markup side of the house, there really wasn't, price really wasn't a meaningful driver in Q1. And shrink and damages also delivered really nice results, better than anticipated, quite frankly. And so, and Todd alluded to the fact also that, you know, we did lean in a little bit with the promotions in spite of all that, or even with all that, you know, really strong gross margin performance. And so, you know, I think from a Q1 perspective, the thing I'm most excited about is it really does reflect another quarter of what I would say tangible proof points that we're building momentum across a lot of our key gross margin drivers. And that gives us a lot of confidence in our ability to deliver against our long-term framework targets. As you look to Q2 in the back half, I'd say there's really not a lot of anything I would call out from a Q2 versus back half specifically. From a headwinds perspective, the laps do get a little bit more challenging versus Q1. We do anticipate fill costs to remain elevated versus the prior year for the balance of year. We're watching the tariff landscape. Right now, our full-year guidance reflects current tariff levels that are in place today. From a tailwinds perspective, we can expect continued improvement, a little bit more modest, but continued improvement and shrink, which we talked about exceeded our expectations, continued improvement and damages, which was also a meaningful contributor in Q1, and continued growth across a number of our other gross margin drivers, including our DG media network, non-consumables merchandising, supply chain productivity, and category management. And so overall, as we looked at the back half or the balance of year, continue to believe there's more tailwinds and headwinds as we think about gross margin, feel really good about the momentum we're seeing across pretty much all of our gross margin drivers. And so, you know, I think when you look out to the long-term framework, our target of 6% to 7%, well, what I would tell you is we continue to feel really good about our ability to deliver against our long-term operating margin targets. You know, again, number of drivers in place that we expect will contribute to gross margin expansion over time. As we look further out, we continue to expect shrink and damages to contribute approximately 50 basis points of incremental gross margin expansion. And by the way, that's on top of the over 80 basis points of expansion we've delivered in 2025 just from a shrink side of the house. And so shrink continues to improve at a faster and higher rate than initially anticipated. And again, we delivered 28 basis points of Q1, which was better than expected, which is good news. In terms of damages, What I tell you here is the improvement in 2025 was in line with our expectations. And as I just noted, Q1 improvement was better than expected. And so overall, continue to be very pleased with the progress on this front. We also expect DG Media Network will be a meaningful contributor over time. 50 basis points of incremental margin expansions we're targeting over the next three to four years. And the great news is, even though it's still early innings here, we're continuing to build really good momentum here as well. And then we have another 70 basis points of gross margin expansion that we expect from other gross margin drivers. Again, a few proof points. You know, we're continuing to see growth in non-consumables, five consecutive quarters in a row, as Todd just alluded to. We're seeing greater efficiencies across the supply chain. Nice contributor to gross margin expansion in Q1. And category management initiatives continue to perform. And again, I'll point to the value-value column of 18 points. 4% in Q1. So again, strong proof points across all our gross margin drivers and feel really good about our ability to deliver against our long-term framework targets.
Rob: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please receive your question.
Simeon Gutman: Hey, Todd. Hey, Donnie. Hey, Todd. As you prepare to transition away from the business, do you think that the top-line growth rate on comp to actually normalize closer back to 3% versus the 2% and talk about puts and takes. Something that, you know, we're noticing the contribution from the fulfillment or last mile. Step down a little. I know you're going to have tougher compares, but are you still seeing enough incrementality where that could be a unique driver? Thank you.
Todd Bezos: Yeah, thank you for the question. And, you know, I'm very bullish on that top line and be able to continue to grow that top line. You know, our goal in the long-term framework, that 2% to 3%, the business does very well in that range. And it's evidenced by the 2% comp that we delivered this quarter and the substantial bottom line growth that came with it. So, Simon, I believe that the team has really done a nice job in setting up the future. You know, as I think about the balance of consumables and non-consumables, even in the face of a very tough macro backdrop, is a real proof point that the team's working hard to ensure that we're showing value and convenience every day to the customer. Now, as you think about also the future, that delivery piece is pretty important. And Emily, you may want to just touch on that just a moment.
Emily Taylor: Sure. So we're excited about what we're seeing from a customer reaction and engagement in our delivery program. Of course, we're still within the first year of full deployment, in particular on our MyDG delivery portion of this business. And of course, for the quarter, contributed 70 basis points, which is a nice, meaningful contribution to the in-store growth that we saw in the quarter. Just maybe a reminder, delivery for us, it's a highly incremental business and it's a profitable business for us today. We see that when customers shop our delivery options, they buy a larger basket as part of that transaction versus what we see inside our stores. And in addition to that, we see that our existing customers use delivery to shop us more often. And at the same time, new customers are using delivery to find us. So highly incremental for us. And you heard again in the prepared remarks, 80% of our orders are delivered within an hour and half of those. So 40% of our delivery orders make it to our customers within 30 minutes. And really that's a function of the proximity of our stores to our customers. And it means that for us, delivery really is filling a very important convenience piece of kind of our proposition here and it's unique for our rural customers in a very important and meaningful way. The fact that we continue to see really high repeat rates tells us that our customers definitely see the value that we're bringing in this space and I do see a continued pathway for growth for us. One of the important deliverables that we have this year is going to be that pilot on subscriptions. So more to come, but excited about bringing that to our customers as well. They tell us they're excited about that and would like us to offer a subscription offer. So I think that could provide additional growth as we move ahead.
Rob: The next question is from the line of Rupesh Parikh, Oppenheimer. Please receive your question.
Rupesh Parikh: Good morning, and thanks for taking my question. So as we look at the non-consumables category for the balance of the year, just curious in the confidence and sustaining momentum there. And then would you expect non-consumables to continue outpacing consumables even with some of the new macro headwinds out there? Thank you.
Todd Bezos: Thanks for the question, Rupesh. We're confident in our ability to drive both consumables and non-consumables here at Dollar General. We really prioritize that non-consumable business. You heard us talk about it about a year ago and how we're going to lean in there, and we have. And I would tell you that the team has done a great job. When you think of the value in our non-consumable business, which I'll talk about in a minute, but also the relevancy and right trend is so important for not only our customer, but that trade-in customer that's coming in. So we're happy with what we're seeing there. And the value, I'll come back to that, is really the key here. And the value is not only like items that you can find at other retailers that were substantially lower in our retail prices, but also in that lower end $1 price point as You've heard us talk, you know, Easter as an example, a very large percentage of our Easter this year on the non-consumable side was at $1. That trend continues into spring and summer and will continue into the back half of the year. Again, I keep emphasizing, but I can't emphasize enough that that $1 price point is so important to not only our core customer, but we're seeing great takeaway because of the value it shows in that middle and upper income as well. So feel really good about what we've done. We've got a lot of work to do, but I believe that it is very sustainable. And again, if you think about that long-term model, it does model out that we bend the trend on the percentage of and the non-consumable side of that business. And I believe that showing that we're on our fifth consecutive quarter of showing that bending of the trend, I think that's a nice string to be able to leverage as we move over the next couple of years.
Rob: Our next question is from the line of John Heimbacher with Guggenheim Partners. Please proceed with your question.
spk08: Hey, Todd, can you talk about when someone's got a dollar item in the basket, so what happens to UPT and, I mean, that might go up, what happens to basket size? And then, you know, do more $1 items, does that put any pressure on labor hours just in terms of kind of, you know, volume throughput on an item, on a unit basis?
Todd Bezos: Yeah, thank you for the question. You know, we watched the basket very closely. The great thing is we saw, you know, our ticket go up about a half a point in the quarter with transactions up 1.4. So feel really good about that, even with the large comp in our Value Valley area and other $1 price points, you know, against that 2,000 items at or below the $1 price point. You know, we've never been very concerned here. about the average basket size, the AUR. The concern is more, can we give value to the consumer? Can she see that value? And that halo effect of $1 and value is so important. not only to our core consumer, but that trade-in. And that's what we've seen as we've leaned into that dollar price point. The dollar price point, what we've seen traditionally, has really been an add-on to the basket where they pick up that extra $1 item, especially at the first and the middle of the month. And then at the end of the month, that $1 price point actually fills a different role, and that is to balance your budget at the end of the month, right? Because our core customer, especially right now, as we're facing large inflation and gas prices, runs out of money before the month runs out. And that $1 price point bridges that gap. So it's really shopped two different ways during each period. And our goal to grow that, I think, is very, very important to the core customer, but Again, I think as time goes on, will be very important to that trade-in customer as well.
Rob: The next question is from the line of Paul Ledgway with Citigroup. Here's your question.
spk09: Hey, thanks, guys. You talked a bit about the trade-in customer in the 100,000-plus range. We hear a lot of companies talk about gaining customers trading down in that income level. I'm curious where you think your customer is coming from. And then we'd love to hear you talk a little bit more about what you saw specifically on the lower income consumer as we moved through the quarter as gas prices stayed high or even increased. Thanks.
Todd Bezos: Yeah. Thank you for the question. I would tell you that the trade-in is really coming from the same areas that we've seen over the years at an accelerated rate right now. And that's really from the drug and the grocery side of the business is where we really see the most trade-in. That continues. As I indicated in my prepared remarks, we saw a very nice trade-in from that upper income, that $100,000 plus. And that continues as we moved into Q2 at a, again, accelerated rate. So when you think about that and then you think about our core customer, The second part of your question, really, the core customer obviously is under a lot of distress right now with sustained inflation. Now gas prices sustained at or above $4 for the most part, depending on what part of the country you're living in, has really now turned to dollar general even more. But we're seeing what we normally see, right? And that is she comes more often, so transactions go up. but basket sizes shrink with that core customer as she balances her budget. Now, she's very resilient. That's the other thing that we always have to remember about this customer. It takes her a quarter or so to figure out her budget, and we help with that, as I indicated earlier, with our value proposition, everyday great prices. The promotional activity is very targeted to help that core customer but also that $1 price point. And she figures it out over time. And the great thing is she looks to us to help figure it out, and you can see that in our results. So we'll continue to foster that trade-in, but also take care of that core customer.
Rob: Next question is from the line of Seth Sigmund with Barclays. Let's just see if it's your question.
Seth Sigmund: Great. Good morning, everyone. A couple of clarifications, I guess. 1st, just on the guidance change, you raised it by 10 cents. I just want to confirm looks like 5 cents of that comes from the tax rate. Seems like the rest of that comes from the Q1 upside, but you just confirm if and how you changed assumptions for the rest of the year. And then specifically on the promotions being higher, you know, there's a lot of talk about this on this call. I'm just curious, is that actually different than you planned or different than you expected, or is it consistent? Thank you.
Donnie Lau: Yeah, so maybe I'll start off. This is Donnie. I think the way you're thinking about the change in four-year guidance is correct. I mean, I think we're obviously very pleased to be increasing our expectations for EPS to a range of $7.20 to $7.45. I think to your point, a lot of it was driven by strong Q1 outperformance, outlook for balance of year, and reduction in the tax rate to about 24.5%. So you're thinking about it the right way in terms of half and half. I think overall what I would tell you is it reflects the evolving macro environment as well as continued progress against our key initiatives and growing momentum across many aspects of the business. And just keep in mind, we're well ahead of several of the goals contemplating our long-term framework. So adding it up, feel really good about the guidance based on what we know today, but believe it's prudent, just in spite of the evolving landscape that we're seeing today.
Todd Bezos: Yeah, and as it relates to the promo activity, it isn't different than what we anticipated. Again, as I indicated, it's very targeted. It's not widespread. It's targeted at that low-end consumer to help her balance or budget, but also targeted for retention for that trade-in customer to continue. So very much planned and it's very proactive on our part because we've got a very strong everyday price that really is the lead marker in value for our consumer and that $1 price point. And that promotional activity is really targeted and planned very much each quarter. So that's how I would look at it to answer your question.
Rob: The next question is from the line of Scott Ciccarelli with Truist Securities. Please receive your question.
Scott Ciccarelli: Good morning, guys. Thanks for the info. What percent of your dollar mix today is Value Valley or the dollar or less price point at this stage, just so we can better gauge the impact this initiative is having on the total business? And then secondly, on the third-party delivery front, I would think seasonality probably led to the contribution decline from 80 basis points in 4Q to 70 in 1Q. But how do you expect your delivery growth to scale? Like, if you can put any numbers around that, that would be really helpful. Thank you.
Todd Bezos: I'll answer the first part and then give it to Emily for the delivery side. But, you know, as we look at the $1 price point and especially Value Valley, consider that it's 500 rotating SKUs. against the backdrop of over 2,000 SKUs across the store. And while it is a meaningful part of the overall $1 price point comp that we're enjoying, keep in mind that there's a lot of other areas, especially in our private brand areas, that come with a $1 price point that's very meaningful for our customer as well. So it's a meaningful contributor. I think we'll leave it at that. We talk about it a lot, especially in the 18.4% comp that it contributed. But as we continue to move forward, we think it is an area where we can expand and continue to grow that $1 price point against the entire store.
Emily Taylor: Yeah, and then from a delivery perspective, I would just say we do, as I mentioned earlier, expect continued growth out of that business. One thing I'll just remind you guys of is the fact that we rolled out and scaled delivery over twenty twenty five. And so that that is a factor. But when you look at what we're doing to improve the shopping experience from a digital perspective, in combination with new offers like the subscription program that will pilot this year, that will continue to drive growth really beyond this year and beyond.
Rob: The next question is from the line of Spencer Hannis with Wolf Research.
Spencer Hannis: Good morning. Thanks for the question. Just on the remodeled program, I'm just curious how that's been tracking relative to expectations and what you've seen in the latest cohort of stores and also how you're thinking about the year two lifts there. And then you just also mentioned the pilot for the delivery initiative. Just curious if there's any more color on that and what that's going to look like later this year.
Emily Taylor: Okay. So I'll jump in on renovate and elevate. And just for context, we've got the two elements of our remodel program. Renovate is our full remodel, touches 100% of the stores, and we are planning 2,000 projects this year. We also have Elevate, our lighter remodel project, touches about 80% of the store. And what we really like using these two projects in combination is that it puts us in a really great position to update our store base in an accelerated manner, which ultimately supports really a higher brand standard, both for customers and employees. So our target continues to be a 6% lift out of Renovate on an annualized basis and a 3% annualized lift out of Elevate, and feel good about where we're tracking. From a two-year perspective, we really started the Elevate last year, so we're early on in being able to read that, but our expectation is that this repositions the store and helps us to continue to drive accelerated growth out of our mature store base overall. And then I think you had another question, that third piece. More color on subscription. What I'll tell you about subscription is just the fact that we are excited about what we're hearing from our customers in terms of their interest level, specifically in subscription from Dollar General. And I think our team has done a really outstanding job of putting together the right value for that program that we'll include in our pilot, which combines benefits at Dollar General with other offers and other benefits for our customers that are specifically targeted and chosen for our customer base. So I'm really excited to be able to report on those results as we get a pilot up and running.
Rob: The next question is from the line of Peter Keith with Piper Sandler. Please proceed with your question.
Peter Keith: Hey, thank you. Good morning. Nice results, guys. With the gas prices, you talked about the impact on the consumer. I was thinking more on the supply chain if we're in an environment where gas prices continue to go higher. Donnie, the gross margin outlook, it doesn't feel like it's changed. Have you contemplated higher gas prices? And perhaps if you have, are those being offset by other things that are perhaps coming in better than you expected on the gross margin line?
Donnie Lau: Yeah, you're thinking about it the right way, Peter. I mean, I think from a gas price perspective, we do anticipate fill costs remain elevated versus prior year for the balance of the year. But we'll look to mitigate any additional pressure above and beyond our forecasted rates. But So far, the team's done a really nice job of being able to offset those pressures, particularly in Q1, and that's our expectation balance of year as well.
Rob: The next question is in the line of Robert Yolmes with Bank of America. Please, I'll start with your question.
Robert Yolmes: Oh, good morning. Thanks for taking my question. I was hoping, Todd and maybe Emily, can you guys talk about the SKU reduction initiatives you know, where you guys are at in that and what kind of benefits you expect to see from that for the balance of the year?
Todd Bezos: Yeah, it's a great question. We continue to work hard on SKU rationalization. And as we have stated, we have moved out about 1,200 SKUs, maybe a little bit more at this point. over the last couple of years to be more productive in the store. I think the way to think about it is it's more productive in our DCs. It's more productive in our stores. It adds to gross margin in a very meaningful manner as well. And it helps the stores be able to manage freight and in stock levels at a higher rate. So we like the reduction. It is very methodical. It's done making sure that tradeoff to the customer is the right tradeoff. And we've done, I believe, a very good job of that. And you can tell that in our comps that we've enjoyed since the reductions have taken place. I think the way to think about it into the future, I think there's still opportunity the team is looking at. And that's why we're pretty confident that we'll grow sales at a rate above inventory growth, at least for this year. And then looking at how we are targeted in our ability to reduce SKUs into the future as well, because we believe that there's opportunity. And again, that grows both the top line, if you do it right, it helps mitigate expense at store in D.C., and it adds to gross margins.
Rob: Thank you. Our last question is from the line of Corey Tarlow with Jefferies. Please proceed with your question.
Corey Tarlow: Great. Thanks and good morning. Donnie, I was wondering if you could talk a little bit about the margin cadence for the year. You comped a 2 in Q1 and EBIT margins leveraged about 40 basis points. the compares do get tougher and the revised guide would imply that Q1 would be the most substantial EBIT margin expansion in the quarter. Curious about kind of how you're thinking around that. Thanks so much.
Donnie Lau: Yeah, no, Corey, I appreciate the question. I think you're thinking about the right way, Corey. I mean, I think as I alluded to a little bit earlier, I think from a you know, balance of your perspective on the gross margin side. You touched on it. The compares do get a little bit more challenging. We are anticipating, right, the higher field cost to remain elevated. But again, we feel really good about the tailwinds, but it's early in the year, right? And so, yeah, I feel really good about the gross margin drivers, how we're performing against them for the most part, how a lot of them are delivering ahead of our expectations, but there's a lot of year left. And overall, we feel really good about the guidance we provided.
Rob: Thank you. This will conclude our question and answer session, and we'll also conclude today's call. We thank you for your participation. Have a wonderful day.
