The conference call for Dollar General's Fourth Quarter 2023 Earnings is being held. The operator, Robert, introduces the participants and explains the call is being recorded. The host, Kevin Walker, introduces the CEO and CFO, Todd Vasos and Kelly Dilts. He also cautions that the call will include forward-looking statements and states the factors that could affect the company's results. The call will end with a Q&A session.

Todd Vasos, CEO of the company, begins the call by thanking associates for their commitment to serving customers and announces the opening of the 20,000th store. He recaps the highlights of their Q4 performance, including a decrease in net sales due to lapping sales from the 53rd week in fiscal 2022. However, they saw accelerating market share growth in consumable and non-consumable product sales, and a 0.7% increase in same store sales. This was driven by a 4% growth in customer traffic, but offset by a decline in average transaction amount.

In 2023, the company saw an increase in sales driven by consumable products, but faced declines in home seasonal and apparel categories. This is due to customers feeling the impact of inflation and making trade-offs in their purchases. The company remains committed to providing value and convenience for customers and is well-positioned in terms of pricing. In 2024, the company plans to execute over 2,000 real estate projects, including new store openings and remodels, with a focus on expanding into Mexico. They also have a new distribution facility to support their pop shelf stores, which sell non-consumable products and have been impacted by a softer sales environment. The company believes that pop shelf provides a growth opportunity, but is mindful of current market pressures.

In the fourth quarter, the company continues to refine its strategy and focus on fresh food options in response to customer demand. They have added cooler doors to most stores and plan to expand their fresh produce offerings in more stores. The company is pleased with their progress and excited for future growth opportunities. They are committed to serving their customers, communities, and shareholders. In terms of financials, gross profit as a percentage of sales decreased by 138 basis points in the fourth quarter.

The decrease in operating profit for the fourth quarter was primarily due to increases in shrink and markdowns, lower inventory markups, and a greater proportion of sales from the consumables category. This was partially offset by decreases in LIFO and transportation costs. SG&A expenses also increased, driven by retail labor and other costs. Operating profit decreased by 37.9%, while interest expense and the effective tax rate also increased. EPS decreased by 38% for the quarter and 29% for the full year.

The company's merchandise inventories increased by 3.5% compared to the previous fiscal year, with a decrease of 1.1% on a per store basis. Non-consumable inventory decreased by approximately 17% and the company plans to continue reducing per store inventory in the future. Cash flow from operations increased by 21% due to improved working capital through inventory management. The company returned cash to shareholders through a quarterly dividend and is pleased with progress in customer traffic and market share. The company's financial outlook for fiscal 2024 includes expected growth in net sales, same store sales, and EPS.

The company expects a negative impact on EPS of $0.50 due to higher incentive compensation expenses. They plan to reduce capital spending and prioritize investing in their business, returning cash to shareholders, and reducing debt leverage. They will not repurchase common stock this year but may do so in the future. The company is focused on improving cash flow and believes these actions will strengthen their financial position for 2024 and beyond.

The paragraph discusses the impact of inflation on customer trade-offs and the expected sales mix headwind to gross margin in 2024. It also mentions the anticipated increase in promotional markdowns and ongoing headwinds from shrink and depreciation in the first part of the year. The company expects a significant headwind from incentive compensation and quarterly deleverage, but also anticipates sequential quarterly improvement. Specific details for the first quarter, including a comp sales increase and EPS range, are provided. Overall, the company is confident in its long-term strategy and believes it is well positioned for growth in the future.

The company is focused on strengthening its position for long-term growth through its Back to Basics efforts, which includes improving comp sales, reducing shrink, and controlling costs. They also have plans to invest in various areas such as private brands and distribution efficiencies. The company remains committed to their operating priorities and has implemented a refresh approach to improve store standards and the overall customer experience. They will provide an update on these efforts in their stores, supply chain, and merchandising.

The leadership team has been actively engaging with associates through listening sessions and meetings to gather feedback and align expectations. They have invested $150 million in store labor, with a focus on increasing employee presence at the front end and improving inventory management. They have also reduced the span of control for district managers and added new districts and managers.

The company has invested in reducing the number of stores assigned to each district manager in order to increase engagement and consistency. They have also made changes to their self-checkout strategy, including converting some self-checkout registers to assisted-checkout options, limiting self-checkout to transactions with five items or less, and completely removing self-checkout from high shrink stores. These changes are aimed at increasing personal engagement with customers in stores.

The company believes that their actions, such as changes to self-checkout and other shrink reduction efforts, will have a positive impact on shrink in the back half of the year and into 2025. They are also focused on improving their supply chain, specifically their rates of on-time and in-full truck deliveries, and have seen significant improvements since Q3.

In 2024, the company plans to refresh its sorting process and distribution centers to improve distribution flow and increase on-shelf availability for customers. They have also successfully reduced inventory and optimized their supply chain by reducing the number of temporary warehouses. The company has opened a new distribution facility and plans to open more in support of their growth. As a result of these improvements, the company expects to open a planned facility in Oregon at a later date. These actions will enhance the company's ability to meet demands and improve efficiency for store teams and customers.

The speaker provides an update on the company's efforts to simplify and improve merchandising. They have successfully reduced inventory and will continue to do so, while also streamlining store processes to save time and enhance the customer experience. The team is focused on fulfilling their mission and has made significant progress in a short amount of time.

The company is seeing positive results from their efforts to improve operations, but some changes may take longer to show benefits. They are excited about the future and grateful for their employees. The company is focused on their Back to Basics strategy and is seeing improvements in top-line and traffic. They are confident in their Q1 comp guide and believe their efforts will continue to drive growth throughout the year.

The company's recent strong financial results can be attributed to their commitment and confidence in their Back to Basics work. This includes investing in labor, reallocating labor to important areas, improving on-hand and perpetual inventory counts, and improving transportation and DC accuracy. These efforts have resulted in more product on shelves and improved on-time rates in distribution.

The paragraph discusses the improvements being made at the store level, including being on time and fully stocked, reducing SKUs and floor stands, and implementing a rolltainer sort to increase efficiency. These changes are expected to result in smoother operations, increased sales, and higher productivity for stockers. The company is optimistic about these improvements and has successfully implemented similar changes in the past.

In response to a question about the progress of the company, Todd Vasos, CEO of the company, highlights the enthusiasm and conviction of the team in implementing their strategies. He then passes the question to Kelly, who discusses the achievements and challenges since joining the company. Vasos believes that they have made significant progress in sales and customer satisfaction, but there is still work to be done in reducing shrink. He compares their progress to being on their own 35-yard line in a football game, with a long way to go to achieve their goal of 7% margins by 2025.

The company is making progress and is confident in their ability to achieve their goals for 2024 and 2025. They are taking actions to improve shrink, with a focus on returning to pre-pandemic levels. They have hired an AI solution to monitor self-checkout transactions and are converting self-checkouts to assisted-check stands in 9,000 stores. These changes will take some time, but the company is determined to see them through.

The company has implemented AI technology to track shrink in self-checkout transactions, leading to the decision to switch to assisted-checkout stands in 9,000 stores. This, along with inventory control, is expected to significantly improve shrink and damages. The company is confident in its long-term growth potential and believes it will return to 10% to 10%+ EPS growth. Despite current headwinds, the company is seeing momentum in share growth, traffic, and healthy comps, while also generating strong cash flow. Overall, the company's business model remains intact and has a long runway for growth.

The company expects to have 700-900 stores in the future and is currently focused on remodeling existing stores. They have several long-term drivers in place, such as reducing shrink and optimizing inventory, and plan to return cash to shareholders through dividends and share repurchases. In response to a question about the mini market format, the speaker says that it is relatively new and they are still gathering data on its performance, but they believe it has potential for several thousand stores. They are currently focused on expanding their fresh offerings and the economics of the mini market format are still being evaluated.

The speaker discusses the success of their company's ability to grow cooler count and fresh produce, which has enabled them to be profitable and expand into self-distribution. They also highlight the importance of their DG Market concept in areas lacking fresh food options. The company is confident in the sales economics and profitability of this concept. In response to a question about gross margins, they mention their expectation for promotional levels to return to pre-pandemic levels and note that they have not seen any changes in the current promotional backdrop.

In response to a question about gross margins, Dollar General CEO Todd Vasos explains that they expect an uptick in promotional activity in 2024, which is in line with their previous expectations. They are able to mitigate the impact of this through their size and scale. Vasos also notes that their customers are becoming more financially savvy and adjusting to the inflationary environment.

The company is seeing an increase in sales of non-consumable items and believes that their markdown activity will encourage customers to spend more. The first quarter is a test period for sales, but the markdown cadence will be more evenly spread out throughout the year. There will be pressure on gross margin in the first half of the year due to investment in retail labor and higher shrink rates, but the company is confident in their actions and expects to see top-line and bottom-line growth in the second half of the year.

The speaker discusses the components of gross margin and the impact of headwinds and tailwinds on the company's performance. They also mention that inventory has increased overall, with a decline in discretionary inventory and a potential increase in consumable inventory. They also touch on the impact of retail labor, incentive compensation, and depreciation costs on SG&A.

The speaker is discussing the company's inventory and its impact on sales and margins. They mention that the teams have done a good job balancing inventory levels, and that inventory will continue to be a high priority going into 2024. The goal is to reduce inventory on a per store basis, which will have benefits such as lowering carrier costs and improving in-stocks. The speaker also mentions that operating margins are expected to finish in the high 5%, low 6% range this year, but the goal is to get back to pre-COVID levels in the high 7%, mid-8% range. They discuss the key ingredients to achieving this, such as stabilizing the business and reducing inventory levels.

The speaker feels good about the company's progress and believes they are on track to achieve their goal of 10% EPS growth. They are focusing on getting back to basics and fixing any issues that have arisen in the past 12-18 months. They are confident in their fresh network and non-consumables and are seeing signs of customers returning to discretionary spending. The company is ready to take action and will not stand still.

The speaker, Todd Vasos, is confident about the company's positive traffic and plans to continue with their success. They have seen positive traffic for two quarters and are expecting it to increase in the future due to their actions and focus on getting back to basics. This has also resulted in trade down, and they are seeing share gains across all customer cohorts. This should result in long-term growth on the top line.

The speaker discusses their company's wages, stating that they have increased almost 30% since 2019 and are not experiencing any significant stress on the wage front. They expect a more normal annual wage growth and feel well positioned with their investments in labor hours for 2024. This information was considered in the guidance they provided and the speaker feels confident about their company's wages. The conference call then concludes.

This summary was generated with AI and may contain some inaccuracies.