The operator, Donna, welcomes everyone to the Dollar General First Quarter 2024 Earnings Call and introduces the speakers, Kevin Walker (VP of Investor Relations), Todd Vasos (CEO), and Kelly Dilts (CFO). She cautions that the comments may include forward-looking statements and refers to the earnings release for more information. She also reminds listeners of the risks and uncertainties involved and the company's disclaimer. The call will end with a Q&A session, with a request to limit questions to one per person.

Todd Vasos, CEO of Dollar General, begins the call by thanking everyone and recognizing the hard work of the team in getting back to basics. He then recaps the highlights of Q1, including a 6.1% increase in net sales, accelerated market share growth, and the opening of 197 new stores. Same store sales increased 2.4%, driven by strong consumer traffic and growth in consumable products. This was partially offset by declines in other categories. Todd also mentions plans for 2024 and hands the call over to Kelly to discuss financial performance.

In the first quarter, there was strong growth in March due to the benefit of Easter falling in that month. However, sales in the discretionary category were soft, reflecting the pressure on spending for core customers. The company continues to focus on providing value to customers, including through private brand sales and $1 items. They are also making efforts to reduce shrink, which is the biggest challenge in their business. This includes improving supply chain and merchandising, as well as reducing inventory. The company believes that their value proposition will continue to attract customers, especially in times of economic challenges.

The company is focusing on improving consistency and reducing shrink in their stores by removing high shrink SKUs and eliminating self-checkout in most locations. They have already converted 12,000 stores away from self-checkout and plan to have it available in only a limited number of stores. The company is pleased with their progress and has a history of serving customers in various economic environments. They also recently published their annual ESG report and recognize their responsibility as an essential partner to the communities they serve.

In the fifth paragraph of the article, Kelly Dilts discusses the financial details of Dollar General's first quarter, including gross profit, shrink, markdowns, and SG&A. Gross profit decreased due to increases in shrink and markdowns, while SG&A increased primarily due to retail labor and other expenses. Operating profit also decreased compared to the previous year. The company is taking actions to reduce shrink and is seeing strong take rates on promotional items.

The company's operating profit as a percentage of sales decreased by 242 basis points, while net interest expense decreased to $72 million. The effective tax rate for the quarter was 23.3%, primarily due to certain rate impacting items and lower earnings before taxes. EPS decreased by 29.5% to $1.65, exceeding expectations. Merchandise inventories decreased by 5.5% and non-consumable inventory decreased by 19.1%. The company generated cash flows of $664 million and returned cash to shareholders through a quarterly dividend of $0.59 per share. Total capital expenditures were $342 million.

The company is pleased with their progress and proud of their results, including gains in customer traffic and market share. They are reiterating their financial guidance for fiscal 2024, expecting net sales growth, same store sales growth, and EPS within a certain range. They also anticipate capital spending for store remodels and new store openings, with a focus on investing in mature stores. The company's capital allocation priorities remain unchanged.

The company's first priority is investing in their business, followed by returning cash to shareholders. They are focused on improving their debt metrics and maintaining their investment grade credit ratings. The company expects their customers to continue to be price sensitive and sales mix pressure to be above their original expectation. They also anticipate the promotional environment to revert to pre-pandemic levels in 2024, leading to continued headwinds in gross margin. Shrink is trending worse than expected, but the company is taking action to mitigate this and expects improvement in the back half of 2024 and into 2025. SG&A expectations remain relatively unchanged.

The company expects a headwind this year from normalization of incentive compensation and depreciation and amortization. They anticipate comp sales to increase in the low 2% range and EPS to be between $1.70 and $1.85 in the second quarter. The company is pleased with their first quarter performance and remains committed to their four key operating priorities. They have implemented a refreshed approach to enhance store standards and the overall experience in their stores.

The speaker provides an update on the efforts in their supply chain, stores, and merchandising. They have prioritized increasing employee presence at the front end of stores and have focused on perpetual inventory management. Customers have noticed an improvement in in-stock levels, leading to growth in customer traffic and sales. The company has also made efforts to make store operations easier and enhance the experience for associates and customers. They are also working on reducing turnover at all levels within their retail operations.

The company is focused on improving customer satisfaction, employee engagement, and financial results through actions in their stores. They have also made progress in improving their supply chain, including increasing OTIF levels, exiting temporary warehouses, and opening new permanent distribution centers. They are also undergoing a refresh of their sorting process in distribution centers to improve restocking and increase on shelf availability for customers.

The actions taken by the company will improve the supply chain's agility and efficiency, allowing them to better meet customer demands. The company remains committed to providing affordable products and has made progress in reducing inventory and simplifying operations. They are also working with operators to identify further simplification opportunities.

The company is making efforts to save time and improve the customer experience in their stores. They are proud of their team's work and are moving quickly to implement their back to basics plan. They recognize that some efforts may take longer to show results. The company's shrink is worse than expected, but they have been able to offset it and maintain their full year EPS guidance. The promotional environment has become more intense, which may pose a risk to their margins in the second half of the year as they may have to respond to competitors' price investments.

In this paragraph, Todd Vasos discusses the progress made on reducing shrink in the company. He mentions that they have a proprietary predictive model to track shrink and that it is currently showing positive results. He also mentions that the effects of this improvement will be seen in the back half of the year and in the future. Kelly Dilts adds that it takes time for these improvements to show up in financial results and that they have various initiatives in place to improve margins.

The company Dollar General has several strategies in place to combat shrinkage and increase profits, including their DG Media network, private brands, global sourcing, inventory optimization, and supply chain efficiencies. They believe that these strategies, along with their focus on driving sales and reducing shrink, will strengthen their foundation for the long term and into the second half of the year. The company also predicts that the promotional environment will continue to rise and they are confident in their ability to balance everyday value with promotional activity to offer the best value to consumers.

The speaker discusses the success of Dollar General's category management and their close relationships with CPG companies. They feel confident in their promotional activity and believe it resonates with customers. They have seen a cautious consumer making trade-offs in their purchases, but are still attracting new customers and retaining their core customer base. Dollar General's back to basics strategy is seen as a good opportunity for growth in the near term and in the long term.

The core consumer's top priority is taking care of her family and managing inflation. While inflation has slowed down, it is still a concern for her. The company has seen success in both consumable and non-consumable sales, showing that the consumer is deliberate with her spending. The company's back to basics work has made significant progress, with the company now at or just past the 50 yard line in their goals.

The speaker is happy with the progress of the supply chain, which is now past the 50 yard line and showing stability. The merchandising side is also making progress, with more to come in the second and third quarters. The team is focused on improving operations in stores, and while shrink is still a concern, the positive sales and transactions show that customers are responding well to the changes. The speaker is confident in their guidance for the full year.

The speaker, Kelly Dilts, is discussing a change in the company's real estate plan and the reasons behind it. They are reducing the number of new stores this year and pushing them to 2025 in order to increase the number of remodels and real estate projects. The speaker is excited about this reallocation of capital and believes it is appropriate given the company's back-to-basics work. The next question is about longer term margins and the speaker, Todd, mentions the goal of getting back above seven, but acknowledges that there are some factors that may impact margins, such as shrink and promotions.

Todd Vasos, the CEO of Dollar General, addresses questions about the promotional environment and consumer behavior in relation to retailers investing in price. He explains that the company's promotional activity is in line with their expectations and that both consumers and CPG companies are pushing for promotions. Dollar General's everyday prices are competitive and they continue to invest in price and value for their private brand products. The company's focus on value is resonating with consumers, as shown by transaction growth in the first quarter. Dollar General will continue to monitor all classes of trade and make adjustments if necessary.

The category management team at Dollar General has been strong since it was built in 2008, and the company is focused on strengthening its foundation for long-term growth. They are confident in their business model and have a lot of opportunities for growth, including opening new stores and remodeling existing ones. They plan to use their cash flow to invest in the business and eventually return cash to shareholders through share repurchases. They also have strategies in place to improve their operating margin. Overall, they expect the business to return to 10%+ EPS growth in the long term.

In response to an analyst's question about the company's assumptions for non-consumable categories for the rest of the year, CEO Todd Vasos states that while the consumer is making trade-offs in the store, the company has the right products at the right value and price. They plan to balance promotional activity and discretionary spending to keep the consumer engaged. Vasos is confident in the holiday lineup and believes the company has the right building blocks for the discretionary side of the business to improve in the second half of the year. An analyst from Oppenheimer comments on the company's strong second half profit recovery implied by their guidance.

The speaker is discussing the company's confidence in their future performance and reiterating their guidance for the back half of the year. They mention that shrink (loss of inventory) was worse than expected in the first quarter, but they are seeing positive signs and believe their efforts to improve basic operations will continue to drive growth and reduce shrink. They also mention a reduction in inventory levels despite increasing sales.

The company is taking steps to reduce shrinkage by decreasing inventory and improving the efficiency of store operations. They have also made investments in wages and added more district managers to better train and manage store employees. These actions are expected to improve the overall performance of the company.

The company feels confident about the investments they have made and believe they will pay off in the future. They see a shift in consumer spending towards consumables due to inflation, but believe it is temporary and their non-consumable initiatives are still successful. They believe they are meeting the needs of their customers and this is reflected in their comp and transaction growth in the first quarter.

The company is focused on reducing inventory and optimizing it in order to simplify operations and better serve customers. They are making investments in technology to help with this process and are seeing improvements in in-stock levels. They will continue to prioritize reducing inventory and expect to see better results in the next 12 to 18 months.

The speaker praises the team for reducing inventory and improving in-stocks. They have seen a 22.5% decline in non-consumable inventory and a 247% increase in cash from operations. The supply chain is also improving with the opening of new facilities. The speaker believes they are on the right track, but there is still room for improvement.

The speaker discusses the positive impact of having associates at the front of the store instead of self-checkout in the 12,000 stores that have been remodeled. They have received positive feedback from customers and believe it will lead to better shrink results. The initial reaction from customers has been overwhelmingly positive.

The speaker discusses how the successful completion of 9,000 assisted lanes earlier in the year gave them confidence to move forward with implementing another 3,000 assisted lanes in May. They emphasize the importance of consumer response in all their actions and thank the audience for their participation in the conference.

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