Dollar General Corporation

Good morning. My name is Robert, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Dollar General Second Quarter 2020 Earnings Conference Call. Today is Thursday, August 27, 2020. All lines have been placed on mute to prevent any background noise. This call is being recorded. Instructions for listening to the replay of this call are available in the company's earnings press release issued this morning. Now I'd like to turn the conference over to Mr. Donnie Lau, Vice President of Investor Relations and Corporate Strategy. Mr. Lau, you may begin your conference.

Thank you, Rob, and good morning, everyone. On the call with me today are Todd Bezos, our CEO, Jeff Owen, our COO, and John Garrett, our CFO. 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 strategy, plans, initiatives, goals, guidance, or beliefs about future matters, including but not limited to beliefs about COVID-19's future impact on the economy, our business, and our customer. Forward-looking statements can be identified because they are not limited to statements of historical fact or use words such as may, will, should, could, would, can, believe, anticipate, expect, assume, intend, outlook, estimate, guidance, plan, opportunity, focus, confident, long-term, look to, committed to, continue, ahead, seek, or go, and similar expressions. These statements are subject to risk 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 2019 Form 10-K, filed on March 19, 2020, in our Form 10-Q, filed this morning, 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. We also will reference certain financial measures that have not been derived in accordance with GAAP. Reconciliations to the most comparable GAAP measures are included in this morning's earnings release, which, as I mentioned, is posted on investor.dollargeneral.com under News and Events. At the end of our prepared remarks, we will open the call-up for your questions. Please limit your questions to one and one follow-up question if necessary. Now, it is my pleasure to turn the call over to Todd.

Thank you, Donnie, and welcome to everyone joining our call. I'd like to start by thanking our associates for their exceptional work over the past several months as we continue to navigate this challenging and dynamic operating environment. Throughout this period, our team has remained steadfast in its focus on employee and customer safety while providing affordable, convenient, and close-to-home access to everyday essentials. I could not be more proud of our team's efforts to serve our customers, our communities, and each other. For over 80 years, Dollar General has served our customers through a unique combination of value and convenience, but it has never been more evident just how essential our role is as our customers depend on us now more than ever for their everyday household needs. We remain committed to being part of the solution during these difficult times and believe we are uniquely positioned to continue supporting our customers through our expansive network of nearly 17,000 within five miles or more than 75% of the U.S. population, our convenient small box format providing for quick in and out access, our broad assortment of everyday household essential items, our ongoing commitment to everyday low price, our flexible supply chain, our growing digital capabilities and most importantly, our talented and committed associates. Let me now highlight some of the actions we've taken to further protect our employees and customers while keeping our operations running with minimal disruption. As we discussed on last quarter's call, with the onset of COVID-19, we quickly and proactively implemented numerous safety protocols across the company based on recommendations by federal, state, and local government agencies. We continue to monitor CDC and other government guidelines regarding COVID-19 and are adapting our protocols and policies as that guideline evolves. As announced in today's release, we invested approximately $13 million in employee appreciation bonuses during the quarter, bringing our total incremental investment in appreciation bonuses to about $73 million through the end of Q2. Additionally, we expect to invest up to $50 million dollars in additional financial incentives in the second half of the year. Overall, these actions have helped to further ensure the continuity of our business at a time when our customers need us most, while recognizing our employees for their extraordinary efforts. While navigating the challenging times of COVID-19, our country has simultaneously entered a period of deep reflection on its societal values, including racial equality, and other matters of social justice. Our mission at Dollar General is serving others, and our core values include respecting the dignity and differences of others. We are committed to ensuring these values are evident in all we do, including working to promote racial equality and social justice across our communities. To further advance these efforts, we recently expanded our diversity and inclusion team and announced the combined $5 million pledge with the Dollar General Literacy Foundation to support racial and social justice and education. Additionally, during the quarter, we published our most recent Serving Others report, which highlights many of our efforts on the ESG front. We first published this report in 2019 and expect that it will evolve and expand as we move into the future. Beyond these efforts, we remain focused on advancing our operating priorities and strategic initiatives as we continue to meet the evolving needs of our customers and better position Dollar General for continued long-term growth. To that end, and from a position of strength, we are pleased to announce the acceleration of several value-creating initiatives including DG Pickup, DG Fresh, and our non-consumable initiatives. We are also increasing our expectation for remodels and relocations in 2020. We will discuss each of these updates in more detail later in the call. Turning now to our second quarter performance. The quarter was once again highlighted by extraordinary growth on both the top and bottom lines. as some of the consumer trends we experienced in Q1 related to the pandemic continued in Q2. More specifically, and as we discussed on our Q1 earnings call, we experienced significant growth in our non-consumable business in the month of April and through May 26th. These trends continued through the end of Q2, and we're pleased to note that for the second quarter, our three non-consumable product categories in total delivered a combined comp sales percentage increase well in excess of our consumable businesses. In terms of our monthly comp cadence, sales increased 21.5% in May, 17.9% in June, and 17.2% in July. While we do not typically disclose monthly comp sales, we believe it's helpful in this environment. Overall, second quarter net sales increased 24.4% to $8.7 billion, driven by comp sales growth of 18.8%. These results include significant growth in average basket size, partially offset by a decline in customer traffic, as we believe customers consolidated trips in an effort to limit social contact. During the quarter, our highly consumable market share trends as measured by syndicated data, continue to exhibit strength, including strong double-digit increases in both units and dollars over the four, 12, 24, and 52-week periods ending July 25, 2020. Importantly, our data suggests another meaningful increase in new customers this quarter compared to Q2 2019, underscoring the broadening appeal of our value and convenience proposition. We are very focused on retaining these new customers and the incremental spend of current customers through the acceleration of several key initiatives, which I noted earlier. We're particularly pleased that we once again delivered significant operating margin expansion, which contributed to second quarter diluted EPS of $3.12, an increase of 89% over the prior year. Collectively, we view these results as further validation that we are pursuing the right strategies to enable balance and sustainable growth while creating meaningful long-term shareholder value. We continue to operate in one of the most attractive sectors in retail, and with the plans and initiatives we have in place, we believe we are well-positioned to serve an even broader set of consumers, even in a challenging economic environment. With that, I'll now turn the call over to John.