Dollar General Corporation

Thank you. 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 issue 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, strategy, initiatives, plans, goals, priorities, opportunities, investments, 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 on our earnings release issued this morning under risk factors in our 2020 Form 10-K filed on March 19, 2021, 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 will also reference certain non-GAAP financial measures. 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's my pleasure to turn the call over to Todd.

Thank you, Donnie, and welcome to everyone joining our call. We are pleased with our third quarter results, and I want to thank our associates for their unwavering commitment to meeting the needs of our customers, communities, and each other. Despite what continues to be a challenging operating environment, including elevated cost pressures and broad-based supply chain disruptions, our teams remain focused on controlling what we can control, and they are delivering for our customers. We are grateful for their efforts. Looking ahead, we believe we are well positioned to navigate the current environment. And although we've experienced higher than expected costs, both from a product and supply chain perspective, we're very confident in our price position. As our price indexes relative to our competitors and other classes of trade remain in line with our targeted and historical ranges. And because so many families depend on us for everyday essentials at the right price, we believe products at the $1 price point are important for our customers, and they will continue to have a significant presence in our assortment. In fact, approximately 20% of our overall assortment remains at $1 or less. And moving forward, we will continue to foster and grow this program where appropriate. As the largest retailer in the U.S. by store count, with over 18,000 stores located within five miles of about 75% of the U.S. population, we believe our presence in local communities across the country provides another distinct advantage and positions us well for continued success. Overall, we remain focused on advancing our operating priorities and strategic initiatives as we continue to strengthen our competitive position while further differentiating and distancing Dollar General from the rest of the discount retail landscape. To that end, I'm excited to share an update on some of our more recent plans. First, as you saw in our release, we expect to execute a total of nearly 3,000 real estate projects in 2022, including 1,100 new store openings, as we continue to lay and strengthen the foundation for future growth. Of note, these plans include the acceleration of our pop shelf concept as we expect to nearly triple our store count next year as compared to our fiscal 21 year end target of up to 50 locations. In addition, given the sustained performance of our pop shelf concept, which continues to exceed our expectations, we plan to further accelerate the pace of new store openings as we move ahead, targeting a total of about 1,000 pop shelf locations by fiscal year end 2025. Importantly, we anticipate these new pop-shelf locations will be incremental to our annual Dollar General store opening plans as we look to further capitalize on the significant growth opportunities we see for both brands. We are also now at the early stages of plans to extend our footprint into Mexico, which will represent our first store locations outside the continental United States. We believe Mexico represents a compelling expansion opportunity for Dollar General, given its demographics and proximity to the U.S., and we are confident that our unique value and convenience proposition will resonate with the Mexican consumer. While our initial entry into Mexico is focused on piloting a small number of stores in 2022, we expect the seeds we plant today will ultimately turn into additional growth opportunities in the future. Finally, as previously announced, we recently introduced our digital services by partnering with DoorDash to provide delivery in under an hour in over 10,000 locations. further enhancing our convenience proposition while broadening our reach with new customers. Jeff will discuss these updates in more detail later in the call. But first, let's recap some of the top line results for the third quarter. Net sales increased 3.9% to $8.5 billion, following a 17.3% increase in Q3 of 2020. Comp sales declined 0.6% to the prior year quarter, which translates to a robust 11.6% increase on a two-year stack basis. From a monthly cadence perspective, comp sales were lowest in September, with October being our strongest month of performance. And I'm pleased to report that Q4 sales to date are trending in line with our expectations. Our third quarter sales results include a year over year decline in customer traffic, which was largely offset by growth in average basket size, even as we lapped significant growth in average basket size last year. In addition, during the quarter, we saw an improvement in customer traffic as compared to Q2 of 2021, and we continue to be pleased with the retention of the new customers acquired in 2020. We're also pleased with the market share gains as measured by syndicated data in our frozen and refrigerated product categories. And even as our market share in total highly consumable product sales decreased slightly in Q3, we feel good about our overall share gains on a two-year stack basis. Collectively, our third quarter results reflect strong execution across many fronts and further validates our belief that that we are pursuing the right strategies to enable sustainable growth while supporting long-term shareholder value creation. We operate in one of the most attractive sectors in retail, and as a mature retailer in growth mode, we continue to lay the groundwork for future initiatives, which we believe will unlock additional growth opportunities as we move forward. Overall i've never felt better about the underlying business model, and we are excited about the significant growth opportunities we see ahead with that i'll now turn the call over to john.

Thank you Todd good morning everyone now that Todd is taking you through a few highlights of the quarter, let me take you through some of its 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. As Todd already discussed sales, I will start with gross profit. As a reminder, gross profit in Q3 2020 was positively impacted by a significant increase in sales, including net sales growth of 24% in our combined non-consumable categories. For Q3 2021, gross profit as a percentage of sales was 30.8%, a decrease of 57 basis points, but an increase of 121 basis points compared to Q3 2019. The decrease compared to Q3 2020 was primarily attributable to a higher LIFO provision, increased transportation costs, a greater proportion of sales coming from our consumables category, and an increase in inventory damages. These factors were partially offset by higher inventory markups and a reduction in shrink as a percentage of sales. SG&A as a percentage of sales was 22.9%, an increase of 105 basis points. This increase was driven by expenses that were greater as a percentage of sales in the current year period, the most significant of which were retail labor and store occupancy costs. The quarter also included $16 million of disaster related expenses attributable to Hurricane Ida. Moving down the income statement, operating profit for the third quarter decreased 13.9% to $665.6 million. As a percentage of sales, operating profit was 7.8%, a decrease of 162 basis points. And while the unusual and difficult prior year comparison created pressure on our operating margin rate, we're very pleased with the improvement of 78 basis points compared to Q3 2019. Our effective tax rate for the quarter was 22.2% and compares to 21.6% in the third quarter last year. Finally, EPS for Q3 decreased 10% to $2.08, which reflects a compound annual growth rate of 21% over a two-year period. Turning now to our balance sheet and cash flow, which remains strong and provide us the financial flexibility to continue investing for the long term while delivering significant returns to shareholders. Merchandise inventories were $5.3 billion at the end of the third quarter, an increase of 5.4% overall and a decrease of 0.1% on a per-store basis. And while we're not satisfied with our overall in-stock levels, we continue to make good progress and are focused on improving our in-stock position, particularly in our consumables business. Looking ahead, we are pleased with our inventory position for the holiday shopping season, and our teams continue to work closely with suppliers to ensure delivery of goods for the remainder of the year. Year-to-date through the third quarter, we generated significant cash flow from operations totaling $2.2 billion. Capital expenditures through the first three quarters were $779 million and included our planned investments in new stores, remodels, and relocations. distribution and transportation projects, and spending related to our strategic initiatives. During the quarter, we repurchased 1.6 million shares of our common stock for $360 million and paid a quarterly dividend of 42 cents per common share outstanding at a total cost of $97 million. At the end of Q3, the total remaining authorization for future repurchases was $619 million. We announced today that our board has increased this authorization by $2 billion. Our capital allocation priorities continue to service well and remain unchanged. Our first priority is investing in high return growth opportunities, including new store expansion and our strategic initiatives. We also remain committed to returning significant cash to shareholders through anticipated share repurchases and quarterly dividend payments, all while maintaining our current investment grade credit rating and managing to a leverage ratio of approximately three times adjusted debt to EBITDA. Moving to an update on our financial outlook for fiscal 2021. We continue to operate in a time of uncertainty regarding the economic recovery from the COVID-19 pandemic, including any changes in consumer behavior and the corresponding impacts on our business. Despite continued uncertainty, including cost inflation and ongoing pressure throughout the supply chain, we are updating our sales and EPS guidance, which reflects our strong performance through the first three quarters, as well as our expectations for Q4. For 2021, we now expect the following. Net sales growth of approximately 1% to 1.5%, a same-store sales decline of approximately 3% to 2.5%, but which reflects growth of approximately 13% to 14% on a two-year stack basis, an EPS in the range of $9.90 to $10.20, which reflects a compound annual growth rate in the range of 22% to 24%, or approximately 21% to 23% compared to 2019 adjusted EPS over a two year period. Our EPS guidance now assumes an effective tax rate of approximately 22%. Finally, our expectations for capital spending, share purchases and real estate projects remain unchanged from what we stated in our earnings release on August 26, 2021. But we now provide some additional context as it relates to our outlook. In terms of sales, we remain cautious in our outlook over the next couple of months, given the continued uncertainties arising from the COVID-19 pandemic, including additional supply chain disruptions and the impact of the end of certain federal aid, such as additional unemployment benefits and stimulus payments. Turning to gross margin, please keep in mind we will continue to cycle strong gross margin performance from the prior year, where we benefited from a favorable sales mix and a reduction in markdowns, including the benefit of higher sell-through rates. Consistent with Q2 and Q3, we expect continued pressure on our gross margin rate in the fourth quarter due to a higher LIFO provision as a result of cost of goods increases, a less favorable sales mix compared to the prior year quarter, and an increase in markdown rates as we continue to cycle the abnormally low levels in 2020. We also anticipate higher supply chain costs in Q4 compared to the 2020 period. Like other retailers, our business continues to be impacted by higher costs due to transit and port delays, as well as elevated demand for services at third party carriers. However, despite these challenges, we're confident in our ability to continue navigating these transitory pressures. With regards to SG&A, we continue to expect about $70 million to $80 million in incremental year over year investments in our strategic initiatives. This amount includes $56 million in incremental investments made during the first three quarters of 2021. However, in aggregate, we continue to expect our strategic initiatives will positively contribute to operating profit and margin in 2021, driven by NCI and DG Fresh as we expect the benefits to gross margin from our initiatives will more than offset the associated SG&A expense. Finally, our updated guidance does not include any impact from the proposed federal vaccine and testing mandate, including potential disruptions to the business or labor market or any incremental expense. In closing, we are pleased with our third quarter results, which are a testament to the strong performance and execution by the team. As always, we continue to be disciplined in how we manage expenses and capital with the goal of delivering consistent, strong financial performance while strategically investing for the long term. We remain confident in our business model and our ongoing financial priorities to drive profitable same store sales growth, healthy new store returns, strong free cash flow, and long-term shareholder value. With that, I will turn the call over to Jeff. Thank you, John.