Dollar General Corporation

And good morning, everyone. On the call with me today are Todd Bezos, our CEO, and Donnie Lau, 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 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 2024 Form 10-K, filed on March 21, 2025, 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. At the end of our prepared remarks, we will open the call up for your questions. To allow us to address as many questions as possible in the queue, please limit yourself to one question. Now, it is my pleasure to turn the call over to Todd.

Thank you, Kevin, and welcome to everyone joining our call. We are pleased with our third quarter results, including another quarter of balanced sales growth, as well as strong earnings results that significantly exceeded our expectations. I want to thank our team for their ongoing commitment to serving our customers, communities, and each other. Our mission of serving others informs everything we do at Dollar General, and our efforts are resonating with customers as we continue to enhance our value and convenience proposition. For today's call, I'll begin by recapping some of the highlights of our third quarter performance, as well as sharing our latest observations on the consumer environment. After that, Donnie will share the details of our financial performance, as well as our updated financial outlook for fiscal 2025. I'll then wrap up the call with an update on some of our key growth driving initiatives, including our real estate plans for 2026. Turning to our third quarter performance, net sales increased 4.6% to $10.6 billion in Q3, compared to net sales of $10.2 billion in last year's third 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. This market share growth is a testament to our improved execution, compelling offering, and broadening appeal with a wide range of customers. Game store sales increased 2.5% during the quarter, driven by customer traffic. The average basket size essentially was flat. Within the basket, an increase in average unit retail price per item was offset by fewer items on average. This traffic and basket composition is consistent with what we have historically observed when our core customer feels more pressured on their spending as they come in more often but have smaller basket sizes. For the third consecutive quarter, we delivered broad-based category sales growth with positive comp sales in each of our consumables, seasonal, home, and apparel categories. Notably, the comp sales increase in non-consumable sales once again outpaced a solid increase in consumable sales. From a monthly cadence perspective, all three periods were positive, led by August. September was the softest period of the quarter as we lapped significant hurricane activity in the prior year. before rebounding to higher levels in the month of October. And despite the delay in SNAP payments in early November, we are pleased with our strong sales performance to begin quarter four. Overall, we are pleased with our top line results in Q3, which we believe demonstrate the important role we play in providing value to customers in our community. To that end, we're pleased to see growth once again in our total customer count with this proportion of growth coming from higher income households. We remain focused on executing our proven playbook to retain a substantial portion of these customers. And with our unique combination of value and convenience, we believe we are well positioned to increase market share with customers across all income brackets. With that in mind, We continue to be pleased with our pricing position, which remains within our targeted range of 3 to 4 percentage points on average for mass retailers. We also continue to see a substantial offering of more than 2,000 SKUs at or below the $1 price point as an important component of the value offering for our customers. For example, our Value Valley offering, which is comprised of more than 500 rotating SKUs at the $1 price point, was once again our strongest performing sets in the quarter, with same store sales growth of 7.6%. With nearly 21,000 stores located within five miles of 75% of the U.S. population, along with a robust and growing digital presence, we are proud of our unique position as America's neighborhood general store. We remain committed to serving our customers with low prices they expect on the products they need, and as we help them save time and money every day. Overall, we're proud of our Q3 results and the significant progress we've made this year improving our operating and financial performance. As we continue to invest in the growth and development of our teams, we are seeing lower year-over-year turnover in all levels of our in-store positions, which is also contributing to our improved execution and financial results. The progress we've made further supports our confidence in our long-term financial framework, and we are excited about the opportunities ahead. Before I turn the call over for our financial update, I want to take the opportunity to congratulate Emily Taylor on her promotion to Chief Operating Officer. During her time at Dollar General, she has been a strong leader who has consistently enhanced the customer experience both in-store and through our innovative digital offerings. She and her teams have elevated the Dollar General and PopShelf brands while also improving operational efficiency and we are excited to expand her responsibilities moving forward. I'm confident she is the right leader for this position and look forward to working with her in this new role. I'm also excited to welcome Donnie Lau as our new CFO. We are thrilled to have him back at Dollar General and look forward to working with him to further accelerate our progress and drive sustainable growth over the long term. With that, I'll now turn the call over to Don.

Thank you, Todd, and good morning, everyone. After almost two and a half years away, I'm excited to be back at Dollar General, and I look forward to connecting with many of you in the months ahead. And while I've only been back a short time, it's clear there are substantial opportunities for growth and value creation. I'm especially excited about the progress we're making against key initiatives, which is contributing to strong operational and financial results. I look forward to working with the team to advance our strategic priorities as we look to build on our momentum drive long-term sustainable growth, and deliver strong returns on invested capital. I'll now cover our Q3 results. Since Todd has taken you through the top line results for the quarter, my comments will cover 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 Q3, Gross profit as a percentage of sales was 29.9%, an increase of 107 basis points. This increase was primarily attributable to higher inventory markups and lower shrink, partially offset by an increased LIFO provision. Our ongoing efforts to reduce shrink once again contributed to strong operating margin expansion in Q3, as we delivered a 90 basis point improvement in shrink versus prior year. Notably, shrink continues to improve at a much higher and faster rate compared to the expectations contemplated in our long-term financial framework. And we expect continued improvement over time. Turning to SG&A, which is a percentage of sales was 25.9%, an increase of 25 basis points. The primary expenses that were a higher percentage of sales in the quarter include incentive compensation, repairs and maintenance, and utilities, partially offset by decrease in hurricane-related costs. Moving down the income statement. Operating profit for the third quarter increased 31.5% to $425.9 million. As a percentage of sales, operating profit increased 82 basis points to 4%. Net interest expense for the quarter decreased to $55.9 million compared to $67.8 million in last year's third quarter. Our effective tax rate for the quarter was 23.6% and compares to 23.2% in the prior year. Finally, EPS for the quarter increased 43.8% to $1.28, which exceeded the high end of our internal expectations. Turning now to our balance sheet and cash flow, we have made significant progress in strengthening our financial position. Merchandise inventories were $6.7 billion at the end of Q3, a decrease of $465 million, or 6.5%, compared to prior year. and a decrease of 8.2% on an average per store basis. The team continues to do a terrific job reducing inventory while driving sales and improving in-stock levels. Overall, we're pleased with our inventory position as we enter this important holiday shopping season. Importantly, we believe there is opportunity to further reduce and optimize our inventory position, and we expect continued progress as we move ahead. Year-to-date through Q3, we generated significant cash flow from operations of $2.8 billion, which represents an increase of 28%. As previously communicated, we redeemed $600 million of senior notes during the quarter, well ahead of their scheduled April 2027 maturity, further strengthening our balance sheet and reducing future interest expense. We also paid a dividend of 59 cents per common share outstanding during the quarter for a total payment of approximately $130 million. 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, remodels, and other strategic initiatives. Next, we seek to return cash to shareholders through a quarterly dividend payment, and when appropriate, share repurchase. And while our leverage ratio remains above our goal of less than three times adjusted debt to adjusted EBITDA, we are making significant progress towards reaching our target level 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 2025. Our update primarily reflects our Q3 outperformance and improved outlook for Q4, while also considering the potential for continued uncertainty, particularly in consumer behavior. With that in mind, we now expect the following for 2025. Net sales growth of approximately 4.7% to 4.9%. Same-store sales growth of approximately 2.5% to 2.7%, and EPS in the range of $6.30 to $6.50. Our EPS guidance continues to assume an effective tax rate of approximately 23.5%, and that we will not repurchase shares under the existing share repurchase program. I want to provide some additional context around our expectations. With regards to gross margin, we anticipate shrink will be a continued tailwind in Q4, though to a much lesser extent than Q3, as we begin to lap the improvements we made toward the end of last year. We also now expect capital spending to be towards the low end of our previously stated range of $1.3 billion to $1.4 billion. This includes our continued expectations to execute approximately 4,885 real estate projects in 2025, including 575 new store openings in the United States and up to 15 in Mexico, 2,000 project renovate remodels, 2,250 project elevate remodels, and 45 relocations. Finally, as a result of our strong cash and liquidity position, we plan to redeem an additional $550 million of our senior notes earlier than their November 2027 maturity. Our guidance contemplates about $9 million of incremental expense in Q4 in connection with this repayment. In closing, we are pleased with our third quarter result and updated financial outlook for fiscal 2020. While we plan to speak more to our 2026 outlook on our Q4 call in March, we are confident in our long-term financial framework and we are very pleased to be ahead of schedule on our progress. Importantly, we are working to further strengthen and accelerate where we see opportunity our path to achieving these goals. We look forward to sharing our continued progress as we move ahead. Overall, we are confident in our business model and remain focused on delivering profitable sales growth, high returns on invested capital, strong operating cash flow, and long-term shareholder value. With that, I'll now turn the call back over to Todd.