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Operator: Greetings, and welcome to the Dollar General Corporation Q3 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. We ask that you please limit yourselves to one question and then return to the queue. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kevin Walker, Vice President, Investor Relations. Kevin, please go ahead.
Kevin Walker: Thank you, and good morning, everyone. On the call with me today are Todd Vasos, our CEO, and Donnie Lau, our CFO. Our earnings release issued today can be found on our website at investors.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-Ks filed on 03/21/2025, 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 Corporation 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.
Todd Vasos: 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 Corporation, 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. Same-store sales increased 2.5% during the quarter, driven by customer traffic. The average basket size was essentially 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. 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 disproportionate 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 three to four 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 offering, which is comprised of more than 500 rotating SKUs at the $1 price point, was once again our strongest performing set in the quarter, with same-store sales growth of 7.6%. With nearly 21,000 stores located within five miles of 75% of the US population, along with our 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 the 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 in 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 Corporation, she has been a strong leader who has consistently enhanced the customer experience both in-store and through our innovative digital offering. She and her teams have elevated the Dollar General and Pop Shelf 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 Corporation 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 Donnie.
Donnie Lau: Thank you, Todd, and good morning, everyone. After almost two and a half years away, I'm excited to be back at Dollar General Corporation, and I look forward to connecting with many of you in the months ahead. 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. Gross profit as a percentage of sales was 29.9% in Q3, 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 the 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 as 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 a 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%, compared 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 the prior year, 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 the important holiday shopping season. Importantly, we believe there is an 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¢ 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 EBITDAR, 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. Now, 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 results and updated financial outlook for fiscal 2025. 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, 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.
Todd Vasos: Thank you, Donnie. I'll take the next few minutes to provide updates on three of our most important initiatives as we look to further advance our progress toward achieving our short and long-term goals. Starting with real estate, where we continue to enhance and extend our unique combination of value and convenience to new communities across the country. These efforts remain focused on driving sales and market share growth by expanding our unique real estate footprint while also enhancing our mature store base. We opened 196 new stores in Q3, primarily in our 8,500 square foot store format in rural markets. Importantly, we continue to accelerate our efforts, and through the first 10 periods of the year, have substantially completed our planned new store openings for fiscal 2025. Outside the US, we've opened seven new stores in Mexico this year, bringing us to a total of 15 at the end of Q3. We continue to test and learn in these stores and remain excited about the opportunity to serve these communities. We also continue to make substantial progress with our remodel initiatives. As a reminder, in addition to our traditional remodel program, which we call Project Renovate, we previously introduced a new incremental remodel program called Project Elevate. This initiative is designed to further grow sales and market share in portions of our mature store base that are not yet old enough to be part of our full remodel pipeline. These projects include physical asset investments as well as merchandising optimization, product adjacency adjustments, and category refreshes, all of which impact approximately 80% of the total store. We completed 651 Project Elevate remodels in Q3 and an additional 524 Project Renovate remodels during the quarter. While we have not yet reached the one-year anniversary of the first stores in the program, we are on track to deliver an average first-year annualized sales comp lift of approximately 3% in Project Elevate stores, and we continue to expect comp sales lifts of approximately 6% for Project Renovate stores. Importantly, we continue to see significant improvements in customer satisfaction in these stores upon completion of the remodel. These results have given us confidence to make Project Elevate a key component of our real estate strategy as we move forward. Looking ahead to 2026, we are uniquely positioned to serve an underserved customer in rural America, where approximately 80% of our current store base serves towns of 20,000 or fewer people. We plan to build on that strength in 2026 with plans to execute approximately 4,730 real estate projects in total, including 450 new store openings in the US, 2,000 Project Renovate remodels, 2,250 Project Elevate remodels, and 20 relocations. We plan to open approximately 10 additional stores in Mexico. With regards to new stores, as a reminder, we monitor several metrics of our portfolio, including performance against pro forma sales expectations, new store productivity compared to our mature store base, annualization which overall has remained consistent and predictable, cash payback which we expect in approximately two years, and a new store return which we expect to be in the range of approximately 16% to 17% on average in 2026. Overall, our new store projects continue to deliver healthy returns despite higher occupancy and operating costs. Importantly, we're committed to mitigating these cost pressures where possible and continue to see significant runway for new store expansion, with approximately 11,000 opportunities for Dollar General Corporation stores in the US. While we've always said that for a variety of reasons, we don't expect to capture every opportunity, we're excited about our ability to significantly grow our footprint in the years to come. We anticipate that the majority of our new stores next year will be in one of our 8,500 square foot formats and will be predominantly in rural communities. Nearly all of our relocations are planned for one of our 8,500 or 9,500 square foot stores. As a reminder, these larger footprint stores provide additional opportunities to serve our customers, including expanded cooler offerings and more health and beauty products. While we currently offer fresh produce in approximately 7,000 stores, we anticipate bringing this offering to more than 200 additional stores in 2026. We are excited about our real estate plans for next year and believe these projects will continue to deepen our connection with our current customers while better positioning us to attract new customers as well. Collectively, we believe these projects will further solidify Dollar General Corporation as the essential partner in communities in rural America, both in our physical store locations as well as with an expanding digital reach, all while strengthening our foundation to drive long-term sustainable growth. The next area I want to discuss is our digital initiative, which serves as an important complement to our expansive store footprint. As we continue to deploy and leverage technology to further enhance convenience and access for our customers, our digital capabilities include an engaging mobile app and website that continues to be very popular with our customers and have expanded our delivery capabilities while growing our DG media network. We have significantly expanded the reach of our delivery options available to customers. Our DoorDash partnership, which now services more than 18,000 stores, continues to drive significant incrementality and sales growth. As a reminder, we partnered with DoorDash to launch our own same-day delivery offering through our Dollar General Corporation digital solutions late last year. We believe DG delivery can drive great customer loyalty within our digital platform while ultimately accelerating growth and increasing market share. We significantly increased the penetration of this offering in Q3, and now DG delivery is available through our app and website in more than 17,000 stores. Most recently, we entered a partnership with Uber Eats to further expand the reach of our delivery capabilities as we provide value and convenience to customers on their platform. We are now live in more than 17,000 stores with Uber as well. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers, with more than 75% of our orders delivered in one hour or less, while also extending our value offering to a wide range of new customers. We are seeing larger basket sizes than the average in-store transaction and a very strong repeat visit rate from customers on our delivery platform. Looking ahead, we have ample opportunity to further drive incremental sales growth through a variety of customer experience enhancements and increased customer awareness. As we see continued growth in our digital properties, one of the most significant components of our digital initiative is our DG media network, which enables a more personalized experience for our unique customer base while delivering a higher return on ad spend for our partners. We are continuing to drive significant year-over-year growth in retail media volume as partners seek access to our unique customer base. Our digital advertising business continues to see double-digit growth in 2025, driven by new DG media network capabilities on our site and within our app. We believe we are still in the early stages of the potential financial contribution from this initiative. The DG media network remains an important contributor to our long-term growth framework, and we're excited about its potential. Over time, we believe we can leverage our digital initiative to increase market share and drive profitable sales growth while further evolving our relationship with our customers and driving greater customer loyalty within the digital platform. The final initiative I want to discuss is our non-consumable growth strategy. As a reminder, we are focused on a few key drivers in our non-consumable categories over the next three years. These include brand partnerships, a revamped treasure hunt experience, and reallocation of space within our home category. During Q3, we were pleased to deliver positive same-store sales growth in each of our three non-consumable categories for the third consecutive quarter. This growth was led by our two largest non-consumable categories, seasonal and home, each of which delivered comp sales growth of approximately 4% in the quarter. Our Pop Shelf stores delivered another quarter of strong same-store sales growth in Q3. Our new store layout continues to perform well, and we continue to take lessons from Pop Shelf and apply that to our non-consumable approach in our Dollar General Corporation stores as we further enhance that offering for customers. We believe our non-consumable sales growth, both in Dollar General Corporation and 20% of our holiday sets priced at $1 and more than 70% at $3 or below, we are excited about our ability to serve customers across all income brackets during this important time of the year. In turn, we believe we are well-positioned to continue driving sales and market growth in these categories while also further increasing our gross margin. In closing, I want to reiterate that we're pleased with our performance, proud of our progress, and excited about the opportunities that lie ahead of us at Dollar General Corporation. We are laser-focused on furthering these efforts and accelerating our progress toward our goals over the short and long term. As we move through our busy holiday season, I want to again thank our approximately 195,000 employees for their commitment and dedication to fulfilling our mission of serving others. With that, operator, I'd now like to open the lines for questions.
Operator: Certainly. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. As a reminder, we ask you to please limit yourselves to one question then return to the queue. Our first question is coming from Rupesh Parikh from Oppenheimer. Your line is now live.
Rupesh Parikh: Good morning, and thanks for taking my question, and welcome back, Donnie. So I have a two-part question just on gross margin. So for Q4, it would be helpful to understand some of the puts and takes there you see on the gross margin line. And then from a longer-term perspective, we've seen significant progress this year on the gross margin front, including shrink. Just curious about your overall confidence in being able to deliver the next round of improvement, whether it's from retail media, mix shifts, etcetera, and on the damages front.
Donnie Lau: Yeah. Maybe I'll kick it off and then hand off the second part of your question to Todd. But thanks, Rupesh. Good to connect with you again. Maybe I'll just start with Q3 gross margin. I'm especially pleased, right, that we delivered 107 basis points of expansion, and that's on top of 137 basis points in Q2. And from a Q3 perspective, that's also despite a 79 basis point headwind from LIFO. And so while we're very pleased to see continued benefit from some of our other key focus areas like lower damages, reduction in markdowns, and some of the other initiatives that Todd's gonna speak about, I think the outperformance and shrink was notable during the quarter. And so the way I think about it, Rupesh, is we're really building momentum on our key initiatives. The team's really doing a nice job in terms of balancing price and managing mix. We do expect another quarter of gross margin expansion in Q4. We expect to see continued improvement in shrink, as I alluded to in the prepared remarks, to a lesser extent versus Q3. And that's because we really are lapping outsized or, you know, more improvement in Q4 2024 to the tune of about 68 basis points. We're also lapping a discrete item from the prior year really associated with the optimization of our portfolio. And we also expect continued benefit from growth in private label and non-consumables and, you know, continued improvement in damages as well as supply chain efficiencies. The one headwind we'll note is just LIFO. Although we do expect to partially offset that with pricing through continued managing mix as well. And so, again, overall, on the gross margin line, let's say, I believe there's more tailwinds than headwinds, which is nice to see. And feel really good about the momentum we're seeing and building on this front.
Todd Vasos: Yeah. And Rupesh, thanks for the question as well. As I think about the long-term gross margin opportunities, I feel very good. Actually, shrink improvement so far is actually giving us, myself and our team here, even more confidence in delivering on that long-term model on our gross margin line. If you think about it, you know, when I think about where we're at today with shrink, as Donnie indicated, the great thing about our shrink benefits so far is while we did take self-checkout out, which has been a nice contributor, the stores that never had self-checkout, about 6,500 of them, have seen very substantial decreases in shrink and increases in gross margin. So what that does, it gives us a lot of confidence that there's probably more gross margin opportunities than we even thought in that long-term model. So stay tuned for that as we go forward. And then, as Donnie indicated, boy, we still have a lot of great opportunities ahead. When you think of damages, we're just starting that journey. We've seen some nice damage clawbacks over the last couple of quarters, but we see even more without giving you any guidance for '26 yet. Even more as we move into next year and beyond. So, stay tuned there. I think you'll see us execute against that very similarly to how we executed very strongly against our shrink initiatives. And then lastly, mix and media network. Mix continues to be a good guy and will continue to be. All of the work the team has done, the merchants, our operators, our supply chain, on our non-consumable initiatives really has moved the mix number for us. And as you know, those hold a lot stronger gross margins, not only in our home, seasonal, and apparel categories, but also our HBA categories, which have outsized gross margin. So feel very good about the long-term prospects of that. And then lastly, our media network. We're in the second inning. We're just starting the media network piece. And I would tell you that we're off to a great start. Double-digit increases again this quarter. And as I look out to the long-term model, we see a lot of opportunity there as well. So stay tuned. We feel strong. We feel good about where we are. And very good about that long-term model.
Operator: Thank you. Next question is coming from Zihan Ma from Bernstein. Your line is now live.
Zihan Ma: Thank you for taking my question. I have a two-part one on real estate. So a short-term one, I think, Todd, you mentioned that the remodels are generating about, like, the 3% to 6% sales lift, which I believe are at the lower end of the previous ranges you've given. So can you just talk about is there additional upside? What are some of the near-term dynamics you're seeing there? And then longer term, given some of the changes in your competitive landscape with Family Dollar no longer really in the picture, drugstores closing, how does that change your view on your real estate opportunities and the growth rate you're willing to pursue? Thank you.
Todd Vasos: Yeah. Sure. You know, we're really happy with where the remodel program is. As you know, we really are just in year one. We haven't even cycled a full year yet of Project Elevate. And that's given us what we've seen so far has given us a lot of confidence. Matter of fact, as you heard in my prepared remarks, we're gonna do another 2,250 of those next year. So, you know, hitting right around 3% right now, but we're just getting started. So as we look to even enhance this program as we go into next year, we'll continue to look at ways to ensure we even get a better comp out of it. But 3% is very strong and is well within our guidance and our guidelines here to continue to move forward. It's a strong, strong return at 3%. And then on Project Renovate at six, again, we're just getting going good there. We've been doing, obviously, these projects for many, many years. As we continue to rationalize our SKU base, our coolers, we see real opportunity to continue to drive long-term sales growth in these, albeit probably closer to six than the 8% that we had seen in the past. But, again, I'll take a 6% comp any day of the week with the investments that we're putting forward on these. So again, gives us a lot of confidence to do another 2,000 of those next year. So, really feel good about each of those. But, you know, we're retailers. We're never satisfied with the comps that we put out, and we're gonna continue to push even harder. And then long-term on your second part of the question, I would tell you we still feel very good. We got 11,000 opportunities in the Continental United States to put a Dollar General Corporation store in. Obviously, as we said, we won't get all those. But your question pointed to the reason we're bullish on getting a lot of these is that, you know, our competition today is really not opening a lot of stores. And for that, we don't feel compelled to have to rush to open a lot of stores. So we believe that the right mix right now, 450 stores still very strong for the year. The right mix of remodel and new, we believe, is the right thing. Taking care of that mature store base as we go forward is also strong. But with still close to 17% returns on new stores, we feel very bullish about what the future looks like with that 11,000 opportunities. And when we feel it's appropriate, we have the opportunity and the capacity to step it up from there.
Operator: Thank you. Next question is coming from Matthew Boss from JPMorgan. Your line is now live.
Matthew Boss: Thanks, and congrats on a nice quarter. So maybe two-part questions. Todd, first, how would you assess the current health of your low to middle-income customer, maybe leveraging your latest survey work? And what's the traffic versus interplay that you've historically seen in a similar economic backdrop? And then for Donnie, if you could maybe just touch on any puts and takes to consider as it relates to next year, just relative to the target to return earnings growth to 10% at 2% to 3% comps and tying in the moderated real estate plan for next year.
Todd Vasos: Okay, Matt. Yeah. Thank you. I'll start out. Yeah. You know, as we exited Q3, I would tell you that that low middle-end consumer continues to be stretched. She is definitely being very mindful of where she shops and what she shops for, making trade-offs at the shelf in many instances. The great thing about Dollar General Corporation is that we offer extreme value here with a very convenient place to shop. And that is obviously resonating with the consumer with a 2.5% comp for the quarter. And I believe most notably, much different, by the way, than our competitors have put out there, a 2.5% traffic number. And if you think about it, when you think about traffic, we've always said here, traffic is the real measuring point. Right? Because that's the sustainability of the comp as we go forward. And we can leverage that additional traffic that we're seeing into long-term sustainable growth here at Dollar General Corporation. So stay tuned for that. We know how to also go after these customers. We've already started that retention program to ensure that we continue to keep the new ones that we're seeing into the brand, both from the middle and the high end. And then lastly, on that low-end consumer, you think about where we sit in price, we feel very good about our everyday price. Very good positioning there. A solid and balanced promotional cadence, which is always important for that low-end consumer. But the most important that she continues to tell us through our survey work, Matt, is that we've got over 2,000 SKUs at a dollar or less every day inside of our stores. And matter of fact, the team did a great job this year leveraging that low-end consumer work with our holiday performance. And as you think about holiday this year, we have 20% of our SKUs at a dollar. We have 70% of the entire mix of holiday at $3 or less. So it's gonna resonate pretty well. And I will tell you that we're off to a very nice start here in Q4.
Donnie Lau: Yep. And then in terms of your question on 2026 and long-term framework, Matt, yeah, we'll plan to provide more formal guidance on our Q4 earnings call in March. But overall, based on where I sit today, I do think it's fair to say that we're tracking towards the timelines contemplated in our long-term financial framework. And if you just take a step back at a high level, we all feel really good about our ability to deliver against the long-term financial framework targets. I'm especially excited about the progress we're already making against some of the key targets. And so, you know, the way I think about it, Matt, is this is given all the great work the team's accomplished around our back-to-basic strategy, yeah, we've essentially stabilized the core. Right? And the business is once again on really strong footing. Obviously, a lot of work to do still, particularly around sustainability, but we're now able to execute better in certain, what I'll call, value drivers. And the great news is we're making great progress across many of these drivers. And think that was reflected, right, in our strong Q3 operational and financial results. And so when you add it all up, to me, we really are building momentum across many aspects of the business. We're ahead of schedule versus some of our initial targets that we laid out, and, you know, we'll continue to accelerate where we see opportunity. So overall, I think there's a lot of reasons to be optimistic as we move ahead.
Operator: Thank you. Next question today is coming from Seth Sigman from Barclays. Your line is now live.
Seth Sigman: Thanks. Good morning, everyone. My question is on digital and the incrementality that you mentioned. Can you talk about the value proposition? What is appealing about your offering for the consumer for delivery today? And if you can, maybe frame the contribution to total comps growth from delivery? How is that starting to help? And then just taking a step back, how does this change the economics of the business over time? Obviously, it's an important part of the long-term margin story, and so I think it'd be helpful to sort of lay that out. Thanks so much.
Todd Vasos: Yeah. I'll take the first part. I'll let Donnie talk briefly on the economics. But Seth, we're very proud of where we are in our digital journey. Again, as we talked about our media network being in the very early innings, the second inning, I would tell you our digital journey in totality is probably just in the second inning. So really just starting our journey. But I would tell you that we're off to a really nice start. It was a very nice contributor again this quarter. But as I step back and think about our digital piece and what it looks like, you know, when you think about the proposition for our core customer and quite frankly for the customer just in general, what we're seeing early on is still very high incrementality rates of shoppers in the digital program. Over 70% incrementality on how we're measuring it, which is a very, very strong piece. Getting new customers, we're seeing much larger basket sizes through our digital properties, which really does again show that it's a different type of customer than our core. But also that we're starting to see more signs of a stock-up versus what we normally see inside of our brick and mortar of a fill-in. So, you know, we feel good about that incrementality piece. Good about the extra piece. Our real opportunity here is to continue to deliver to rural America. I think that's our value proposition at this point. And I believe we are off to a great start there. And by the way, we have a unique opportunity. We own Rural America out there across the United States. And today, even in the second inning that we're in, over 70% of our orders that are done are delivered to an individual's front door in an hour or less, even in Rural America. And that is a strong proposition that no one's been able to touch. And we'll continue to foster that and look at ways to even gain momentum across those properties.
Donnie Lau: Yep. As Todd alluded to, we're especially pleased with the incrementality. I think the other way to think about that is we're introducing, right, new customers to the Dollar General Corporation brand. Right? And the great news is, you know, as they engage with us, they engage more across our digital properties, right, which makes the DG media network even more attractive to our brand partners, which is fantastic. And so what I'm really excited about is, you know, we're seeing good growth here. It is sales and profit accretive, which is obviously fantastic to see.
Operator: Thank you. Next question is coming from Michael Lasser from UBS. Your line is now live.
Michael Lasser: Good morning. Thank you so much for taking my question. Donnie, welcome back. My question is on the comp. You've now settled into a few quarters in a row of 2% comp. Is this as good as it's gonna get? And does this provide enough margin of safety looking forward to next year when SNAP could become a headwind, and other factors that are gonna be at play in the overall environment? If that's the case, might you have to become more promotional, do more things like offer $5 off of $25 basket in order to drive the comp, and you'll have to sacrifice some margin in order to drive the top line. Thank you very much.
Todd Vasos: Thank you, Michael. I'll start it out and have Donnie wrap that up. But, you know, we feel great about the 2.5% comp. As I indicated in the earlier question, you know, the comp was strong at 2.5. We've been well over two now, a few quarters in a row. And as I think about Q4, we feel very good about the numbers we put out for full-year guidance. That would also portray a stronger comp in Q4. And as I think about the composition, it's so important, Michael. You know that. You've been with us on this journey for quite a while now, many years. And anytime we can turn a 2.5% comp into a 2.5% ticket, I'm sorry, traffic number, that is a very strong showing. And it bodes well for what the future holds in comp. We're retailers. We're never satisfied with where we are. And I would tell you that we strive to determine even higher numbers. But the great thing about, you know, how I look at this business is that we always look for sustainability, not a, you know, a quick win on the comp side. And I believe that's how we've put this together and what we're seeing, you know, as we go forward. And then lastly, I would also tell you that, you know, from a promotional cadence perspective and what we see in the future, we believe we're uniquely positioned today and rightfully positioned. We don't see that changing. At least in the near term. In the next year, we don't see a need to be more promotional. We think the way we have approached this with a great everyday price, a good balance of promotional cadence opportunities that we already have in place, and, again, that very, very important $1 price point that we continue to offer the consumer puts us in a real unique position to drive comps.
Donnie Lau: Yeah. And the only thing I'd add too, Michael, is, you know, I also have a, you know, we have a lot of confidence, right, in the 2% to 3% growth over the time period that we've outlined in the long-term framework. I think the great news is we're able to deliver against our long-term framework targets within this range. And I think the other thing to point out is new stores and the remodels, they're expected to contribute about 150 to 200 basis points of that. Right? And then on top of that, you layer in the growth we're seeing in new customers, trade-in higher income, the playbook we have to retain them. I'll tell you, overall, we feel really good about our plans to build on our sales momentum, balance of year and beyond. And then we touched on this earlier too, but on the margin line, overall, I tell you, I think we have more tailwinds than headwinds as we move into 2026 and beyond.
Operator: Thank you. Next question is coming from Simeon Gutman from Morgan Stanley. Your line is now live.
Simeon Gutman: Hey, everyone. Hi, Todd, Donnie. My question is on getting back to 6% plus margins. Can you think about the construct? Should there be linearity to it? It sounds like media will be a big piece of it, but maybe not in the immediate year or so? Or is that the wrong way to think about it?
Donnie Lau: Yeah. Maybe I'll let Todd touch a little more on the media network. I think we touched on that earlier. But, you know, at a high level on the margin side, Simeon, I'll tell you, feel really good here also in terms of our ability to deliver against that margin target. You know? We talked, we touched on this a little bit, but there are a lot of drivers we have in place that we expect will contribute to margin expansion over time. I do want to note that while the focus is on the op margin line, right, gross profit obviously expected to be the more meaningful contributor to margin expansion over this time period. Within gross margin, we do continue to expect shrink and damages will contribute at least, right, a 120 basis point expansion. We talked about this, but the great news is shrink is already improving at a faster and higher rate than we were initially anticipating. A lot of reasons to think we can deliver continued improvement over time on that front. In terms of damages, right, they're trending in line with our expectations. Overall, really pleased with that progress. On the DG media network, as Todd alluded to, kind of early days, we do think it's gonna be a meaningful contributor over time. The great news is we're just beginning to really build momentum against our initiative here. And just remember, there's a lot of other drivers in place that we expect to contribute as well, whether it's, you know, further reductions in kind of markdown risk and greater efficiencies across the supply chain, continued growth in the non-consumables business. We're seeing good growth coming out of private brands. And so overall, I'd tell you, I just feel really good about our ability to drive continued gross margin expansion as we move ahead.
Todd Vasos: Yeah. And Simeon, I would tell you that, as we do believe the media network as we go into the outer years of our long-term framework, will be a substantial contributor. And the reason that we feel that way is we already are seeing nice large double-digit gains quarter over quarter or year over year. And I would tell you that as we pick up momentum on our native MyDG digital platform, as those start to grow even more, what we start to see there is more first-party accounts, which then translates and we're able to monetize that with our vendor partners. They see a lot of value in that because, again, uniquely positioned here because we own the data for lower-end to middle-end consumers in rural America, where it is very difficult if not almost impossible for anyone else to have replicated what we know about that customer and then how we monetize that over the long term. And for us, we believe that uniquely positions us to be able to deliver on that long-term framework as it relates to the media network.
Donnie Lau: Yep. And then just quickly too, Simeon, just, you know, we haven't really touched on this, but in terms of SG&A, right, just as a reminder, the goal here is really to minimize the deleverage. And I think we're really well-positioned to deliver against this target as well. You know, just briefly as a reminder for this year, we do expect outsized incentive comp of approximately $200 million this year. So that should benefit next year as we, I think it's fair to expect for us to plan for a more normalized rate there. But in addition, right, the accelerated remodel program is expected to mitigate future arm in the expense. In the meantime, do expect to drive additional efficiencies through more work simplification efforts. And so, overall, we feel really good about our efforts on the SG&A front as well. And the one thing we really haven't spoken about at all is really AI. Right? And I do think this provides a potential opportunity to maybe drive greater efficiencies and more sales as we move ahead. You know, in fact, we recently hired a new head of AI to accelerate our efforts here. And, you know, in the meantime, in the background, we are laying the foundation to enable AI scale, right, with our IT modernization efforts and, importantly, what I would say is these additional efficiencies and potential opportunities for more sales growth that are associated with AI aren't captured in the framework today.
Operator: Thank you. Next question is coming from John Heinbockel from Guggenheim Partners. Your line is now live.
John Heinbockel: Hey. Hey, Todd. Two related questions. Where do you think the greatest opportunity is on labor productivity? Because I don't think financially electronic shelf labels work in the dollar store setting or correct me if I'm wrong with that. And then secondly, do you think you can get shrink down to 1% or so without adversely impacting sales? Right? There has to be a natural floor that you don't wanna go below?
Todd Vasos: Yeah. John, thanks for the questions. Yes. I would tell you, I'll start. When you think about the shrink numbers, you know, we feel good about where we're headed here. You know, we had set our sights on, you know, around the 2019 levels of shrink. We felt really good about that. We are recalibrating to a better number because we're seeing even more opportunity. And I think you're leaning toward, and I think, importantly, for me to point out is that our SKU rationalization efforts have really produced some of this outsized shrink opportunity on the good side that we've seen so far, and it should be the gift that keeps on giving because we believe that as we move into '26, stay tuned as we talk about '26 when we come out with our fourth-quarter results. But rest assured that SKU rationalization and just inventory in totality will still be very top of mind in 2026. And with that, we believe that there's an opportunity for even lower shrink numbers as we go forward. That's why I mentioned earlier that I feel that in that long-term framework, we can benefit probably from even better shrink than we had first anticipated. If nothing else gives us great assurances that we can deliver on that long-term framework. But stay tuned. A lot of time ahead of us. But we feel good about that.
Operator: Thank you. Next question is coming from Scot Ciccarelli from Truist Security. Your line is now live.
Scot Ciccarelli: Good morning, guys. Thanks for the time. And, Todd, I think you started to touch a little bit on this, but you've had almost two straight years of inventory declines. Obviously, there's a major working capital benefit. But I have a two-part question. One, can you guys size the positive margin impact that the lower inventory levels have had on both markdown activity and shrink? And then two, at what point do you need to start rebuilding your inventory levels? Thanks.
Todd Vasos: Yeah. I'll take that. We're not gonna quantify it, but I would tell you that what we've seen is, and you mentioned it, we've intentionally gone out with SKU reduction. We've reduced over 2,500 everyday SKUs over the past couple of years. We've got more to go. And I would tell you that any good retailer does this over time. We don't believe there's a need to rebuild current inventory levels. We believe we're, in many categories, at optimal levels, but we also believe there's a lot of categories that we can still optimize. And what we'll be going after in '26 and beyond. So stay tuned and should benefit us on the shrink line and most importantly on the damage line as we go forward. The great thing I think we can all agree upon at this point is all those efforts have not hit us on the top line. And matter of fact, we've continued to produce fill rates that are at some of our highest levels that we've seen in years here for the consumer. And, obviously, you see the 2.5 comp this quarter and the traffic number. And that traffic number is a real good indication that she has a lot of confidence to continue to come into Dollar General Corporation and find what she needs. So we feel good about where we are. We don't believe for a moment that we're finished and more to come. We think that this is a real opportunity for us and a strong opportunity on that gross margin line, even more so as Donnie indicated than we even had first contemplated in that long-term model.
Operator: Thank you. Next question is coming from Chuck Grom from Gordon Haskett. Your line is now live.
Chuck Grom: Hey, Todd. Welcome back, Donnie. I have two questions. Just one near term, one long term. On the near term, Todd, can you just amplify on the strong start to November and the more positive outlook for the fourth quarter? How much of that's traffic-driven? Have you seen any improvement in ticket? And then longer term, there's a lot of concerns out there about Amazon and Walmart Plus. Can you talk about some of the key tenants of your competitive moat in the role, like rent and me, the rural landscape, and how you can compete more effectively?
Todd Vasos: Yeah. Chuck. Thanks for the question. Yeah. I would tell you, while we're not gonna give you a ton of color on Q4, I would tell you we are off to a good start, a great start quite frankly. Very good about that. Even in the face of some of those SNAP benefit holdbacks due to the government shutdown. I'll give you a little color around that, which I think is important. Because SNAP, as we go into the next year, you know, may have some headwinds to it. But we still see OB three as a complete in totality a tailwind for us. And here's one reason on the SNAP side, is what we saw was the consumer still needed to feed her family. She still has to do that. And she used cash as a tender with us during the shutdown time where she didn't get her benefit. And then as those benefits flowed in, we also then got the SNAP benefit on the second part of the month. So it quite frankly was a net positive for us as we move through November. And not only in those areas, but she also bought a lot of the non-consumable categories. And holiday is off to a really good start as well. So feel bullish, but always keep in mind a lot of quarter still left ahead of us with the important Christmas holiday selling season upon us at this point. But, we feel, as Donnie indicated, we have a fair amount of momentum heading into that holiday season and into next year. And then lastly, your question around our competitive moat. I'd tell you, we feel good about the competitive moat. We have spent years, Chuck, and many, many dollars, as you know, not only building but strengthening that competitive moat in rural America. And with 80% of our stores in those small towns across America, very, very difficult to replicate. Whether it be brick and mortar or whether it be on a digital basis. And, again, we didn't sit back. We moved swiftly once we saw that our core consumer was starting to venture into her digital journey. We've always said our core customer, she's a fast follower. She'll get there. And she's starting to move that way. So we moved that way. And the great thing is we moved that way with a lot of intentionality. And that intentionality was really centered around rural America and being able to deliver that customer in an hour or less. Where no one else can touch that at this point. We feel that's a very strong competitive moat, and we'll continue to do that but also build on our ability to have a very strong and sustainable brick and mortar business as well as that digital business as we go forward.
Operator: Thank you. Our final question today is coming from Spencer Hannes from Wolfe Research. Your line is now live.
Spencer Hannes: Good morning. Thanks for the question. Just wanted to circle back on the remodel program. The updated list you provided us with was helpful. I'm just curious what you think the tailwind could be in year two if there's any tailwind coming. And then just in terms of the price gaps, you called out that 3% to 4% gap versus math. Have you seen any change there in how you guys are coming in from a pricing standpoint versus these other guys out there?
Todd Vasos: Yeah. I'll take those. You know, I would tell you on the pricing piece that we feel very good about where we are, as I indicated earlier. Not only our everyday price still falling within the bounds that our core customer looks to us to be able to provide her, but also around those promotional cadence. You know, our TPR program, temporary price reduction program, and our ad program all deliver solidly to our core consumer. And it's evident by those traffic numbers that we're seeing. And then lastly, I keep emphasizing this because it is such an important component to the low-end consumer. And that's at that dollar price point is so, so important to that consumer. And with that, gives her a halo effect on price in totality within the Dollar General Corporation organization. So I would tell you that our price perception numbers through what we see in our consumer data is on the increase, while others may not be. And we feel very strong about that positioning as we go forward. And then our programs around our new store programs, our remodel programs, we again feel very strong about where we're headed. In the long and the long-term possibilities that those hold, including our Pop Shelf in Mexico banners. We feel good. We're in test and learn mode on those two. But we're seeing very nice sales gains. The customer is resonating with each of those brands. But more to come there as well.
Operator: Thank you. We've reached the end of our question and answer session. Ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.