We are now officially in the afternoon session of day one of the Goldman Sachs 31st Annual Global Retailing Conference. It is my pleasure to introduce the members of the management team for Dollar General. DG needs little introduction. It's one of the largest U.S. retailers, with over $38 billion in sales and over 20,000 stores across the country. Today, we have with us Todd Vasos, Chief Executive Officer, Kelly Dilts, Executive Vice President and Chief Financial Officer, and Kevin Walker, Vice President of Investor Relations. Kevin, I'm gonna turn it over to you to read your disclosures. Sure. Thank you. Let me caution you that statements made during today's fireside chat will 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, 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 on August 29, 2024. Under risk factors in our 2023 Form 10-K, filed on March 25, 2024, and any later filed periodic report, and in the comments made during this event. 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 today unless required by law. Now, it is my pleasure to turn the event over to Kate, Todd, and Kelly. Great. Thank you. And thanks again for being with us today. Of course. Thank you. Of course. Thank you. I thought it was important that we start with revisiting the Q2 results. Just given that you reported not too long ago, and in my mind, you know, I thought maybe you could summarize it, that two things really changed. First, the same-store sales you saw in Q2 versus what you had seen in Q1, and second, your margin outlook for the rest of the year. Mm-hmm. So first, I wondered if we could drill down why such a drastic change from quarter to quarter when it came to comp? Let me take that, and then I'll pass it over to you. Perfect. So, you know, as we looked at the quarter, what we saw was a, to your point, a pretty drastic slowdown and change, and it happened suddenly, I would say mid-quarter-ish, if you will. And what led us to start looking even deeper at, you know, is this macro? Is this something internal? Is it a combination? We started to take a look at a couple of different factors. One being, is it broad-based? And with 20,000 stores, it's an advantage, right? Because you're coast to coast, and if it's something macro, normally you start to see that across the country. And it was definitely that. It happened across every region, every division that we had, almost the same amount. Second thing was, we looked at was, well, is it happening in your new stores? Well, again, we're advantaged there with opening as many new stores as we've done. And sure enough, our new store base, all sort of ships went down in the harbor at the same time as well. So those are great leading indicators. And then lastly, what we noticed was an even tighter core consumer at the very last week of each of the months in Q2. While that's always a tighter week of the month for our core consumer, it was by far, though, the weakest in each of the, when you look at each of the four weeks of each of the periods. So that led us to believe it's more macro in nature. While we still have a lot to do in our Back to Basics work, I would tell you that, you know, we believe that the macro effect of what we're seeing in our core customer is starting to take effect on her. Yeah, and then looking out into the margin, I'd say, you know, Q2, relatively in line with our expectations. I would say the only call-out there was damages, and we can talk about that in a minute. But as we look out to the back half, really, the reduction is all around sales-related items. So we've got the sales decrease, as well as you've got some sales mix-related margin pressures, that are gonna be putting pressure on the back half. And then the markdowns is something that we've talked a lot about. So the promotional markdowns in the back half will be heavier than we had anticipated. And I'm sure you remember, but maybe not everybody here remembers, you know, we had talked about coming into the year, we knew that the... There would be some pressure on the promotional environment, but what we thought was the investment that we had made in the back half of last year, we would just pull forward into the front half of the current year, which we did. But now looking as we are now with the consumer, where she is, we're gonna pull those markdowns back into the back half as well. So I'd tell you, on a rate basis, pretty similar to where we were in the back half of last year, just more than we had expected. Damages, I'll leave it there. That's the main story. A little more to the story is, on the damages side. So we did see a higher rate in the second quarter. We're gonna go ahead and trend that out. A lot of the Back to Basics work that we're doing is gonna help to mitigate that, specifically inventory reductions, the SKU rationalizations, and continuing to improve execution in the store. So we feel like we'll get a handle on that piece. A little bit on SG&A. So we did talk about some repairs and maintenance, and so we'll take care of that in the back half, and then on the labor component, I think it's important to call out a couple of things. One, wages were slightly higher than we had anticipated. We had come in thinking maybe around three-ish, the wage rates are around 4% for us. We think as we move into 2025, that'll probably normalize us down a little bit more. And then the other thing that we did is, we wanted to make sure that we had enough hours in the store to complete all the Back to Basics work. So typically, you do have some variable component to your labor, even with the lower sales expectations. Now, we left the hours alone, and so we wanted to make sure that we could get the things done that we needed to get done in the store. And then, something left for last, but I think it's a something that we're very happy to see, is around shrink. And so, while it was still a headwind in Q2, much less of a headwind in Q2 than it was in Q1, we're certainly seeing improvement start, and we think that by the fourth quarter, that'll turn into a tailwind. So the actions that we took around self-checkout were absolutely the right ones to take, and we're seeing the benefits of those or expect to see the benefits of those in the back half. That's great. If I could just go back to the same-store sales, and then I have a couple follow-up questions on margin. So Todd, you mentioned that, you know, each of the last week of the three months is where you really saw the falloff. And I don't believe that was something you saw in the first quarter, a phenomenon that you saw in the first quarter. But from what we can see, it seems like even the lowest income consumers still employed, wages have grown. What do you think has been the change agent for that consumer between Q1 and Q2, which affected spending so drastically? Yeah, I you know, it's hard to tell, but it appears, from what our customer's telling us, and Kate, you know this pretty well, we're probably as close to our customer as any retailer out there, understanding and, and probably the closest to that low-end consumer, of any retailer out there. And what she told us, specifically to Q2, was that, "While I am still gainfully employed, my second job..." and let me qualify that. When times are good, our core customer normally works her 30- to 40-hour-a-week job, but also has a secondary job that she normally works 15 to 25 hours in. What she told us in Q2 was, "That is going away or has gone away." And I believe that was the contributing factor to the even tighter financial constraints that she was already feeling. You got to remember, while inflation is moderated over year over year for the last many quarters, what hasn't gone away is that 20+% inflation cumulative effect over the last few years, right? Especially on what grocers call center store, but we call just our core basic goods. Those have not deflated, right, and that continues to be a real headwind, so I think that, coupled with her tighter financial constraints, and then you also have to remember, with our core customer, it's a lot about how I also feel about the future. It is for many of us, but especially for our core customer, and she is telling us loud and clear, she's feeling less and less confident about what the future holds as well. Can you just remind us, for those that don't know your story as well, how your demographic breaks down? Yeah, sure. In terms of income demographic customer? Yeah. So the way it breaks down for us is, the customer making $30,000 household income, so that's total income. If there's two individuals in the home, that equals the $30,000. So household income, $30,000 or below, and that makes up 60% of our overall business, so a very large portion of that. And then, then you've got the middle income group that makes up a little bit larger portion of the remainder, but... And then the high end. So the middle would be 50 to 100-ish, and then the high end, 100 above, right? And so, obviously, the 100 and above is the least number of the customer base that we have. Then just going back to margins. You mentioned that you're going to be promoting more in the back half. Can you talk about why promotions are the right strategy rather than further price investment? Yeah. I would tell you that we feel very good about our everyday low price, as good as we've felt out there. When you look at our everyday price against all classes of trade, we're right where we want to be on an index basis. And so with that, and knowing our core consumer the way we do, the best lever to pull at this point is that promotional lever. Because what she is telling us in so many words is, "I need you to help me make up those days at the end of the month that my money is run out of." And we believe the promotional activity will do that. We've done this over the course... In my sixteen years here, we've done this four or five different times over those times. So think of the Great Recession time, but also think of 2013-ish, 2016, even a little bit of the end of 2017, early 2018, we had some of these pressures, and we used the same technique. The only great thing, Kate, is that the technique now can be deployed very quickly because it's digitized versus being very analog and print in the past. So it is the right thing to do because we're always squarely focused on that lower-end consumer, that consumer making $30,000 or less. Can you talk to that history that you just mentioned before, when you've had to turn on promotions a little bit more, what the elasticity response has been and how quickly you've seen it? What we normally see. I think it's a great question because it matters here. What we normally see is that immediately, you start to see, you know, an increase of the units that we move. And then what you normally see is you also get then a pickup within the next period or two of a traffic gain. So you get a little bit of both. The traffic tails the unit growth, but you get both. And again, that goes exactly where we want it because it sort of bridges her gap at the end of the month for her, for the most part. And even though she may spend on some of those promotions in the middle of the month, it helps her, of course, at the end. And then it starts giving her more and more confidence that, "You know what? They've got some great promotions going, so, you know, let me come maybe one more additional time." And that normally starts to fill in the later months, you know, after you roll that out. The other area you get then, normally, is when times start to get even a little tougher, that middle income starts to trade in. And if you already have that promotional activity moving, that's another incentive for them to start immediately coming in as well. You don't have to do anything incremental for them. While you're doing it for your core customer, it definitely relates very strongly to that middle and upper middle income as well. Okay. And when it comes to promotions, what is traditionally, what have you seen in terms of vendor funding when it comes to promotions? And what can we expect to see in the back half of this year in terms of vendor support? Another great question. As you look at Dollar General, we're probably one of the best out there in category management. We built a very strong category management profile and system back in 2008-ish, 2008 and 2009. And you know, with that leverage, we still have a lot of the same individuals running those categories today as we had back in those days. And you know, with our size, when you think about, to your point, $38 billion in top line revenue plus, you know, we're in the top five with the majority of the CPG companies in America, top three with many of them. And with that, they work with us very closely. And as they see the need, and we called this out coming into the year, as they see the need to start moving more units because things start to get soft, they usually come knocking on our door pretty early in the, you know, in that venture to move more units. And so with that, the funding comes. So I would tell you that, you know, we, I believe, get more than our fair share of that. And as we increase the promotional activity, we work with the vendor community just as we do any other time to also get help with that. And how much flexibility would you say you have, that if Q3 and Q4 weren't to need as much promotion as maybe what you're building into your model, is that something easily that you can pull back or turn off? Or is it pretty much that? The great thing is, again, being that it's digitized, we can do it very quickly, right? So it obviously we can turn it on and turn it off very quickly within, you know, a week to ten days, right, without a problem. I think the better way to look at this, and it really is very similar, is while I don't know if we would turn it off, if we see that it's maybe not needed as much and things start to come around, is it a time to steal even more share, right? And so do you keep that moving and get that customer fully engaged with you? Because what we see when that happens as well, is that she's very sticky on the other side. Meaning, when times are good, she remembers that, and she, she comes back to you, especially that low-end consumer, but also that middle and upper middle. If we could switch gears a little bit to competition. You mentioned on the Q2 call that you gained share in consumables for the quarter, but there was some share up for grabs, I guess, maybe from the drugstores that closed, that maybe you didn't get your fair share, I think is how you described it. So could you maybe talk about the competitive landscape, that share that was up for grabs, maybe what you thought you could have got, why you didn't? Mm-hmm. and any further insight into that comment? Yeah. So hang with me. I'll try to explain it. Yeah, so when you look at Q2 in particular. But really step back and think about, again, how our core consumer reacts and then even that middle and upper middle. What we have noticed over the years is that our share gains have been coming, no surprise, and we've been very vocal about it, from drug first and the grocery sector second. Normally, what you find from those two cohorts of retailers is a middle to upper middle and even lower and upper income demographic. That, on a quarterly basis, has been for, gosh, probably the last 10 years, that customer, at least in my mind, has been up for grabs, right? I think it's obvious when you look at our share gains over the years and maybe the other two that I just mentioned. Some of theirs, they're moving the other direction. That's how we look at it, so when I look at Q2, while our core customer was very stable, $30,000 and under, what we saw different from Q1 to Q2 was that while we gained share in that middle income cohort, we gained it at half the rate we did in Q1, and it was obvious to us through the data where the other half went, and it went to mass. And I think we called out, the guys in Bentonville took a little bit larger piece of that. Now, it's interesting, right? Because that's why I say hang with me for a moment. When things start to move south in the economy, our core customer feels it first, right? So we usually see it before, you know, most retailers start to feel it. And we started to see that in twenty twenty-three, right? And it normally happens is that the middle income follows very closely after the lower income in a slide downward in the economy. The difference, I think, this time around is that middle income customer and upper middle is still gainfully employed. And I think that's the biggest difference today is that what will happen normally is if the job market next starts to falter, then she'll follow, I think, a very predictable path. And that path, I think, is starting to materialize. And again, I don't run and take this to the bank, right? But it looks like the economy is slowing at a pretty decent clip, at least what we're seeing here from the customer base. And that natural progression that we see as she moves, that middle income, all roads lead through Bentonville, and usually go to Walmart first, right? And then, and here's the key. The key is the trade down in there is this: the customer says, "I'm trading in because I'm fleeing, I'm looking for value," right? And I think you heard other retailers talk about that. The next shoe to drop normally is not, "I'm seeking value," but, "I must have value. I've got to make ends meet." So where our core customer is today. And then when that happens, that usually then that customer trades into Dollar General. And the biggest reason we hear why is that we're convenient, but also, that, you know, I don't want the distractions of going to a big box store and being tempted to buy other stuff. I've got to just concentrate on the core. We hear that time and time again. So this is a natural progression, the way I see it, in a slowing economy, and it's happening before our eyes. Just not happening as quick with that middle income as we maybe traditionally would have seen. So, you know, if I had to summarize, you know, this last 20 minutes, actually, that we've been talking about this. I'm sorry, all these questions, It's all right. It is macro driven. So when you think about your execution, you know, during the quarter, you're Back to Basics, which you've been at now for a year plus. How would you rate Dollar General at how you're doing with that, how the stores look, what the customer is responding to, and- Yeah. Well, you know, as a hard-charging CEO, and I would tell you that I always want to see us move a little faster, but pretty happy with it overall, and let me sort of break down the three big components very quickly for you. As I look at our merchandising side, I would tell you, we're on the opponent's 40-yard line, if you think about a football game. We've crossed the 50, trying to move the ball down the field, and the reason I don't think we're not even further down the field is that we're moving through inventory at this point. I think we're. You saw our inventory numbers very favorable over the last couple of quarters, but definitely last quarter, moving in the right direction. We've said we're gonna drop a thousand core SKUs out of our base. We're well on the way to do that. We'll have that done by the end of the year. As we continue to make that journey, I believe we'll move the ball further and further down. Simplification efforts through merchandising, working with the ops group, is well underway as well. That has a lot of tentacles to it, but one of the main ones have to do with inventory, and that is reducing the amount of off-shelf or floor displays that we've got. 25% lower in the first half of the year. It'll be 50% lower in the back half of the year. That's gonna make the life of the store manager a lot easier, to be able to work the freight and get that done. As I think about where our supply chain is, I would tell you that we're the furthest along. We've really made a lot of progress since the fall of last year, and I would consider us to be around the thirty-yard line of the opponent at this point. The biggest pieces there is one, capacity in our DCs, which is down very nicely. Matter of fact, our core distribution touch points, our facilities, are well in the ranges that we need for capacity. The auxiliary or ancillary DCs that we've put together in 2023 to help some of this freight flow, we've closed a lot of them. We're gonna close more through the end of the year. We're on track to do that. Matter of fact, we announced we'll at least close one additional than we even thought, so we feel very good about that. The other areas, though, is on time and in full or OTIF. I would tell you, the on time has been phenomenally better since the fall of last year. At this point, it's about maintaining and being very consistent at that very high level that we are today. Because everything inside of our stores operationally evolve around the truck day. It's what we call 7-Day Workflow, and T-0 is truck day, and everything flows from that day. So again, very, very pleased with where we are there, and I think we're headed for a touchdown very, really quickly here. On our operation side, just think about this, though, 20,000 stores, a big battleship to turn, but making a lot of progress there. Again, I think we've crossed the 50, about on the 40-yard line. We've got a lot of stores that are in really good shape, and we've got others that are still working to get where we need to be. Our head of operations is squarely focused on that. You heard Kelly talk about shrink efforts. That's well underway. A lot of great things happening, but you'll see it materialize more and more, I believe, as we move through the back half of this year and in the next. So couldn't be happier with the way we're moving. I always just want to see us move a little bit quicker. And is it fair to say, just with the progress that you've made on these three buckets, that any kind of concern about needing more labor in the stores or more labor hours in the store still is not on your radar? It's still pretty much under control in terms of- ... Yeah, I would tell you, the labor that we put in at the very tail end of 2022, the very large number of $150 million that we put in in 2023, we believe is more than sufficient. You heard Kelly talk about, the other thing we didn't do was, you know, in this economic slowdown that we're in on the top line, we chose not to index labor down, which every retailer probably does, right? But we know we still have work to do, as I indicated, in our Back to Basics work. So we believe between what we've already invested, what we haven't done anything with, the labor to index down, and then lastly, and most important, that simplification work that we're doing isn't about pulling labor out, it's about making it easier to do the job that's out there today for the stores. And I think once all that starts to pull together, we're, I think, in pretty good, pretty good shape right now. The one area that we're squarely focused, though, on, as Kelly indicated, is labor rate, right? It's more about the rate at this point. It's starting to moderate. It's definitely not up in the 7%-9% increases we saw, you know, coming out of the pandemic, but it's not yet back to our normal run rate quite yet either. So when we think about long-term operating margins, then it seems like if I had to summarize it, the biggest changes to your cost structure have probably been DG Fresh and shrink. Am I missing anything with that? And is there anything preventing you eventually getting back to those historical operating margins? Yeah, and I would say on DG Fresh, while it's changed it structurally, it certainly is beneficial to us- Mm-hmm. to operating margin, so that's actually a plus. Shrink is definitely a big headwind. And so as we target those 2019 rates, we feel like we've got the right to get that back over the next couple of years. You know, core shrink, it'll take a little while for it to flow through. So, you know, again, looking for some tailwind in Q4 and 2025, but I think in 2026 is when it probably plays out a little bit more fully. Our sales mix is the other component of that, and so that certainly has put a big pressure. You know, in 2019, we were looking at about a 78% consumables mix, and we're sitting here now a little above 82%, so it's certainly a big swing for us. Fresh has actually helped us mitigate some of that, but if we could get that number back up from where... or really back down from where we are, I think it would certainly add to the operating margin rate as well, and that's something we're very focused on doing as we move through the back half and into 2025. Just to wrap up the conversation around margin, one thing that could be, you know, really accretive to margin is your media network. Mm-hmm. I wondered if you could maybe just quickly talk about how it's fitting into your overall ecosystem, any recent trends, and how much it could help the margin rate over time? Yeah, I'll take that one. Yeah. I would say we're very happy. We were one of the first to jump out to create this media network phenomenon that's out there. The team has done a great job. We have really staffed that team up to be salespeople because it's a little different muscle that you gotta have, and I got to say, the team's done a great job. It's been very beneficial to margins over the last couple of years. We think there's another unlock there as well, though. And I do wanna say, Kate, we've been getting a lot of questions because people have been on our app and seeing it, but there's a little icon that says, "Coming soon," and I think a lot of people are assuming, and by looking at it, that there may be, you know, something down the road, you know, to combat maybe delivery and some of the other things. I would just say stay tuned. And the reason I bring it up in this light is that if that's the case, it helps even a more energized unlock for the media network. Mm-hmm. Because that's the supercharge on top of that. So stay tuned. More to come. Great. Well, we're asking each of the companies presented today five questions, kind of a lightning round session. Some of these questions we've already kind of touched upon a little bit already, but expectations for the health of the consumer in the second half versus the first half, do you expect things to be same, better, or worse? Yeah, it's yet to be seen, but I would tell you that everything we've seen from the customer so far is the core customer will continue to be strained through the back half of the year. And again, seeing those early signs of even that middle to upper middle starting to falter a little bit. So we're under the impression that through the back half of the year, the consumer it will be stretched. On the topic of margins into next year, there have been some cost tailwinds, I think, over the last year or so, materials... Sorry, mostly materials and freight, excuse me. Labor, I know, has been more of a headwind, but how are you expecting, you know, some of the your costs into 2025, same, better, or worse versus 2024? So I would say, and I'm probably bucketing this shrink a little bit better, just on the cost side. I think cost to build, cost to remodel, probably flattish to maybe a little bit better. We've talked a lot about labor, think that gets back into more normalized rates. Mm-hmm. I think that covers the big buckets. Our third question is on consumer behavior, and maybe this is more, you know, more of a question for someone who's addressing a more, you know, middle-income consumer, but there's definitely this behavior of looking for value, and we were wondering if you're viewing this as more like a cyclical, macro kind of behavior or more of a secular change in consumer behavior? Yeah, to your point, earlier, I think we addressed it, but we see this as a very, very much as a predictable path to a slowing economy. Mm-hmm. Again, that middle to upper middle tails the low-end consumer in their journey. But this follows what we've seen in other slowdowns in the past, where that middle income will start moving to seeking value, and then if things start to falter even more, it'll go from seeking to must-have. And then I'm gonna skip over question four, but question five is on promotionality. Kelly, you had said it's not necessarily you're so much more promotional year over year, it's just more than you thought. So is it right to think about the promotional environment in the back half looking similar to what we saw last year? So I think we were in a little bit different spot last year. Mm-hmm. So, that was really when we started the journey of bringing down our non-consumable inventory, and so we did invest some markdowns in that, as well as some promotional markdowns. So I think this is an elevated promotional environment- Yeah as we go into the back half, a little bit different than last year. Last year was probably a little more us, this year is probably a little more macro. Yeah, this is more about driving the sales- That's right. Yep This year. Yeah. All right. Well, thank you so much for your time. Yeah, thank you. Thank you. Appreciate it. Thank you. Yeah, appreciate it. Thank you all.