Prepared remarks
Good morning. My name is Robert, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dollar General First Quarter 2026 Earnings Call. Today is Tuesday, 06/02/2026. All lines have been placed on mute to prevent any background noise. This call is being recorded. Instructions for listening to the replay of the call are available in the company's earnings press release issued this morning. Now I would like to turn the conference over to Mr. Kevin Walker, Vice President of Investor Relations. Kevin, you may begin your conference.
Thank you, and good morning, everyone. On the call with me today are Todd Vasos, our CEO, and Donny Lau, our CFO. After our prepared remarks, we will open the call up for your questions. Emily Taylor, our Chief Operating Officer, will join us for the Q&A session. To allow us to address as many questions as possible in the queue, please limit yourself to one question. 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 2025 Form 10-K filed on March 20, 2026, 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. Now it is my pleasure to turn the call over to Todd.
Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our teams in our stores, distribution centers, private fleet, and store support center for their continued commitment and dedication to serving our customers. Overall, we are pleased with our first quarter performance, particularly our EPS result, which exceeded our expectations as strong operating margin expansion more than offset the impact of severe weather and higher fuel costs. For today's call, I will start by recapping highlights from our first quarter performance. Donny will then walk through our financial results and outlook, and I will close with an update on our strategic growth pillars. Turning to our first quarter performance. Net sales for the quarter increased 3.4% to $10.8 billion compared to net sales of $10.4 billion in last year's first 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 nonconsumable product sales. Importantly, in an environment where customers are feeling more pressure on their household budgets, we believe this market share growth reflects the essential role Dollar General serves, particularly in small-town communities across America. Same-store sales increased 2% during the quarter, primarily driven by customer traffic growth of 1.4% and supported by average basket growth of 0.5 points. Notably, this marks the fourth consecutive quarter of growth in customer traffic as our combination of value and convenience continues to resonate with customers. In addition, all four merchandising categories delivered positive comp sales for the fifth consecutive quarter, with growth rates in nonconsumables once again outpacing consumables. From a monthly cadence perspective, all three periods of the quarter were positive, led by March, which includes a benefit from the Easter holiday shift. While winter storm activity, including periods of temporary store closures, negatively impacted results during the first two weeks of the quarter in February, we were pleased with our sales performance across the balance of the quarter. Looking ahead, we are confident about our plans to drive continued growth in sales and customer traffic. Moving to an update on our core customer. While there are a variety of puts and takes on customer budgets during Q1, our core customer continues to be financially constrained. Any benefit from tax changes was largely offset by higher fuel prices and reductions in SNAP benefit payments. Importantly, while there has been a significant reduction in overall SNAP dollars distributed in 2026, we grew share of wallet with SNAP customers during Q1, further demonstrating the strength and relevance of our value proposition. During the quarter, many of our core customers reported cutting back on other household expenses, including food purchases, due to rising gas prices. This pressure has been more pronounced on customers in rural communities as they work to minimize trip distance and make trade-offs in their search for everyday affordability and value. With our expansive real estate footprint of more than 21,000 stores located within five miles of 75% of the U.S. population, as well as our growing delivery presence, we are uniquely positioned to serve these customers as they further prioritize value and convenience. From a value perspective, we continue to be pleased with our pricing position, which is within 3% to 4% of mass retailers, as well as our extensive offering of more than 2,000 items across the store at or below the $1 price point. As part of our overall approach to this price point, we continue to emphasize and strengthen our Value Valley offering, which is comprised of more than 500 rotating items all at $1. Of note, this offering once again outperformed the chain average in Q1 with a comp sales increase of 18.4%, driven by broad-based performance across many sections and exceptional performance in health and beauty. Beyond our Value Valley program, we also introduced several new $1 private label items during the quarter, as well as a new frozen section which now features a full door dedicated to new frozen items at the $1 price point. We believe this price point continues to be important to our customers and are excited about the opportunity to continue providing tremendous value through these offerings. In addition, we are seeing customer penetration growth across low, middle, and high income segments as customers across all income cohorts take value at increasing rates. Notably, across these cohorts, the largest increase in customer count came from the highest income segment, which earns more than $100,000 annually, contributing a significant increase in trade-in customer households during the quarter. We know that value and convenience are always important to our customers, but even more so right now. As America's Neighborhood General Store, we are well positioned to help customers across all income levels save time and money every day. Overall, our consistent and balanced top-line performance with both new and existing customers further underscores our belief that Dollar General is a trusted partner in the communities we call home, with significant opportunity for ongoing growth. In summary, we are pleased with the start of the year and proud of our team's execution. We are committed to serving our customers while driving profitable sales growth and capturing growth opportunity. With that, let me now turn the call over to Donny.
Thank you, Todd, and good morning, everyone. Now that Todd has taken you through the top-line results for the quarter, let me take you through some of the other important financials. 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 Q1, gross profit as a percentage of sales was 31.6%, an increase of 65 basis points. This increase was primarily attributable to higher inventory markups, lower shrink, and lower inventory damages, partially offset by increases in markdowns and transportation costs. Our shrink mitigation efforts once again contributed to strong gross margin expansion in the quarter, as we delivered a 28 basis point reduction in shrink versus prior year, even while lapping a 61 basis point improvement from Q1 2025. We were also pleased with the improvement in damages during the quarter, which exceeded our expectations and reflects strong in-store execution by the team. Turning to SG&A, which as a percentage of sales was 25.7%, an increase of 25 basis points. The primary expenses that were a greater percentage of sales in the quarter include depreciation and amortization, utilities, and property taxes, partially offset by lower incentive compensation. Moving down the income statement, operating profit for the first quarter increased 10.8% to $638.5 million. As a percentage of sales, operating profit increased 40 basis points to 5.9%, even with higher-than-anticipated field costs, as we continue to build on our progress toward the annual target of 6% to 7% as contemplated in our long-term financial framework. Net interest expense for the quarter decreased to $47.2 million, compared to $64.6 million in last year's first quarter. Our effective tax rate for the quarter was 24.9%, compared to 23.4% in the prior year. The increase was primarily due to the expiration of the Work Opportunity Tax Credit on 12/31/2025, partially offset by lower stock-based compensation expense. Finally, EPS for the quarter increased 12.4% to $2.00, which exceeded the high end of our internal expectations. Turning now to our balance sheet and cash flow, where we continue to make significant progress in strengthening our financial position. Merchandise inventories were $6.6 billion at the end of Q1, essentially flat compared to the prior year and representing a decline of 1.6% on an average per-store basis. Importantly, the team has done a terrific job reducing inventories to a level we believe is appropriate to support strong sales growth and higher in-stock levels going forward. Overall, we are pleased with our inventory position and for fiscal 2026, continue to expect inventory to grow at a rate below our sales curve. In Q1, we generated significant cash flow from operations of $716.2 million, providing flexibility to reinvest in the business and return meaningful cash to shareholders, all while further strengthening our balance sheet and liquidity position. 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 and strategic initiatives. Next, we seek to return cash to shareholders through a quarterly dividend payment and, when appropriate, share repurchases, all while maintaining our goal of less than 3x debt to adjusted EBITDAR in support of our commitment to the mid‑BBB ratings by S&P and Moody's. Moving to an update on our financial outlook for fiscal 2026. Our update reflects our strong Q1 results and outlook for the remainder of the year, while also considering our efforts to mitigate ongoing inflationary pressures as well as the potential for continued uncertainty, particularly consumer behavior. With all of this in mind, we now expect the following for 2026: net sales growth in the range of 3.7% to 4.2%, same-store sales growth in the range of 2.2% to 2.7%, and EPS in the range of $7.20 to $7.45, which compares to our previous range of $7.10 to $7.35. Our EPS guidance now assumes an effective tax rate of approximately 24.5%. Our expectations for capital spending and real estate projects are unchanged from our previously stated amounts. In addition, our Board of Directors recently approved a quarterly cash dividend payment of $0.59 per share for Q2 2026. While our guidance does not contemplate share repurchases this year, they remain an important part of our broader capital allocation strategy at the appropriate time. Now let me provide some additional context around our updated outlook for 2026. Despite higher-than-anticipated field costs, we continue to expect gross margin expansion for the full year driven by continued progress against our key gross margin initiatives, many of which are still early in their maturity curves. As a reminder, our initiatives include continued improvements in shrink and damages, growth in our DG Media Network, nonconsumables merchandising, supply chain productivity, and category management. On the expense side, we still expect modest SG&A deleverage in 2026 even as we plan to accelerate investments in key initiatives, including AI, as we look to build on our momentum and progress toward achievement of our long-term financial framework goal. Finally, while we have received an immaterial amount of import tariff refunds to date, our guidance does not include any impact from tariff refunds as the exact timing and amount of any future potential refunds remains uncertain. In closing, we are pleased with our first quarter results and strong start to the year. Looking ahead, we are excited about our plans to drive continued growth while delivering against our long-term financial framework goals. Overall, we are confident in our business model and approach to driving profitable sales growth, high returns on invested capital, strong operating cash flow, and long-term shareholder value. With that, I will turn the call back over to Todd.
Thank you, Donny. I will take the next few minutes to provide an update on our four strategic growth pillars, which are supported by targeted initiatives to drive long-term sustainable growth and value creation. As a reminder, these pillars include enhancing the customer experience, elevating our brand, driving greater enterprise-wide efficiencies, and extending our reach. First, we remain focused on enhancing the customer experience. Our efforts to improve the nonconsumable product offering continue to resonate with customers as evidenced by the 4.6% increase in combined nonconsumable comp sales during Q1. This performance was led by strong growth in toys, including many on-trend items that are resonating with our customers. In addition, we continue to evolve and expand our successful brand partnerships during the quarter, launching three brands, including Kelley Williams in our home category. These new brands have been popular with our customers along with other brands launched last year, such as Dolly Parton, as we continue to deliver compelling value while creating a sense of newness and excitement in our discretionary category. Beyond our in-store initiatives, we are also advancing our digital initiatives as we seek to further enhance the omnichannel customer experience at Dollar General. Our robust digital ecosystem, which includes our popular DG app and a suite of delivery offerings, is an important complement to our expansive physical store network and continues to be a key driver of incremental value and convenience for our customer. As we look to drive future growth in this area, we are focused on scaling our delivery options, personalizing the experience for customers, and growing the DG Media Network. We continue to grow the reach of our delivery options available to customers and are now delivering from approximately 18,000 stores with our own MyDG delivery offering as well as through third-party partners DoorDash and Uber Eats. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers, with the ability to deliver from stores to their homes within minutes. Once again during the quarter, more than 80% of the orders were delivered in one hour or less, with approximately half of those orders delivered under 30 minutes, further underscoring the strength of our convenience proposition. Our rapidly growing delivery platform is becoming a more meaningful sales driver as we continue to see larger basket sizes than an average in-store transaction and strong repeat visit rates. In fact, we estimate delivery sales contributed approximately 70 basis points to our comp sales growth of 2% in Q1. Looking ahead, we are targeting continued incremental sales growth through customer experience enhancements, increased customer awareness, and expanded loyalty opportunities, including the planned pilot of a delivery subscription program later this year. Building on the growth within this ecosystem, one of the most significant components of our digital initiative is our DG Media Network, which enables a more personalized experience for our customers while delivering a higher return on ad spend for our partners. Our DG Media Network strategy is focused on accelerating on-site performance through improved search, sponsored products, and a stronger ecommerce experience, while expanding our ability to capture emerging off-site spend across social, connected TV, and video. We are also creating more opportunities for advertisers to participate inside our stores, including our recently expanded in-store radio network, ultimately providing better connection between our digital and physical experiences. Overall, we believe this approach positions our advertising network as a strategic lever to drive profitable growth, enhance the customer experience, and strengthen loyalty across our digital ecosystem. Our digital strategy is an important component to our in-store customer experience and a key driver within our long-term financial framework. Our second strategic growth pillar is elevating our brand. We have a mature store base that uniquely enables us to serve customers in smaller and more rural communities. We continue to make strategic investments in our mature stores, particularly through our Project Renovate and Elevate remodel programs, which we believe can drive significant sales and profit growth. As a reminder, Project Renovate is our traditional remodel program which impacts the entire store and includes adding or replacing coolers as well as upgrading to our latest store format. These projects are focused primarily on stores that are seven or more years removed from opening or their last full remodel. Project Elevate 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 a full remodel pipeline. These projects include physical asset enhancements, merchandising updates, product adjacency adjustments, and category refreshes, all of which generally impact up to 80% of the total store. We continue to expect to execute a total of 2,000 Project Renovate remodels and 2,250 Project Elevate remodels this year. We made significant progress on these goals in the first quarter, completing 659 Project Renovate remodels and 711 Project Elevate remodels. We continue to target annualized comp sales lift of approximately 6% in Project Renovate stores and approximately 3% in Project Elevate stores. These projects are not only enhancing the customer experience, but also the store associate experience. In turn, we believe we can continue to improve customer satisfaction, store manager turnover, and sales. Our third strategic growth pillar is driving greater enterprise-wide efficiency. We continue to pursue opportunities to drive greater efficiencies while lowering costs across the organization, including increased supply chain productivity, further simplification in our stores, inventory optimization, and increased use of artificial intelligence. Within our supply chain, increased productivity in both our distribution and transportation functions during the quarter helped us mitigate a portion of the substantial increase in our fuel cost. Additionally, while we are still early in our AI journey, we are building an AI operating system for the enterprise focused on reshaping our workflows to improve productivity and enablement. Overall, we are making meaningful progress advancing our AI goals, including creating shared enterprise-wide foundations and building momentum around new AI operating models. These steps have allowed us to accelerate adoption of high-value use cases and we believe will improve how we engage with customers and how they shop with us, as well as drive greater cost efficiencies throughout the business. Our final strategic growth pillar is extending our reach. We continue to extend our unique combination of value and convenience to new communities across the country. In Q1, we opened 190 new stores in the U.S. as part of our continued plan to open a total of 450 new stores in 2026. Importantly, these projects continue to be one of our best uses of capital, delivering healthy returns while also expanding our access to new customers and communities. In addition to our new Dollar General store growth, we continue to test, learn, and refine our strategies for international growth in Mexico. As part of our plans to open a total of approximately 10 stores in Mexico in 2026, we opened five Mi Super Dollar General stores in Q1, bringing us to a total of 21 stores in Mexico. While our core business proposition of value and convenience continues to resonate with customers in Mexico, we are leveraging our customer, real estate, and merchandising insights to further expand our reach and capture more of those exciting growth opportunities. Overall, we are confident in our strategy and excited about our plans to build on our progress toward the goals laid out in our long-term financial framework. In closing, we are pleased with our Q1 performance and proud of the team's efforts to start this year. Our people are our greatest strategic advantage, and I want to thank our approximately 195,000 employees for their ongoing commitment and dedication to serving our customers and communities every day. Looking ahead, we believe we are well positioned to continue advancing our progress while fulfilling our mission of serving others. With that, operator, we would now like to open the lines for questions.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. We ask you please limit yourself to one question so as many analysts as possible can ask questions. To ask a question at this time, please press *1 from your telephone keypad. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from the line of Matthew Boss with JPMorgan. Please proceed with your question.
Thanks, and congrats on a nice quarter. So Todd, could you elaborate on the consistency of comps despite the backdrop, with positive comps in all three periods of the quarter? Have you seen any change in trends in May to kick off the second quarter? And, on the larger picture, how do you believe gas prices, if they remain elevated, will impact your results and opportunities you see to amplify value, if we just use history as a guide for your business?
Thank you, Matthew. A couple things. Let's concentrate quickly on Q1. We started out in the hole with two weeks of negative comp and thousands of stores closed at any given time, especially during week one. The team rallied—transportation, warehousing, stores—and for the balance of the quarter, 11 of the 13 weeks were on the upper end of our range, which was good to see. As we entered and exited May, that trend continued into Q2. We're pleased with where we are on the top line. What we are seeing is an accelerated rate of trade-in. All cohorts are trading in, but the upper end—the $100k-plus cohort—is trading in the most, and we saw that during the quarter and into May. The pressures that persisted prior to fuel prices—sustained inflation and now elevated fuel prices—drive that trade-in. We have always said when fuel hits around $4 and sustains, you start to see that trade-in come in and our core customer needs us most. That's what's happening. History repeats itself pretty well. At Dollar General, we try to capitalize on that because we are here for our customer. Value and convenience are paramount, especially now. We're working hard to ensure the value equation is front and center for both our core customer and trading customers. Our everyday price is very strong across classes of trade, and we've been targeting promotional activity very specifically to drive additional traffic into our stores. That targeted promotion is showing results. I cannot emphasize enough that the $1 price point has been a real saver for our core customer and is resonating with the trade-in customer. Value Valley comp was up 18.4%. We are introducing $1 offerings across the store, including a frozen door exclusively at $1, which has performed well since launch. So there's a lot to be proud of, and we are doing a lot to be here for our customer. When she needs us most, we step up. The team has launched retention-focused areas to ensure we retain the trading customer as things stabilize, and those elements are in full bloom to engage customers and make sure they think of Dollar General when conditions improve.
Our next question is from the line of Michael Lasser with UBS. Please proceed with your question.
Good morning. Thank you for taking my question. Todd, you mentioned being a bit more promotional to support traffic growth. There is a perception based on commentary from some other consumable retailers that the environment is becoming more competitive and that players may have to sacrifice profitability to maintain or grow market share. A: Are you seeing any evidence of that? Is that what is driving your decision to be a bit more promotional? And B: How do you expect this to play out over the next couple of quarters, especially as your traffic comparisons get tougher and you may have to work the model harder to drive the top line?
The core of your question is the promotional piece. Our promotional activity increased during the quarter and will probably continue to increase, but it has been very targeted and proactive—not reactive. We're being prudent on where we promote, how we promote, and the value we show. Consumers are definitely looking for value across all cohorts. You can see it in our everyday business and in seasonal and discretionary areas as well. We did a nice job balancing consumables and nonconsumables; nonconsumables are on their fifth consecutive quarter of growth. Value wins all the time. Some competitors may play catch-up, but we are already ahead on everyday value. The cadence of promotional activity we layered in should continue to move the needle and promote traffic. We're proud of the 1.4% traffic gain in the quarter, and again, the $1 price point anchors a lot of our everyday pricing.
Our next question is from the line of Zihan Ma with Bernstein. Please proceed with your question.
Hi. Thank you for taking my question. On the margin side: as you start to lap some of the tougher shrink comparisons as the year goes on, how should we think about cadence of margin from here? Longer term, your long-term algorithm implies a gross margin level that hasn't really been achieved sustainably before outside a quarter or two during COVID. What gives you confidence that will be sustainable longer term?
Thanks, Zihan. I will start with Q1 gross margin to help contextualize the balance of the year and the longer-term perspective. In Q1, we were very pleased with gross margin performance—65 basis points improvement versus prior year—which exceeded our expectations even with higher-than-anticipated fuel cost. The primary drivers were markups as the team continues to do a great job with category management. Importantly, price was not a meaningful driver in Q1. Shrink and damages also delivered better-than-expected results. We leaned into promotions and still delivered strong gross margin performance. From a Q2 and back-half perspective, there's not much to call out other than compares getting a bit more challenging versus Q1, and we do anticipate fuel cost to remain elevated versus prior year for the balance of the year. We're watching the tariff landscape; our full-year guidance reflects current tariff levels. On the tailwind side, you can expect continued, albeit somewhat more modest, improvement in shrink and continued improvement in damages. We also expect growth from our DG Media Network, nonconsumables merchandising, supply chain productivity, and category management. Looking to our long-term framework, our target of 6% to 7% operating margin still feels achievable. We expect shrink and damages to contribute approximately 50 basis points of incremental gross margin expansion over time, on top of the more than 80 basis points of expansion we delivered in 2025 from shrink. Shrink continues to improve at a faster-than-anticipated rate; we delivered 28 basis points in Q1. DG Media Network is expected to be a meaningful contributor—about 50 basis points of incremental margin expansion targeted over the next 3 to 4 years—and it's building momentum even though it's early innings. We expect another 70 basis points of gross margin expansion from other drivers. We are seeing strong proof points: nonconsumables growth, supply chain efficiencies, category management, and Value Valley performance. Overall, we feel very good about our ability to deliver against our long-term framework targets.
Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Hey, Todd, Donny. As you prepare to transition away from the business, do you think the top-line growth rate on comps might normalize closer back to 3% versus the 2%? Also, we notice the contribution from fulfillment or last mile stepped down a little. I know you have tougher compares, but are you still seeing enough incrementality where that could be a unique driver? Thank you.
Thanks for the question. I'm bullish on the top line and our ability to continue to grow. Our long-term framework goal of 2% to 3% comp growth is achievable—the business does well in that range, and Q1's 2% comp with substantial bottom-line growth is evidence. The team has set up the future well by balancing consumables and nonconsumables despite the tough macro backdrop. That balance is proof the teams are working to show value and convenience every day. Delivery is an important piece of the future. I'll let Emily add color on delivery.
We are excited about customer reaction and engagement in our delivery program. We are still within the first year of full deployment, particularly on our MyDG delivery portion of the business. For the quarter, delivery contributed roughly 70 basis points, which is a meaningful contribution to our in-store growth. Delivery for us is highly incremental and profitable today. Customers shopping delivery buy a larger basket versus in-store transactions, existing customers use delivery to shop more often, and new customers use delivery to find us. We continue to deliver more than 80% of orders within one hour, and approximately 40% within 30 minutes, which is a function of our store proximity to customers. That convenience is especially important for our rural customers. High repeat rates indicate customers see the value, and I see a continued pathway for growth. One important deliverable this year is piloting a subscription service for delivery, which we expect will add growth. Customers have told us they want a subscription offering, and we're excited to pilot that later this year.
The next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.
Good morning, and thanks for taking my question. Looking at the nonconsumables category for the balance of the year, how confident are you in sustaining momentum there? Would you expect nonconsumables to continue outpacing consumables even with some of the new macro headwinds?
Thanks, Rupesh. Yes, we are confident driving both consumables and nonconsumables. We prioritized the nonconsumable business about a year ago and have leaned into it. The team has done a great job. Value in our nonconsumable business is key—relevancy and on-trend items matter for our customers and trade-in shoppers. The $1 price point is important in nonconsumables; for example, a large percentage of our Easter assortment this year on the nonconsumable side was at $1. That trend continues into spring and summer and will continue into the back half. The $1 price point is important to our core customer and is attracting the trade-in customer as well. We feel good about where we are, and sustaining momentum is achievable. Our long-term model anticipates bending the trend toward more nonconsumable growth, and we're on our fifth consecutive quarter showing that trend.
Next question is from the line of John Heinbockel with Guggenheim Partners. Please proceed with your question.
Hey, Todd. Can you talk about when someone adds a $1 item in the basket, what happens to units per transaction and basket size? Could more $1 items put any pressure on labor hours in terms of unit throughput?
Thanks, John. We watch the basket closely. Our ticket went up about 0.5 points in the quarter with transactions up 1.4%, so we felt good about that even with the large comp in Value Valley and other $1 price points. We haven't been concerned about average basket size or AUR. The key is delivering value and the halo effect of $1. The $1 price point often acts as an add-on to the basket—customers pick up extra $1 items, especially early in the month. At the end of the month, the $1 items help balance budgets when customers run low on funds. So the $1 price point is shopped differently across the cycle and fills multiple roles. We haven't seen labor pressure attributable to $1 items; it helps drive store productivity and traffic without negatively impacting throughput.
The next question is from the line of Paul Lejuez with Citigroup. Please proceed with your question.
Thanks. You spoke about the trade-in customer in the $100k-plus range. We hear a lot about customers trading down in income level. Where do you think your trade-in customers are coming from? Also, what did you see specifically with the lower-end consumer through the quarter as gas prices stayed high or increased?
Thanks, Paul. Trade-in customers are coming from the same areas we've seen historically, primarily from drug and grocery channels. We saw meaningful trade-in from the $100k-plus cohort during the quarter, and that continued into Q2 at an accelerated rate. Our core customer is under distress from sustained inflation and higher gas prices, and that's driving them to Dollar General even more. Our core customer tends to shop more frequently—with transactions up and basket sizes smaller—as they balance budgets. They're resilient and take roughly a quarter to adjust budgeting behaviors, and we help by offering everyday value, targeted promotions, and the $1 price point. Customers look to us to help manage those constraints, which is reflected in our results. We'll continue to foster trade-in while taking care of the core customer.
Next question is from the line of Seth Sigman with Barclays. Please proceed with your question.
Good morning. A couple clarifications. First, on the guidance change, you raised it by $0.10. It looks like $0.05 of that comes from the tax rate, and the rest from Q1 upside. Can you confirm if and how you changed assumptions for the rest of the year? Second, on promotions being higher—are those actually different than planned or are they consistent with your plan?
Seth, you're thinking about the guidance change the right way. The EPS increase to $7.20 to $7.45 was driven by strong Q1 outperformance, the outlook for the balance of the year, and the reduction in the tax rate to about 24.5%. You can think of it roughly as half driven by Q1 outperformance and half from the tax-rate change. Overall, the change reflects the evolving macro environment and continued progress against our key initiatives, and we're well ahead of several goals in our long-term framework. We feel good about the guidance based on what we know today, but remain prudent given the evolving landscape.
On the promotional activity, it's not different than we anticipated. As Donny said, it's targeted and planned. It's not widespread; it's focused on driving traffic and helping core customers balance budgets while retaining trading customers. Our everyday pricing and the $1 price point remain central; promotions are a tactical complement to those initiatives.
The next question is from the line of Scot Ciccarelli with Truist Securities. Please proceed with your question.
Good morning. What percent of your mix today is the $1-or-less price point so we can better gauge the impact of this initiative on the total business? And on third-party delivery, seasonality probably led to the comp contribution decline from 80 basis points in 4Q to 70 basis points in 1Q. How do you expect delivery growth to scale? Any numbers around that would be helpful.
We watch the $1 price point closely. Value Valley is 500 rotating SKUs against more than 2,000 total SKUs at or below $1 across the store. It's a meaningful part of the overall $1 price point comp, but there are many other areas, including private brands, contributing at $1. It's a meaningful contributor—Value Valley comp was up 18.4%—and there's opportunity to expand the $1 price point across the store.
From a delivery perspective, we expect continued growth. We deployed and scaled delivery over 2025, which is a factor in quarter-to-quarter contributions. Improving the digital shopping experience, combined with new offers like the subscription pilot, should continue to drive growth beyond this year.
The next question is from the line of Spencer Hannes with Wolfe Research. Please proceed with your question.
Good morning. On the remodel program, how has that been tracking relative to expectations and what have you seen in the latest cohort of stores? How are you thinking about year-two lifts? Also, any more color on the delivery subscription pilot later this year—what will that look like?
I'll cover Renovate and Elevate. Renovate is our full remodel that touches 100% of the store; we're planning 2,000 Renovate projects this year. Elevate is a lighter remodel that touches about 80% of the store; we're planning 2,250 Elevate projects. Using both projects in combination lets us update our store base in an accelerated manner and supports higher brand standards for customers and employees. Our targets remain a 6% annualized lift from Renovate and a 3% annualized lift from Elevate. We feel good about tracking to those targets. Elevate began last year, so we're early on reading longer-term lifts, but the expectation is these projects reposition stores and drive accelerated growth from the mature base. On subscription, customers have expressed interest. We're putting together a pilot that combines targeted benefits at Dollar General with other offers chosen specifically for our customer base. We're excited to pilot the program and report results when available.
The next question is from the line of Peter Keith with Piper Sandler. Please proceed with your question.
Thank you. With gas prices high, you talked about the impact on the consumer. I'm thinking more about the supply chain—if gas prices continue to rise, Donny, has your gross margin outlook contemplated higher gas prices? Are those being offset by other items coming in better than expected on the gross margin line?
Peter, we do anticipate fuel cost to remain elevated versus prior year for the balance of the year, and we will look to mitigate any additional pressure above our forecasted rates. So far, the team has done a strong job offsetting those pressures, particularly in Q1, and that is our expectation for the balance of the year as well.
The next question is from the line of Robbie Ohmes with Bank of America. Please proceed with your question.
Good morning. Can you talk about the SKU reduction initiatives—where you are at and what kind of benefits you expect for the balance of the year?
Great question. We continue SKU rationalization—about 1,200 SKUs removed over the last couple of years, maybe a little more now. Reductions improve productivity in our DCs and stores and add to gross margin in a meaningful way. They help stores manage freight and in-stock levels more effectively. It's methodical and done to ensure the trade-offs for customers are appropriate, and I believe we've done a good job. You can see the benefits in our comps since the reductions. There's more opportunity ahead; the team is looking at additional reductions. Proper SKU rationalization can grow sales, mitigate store and DC expense, and expand gross margin.
Our last question is from the line of Corey Tarlowe with Jefferies. Please proceed with your question.
Thanks and good morning. Donny, can you talk about margin cadence for the year? You comped 2% in Q1 and EBIT margins leveraged about 40 basis points. Compares get tougher, and the revised guide implies Q1 may be the most substantial EBIT margin expansion. How are you thinking about margin cadence across the quarters?
Corey, you are thinking about this correctly. From a gross margin perspective, compares do get a bit more challenging and we anticipate higher field costs to remain elevated. However, we feel good about tailwinds from our gross margin drivers. Many are performing ahead of expectations, but it's early in the year and there's still a lot of the year left. Overall, we feel good about the guidance we provided based on what we know today.
This will conclude our question-and-answer session, and we will also conclude today's call. We thank you for your participation. Have a wonderful day.