管理層發言
Greetings, and welcome to the Dollar General Q3 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kevin Walker, Vice President of Investor Relations. Kevin, please go ahead.
Thank you, and good morning, everyone. On the call with me today are Todd Vasos, our CEO; and Donny Lau, our CFO. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News and Events. Let me caution you that today's comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our financial guidance, long-term financial framework, strategy, initiatives, plans, goals, priorities, opportunities, expectations or beliefs about future matters and other statements that are not limited to historical fact. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These factors include, but are not limited to, those identified in our earnings release issued this morning under Risk Factors in our 2024 Form 10-K filed on March 21, 2025, and any later filed periodic report and in the comments that are made on this call. You should not unduly rely on forward-looking statements which speak only as of today's date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law. At the end of our prepared remarks, we will open the call up for your questions. To allow us to address as many questions as possible in the queue, please limit yourself to one question. Now it is my pleasure to turn the call over to Todd.
Thank you, Kevin, and welcome to everyone joining our call. We are pleased with our third quarter results, including another quarter of balanced sales growth as well as strong earnings results that significantly exceeded our expectations. I want to thank our team for their ongoing commitment to serving our customers, communities and each other. Our mission of serving others informs everything we do at Dollar General and our efforts are resonating with customers as we continue to enhance our value and convenience proposition. For today's call, I'll begin by recapping some of the highlights of our third quarter performance as well as sharing our latest observations on the consumer environment. After that, Donny 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 essentially was flat. Within the basket, an increase in average unit retail price per item was offset by fewer items on average. This traffic and basket composition is consistent with what we have historically observed when our core customer feels more pressured on their spending as they come in more often but have smaller basket sizes. For the third consecutive quarter, we delivered broad-based category sales growth with positive comp sales in each of our consumables, seasonal, home and apparel categories. Notably, the comp sales increase in non-consumable sales once again outpaced a solid increase in consumable sales. From a monthly cadence perspective, all 3 periods were positive, led by August. September was the softest period of the quarter as we lapped significant hurricane activity in the prior year before rebounding to higher levels in the month of October. And despite the delay in SNAP payments in early November, we are pleased with our strong sales performance to begin quarter 4. 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 and our communities. 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 3 to 4 percentage points on average for mass retailers. We also continue to see a substantial offering of more than 2,000 SKUs at or below the $1 price point as an important component of the value offering for our customers. For example, our Value Valley offering, which is comprised of more than 500 rotating SKUs at the $1 price point was once again our strongest performing sets in the quarter with same-store sales growth of 7.6%. With nearly 21,000 stores located within 5 miles of 75% of the U.S. 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 low prices they expect on the products they need and as we help them save time and money every day. Overall, we're proud of our Q3 results and the significant progress we've made this year improving our operating and financial performance. As we continue to invest in the growth and development of our teams, we are seeing lower year-over-year turnover in all levels of our in-store positions which is also contributing to our improved execution and financial results. The progress we've made further supports our confidence in our long-term financial framework, and we are excited about the opportunities ahead. Before I turn the call over for our financial update, I want to take the opportunity to congratulate Emily Taylor on her promotion to Chief Operating Officer. During her time at Dollar General, she has been a strong leader who has consistently enhanced the customer experience both in-store and through our innovative digital offerings. She and her teams have elevated the Dollar General and pOpshelf brands while also improving operational efficiency, and we are excited to expand her responsibilities moving forward. I'm confident she is the right leader for this position and look forward to working with her in this new role. I'm also excited to welcome Donny Lau as our new CFO. We are thrilled to have him back at Dollar General and look forward to working with him to further accelerate our progress and drive sustainable growth over the long term. With that, I'll now turn the call over to Donny.
Thank you, Todd, and good morning, everyone. After almost 2.5 years away, I'm excited to be back at Dollar General, and I look forward to connecting with many of you in the months ahead. And while I've only been back a short time, it's clear there are substantial opportunities for growth and value creation. I'm especially excited about the progress we're making against key initiatives which is contributing to strong operational and financial results. I look forward to working with the team to advance our strategic priorities as we look to build on our momentum, drive long-term sustainable growth and deliver strong returns on invested capital. I'll now cover our Q3 results. Since Todd has taken you through the top line results for the quarter, my comments will cover some of the other important financial details. Unless we specifically note otherwise, all comparisons are year-over-year. All references to EPS refer to diluted earnings per share and all years noted refer to the corresponding fiscal year. For Q3, gross profit as a percentage of sales was 29.9%, an increase of 107 basis points. This increase was primarily attributable to higher inventory markups and lower shrink, partially offset by an increased LIFO provision. Our ongoing efforts to reduce shrink once again contributed to strong operating margin expansion in Q3 as we delivered a 90 basis point improvement in shrink versus prior year. Notably, shrink continues to improve at a much higher and faster rate compared to the expectations contemplated in our long-term financial framework, and we expect continued improvement over time. Turning to SG&A, which 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 prior year, and a decrease of 8.2% on an average per store basis. The team continues to do a terrific job reducing inventory while driving sales and improving in-stock levels. Overall, we're pleased with our inventory position as we enter this important holiday shopping season. Importantly, we believe there is opportunity to further reduce and optimize our inventory position, and we expect continued progress as we move ahead. Year-to-date through Q3, we generated significant cash flow from operations of $2.8 billion, which represents an increase of 28%. As previously communicated, we redeemed $600 million of senior notes during the quarter, well ahead of their scheduled April 2027 maturity, further strengthening our balance sheet and reducing future interest expense. We also paid a dividend of $0.59 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 repurchases. And while our leverage ratio remains above our goal of less than 3x 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 result 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 in 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. We 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.
Thank you, Donny. I'll take the next few minutes to provide updates on 3 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 U.S., we've opened 7 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 impacts 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 1-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 remodels. 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 U.S., 2,000 Project Renovate remodels and 2,250 Project Elevate remodels and 20 relocations and 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, cannibalization which overall has remained consistent and predictable, cash payback which we expect in approximately 2 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 stores in the U.S. And 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. And 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. And 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 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 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. And 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 1 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 increase 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 to 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. And 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 3 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 3 non-consumable categories for the third consecutive quarter. This growth was led by our 2 largest non-consumable categories, seasonal and home, each of which delivered comp sales growth of approximately 4% in the quarter. Our pOpshelf 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 pOpshelf and apply them to our non-consumable approach in our Dollar General stores as we further enhance that offering for customers. We believe our non-consumable sales growth, both in Dollar General and pOpshelf stores, continue to benefit from improved execution and a more compelling assortment as well as from the expanded trade-in shopping we've seen from higher-income customers. These results, including multiple quarters of strong sales performance and market share gain, continues to demonstrate that our treasure hunt approach is resonating with customers. Furthermore, our focus on value continues to guide our efforts and drive our success in these categories. And with approximately 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 share 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. 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.
分析師問答
Our first question is from Rupesh Parikh from Oppenheimer.
Welcome back, Donny. So I have a 2-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, et cetera, and on the damages front.
Yes. 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 in Q3, and that's on top of 137 basis points in Q2. And from a Q3 perspective that's also despite 79 basis points 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 going to 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 and the team is really doing a nice job in terms of balancing price and managing mix. In terms of Q4, we do expect another quarter of gross margin expansion in Q4. We expect to see continued improvement in shrink as those alluded to on the prepared remarks to a lesser extent versus Q3. And that's because we really are lapping outsized or more improvement in Q4 of 2024 to the tune of about 68 basis points. We'll also be lapping a discrete item in 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 continued improvement in damages as well as supply chain efficiencies. The one headwind I will note is just LIFO, although we do expect to partially offset that with price and through continue to manage mix as well. And so again, overall, on the gross margin line, I'd say, 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.
Thanks for the question, Rupesh. I feel optimistic about our long-term gross margin opportunities. Our improvements in shrink have boosted our confidence in achieving our long-term gross margin goals. Currently, even though we've removed self-checkout, which helped, the 6,500 stores that never had it have experienced significant decreases in shrink and increases in gross margin. This suggests that there are likely more gross margin opportunities than we initially anticipated. Additionally, we have many opportunities ahead, especially concerning damages. While we've made some progress with damage recoveries recently, we expect to see even more improvements next year and beyond. We'll approach this with similar execution as we have with our shrink initiatives. Furthermore, our product mix remains strong, largely due to our team's efforts on non-consumable initiatives, which have enhanced our gross margins in various categories. Lastly, we are in the early stages of our media network, but we're off to a great start with double-digit growth this quarter. The long-term outlook in this area also appears promising. Overall, we feel confident about our progress and the long-term potential.
I have a 2-part one on real estate. So a short-term one, I think, Todd, you mentioned that the remodels are generating about like a 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, drug stores closing, how does that change your view on your real estate opportunities and the growth rate you're willing to pursue?
We're really pleased with the remodel program. We're only in the first year of Project Elevate and what we've observed so far has boosted our confidence. In fact, as mentioned in my prepared remarks, we're planning to undertake another 2,250 remodels next year. We're currently seeing a lift around 3%, but this is just the beginning. As we continue to enhance this program next year, we will explore ways to achieve even better comparable sales. A 3% growth is very strong and aligns with our strategy to move ahead. Additionally, with Project Renovate at 6%, we're also just beginning to see positive results. We've been involved in these projects for many years, and as we refine our product offerings and cooler systems, we see significant potential for long-term sales growth, though it may be closer to 6% than the 8% we have achieved in the past. However, I would gladly accept a 6% comp considering the investments we are making. Therefore, we are confident in proceeding with another 2,000 projects next year and are optimistic about both initiatives. As retailers, we are always striving for better performance, and we will continue to push ourselves. Regarding long-term growth, we still feel optimistic. We have 11,000 potential locations for Dollar General stores in the continental United States. While we know we won't open all of them, the current competition is not opening many stores, which means we don't feel the need to rush our store openings. We believe that aiming for around 450 stores this year, with an appropriate mix of remodels and new stores, is the right strategy as we maintain our existing store base. With nearly 17% returns on new stores, we are very positive about our future opportunities and are poised to expand when appropriate.
Congrats on a nice quarter. So maybe 2-part questions, Todd, first, how would you assess current health of your low to middle income customer, maybe leveraging your latest survey work? And what's the traffic versus basket interplay that you've historically seen in similar economic backdrop? And then for Donny, 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.
Thank you, Matt. I'll begin by saying that as we moved out of Q3, the low to middle-income consumer is certainly feeling the pressure. She is very conscious of her shopping choices, often making trade-offs at the shelf. The great advantage of Dollar General is the extreme value we provide along with convenience, which is clearly appealing to our customers, as evidenced by a 2.5% comparable sales increase for the quarter. This traffic figure is significantly better than what our competitors have reported. As we have always mentioned, traffic is the key metric because it indicates the sustainability of our growth. We can use the increased traffic to foster long-term growth at Dollar General, so stay tuned for more on that. We know how to attract these customers and have already launched a retention program to keep both new and existing customers engaged, including those from the middle and high-income segments. Regarding low-income consumers, we feel confident about our everyday pricing strategy and have a solid promotional balance, which is crucial for this demographic. Our surveys indicate that we have over 2,000 items priced at $1 or less in our stores. Our team has effectively utilized insights about low-income consumers to enhance our holiday performance this year. For the holiday season, 20% of our SKUs are priced at $1, and 70% of our entire holiday assortment is priced at $3 or less. This strategy will likely resonate with our customers, and we are off to a positive start in Q4.
And then in terms of your question on 2026 and long-term framework, Matt, 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 time lines contemplated in our long-term financial framework. And if you just take a step back at a high level, I 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 the way I think about it, Matt, is given all the great work the team has accomplished around our Back to Basics strategy, 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 against certain what I call value drivers. And the great news is we're making great progress across many of these drivers. And I 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 we'll continue to accelerate where we see opportunity. And so overall, I think there's a lot of reasons to be optimistic as we move ahead.
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.
I’ll begin with the first part and then let Donny discuss the economics briefly. We are very proud of our progress in our digital journey. As mentioned, our media network is still in the early stages, and overall, our digital journey is also just getting started. However, we are off to a great start and it has made a significant contribution again this quarter. Looking at our digital segment, we see that the proposition for our core customer and customers in general shows very high incrementality rates among shoppers in the digital program, exceeding 70%, which indicates strong new customer acquisition. We're also observing much larger basket sizes through our digital channels, suggesting that we're attracting a different type of customer compared to what we usually see in our brick-and-mortar stores, along with more signs of stock-up behaviors rather than just fill-in purchases. We feel positive about this incrementality and the additional benefits. Our real opportunity lies in our ability to serve rural America, which we consider to be our value proposition at this stage. We're making great progress there. Furthermore, we have a unique advantage, as we cover rural America across the nation. Currently, more than 70% of our orders are delivered directly to customers' front doors within an hour or less, even in rural areas. This makes for a compelling value that others haven't matched, and we will continue to nurture this and explore ways to build momentum in this area.
Yes, as Todd alluded to, we're especially pleased with the incrementality. I think the other way to think about that is we're introducing new customers to the Dollar General brand, right? And the great news is, 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 we're seeing good growth here, and it is sales and profit accretive, which is obviously fantastic to see.
Donny, 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 going to get? And does it provide enough margin of safety looking forward to next year when SNAP could become a headwind and other factors are going to 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, Michael. I'll begin and then let Donny finish. We're quite pleased with the 2.5% comparable sales. As I mentioned earlier, the comp is strong at 2.5%. We've consistently exceeded 2% for several quarters. Looking ahead to Q4, we're optimistic about our full year guidance, which also suggests a stronger comp in Q4. The make-up of the comp is essential, and I know you understand that, having been with us on this journey for many years. Converting a 2.5% comp into a 2.5% traffic number reflects a solid performance and indicates positive future trends in comp. As retailers, we are always aiming for improvement. Our goal is to achieve even higher numbers. However, our focus is on sustainability rather than quick wins in comps. I believe that is the foundation of our strategy moving forward. Additionally, regarding our promotional strategy, we feel we are well-positioned and do not foresee a need to be more promotional in the near future. Our approach includes maintaining great everyday prices, a balanced promotional strategy, and our significant $1 price point, which helps us effectively drive comps.
Yes. I want to add that we have a lot of confidence in achieving the 2% to 3% growth within the timeframe we've outlined in our long-term framework. The good news is we can meet our long-term targets within this range. It's also important to highlight that new stores and remodels are expected to contribute about 150 to 200 basis points to this growth. Additionally, we are seeing growth in new customers, trade-ins, and higher income levels, along with our strategy to retain these customers. Overall, we feel very positive about our plans to enhance our sales momentum for the remainder of the year and into the future. Furthermore, regarding margins, I believe we are likely to face more favorable conditions than challenges as we progress into 2026 and beyond.
Donny, 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 retail 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?
Yes. I'll let Todd elaborate a bit more on the media network. At a high level regarding margins, I feel optimistic about our ability to meet our margin targets. We've discussed this briefly, but we have several factors in place that we believe will lead to margin expansion over time. While our focus is on operating margins, gross profit is expected to be the primary driver of margin growth during this period. We still anticipate that shrink and damages will contribute at least 120 basis points to gross margin expansion. Importantly, shrink is improving at a faster rate than we initially expected, which gives us confidence for ongoing improvements. Damages are aligning with our expectations, and I'm pleased with this progress. Regarding the DG Media Network, as Todd mentioned, it's still early days, but we believe it will become a significant contributor over time. We are just starting to build momentum with this initiative. Additionally, there are many other factors that we expect will contribute, including further reductions in markdown risk, greater supply chain efficiencies, and ongoing growth in the non-consumables segment. We're seeing positive growth from our private brands as well. Overall, I feel very confident in our ability to achieve continued gross margin expansion as we move forward.
Yes. And Simeon, I would tell you that is 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.
Todd, 2 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? Or there has to be a natural floor that you don't want to go below?
Yes, John, thanks for the questions. Yes, I would tell you, I'll start when you think about the shrink numbers, we feel good about where we're headed here. We had set our sights on, 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 and 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 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. And 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.
And Todd, I think you started to touch a little bit on this, but you've had almost 2 straight years of inventory declines. Obviously, there's a major working capital benefit. I have a 2-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?
Yes, I'll address that. We won't provide specific numbers, but I can share that we've intentionally reduced our inventory by cutting over 2,500 everyday SKUs in the past couple of years, and we have more reductions planned. This is something any competent retailer does over time. We don't see a need to increase our current inventory levels since we believe we're at optimal levels in many categories, although there are still areas where we can improve, which we'll focus on in 2026 and beyond. This should positively impact our shrink and damage lines going forward. Importantly, these efforts have not negatively affected our top line. In fact, we've maintained some of the highest fill rates we've seen in years, evidenced by the 2.5% comparable sales increase this quarter and robust traffic numbers. This indicates strong confidence from our customers to continue visiting Dollar General and finding what they need. We're optimistic about our position and believe there's still more to achieve. We see real opportunities, especially in gross margin, potentially exceeding our initial expectations in our long-term model.
Welcome back, Donny. I have 2 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+, can you talk about some of the key tenets of your competitive moat in the rural landscape and how you can compete more effectively?
Yes, thanks for the question. While we won't provide extensive details on Q4, I can say we're off to a strong start and feel positive about that, even amidst some SNAP benefit delays due to the government shutdown. It's important to note that consumers still needed to feed their families during this time, and many used cash with us when their benefits were unavailable. As those benefits resumed, we also saw an increase in SNAP transactions later in the month, which turned out to be beneficial for us in November. Additionally, customers purchased a variety of non-consumable items, and the holiday season is also commencing well. We remain optimistic, but it's essential to remember that there's still a lot of the quarter ahead and the significant Christmas selling season is upon us. As Donny indicated, we have considerable momentum heading into that holiday season and into next year. Regarding our competitive advantage, we feel confident about it. We've invested considerable time and resources into building and reinforcing our position in rural America, with 80% of our stores located in small towns, making it tough for competitors to replicate our model, whether in brick-and-mortar or online. We did not become complacent; instead, we acted promptly as we noticed our core customer beginning to embrace digital shopping. Our core customer tends to follow trends quickly, and we've adapted to this shift with purpose, focusing on providing service in rural areas within an hour where no one else can. We believe that’s a significant competitive advantage, and we will continue to enhance it while also maintaining a robust brick-and-mortar and digital business moving forward.
I wanted to follow up on the remodel program. The updated lifts you provided were helpful, but I'm curious about the potential tailwind in year 2, if there is one. Also, regarding the price gaps, you mentioned a 3% to 4% difference compared to competitors. Have you noticed any changes in your pricing strategy relative to those competitors?
Yes, I'll take those. 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. 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 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 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 and the long-term possibilities that those hold, including our pOpshelf in Mexico banners. We feel good. We're in test and learn mode on those 2, but we're seeing very nice sales gains. The customer is resonating with each of those brands, but more to come there as well.
Thank you. We reached the end of our question-and-answer session. And 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.