Good morning. My name is Robert, and I will be your conference operator today. At this time, I'd like to welcome everyone to Dollar General First Quarter 2020 Earnings Conference Call. Today is Thursday, May 28, 2020. This call is being recorded. Now I'd like to turn the conference over to Mr. Donny Lau, Vice President of Investor Relations and Corporate Strategy. Mr. Lau, you may begin.

Thank you, Robert, and good morning, everyone. On the call with me today are Todd Vasos, our CEO; Jeff Owen, our COO; and John Garratt, our CFO. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News & 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 strategy, plans, initiatives, goals, financial guidance or beliefs about future matters including, but not limited to, beliefs about COVID-19's future impact on the economy, our business and our customers. Forward-looking statements can be identified because they are not limited to statements of historical fact or use words such as may, will, should, could, would, can, believe, anticipate, expect, assume, intend, outlook, estimate, guidance, plan, opportunity, long term, look to, committed to, continue, ahead, seek, likely, potential or go and similar expressions. 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 2019 Form 10-K filed on March 19, 2020, our Form 10-Q filed this morning 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 call. 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.

Thank you, Donny, and welcome to everyone joining our call. These are certainly unprecedented times for us all, and our hearts go out to the communities and individuals affected by the COVID-19 crisis. On behalf of Dollar General, I want to express our deepest gratitude to those serving on the front lines and especially to our teammates for their dedicated efforts in fulfilling our mission of serving others by providing affordable, convenient, and close-to-home access to essential items at a time when our customers need them most. I'm inspired by the phenomenal work our associates are doing and could not be more proud of how they've responded to the needs of our communities. In recognition of the essential work performed by our employees in April, the New York Stock Exchange recognized one of our store managers, Crystal Burroughs, during the #Gratitude campaign, where the Exchange joined millions of others in honoring the way people on the front lines have responded to the COVID-19 crisis. As one of America's essential retailers, we are committed to being part of the solution during these difficult times, and we are continuing to support these efforts through our expansive network of more than 16,000 store locations currently located within 5 miles of more than 75% of the U.S. population. Our convenient small box format, providing for quick in-and-out access and limited crowds, both of which are conducive to social distancing. Our broad assortment of everyday household essential items, our ongoing commitment to everyday low prices, our flexible supply chain, our growing digital capabilities and recent measures taken to further safeguard the well-being of both our team members and customers, and of course, our talented and committed associates. For more than 80 years, Dollar General has served customers through a unique combination of value and convenience, and we will continue to be there for them in both good and challenging times. Let me now highlight some of the key actions we've taken in response to COVID-19 with two key priorities in mind. First is the health and safety of our employees, customers and communities we serve. Second is maintaining the continuity of our business and operations. For our employees and customers, we took swift and proactive action to keep them safe, while keeping stores open and running with minimal disruption. We closed one hour early to allow greater time for stocking and enhanced cleaning protocols, distributed masks and gloves to all employees, implemented social distancing measures in our stores, distribution centers and at-the-store support center, and completed the installation of nearly 40,000 plexiglass barriers at checkout across the entire chain. To further support heightened demand, we have hired over 50,000 people since mid-March, nearly double our normal hiring rate. We are happy to welcome these new employees to our team, and our hiring efforts are continuing. We also invested approximately $60 million in employee appreciation bonuses and provided enhanced benefits and resources, including expanded paid leave and greater access to telehealth services. And we contributed to our employee assistance foundation to assist our coworkers during times of need. All these actions have helped to ensure the continuity of our business at a time when customers need us most. To support our communities, we dedicated the first hour of each day to seniors and provided a discount for first responders, medical personnel and National Guard members. And through the Dollar General Literacy Foundation, Save the Children, an organization working to ensure children in rural America continue to learn and have access to nutritious food during nationwide school closures, will receive a $2 million donation. Beyond these actions, we remain focused on advancing our operating priorities and strategic initiatives as we look to further meet the evolving needs of our customers and better position Dollar General to emerge from this crisis even stronger than before. Turning now to our first quarter performance. The quarter was highlighted by extraordinary growth in both top and bottom lines. These results reflect significant changes in shopping patterns, which began in March as consumers reacted to the COVID-19 pandemic. For the month of February, same-store sales increased 5.5%, driven by broad-based performance across many fronts, which we believe speaks to the continued strength and sustained momentum of the underlying business. Beginning in March, we experienced a significant surge in demand and sales as consumers began to stock up, and category mix shifted even more than usual to our consumable category. For the month in total, comp sales increased 34.5%. April sales moderated in comparison to March, but remained elevated as consumers continue to replenish household essentials at a rate greater than normal. During April, we also experienced significant growth in our non-consumable businesses. And our three non-consumable categories delivered a combined comp sales increase in excess of our consumable business. For the month in total, same-store sales increased 21.5%. Overall, first quarter net sales increased 27.6% to $8.4 billion, driven by comp sales growth of 21.7%, including significant growth in average basket size and a meaningful increase in customer traffic. Once again, this quarter, we increased our market share in highly consumable product sales as measured by syndicated data. Importantly, our data suggests a meaningful increase in new customers, underscoring the broadening appeal of our value and convenience proposition. We're particularly pleased that we delivered a significant operating margin expansion this quarter, which contributed to diluted EPS of $2.56, an increase of 73% over the prior year. Collectively, these results reflect our commitment to doing everything we can to support our employees, customers and communities during this time and further validates our belief that we are pursuing the right strategies to create meaningful long-term shareholder value. We continue to believe we operate in one of the most attractive sectors in retail and having established an even stronger bond with existing customers during these unprecedented times. Combined with the actions we've taken to forge new customer relationships, we believe we are well positioned to drive continued growth, even in what's expected to be a challenging economic environment. With that, I'll now turn the call over to John.

Thank you, Todd, and good morning, everyone. Before I begin, I'd like to echo Todd's gratitude to our employees and note that my thoughts are with those who've been impacted by this crisis. Now that Todd has taken you through a few highlights of the first quarter, let me take you through some of the financial details. Unless I specifically note otherwise, all comparisons are year-over-year and all references to EPS refer to diluted earnings per share. As Todd already discussed sales, I will start with gross profit, which was positively impacted in the quarter by a significant increase in sales, including the impact of COVID-19. As a percentage of net sales, gross profit was 30.7% in the first quarter, an increase of 49 basis points. The gross profit rate increase was primarily attributable to a reduction in markdowns as a percentage of net sales and higher initial markups on inventory purchases. These factors were partially offset by increased distribution costs, which were driven by increased volume and our decision to incur discretionary bonus expense. SG&A as a percentage of net sales was 20.5%, a decrease of 204 basis points. Although we incurred certain incremental costs related to COVID-19, these costs were more than offset by the significant increase in sales. Expenses that were lower as a percentage of net sales this quarter include: Occupancy costs, retail labor, utilities, depreciation and amortization, and taxes and licenses. These items were partially offset by increased incentive compensation expense. Moving down the income statement, operating profit for the first quarter increased 69.2% to $867 million compared to $512 million in the first quarter of 2019. As a percentage of net sales, operating profit was 10.3%, an increase of 253 basis points. We believe the impact of COVID-19 significantly benefited operating profit in Q1, primarily through higher sales, partially offset by approximately $80 million of incremental investments that we made in response to the pandemic, including approximately $60 million in appreciation bonuses and nearly $20 million in measures taken to further protect the health and safety of our employees and customers, as well as enhanced benefits programs to support our store associates, distribution center employees, and private fleet drivers. Our effective tax rate for the quarter was 22.2% and compares to 20.8% in the first quarter last year. Finally, as Todd noted earlier, EPS for the first quarter increased 73% to $2.56. Turning now to our cash flow and balance sheet, which remains strong and provides us the financial flexibility to better support our customers and employees during these difficult times. The business generated significant cash flow from operations during the quarter, totaling $1.7 billion, an increase of $1.2 billion or 202%. This increase was primarily driven by strong operating performance, combined with lower levels of inventory as we continue to work closely with suppliers to improve in-stocks for high-demand products. Merchandise inventories were $4.1 billion at the end of the first quarter, essentially flat to prior year and a decrease of 5.5% on a per-store basis. Total capital expenditures in the first quarter were $195 million, and included our planned investments in new stores, remodels and relocations, and spending related to our strategic initiatives. During the quarter, we repurchased 0.5 million shares of our common stock for $63 million, and paid a quarterly dividend of $0.36 per common share outstanding at a total cost of $91 million. At the end of Q1, the remaining share repurchase authorization was $1.1 billion. In light of the COVID-19 uncertainty, and out of an abundance of caution, we proactively took steps during the quarter to further bolster our already strong liquidity position, including the temporary suspension of share repurchases and the issuance of $1.5 billion of senior notes on April 3. These measures, along with our strong cash flow, put us in an even stronger liquidity position with $2.7 billion of cash and cash equivalents and $1.1 billion of availability under our undrawn revolving credit facility at the end of Q1. Importantly, our capital allocation priorities remain unchanged. Our first priority is investing in high-return growth opportunities, including new store expansion and our strategic initiatives. We also remain committed to returning significant cash to shareholders through anticipated share repurchases when it is prudent to do so and quarterly dividends, all while maintaining our current investment-grade credit rating and managing to a leverage ratio of approximately 3x adjusted debt to EBITDA. Moving to an update on our financial outlook for fiscal 2020. Let me start by acknowledging the inherent and significant uncertainty that continues to exist around the severity and duration of the COVID-19 pandemic including its impact on the economy, consumer behavior and our business. In addition, the timing, scope and impact of both current and anticipated stimulus legislation and other governmental responses to the pandemic remains to be seen. As a result, it is difficult to predict specific outcomes. And while we expect to exceed our prior guidance for fiscal 2020 net sales, same-store sales and EPS, we are unable to estimate the extent of such upside with reasonable accuracy. Accordingly, we are withdrawing our sales, earnings and share repurchase guidance for fiscal 2020 that was issued on March 12, 2020, in conjunction with our Q4 earnings call. With regards to share repurchases, we are constantly evaluating our position and intend to resume our share buyback activity when it is prudent and advisable to do so, which may be as early as the 2020 second quarter. Finally, our 2020 outlook for capital spending and real estate projects remain unchanged from what we issued in our Q4 earnings release on March 12, 2020. Let me now provide some additional context as it relates to our full year outlook. Given the unusual situation, I will elaborate on our same-store sales trends, thus far, in May. Since the end of Q1 and through May 26, we have continued to experience elevated consumer demand in our stores, albeit with some intermittent moderation and in particular, over some of the more recent days. Overall, same-store sales have increased by approximately 22% during this time frame. That said, it is important to note that there are a number of factors which suggest that sales will moderate to more normalized levels beginning during the latter part of Q2, including the duration and impact of shelter-in-place restrictions and social distancing measures, the gradual reopening of other retailers, the tapering of benefits included in recent stimulus legislation, and managing through what is likely to be a more challenging economic environment for our consumers. With regards to our strategic initiatives, we continue to anticipate they will positively contribute to gross profit rate this year, specifically our non-consumable initiative, or NCI and DG Fresh. In addition, we also expect continued and meaningful investment in our initiatives this year, including ongoing expenses associated with each. We continue to believe these investments will improve operating margin over time, particularly as the benefits to gross margin continue to scale and ultimately outpace the associated expenses with both NCI and DG Fresh, expected to be accretive to operating margin in 2020. However, these investments will continue to pressure SG&A rates this year as we accelerate their rollouts. In closing, I want to reiterate that we are very proud of the team's execution and service during the quarter. We remain confident in our business model and our ongoing financial priorities to drive profitable same-store sales growth, healthy new store returns, strong free cash flow and long-term shareholder value. As always, we continue to be disciplined in how we manage expenses and capital with the goal of delivering consistent, strong financial performance, while strategically investing for the long term.

Thank you, John. I want to start by expressing my gratitude to our employees for their hard work and commitment through this challenging time. I will take the next few minutes to update you on our four operating priorities. The first priority is driving profitable sales growth. The team did an exceptional job this quarter implementing various growth initiatives despite the COVID-19 challenges. For instance, our cooler door expansion remains our most effective merchandising initiative. In this quarter, we installed over 15,000 cooler doors across our stores and anticipate installing about 55,000 doors throughout 2020, primarily in our higher capacity coolers, building on our successful track record in this area. Next, our private brands continue to be a focus as we look for ways to provide greater value for our customers while driving profitable sales growth. This quarter, we made significant strides in our rebranding and repositioning efforts, including the relaunch of our laundry brand under the Trueliving label. Our Clover Valley redesign has also started rolling out, with over 250 items currently available, and we plan to introduce more to enhance category awareness and customer adoption. Moving on to our Better For You offerings, which have become increasingly important as more food is consumed at home. This range is now available in around 6,000 stores, with plans to expand to nearly 7,000 by the end of the year. Additionally, our relationship with FedEx is progressing well; currently, this service is available in about 4,800 locations, and we aim to expand it to over 8,500 stores by year-end, helping us provide convenient access to services for our customers. Enhancing gross margin is another crucial focus area for us. In addition to our strategic initiatives, which Todd will elaborate on later, our foreign sourcing presents a significant opportunity for gross margin improvements. This quarter, we concentrated on supporting the business in a quickly changing global environment. Our team worked closely with supply partners to ensure product availability, including finding product substitutions and shifting production when needed. We see ample opportunity ahead to increase our foreign sourcing while diversifying our countries of origin to offer our customers greater value and a broader selection. We also aim to achieve supply chain efficiencies by further reducing stem miles and expanding our private fleet. We are proud of the team's accomplishments this quarter as we tackled record volumes while minimizing disruptions to supply through collaboration with our vendors. Furthermore, we are exploring additional ways to enhance gross margin, including reducing shrink and improving our category management processes. Our second priority is capturing growth opportunities. Our established real estate model is a significant strength of the business, allowing us to serve more customers. As an essential retailer, we are committed to providing better access to essential goods, especially during these challenging times. In the first quarter, we opened 250 new stores, remodeled 481 stores, and relocated 17 stores, while expanding fresh produce availability to approximately 750 stores. Our dedicated real estate team has worked hard to keep our plans on track for 2020, and we maintain our outlook to open 1,000 new stores, remodel 1,500 stores, and relocate 80 stores, totaling nearly 2,600 real estate projects. I am proud of the team's ability to manage such high volumes of projects, reflecting their commitment to serving our customers. Our third priority focuses on reinforcing our low-cost operating model. Over the years, we have developed a clear process for managing spending, which has successfully guided us through the current environment while prioritizing the customer experience. Simplifying our operations has been crucial in eliminating unnecessary tasks, enabling our store associates to better serve customers during this surge in demand. This approach also led to significant savings across the business. Our guiding principles are to maintain simplicity while moving swiftly to seize growth opportunities, control expenses, and remain a low-cost operator. Our fourth priority is investing in our people, whom we consider a competitive advantage. The strength and dedication of our employees were evident this quarter, as we heard numerous examples of frontline workers going above and beyond to serve customers and communities. We invested about $60 million in employee bonuses to show our appreciation for their outstanding efforts in fulfilling our mission. These bonuses, along with additional benefits like paid leave, have been well received, reflected in record low turnover at the store manager level and across our associates. Additionally, we continue to attract strong applicant flows, having hired more than 50,000 people since mid-March. We've also embraced innovative training and development strategies, transitioning to virtual training to continue our workforce development despite travel restrictions. We believe that offering a career with a forward-thinking retailer provides us with a unique advantage in attracting and retaining talent. In conclusion, we are performing effectively from a strong position, and these operating priorities continue to underpin our potential for growth in the future.

Thank you, Jeff. As I've shared with you over the past several quarters, we're investing in and building momentum behind certain strategic initiatives to strengthen our competitive position and further support long-term sustainable growth. Importantly, as a result of our efforts and investments to date, we believe we are even better positioned to move quickly alongside our customers as we continue to meet their rapidly evolving needs, further accelerated by COVID-19. Let me take you through some of the most recent highlights, starting with our non-consumable initiative, or NCI. As a reminder, NCI consists of a new and expanded product offering in key non-consumable categories. The NCI offering was available in more than 3,200 stores at the end of the quarter, and we plan to expand the offering to a total of approximately 5,000 stores by the end of 2020. We're especially pleased with the strong sales and margin performance our NCI stores delivered in the quarter. We also continue to realize meaningful benefits from incorporating select NCI products and planograms throughout the broader store base, resulting in positive sales and margin contributions to all of our overall first quarter results. These results reinforce our belief that NCI will continue to be a meaningful sales and margin driver as we move forward, and gives us confidence in our rollout plans for 2020. Turning now to DG Fresh, which is a strategic, multiphase shift to self-distribution of frozen and refrigerated goods. As a reminder, the preliminary objective of DG Fresh is to reduce product cost on our frozen and refrigerated items by removing the markup paid to third-party distributors, thereby enhancing gross margin, and we continue to be very pleased with the product cost savings we are seeing. Another important goal of DG Fresh is to increase sales in these categories by enabling the accelerated rollout of our high capacity coolers, increasing in-stock levels and eventually expanding our overall assortment offering. Importantly, we are already seeing evidence of success against these goals, including meaningful increases in perishable sales and higher overall in-stock levels in stores being serviced by DG Fresh. In total, we are now self-distributing to more than 9,000 stores from 6 DG Fresh facilities. Our goal for 2020 is to capture benefits from DG Fresh in approximately 12,000 stores from up to 10 facilities, including our first combination facility co-located with our existing dry goods distribution center in Zanesville, Ohio. We continue to believe this initiative will be accretive to operating margin in 2020, as the benefits begin to exceed associated expenses, and growing in the years ahead as we continue to scale this transformational initiative. Turning to our digital initiative, where our strategy consists of building a digital ecosystem that is specifically tailored to providing our core customer with even more convenient, frictionless and personalized shopping experience. We believe essential brick-and-mortar retailers continue to serve a critical role, and that has never been more evident than in the past few months. We believe our unique store footprint, combined with our digital efforts, have positioned us well in a challenging and changing retail landscape, particularly as we consider the possibilities in a post-COVID-19 environment. More specifically, DG Pickup, which is our buy online and pickup-in-the-store offering, provides an important access point for those seeking a more contactless customer experience. We launched a pilot of this solution at the end of Q4 and are very pleased with the initial results, including positive feedback from both customers and employees. Importantly, we are well positioned to scale quickly with plans for rapid expansion as we move ahead. Beyond DG Pickup, DG GO! mobile checkout is currently available in approximately 750 stores, with plans to further expand as we look to combine this feature with self-checkout, providing an even more convenient and contactless checkout solution. Moving now to Fast Track, where our goals include increasing labor productivity in our stores, enhancing customer convenience and further improving on-shelf availability. We are pleased with the store labor productivity improvements we are seeing as a results of our efforts around roll-tainer optimization and even more shelf-ready packaging. These improvements are particularly notable in the quarter as our teams work diligently and efficiently to keep products on the shelf. The second component of Fast Track is self-checkout, which represents added flexibility for consumers who may seek to limit face-to-face interaction while also driving greater efficiencies in the store for our associates. Self-checkout is currently available in more than 30 stores, and our plans consist of a broader rollout later this year as we look to further enhance our convenience proposition. Overall, we continue to make great progress with our strategic initiatives, while advancing our goal of further differentiating and distancing Dollar General from the rest of the discount retail landscape. As a mature retailer in growth mode, we are also laying the groundwork for future initiatives as we are constantly evaluating what lies ahead for our customers and our business. We continue to believe we are pursuing the right strategies to capture additional growth opportunities in a rapidly evolving retail landscape. In closing, we are proud of our strong start to 2020. Our results are a testament to the strong execution and disciplined approach of our team. And with our unique combination of value and convenience, further enhanced through our initiatives, we believe we are well positioned to navigate the current environment and come out the other side stronger together with the communities we serve. Importantly, we are very proud of our people, specifically those serving on the front lines, including our store associates, distribution center employees and those in our private fleet. I want to offer my sincere thanks to each of our more than 155,000 employees across the company for their tireless commitment and dedication to fulfilling our mission of serving others.

You mentioned that your confidence has moderated a bit in recent days. What has been the magnitude of the moderation? And has it been more so due to other stores reopening and shelter-in-place restrictions being lifted? Or because you're seeing a fading benefit from those stimulus dollars?

Thank you, Michael. This is John. And providing a little more context here, we alluded to in the prepared comments that through Q1, through May 26, our same-store sales have increased by 22% during this timeframe and had mentioned some intermittent moderation over recent days. Given the unprecedented environment and the spirit of transparency, I do think it's fair to give more color on the recent trends. What we've seen in some recent days is some days in the mid-teens, but we've seen it bounce back in recent days into the mid-20s. So things have been fluid, but sales are still very healthy and we believe we're very well positioned. We're seeing strength in both sides of the box on the consumables side and the non-consumables. And I think an interesting stat we've seen floating around is just how much people have their stimulus money still deposited in the banks, which leads you to believe there's some tailwind to that. But we're still seeing strength in both sides of the business and believe with our unique combination of value and convenience, we're very well positioned.

That's really helpful. My follow-up question is about the healthy comp trends you've mentioned, specifically regarding growth from new customers. Can you quantify that contribution? Is it a third, a fourth, or possibly half of the overall growth in comps from these new customers? Do you believe these new customers will be more loyal than those you have had in the past?

Yes, Michael, it's Todd. Thank you. We have seen an increase in customers, which is not surprising. During tough times, our customers rely on us more, and we are there for them. From previous recessions, we know that customers tend to shift their spending to Dollar General, and we experienced this significantly in Q1. We can verify this through credit card data and our regular customer outreach efforts. We have a clear understanding of where our current and new customers stand. This quarter, our interactions indicate that not only did they transition to us, but they also loved what they found and plan to return, if they haven't already. We are very optimistic about this trend. It reflects the hard work our team has done to enhance our offerings and maintain relevance. Much like we observed in 2008 and 2009, new customers are pleased with the changes we've implemented, and I believe we will retain these customers for the long term.

Great. And congrats on a nice quarter, guys. Todd, maybe could you speak to the overall health of your core consumer today, the push and pull between rising unemployment and your ability to deliver value as we think about the 2008, 2009 playbook? I guess maybe larger, what's the economic sweet spot that you think for your model? And if you had to rank initiatives to take additional market share out of this crisis, what would they be?

Yes, Matthew. Thank you. The customer was feeling very good. I think it was a real testament. She was back to work leading into this crisis. So when you look at our strong comp in the month of February, which really had virtually no COVID-related retail in it, she was in very good shape, probably the best we've seen in many, many years. What that enabled her to do was to stock up with confidence, and we saw that early on. She came in and really stocked up first, starting with paper goods and moving into food. And then obviously, once stimulus payments started to roll out, we saw, like other retailers, a surge in our discretionary type categories. Right now, what I would tell you, because we talk to her very frequently, as I mentioned earlier, she has a lot more trepidation, obviously, just because of what's going on. But I would tell you that she still has money in her pocket. It's evidenced by what she's doing. But I think a lot of that extra money right now is driven by stimulus, both the basic stimulus that was sent out starting in the middle of April. But also for perhaps any unemployment that may be needed for our core customer, which, by the way, there's evidence to show maybe our core customer is not having to capitalize yet on that because they're most likely frontline workers like many of America's customers today out there. And so she's got a lot of money still in her pocket. But we're watching it very, very closely because that can turn, and we understand that, and we're watching it. But we also are monitoring when stimulus starts to taper off. And of course, with additional SNAP benefits that are out there, that's helping as well. So when you put it all together, we feel that we're very well positioned. The sweet spot, I would tell you, we do very well in good times and we do fabulous in bad times. But I would rather see our core consumer have money in her pocket and be able to spend equally on both our consumable and non-consumable businesses. But we're very, very bullish on what post-COVID looks like because, again, I think we're very well positioned no matter what this economy does to both our core customers and to the customer overall.

Great answer. Maybe, John, to follow up on the gross margin. What's the best way to think about markdowns, markups and distribution in the second quarter, in the back half as we think about the drivers behind your first quarter gross margin expansion? And any other accelerating tailwinds to consider as Fresh continues to ramp or opportunity on the freight side?

Thank you, Matthew. Let me outline the key factors. First, we are pleased with the 49 basis points expansion in gross margin for Q1. One aspect we didn't highlight as a contributing factor was product mix, which didn't significantly affect margin pressure. This indicates the significant increase in non-consumables, especially with the stimulus payments. Additionally, within consumables, we noticed strong performance in categories like health and beauty, which have margins similar to non-consumables. This combination helped mitigate the initial surge in consumables and its impact on margins for Q1. The benefits we observed in Q1 align with trends we have noted in previous quarters. One major factor was lower markdowns as a percentage of net sales, thanks to our team's focused promotional spending. Another factor was the initial markups on inventory purchases, particularly with DG Fresh. We are experiencing the considerable cost advantages we anticipated from self-distributing frozen and refrigerated items, alongside increasing benefits from NCI. While it's challenging to predict specifics for Q2 or future quarters due to current dynamics, we believe there are ongoing opportunities to enhance our margins over time, especially from initiatives like DG Fresh and NCI. Our team excels in category management and private brands, which have shown heightened sales lately, and we see significant potential in foreign sourcing. Regarding supply chain, as we transition to self-distribution of frozen and refrigerated goods, there are some geographic cost increases. However, we save substantially on product costs. Overall, our supply chain is performing well, with successful efforts to lower transportation rates by expanding and diversifying our carrier base and enhancing our private fleet. We have also seen reduced fuel costs and effective strategies to boost efficiency through stem mile reduction, load optimization, and improved distribution center productivity. Although we didn't emphasize shrink this quarter since it wasn't a major issue, we recognize long-term opportunities for improvement in this area. We look forward to the latter part of the year to see the benefits of the 6,000 EAS units we installed last year, anticipating continued advantages from that addition and increased tagging now that the system is fully operational. Overall, we feel very well positioned. While we remain open to adjusting prices if necessary, we believe we are in a strong position and are making the right investments to drive margin growth over the long term while having the tools to achieve that.

I want to follow up on the previous discussion. There is a significant amount of revenue coming into the business, and I'm interested in the reinvestment rate. Specifically, regarding gross margin, John, you mentioned feeling positive about the current pricing. Can you discuss the price elasticity in general and whether it's measurable in the current environment? Does it make sense to pursue pricing strategies? Additionally, are there any ongoing COVID-related costs or wage considerations, such as bonuses or wage adjustments, that you are thinking about in relation to utilizing some of the reinvestment funds?

Simeon, it's Todd. I'll address your first question and then pass it to John for the second part. Regarding your first question, our pricing has remained highly competitive during my 11 years with the company. We are in a strong position across all trade categories, which is a critical aspect of our business model. Consumers value this, along with the convenience we offer. Currently, we don’t feel the need to adjust our prices further, as they are already well-positioned. However, we will keep monitoring the situation for any changes. It's important to note that we have been very cautious about price increases, particularly during this challenging time. We want to avoid raising prices for consumers, especially during a pandemic, so we've only increased prices on a few items like milk and eggs that have seen rapid cost increases. For other items that have risen, we have kept prices steady to better serve our customers. Overall, we're performing well and are committed to passing some benefits on to consumers as well.

And on the investment side, first, we continue to make meaningful investments to advance our strategic initiatives as well as remodels and new stores, as we're seeing great returns as expected from those, and that continues as planned and is on track. In addition, as we go forward, health and safety of our employees and customers is our top priority. And so we will continue to invest some there as needed, making sure there's plenty of masks, gloves, hand sanitizer, thorough cleaning protocols, and of course, we just recently finished the installation of the plexiglass shield. So we'll do what's necessary and prudent to ensure their safety. Beyond those things, there's nothing material changes that I see right now.

Yes. Thank you for the question. Yes, we're at right around 75% rural, very small town-based. So again, we pride ourselves on serving that underserved customer out there. I would tell you that, that footprint really serves us well, especially during this time and our customer as well. Think about being close to home, we're within 5 miles of 75% of America. You think about that small box that we offer, that 7,200 to 7,400 square foot box, she can shop that with convenience and with confidence that there won't be crowds. And then lastly, we want to make sure that as we make sure that new customers come in that we show her the best that we've got, and that's exactly what we've done through this. She's seeing great products, and we've seen great comments from our current customers as well as our new customers. So we feel that we're well positioned. Obviously, we do very well both in our rural locations and our more metro settings. But again, rural being the major driver, I would tell you, has seen a little larger increase in sales overall. But again, I'm very proud of both sides of the equation, our rural and our city-type stores.

Just wanted to ask if I could, for a little bit of additional color on the traffic versus ticket trend in the quarter. Sorry if I had missed that. And then also on the geographic side, if there's anything you could call out in terms of different regions of the country and how those trends may have gone.

Yes, this is Todd. I'm pleased to share that both traffic and ticket sales were up this quarter, which highlights the strength of our offerings and the ability for consumers to explore both aspects of our shopping experience. While ticket sales were the bigger contributor, traffic performance was also quite strong. Regionally, we experienced fluctuations throughout the quarter influenced by the severity of COVID outbreaks. For instance, the Northeast and Midwest, particularly Michigan and Wisconsin, showed significant early surges, leveled off for a while, and then surged again, maintaining elevated levels. Ultimately, when everything settled, the performance across all regions was quite similar.

And just for the follow-up, if I could, was on multi-channel. Just curious about the pickup efforts that you all have in place. If there's any incremental color there, maybe in terms of the pace that you might lean into it, as well as the mobile app.

Yes. Again, we're just getting going on our buy-online, pickup-in-the-store efforts. But I would tell you, I'll give you a couple of nuggets that we have seen early on. One is, she's been very pleased with the transaction and her ability to get what she needs. The repeat was very, very heavy, meaning once she uses it once, the repeat was very good on the other side. And again, very high scores, even on our repeat. We know that the customer, as we start to move post-pandemic, and we all hope we get there sooner than later, that retail is going to change a little bit. And I would tell you those that have a strong brick-and-mortar presence as Dollar General has, but also have a very good presence of the digital side to include buy online, pickup in the store, to include areas like self-checkout, where the customer can feel that if she doesn't want to interact or have contact with another person and/or the actual payment terminals, that she can feel very confident to check out in our stores. I would tell you that I'm so proud of the team and their efforts over the last couple of years because they have set us up for success during this time and will flourish as we go forward. So more to come as we aggressively roll out buy online, pick up in the store in the upcoming months and quarters ahead because we know that the customer is really looking for that option inside a brick-and-mortar retailer.

Congratulations on a successful quarter. I wanted to start by discussing store traffic. It's quite striking in your comments about the significant increase in store traffic, especially when many of your competitors faced a decline during the quarter. Could you provide more insight into what you believe is causing the difference between your performance and that of your peers?

Yes. When you look at it, again, it was pretty evenly based in the regions as you look out, and backward now, in hindsight. But I would tell you that our rural locations did outperform a little bit in that area. And I think that's a real testament, again, to the rural nature of our box and the ability for customers to stay close to home and shop with confidence in a small box that doesn't have a lot of customers at any given time. I also would tell you that I think once they got in for the first time, she repeated those purchases as she continued to restock her pantries throughout the quarter. So once she got in, I think she really liked what she saw. And I would tell you, I think we did some of the best, if not the best, in keeping in-stock on many of the core items. We got many customer complaints on not being in-stock on some items, but they were paled in comparison to the compliments that we got in saying things like, 'We found stuff that we haven't found in other places in weeks and/or months.' And that was great to hear. So I think just the combination of that strong box, and our rural location really helped propel those traffic numbers.

Well, first of all, this is Jeff. I'm extremely proud of how the team handled the in-stock challenges that all retailers faced. Our merchant team partnered with our suppliers early on to secure our share of products and also explored creative ways to offer alternative pack sizes or substitute items for our stores. We even introduced new SKUs during this period. The merchant team did an outstanding job, and of course, we couldn't have done that without the supply chain. They were able to adapt to our demand and deliver products to our stores on time. Additionally, as Todd mentioned, Fast Track was an initiative that really paid off because the stores could get products on the shelves. When I think about when this will end, a lot depends on the customers and the economy, especially regarding shelter in place. Many areas of the nation are now open for business, so we’ll have to wait and see. However, I can assure you that our supply chain is prepared to deliver products to the stores when available, and our store teams are ready to stock the shelves. We'll be in a strong position for the customers once the products become available.

I wanted to actually go back to a couple of comments you made in terms of the Fresh. You talked about a meaningful increase in Fresh at the stores that you've rolled the Fresh out to. So wondering if you could elaborate a bit on that. My second question is just on the DG Pickup. I don't know if there's any color you can provide on what the average ticket looks like. And then I had one other follow-up.

Sure, Karen. Regarding DG Fresh, I can tell you that we observed a significant improvement in our in-stock levels and also in our sales figures at the stores where we self-distributed. This trend is what we anticipate for the long term. It became even more pronounced during COVID-19, as customers were looking to stock their pantries and refrigerators with goods instead of dining out. I believe it is responding exactly as we expected. It was wonderful to witness this firsthand as our customers needed it the most. This gives us even greater confidence that as we move into the next several quarters and years, it will yield substantial benefits for us.

Okay. And then in terms of the average ticket with Pickup, is there any meaningful delta or anything to point to that? I know it's still early stage.

Yes. It is still early stage, but I would tell you that the average basket is not dissimilar to what we would normally see inside of a store, which we thought, right? So 5 to 6 items could be 7 or 8, but let's call it, 5 to 8 in total, but closer to that 6 range, with the basket size being a little larger from a dollar amount, but not meaningful. And again, it's doing exactly what we thought it would do. I don't believe our core customer is going to change her shopping behavior over the long term. I still fully believe that when she comes in, she comes in often and buys 5 to 8 items with a ring of about $12 to $13 basket sizes. And we believe that buy online, pickup in the store will be no different.

Yes, Karen, this is John. We have seen a benefit from that. Recent legislation has made it easier for families to continue participating and has provided emergency supplemental benefits, which I believe can last up to two months. Additionally, instead of the National School Lunch Program, there is support of $20.58 or $20.50 per week per dependent. The combination of these factors is helping our customers, resulting in enhanced purchasing power and increased EBT sales. The duration of these benefits will determine how long this trend lasts. However, we have been growing our share with these customers over time by serving them well and growing our EBT share. We are focused on what we can manage, which is taking care of them, and we will see how it unfolds regarding the length of the legislation. Nonetheless, we are seeing the benefits.

Great quarter. Just wondering as we go forward, do you see potential to be more aggressive in certain initiatives like private label and DG Fresh in this challenged environment? Is there opportunity to do more produce in those stores? You mentioned meaningful investments in your initiatives. Just want to clarify, is this an acceleration in your investments versus when you last spoke about them during 4Q? And is there an opportunity to double down on some of these initiatives in this challenged backdrop?

Thank you for your question. The figures that John mentioned indicated there hasn't been a significant acceleration, but I want to emphasize that we have been ramping up our focus and spending on buy online, pickup in the store. We initially expected this to roll out gradually, but given the developments during COVID-19 and feedback from our customers who prefer contactless options, we are moving faster than anticipated. We aim to have this implemented in most of our stores by the end of this year. Additionally, we are looking to expand our self-checkout services more quickly than planned. Our goal is to eventually introduce self-checkout in nearly all our locations. This was originally scheduled for a multi-year rollout, but we believe we can speed this up as well in 2020 and certainly in 2021, given consumer demand for contactless experiences. We are also advancing our DG Fresh initiative and evaluating our stores for produce offerings, which could see expansion later this year and into 2021.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.