Dollar General Corp (DG) September 2026 Conference Transcript

Thank you, everyone, for joining us. It's my pleasure to introduce Dollar General and to moderate this fireside chat. Today we have with us Todd Vasos, Chief Executive Officer, Emily Taylor, Chief Operating Officer, Donnie Lau, Executive Vice President and Chief Financial Officer, and Kevin Walker, Vice President of Investor Relations. I'm going to turn it over to Kevin to read the State Harbor statement.

Yes, thanks, Kate. So let me caution you that statements made during today's fireside chat will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our financial guidance, 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 on August 27th under risk factors in our 2025 Form 10-K filed on March 20th and any later filed periodic report and in the comments made during this event. You should not unduly rely on forward-looking statements which speak only as of today's date and Dollar General disclaims any obligation to update or revise any information discussed today unless required by law. Now it's my pleasure to turn it back over to Kate.

Thank you.

Thanks.

So thanks so much for joining us today. Todd, I wondered if we could start with you. You've led Dollar General now for a combined 10 years and are now more than halfway through your final year as CEO. So just reflecting on the past few years, what have maybe been your biggest learnings and what are the most important priorities you hope to accomplish before the transition?

Well, first, thanks, Kate. First, I'll always bring Kevin for the filibuster, right, because that always takes a couple minutes at a time.

I didn't need as many questions today.

But no, but thank you. Yeah, you know, I would tell you, number one, I couldn't be more honored to have had the opportunity to lead Dollar General for, as you said, the past 10-plus years. But I've been with the company 18 years in total. And, you know, what I found is this is a wonderful company, and wonderful from the soul in to out. And what I mean by that is that this company lives the mission of serving others. And what better service than to serve the community that we serve, and that's that community that is disadvantaged in many ways, right? Not only economically in many instances, but also in just having facilities to be able to go to and shop because of the rural nature of our business and who we have. And the last thing I would say, Kate, is that, you know, I've always lived by the motto, you leave it better than you found it, right? And I want to say that we did that in 22, and definitely we'll be leaving it much better than we found it here in 27 when I bought out in January. Great.

And if I could just maybe close the loop on that, you could maybe talk a little bit about the CEO transition and how you're approaching this in order to get to the next chapter for the company.

Yeah. We spent a lot of time, as you can imagine. The board asked me to be directly involved as we chose my next successor in J.J. Fleeman. We interviewed a tremendous amount of people, as you can imagine. There was a lot of interest, a great company, again, in Dollar General. and we landed on J.J. for a few reasons. One, he knows the business. He's a student of the business. I don't want to take any thunder from him. I'm sure he'll introduce himself when the time is right, but, you know, grew up in the Ajo Del Haze scheme, if you will, but not only grew up in it, but, you know, from a bag person and worked his way up to be the CEO of the U.S. operation. Very steeped in what we look for was somebody that was very steeped in all parts of the operation, and we found that in JJ. I've spent a lot of time with him since not only during the interview process but even post-acceptance as we work toward his garden leave being finished and he coming in in January. I've committed to the board that I would stay as a senior advisor and on the board at least until April, 1st of April, and I will work directly with JJ to make sure that his onboarding is very, very, very smooth. The last thing I'll also say is, you know, in the last couple of years, we've worked tremendously hard on shoring up our management team internally. And I would tell you in the 18 years I've been here, We've got the strongest senior management team that we've ever put on the field here at Dollar General, and Emily Taylor and, of course, Donnie Lau being two of those folks that are sitting to my left.

Great.

Thank you for that.

Maybe if we can start with the health of the consumer. Obviously, this whole conference is kind of predicated on assessing the health of the consumer. We've heard a lot in this last day and a half about the K-shaped economy and how the lower-income consumer is faring. And you have 21,000-plus stores in rural communities. So could you maybe talk a little bit about the changes you're seeing in shopping behavior as customers continue to navigate this inflationary environment we're in? And as you look to the second half, how are you thinking about the consumer and the broader demand environment?

Well, you know, we spend a lot of time, Kate, obviously watching our core consumer, but watching all segments, including higher income consumers. And what we've seen in this economy, and again, not a surprise probably to anybody in this room, is we've seen a customer across all cohorts of income levels being somewhat distressed, especially in sustained inflation, outside gas prices for a minute, just basics, and then a couple gas prices. And we've always said here at Dollar General for our core customer that any time that gas price gets anywhere close to $4 and then crests $4 a gallon, the customer changes their shopping behavior, stays closer to home, normally shops more often, but buys less on each occasion. And that's exactly how that core customer is faring. But the interesting thing with this economy, because of the other sustained headwinds of inflation over the years that have passed, even that middle to upper middle is acting more like a lower-income shopper these days. And they have that same characteristic. And then high income for us is that $100,000-plus crowd. And I would tell you we're hearing more and more from them is I don't feel like I'm higher income at $100,000 any longer, right, because of all of the headwinds that I just mentioned. So we believe at Dollar General we're in a really good position to service all of the different demographics of what we have. But even more so, all the work that we've done over the last few years to set ourselves up to be in a really good, strong position to not only service that consumer, but also be able to retain that consumer when, and I'm sure everything goes in cycles, when the economy gets better for certain classes of consumer. The last thing I'll mention is, and I'm sure you've asked this question, is the consumer is very resilient, though, still through all this. And the biggest reason why, it's no surprise, is she is gainfully employed still. And as long as that holds, I think especially our core consumer figures it out, and I think other consumers do, but they need help. And that's exactly what Dollar General provides.

Great. And I know we didn't really talk about gas prices in the context of what you just spoke about, but do you think higher gas prices play any kind of role in the traffic you're seeing right now in the stores? Do you think you gain share at times when gas prices are higher given your vicinity of the consumer? And if so, this time around, how are you looking maybe to retain whatever new customers you are seeing?

Yeah, I'll start, and Emily, I'll have you talk about the retention piece. I would say no doubt there is some tailwind from those gas prices, not only due to not wanting to drive as far, but just what it costs to put fuel in the tank, but also food on the table. And between those, it has pinched the core consumer, those making $45,000 and under. And again, as I indicated, even those making up to $100,000. And so when you think about that and crossing that $4 mark and now being sustained at that higher level, we are seeing that core customer come in more often, buy less on each occasion. And that's a little bit counterintuitive, right, come in more often, but we're very convenient, right? We're close. We're within five miles of 75% of the U.S. population. Many of our customers ride a bike to our stores or walk to our stores. That's how close they are, and those that drive obviously can drive a shorter distance. But what she does is she doesn't know right now because of all the other sustained pressure what that next week's going to hold. So maybe instead of shopping twice a month, she's shopping four, five, six times a month with Dollar General because she can't go and shop on the come, if you will, right? If she's in week two, I'm not going to shop for part of week three. I'm going to come back in week three because who knows what's going to happen. And I don't have a lot of money put aside for even a flat tire at this point. So I've got to make sure I shop closer to need and be very discerning in that shop.

Yeah, and then in terms of retention, what I'd say is we have been in similar, of course, economic times historically. And if you look at our track record of retaining the trade-in customer, we've done pretty well. So I'd point 2008, 2009, 2013, 2020 was a little different in terms of the dynamic at play, but still very high retention rates. And I think that ultimately comes from the fact that customers who may not be as familiar with Dollar General are surprised when they shop us in terms of the value. They're surprised when they shop us in terms of the breadth of assortment that we have available. And those things stick long after maybe the economic cycle changes. I'd say that we've paired that even to a greater extent than we have historically with some of the new tactics and capabilities we have in marketing. So when we see those customers inside our store, we're able to target them with offers that aren't just generically good, but specific to what we see them doing from a purchase pattern, and that's even stickier. So I really like our opportunity to keep these customers as our customers moving forward.

Thank you. It's an interesting environment. Again, it's been very inflationary, yet I think since the spring we've heard a lot more about price investments, whether it be as a result of what's happening across the space in grocery or with tariff refunds or the like. And I think, you know, in the second quarter, you did note that you've remained promotional and you've utilized targeted offers around holiday events. How should we think about Dollar General in the context of this very noisy pricing environment? How are you managing price gaps? How do you view the price gaps? And what do you think about the promotional environment going into the second half?

Yeah, I'll start. You know, as you know, Kay, we watch price very carefully. Obviously, our core consumer relies on Dollar General, not only from that convenience factor that I talked about being close to the home, but also that value equation. And those of you that have heard me over the years always talk about pricing is a fine balance between art and science. Those that maybe have leaned way too much on the science and forget about the art, and I won't name certain sectors, not even companies, that have done that. things don't fare well. So we've always taken that approach of between science and art, right? Art and science and pricing. And the reason I bring that up is that we have a great everyday price that we put out in front of the consumer. Our price gaps to mass are unchanged over the many years to drug and into grocery, right? And so really when you think about it, we're the most competitive against drug grocery within about 20 points. And what I normally say is anywhere between 2 to 4 percent of mass. One way or the other, by the way. Sometimes better, sometimes a few percentage points worse. The consumer usually tells the difference around 5 to 6 percentage points, depending on the item. That's part of that science piece. but not only a great everyday price but also the consumer looks for a good promotional cadence and price as well so we we offer that to the consumer and also the one thing that sets Dollar General apart and now more than ever is that one dollar price point having 2,000 items at or below a dollar is very meaningful for the consumer, always has, but especially in this environment. And not only are we cultivating that, but we're growing that. More in what we call, we affectionately call Value Valley, but we've got an aisle that's dedicated to $1 price point. We have price points at $1 throughout, mixed in our planograms throughout the store. And Emily and her team rolled out a $1 frozen door, a whole door of frozen goods recently at $1. We like that so much, and the consumer has, we're actually going to put more of that in as we move through the back half of this year. So pricing, again, art and science, everyday, great everyday price with the gaps being traditionally where they've been, a good promotional cadence, rational, but a good cadence, and a great $1 offering to bridge those monthly pieces where that customer needs to be able to feed her family or give her family something that she needs.

The comps at that dollar price point have been extremely strong the last several quarters. Do you anticipate much of a mixed shift, maybe more towards that dollar price point?

Yeah, what's great is we're seeing growth in all areas, several areas of the business, which I'm sure we'll get into in more detail. But to your point, we quoted the Value Valley comp in Q2 at 16%, so just outstanding growth. Todd mentioned the over 2,000 items at a dollar, so our dollar business is larger than even what we quote from a Value Valley perspective. The team has been actively increasing that. Todd mentioned our frozen door expansion plans, which we're really excited about, but we've also expanded the number of items inside that Value Valley section, and that's just merchants doing a great job of making sure that we continue to expand that option for our shoppers and really feed into the growth. We've also added off-shelf display inside our store to capture, you know, more of that and present that to our customer in a way that shouts value that's very meaningful to them. And so we continue to look for areas. And then our seasonal business, which we don't talk about as much, but we increased our seasonal $1 assortment for the back half of the year by 40% compared to a year ago. So really great work with our business making sure that we're driving that affordability and then continuing to make sure that the broader offering represents other price points as well that just support that growth.

I wondered if we could focus on the cost side for a little bit. Obviously, there are quite a few headwinds right now in the context of fuel and freight, so I wanted to make sure we touched on that and your view on that going into the back half and how you're managing that. But I think also what we wanted to talk about, too, was labor. I think for a little while anyway, Todd, especially when you came back, there was some concern that maybe there would need to be a lot more labor investment in the store. And you have made the investment in labor hours, I believe. It hasn't necessarily been much more labor in the store. So maybe can you talk about the labor investment over the next couple of years? Do you feel like the business is approaching a more normalized level of staffing, or do you still see more opportunities for incremental investment? I'll start, and you want to add any color?

I would tell you that we feel really good right now where we are on the amount of hours per store. To your point, Kate, we invested in hours back in 2024 to ensure that we were able to service the customer the way we needed to. Since then, we have seen a very good stabilization of turnover. Our turnover rates are at numbers that we hadn't seen since pre-pandemic and are headed back toward pre-pandemic levels, especially around store manager as well. The other thing to keep in mind is that our rate and being able to attract and retain has been very high as well. So we believe that we've got the right amount of hours. We believe the rate of pay is now correct and has been that way for the last couple years. But we'll always watch to make sure that we're able to get the work done and service the customer. The other thing that we've done, though, in these last few years to help is we've done a lot of productivity work within our stores and our supply chain and have taken a lot of work out to be able to do that. And when you couple the amount of work we've taken out with the additional labor, that's why we feel like we're in a good spot and we're in a good spot to go forward into the next few years with that. Now, the other opportunity, and I'm sure others have talked about it, we won't go into great detail here, but AI presents another leg of opportunity to be able to dial in that productivity piece, especially around supply chain and inventory levels and how the stores work. And so we're, I would say, waist-deep, about to be neck-deep into our AI journey as a company and are moving forward there. So more to come.

Maybe we can talk just on the subject of other long-term margin drivers. in addition to shrink and damages, which you've done a very good job with. You've also called out DG Media, the non-consumables merchandising, which you just mentioned with regards to the dollar price point, supply chain productivity, category management, and that all contributing to about 120 basis points in gross margin improvement over the next few years. With supply chain productivity, I think that's one of the bigger drivers of that 120. Can you frame what the longer-term opportunity is? We just talked a little bit about AI, but just what else can we expect to see there on the supply chain side?

Yeah, so from a supply chain productivity perspective, really pleased to see the progress we're making. I think, Kate, as you alluded to, from a long-term framework perspective, a lot of gross margin drivers in place. And the great news is we're delivering ahead of schedule or on pace with pretty much every single driver that we've communicated, whether it's shrinker damages, to your point, DG Media Network, category management. We're seeing a lot of growth in the dollar price point. Supply chain is just another building block to our margin target of 6% to 7% over the next three to four years. On the supply chain side of the house specifically, glad to see it was a pretty nice contributor, Q2 particularly. What I'll tell you is there's a lot of opportunity still to go on the supply chain side of the house. Again, delivering pretty much on track with our expectations. But the way to think about the supply chain side of the house is we'll continue to get leverage on the fixed cost piece of it as we continue to grow com sales and sales, which is obviously great. We're seeing a lot of productivity throughout the supply chain. IT is playing a role in that. But the other thing I would point to, too, that's probably a little bit more tangible is really the private fleet side. So, you know, as a reminder, about 50% of our outbound transportation needs are currently private fleet. Our expectations, we will continue to grow that over time. And the beauty of that is, you know, highly accretive, right, from a margin perspective and high returns there as well. And so, you know, on track, we'll contemplate it in a long-term framework and a lot of confidence in our ability to deliver against our targets in the years ahead.

Great. I wanted to make sure we talked about DG delivery because I do think that has been a bright spot and has not taken a long amount of time, I think, to start to really contribute to your comp growth. So how should we think about the contribution from delivery going forward? Can you talk a little bit about the subscription opportunity that you mentioned on the second quarter call? And does this kind of underscore what you're going to be able to eventually do with DG Media?

Yeah, sure. I'll take that. So in Q2, our delivery business contributed 40 basis points to our comp growth, which was great to see. So it was a strong contribution on top of strong brick-and-mortar performance. And to your point, we are still, I'd say, maybe early days of our delivery business. We offer marketplace and first-party delivery, and both really scaled last year. So we continue to expect outsized growth out of that piece of our business. And a piece of that, from a first-party perspective, will be subscription. So the business we've grown today, we don't have a subscription offering in the market. Our customers have told us specifically that they want to see an offering from Dollar General. So the team will be launching a pilot at the end of this year and looking to scale that really next year. So I do think that will continue to drive and accelerate our growth from a delivery perspective. I'll give you just a couple other points that excite us about delivery. Number one, it's the incrementality we're seeing. And so from launch, you know, we've quoted above 80% incrementality, and we continue to see that. So for us, maybe a little different, right, customers are able to use delivery and digital interaction as a way of being introduced to our brand and to our value. So excited about that. We've also seen over a million customers who were first introduced to Dollar General via our delivery business, and now we see them shopping inside our stores from a brick-and-mortar perspective. So certainly delivery for us has an opportunity to drive traffic overall, even larger, a total company, and even supporting brick-and-mortar growth as standalone also has the opportunity to increase basket size, which is what we see. So great results there. I expect it to continue to accelerate. And then to your point, it will help support growth, additional growth in DG Media Network. We are most mature in our media network business on our in-store components, and we do have digital offerings today. But as our digital engagement continues to grow, that will draw even more advertiser interest in the network that we have. And just as a reminder, we quoted our annual number at the end of last year, $170 million in volume from a retail media business, so it's a nice business already, but do expect that to continue to accelerate as well.

Great. Thank you. Before we get into kind of our rapid-fire questions at the end here, you've guided to a long-term algorithm of 2%, 3% same-store sales growth, a 6% to 7% operating margin by 2028. How are you thinking about that path to reach that longer-term algorithm today, just given the success you've seen in the last couple of quarters? Which initiatives do you think have emerged as the most important drivers?

Yeah, so really feel good about the long-term framework targets that we let out, Kay. I think, you know, when I came back in October, you know, one of my initial observations was, wow, the margin recapture opportunity at Dollar General, not only was it meaningful, but it was real. And the great news is we're delivering against the targets at a faster pace, as I alluded to a little bit earlier. You know, when we introduced the framework, just keep in mind, we said, hey, we thought it'd be 270 basis points of gross margin expansion over the three- to four-year period. You know, last year alone, we delivered over 100 basis points of margin expansion. And so, you know, just to contextualize a little bit, last year, we got it to EPS about 510 to 580, and we delivered 685. Coming into this year, we got it to $7.10 to $7.35. You know, our guidance at the end of Q2 was $7.75 to $0.80. Obviously, that included the $0.25 discrete benefit from tariff refunds, net of reinvestments.

But overall, I feel really good about the progress we're making.

To your point, all along, we said, hey, we thought shrinking damages would be more of a two- to three-year opportunity. A lot of the other margin drivers would contribute over time, with DG Media Network being a little bit of a later-term contributor. And the great news is, you know, when you think about shrinking damages in particular, you know, we thought there was 80 basis points of opportunity on shrink, 40 basis points on damages, again, over a two- to three-year period. We delivered 80 basis points of shrink just last year. Damages are contributing on pace with our expectations. Coming into this year, we took our expectations up to 50 basis points remaining from shrinking damages. And so that's obviously nice to see. You know, from the other drivers, the great news is non-consumables was a big piece of that. You know, we set out a target of 20% sales mix from non-consumables up from about 18, 18.2% today. You know, the great news is a lot of proof points that we're delivering. We've delivered six consecutive quarters where non-consumables growth has outpaced consumables growth and feel really good about our plans, balance of year and beyond on that piece of it. We talked about the $1 price point, Value Valley, the great news there at a category level, you know, margins are higher than other categories there. And you're seeing the growth that we're seeing there outside, 16% in Q2 alone from a Value Valley perspective. We talked a little bit about, you know, supply chain already, the contributions we're seeing. Feel really good about our plans to deliver against that over the next few years. And obviously DG Media Network is another contributor. So, you know, feel really good about the pacing. I feel really good about the progress and a lot of confidence in our ability to deliver against those targets over the next three to four years.

Yeah, and I think that's just to wrap up that point. It sounds like maybe there's even a little bit more than what you anticipated when you first gave the longer-term guidance, but as the company transitions leadership into 27, how should investors think about the continuity of these priorities?

Yeah, again, I don't want to speak for JJ coming in, but I can speak for our management team, I can speak for our board, and we're 100% aligned behind the priorities. They're tried and true, and to Donnie's point, have already delivered at an accelerated pace. And obviously, JJ's already been brought up to speed on much of those that we could so far. And I would dare say I think he sees the same value, right? But every CEO will have different priorities, right? And we would hope that he does as well. But the great thing is that all the proof points are lined up pretty nicely, have already been proven in many instances. and we'll continue. I think the biggest piece that we have to look forward to, as you heard, was really the digital side and the media side that comes with that. And I have to say, though, the team has done a great job. If you think about it, we weren't even in the delivery game two years ago, and we're already a meaningful player in that, and we'll continue to be. So I think there's a tremendous amount of opportunity that's not even baked in as we move longer term here. Great.

And just in these last couple of minutes, the four questions we're asking, Todd and Kevin, I know you've been through this a few times with us, health of the consumer, we touched on a little bit at the beginning, just what are your expectations for the environment in the second half of 26 versus your recent results?

Yeah, nothing points for the consumer, that is, nothing points to the consumer coming out of the position she's in, and when I say that, there's nothing structurally that I see that is going to help her right now, so I think where we are is probably where we're going to be as we move further into the back half of 2026. You know, as we look, though, things could change if gas prices let up a little bit. But if they don't, then we're probably going to see a sustained pressured consumer as we end the year and move into 27.

And then we talked about pricing a little bit in the context of what's happening in the environment. But do you expect prices or AUR to be higher or lower or the same in the second half of this year versus the first half?

Yeah, you know, we at Dollar General watch that very carefully, obviously, to make sure that that value is there for the consumer, and the value meaning, you know, she's got to feed her family and be able to supply needs for her family. So we watch that very closely. We spend a lot of time with CPG companies to ensure that we're able to deliver that right price. But also keep in mind, you know, we've got a great track record. We're a big company. We're in the top five with almost every CPG company in America, top three with many, top one or two with a few. And so with that, you know, they want to grow with us. But we're also a limited SKU retailer, meaning we don't have to carry everything. You know, I always use the example in canned vegetables. You know, we don't have to carry both Del Monte as a name brand and Libby's as a name brand with our private brand and other things. We usually take and pit one against the other to get the lowest price we can. And so if things start to move on an AUR basis, meaning cost of goods move, then we'll deploy a lot of things. And taking price is the very last thing that we do at Dollar General. So we've got a lot of levers to pull. We've been doing this for years, and we have a pretty tried-and-true category management system.

We talked about margins, so I'll skip that. But going back to AI for a minute, do you expect a significant increase in efficiency as a result of AI in 2027 versus 2026?

What I'll tell you is, you know, I feel really good about the progress we're making on the AI side of the house. I think, you know, from our perspective, I think it is one of those go a little bit slow to go fast as we move forward on the AI journey. But, you know, more to come. I do think there's going to be opportunities for productivity unlocked as we move forward. And the great news is that you think about our long-term framework, it doesn't contemplate, right, any benefits from AI. And so that would be upside to anything that we would be thinking about from a long-term framework perspective.

Well, thank you for being with us today.

Appreciate all the time. Thank you very much. Appreciate it. Thank you, everybody.