Dollar General Corporation (NYSE:DG) Q4 2022 Earnings Call Transcript

Dollar General Corporation (NYSE:DG) Q4 2022 Earnings Call Transcript March 16, 2023

Operator: Good morning. My name is Robert, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Dollar General’s Fourth Quarter 2022 Earnings Call. Today is Thursday, March 16, 2023. All lines have been placed on mute to prevent any background noise. This call is being recorded. Instructions for listening to the replay of the call are available in the company’s earnings press release issued this morning. Now, I’d like to turn the conference over to Mr. Kevin Walker, Vice President of Investor Relations. Kevin, you may begin your conference.

Kevin Walker: Thank you, and good morning, everyone. On the call with me today are Jeff Owen, our CEO; and John Garratt, 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, strategy initiatives, plans, goals, priorities, opportunities, investments, 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 2021 Form 10-K filed on March 18, 2022, 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 the call unless required by law. At the end of our prepared remarks, we will open the call up for your questions. Please limit your questions to one and one follow-up question in necessary. Now, it is my pleasure to turn the call over to Jeff.

Jeffery Owen: Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our associates for their dedication to serving our customers and communities this year. I am inspired by this team’s commitment to our mission of serving others and the passion they have for helping our customers save time and money every day. Our fourth quarter performance was led by strong comp sales growth of 5.7%. And while this result was below our expectations, our performance included market share gains in both consumables and non-consumables and contributed to a net sales increase of 17.9% to $10.2 billion. Our Q4 comp sales were driven by an increase in average basket size, primarily attributable to inflation and partially offset by a slight decrease in customer traffic, primarily due to a decrease in customer traffic in late December.

And similar to recent quarters, average units per basket were down. Notably, both November and January comp sales at 6.7% and 6.5%, respectively, were within our expected range of 6% to 7% for the quarter. However, our December sales performance was negatively impacted by Winter Storm Elliott, which had the most significant effect on our stores in the final days leading up to Christmas. The quarter was also impacted by greater-than-anticipated inventory damages, which contributed to diluted EPS results that were below our expectations. While the storm had some damages impact, we also incurred higher damages than expected as we work through the residual impact of the storage capacity constraints and related store and distribution inefficiencies we experienced during the second half of the year.

Although we expect some of these related impacts to be with us through the end of Q1, we are pleased to have the storage capacity constraints largely behind us, which we believe positions us well moving forward. Turning to a few highlights of the 2022 fiscal year. Net sales increased 10.6% to $37.8 billion and included a benefit of approximately 2 percentage points or $678 million in sales from the 53rd week. Comp sales for the year increased 4.3%, driven by strong growth in basket size. Although a significant portion of the basket growth was attributable to inflation, we were pleased to see an average basket size at the end of the year of more than five items in nearly $17. The team accomplished a great deal in 2022, and we closed the year with significant progress on our strategic initiatives and operating priorities while achieving several key milestones in Q4 and the weeks thereafter.

We were particularly excited to celebrate the opening of our 19,000th store in Joplin, Missouri in January, as we continue to support our customers with our unique combination of value and convenience in their hometown communities. We also completed the initial rollout of our non-consumable initiative, or NCI with the offering now in nearly all of our stores across the chain. Finally, we made strong progress in our supply chain, reducing our storage capacity constraints and improving operations during the quarter. More specifically, and as we said we would do, we added significant capacity in Q4, bringing nearly 3 million square feet of distribution capacity online. These efforts culminated with the opening of our newest distribution center in Blair, Nebraska during the quarter.

I also want to highlight that we have started 2023 with the opening of our first store in Mexico. And while the store has only been open a few short weeks, we are very encouraged by the early response from our new customers. These achievements are a testament to this team’s hard work and continued focus on execution and innovation as we continue to deliver on our mission of serving others. Turning now to an update on our customers. In addition to adjusting the mix of their baskets, we continue to see customers shift spending to more affordable options, including our private brands, which represent more than 20% of our total sales. Within consumables, private brand growth, both in absolute dollars and penetration was the highest in the fourth quarter.

We also increased our share of wallet and share of trips across all segments of our core customer in Q4, and we believe we will be increasingly important to them in the year ahead. With regard to trade-in behavior, customers and income brackets above our core customers are shopping with us at an increasing rate, underscoring our belief that our value and convenience proposition resonates with a broad spectrum of customers. We remain focused on our goal to be priced at relative parity with mass merchants and we continue to feel very good about our price position relative to competitors and all classes of trade. Furthermore, given the strong demand from customers, we remain committed to offering products at the $1 or less price point. Notably, during Q4, our comp sales were over 30% in our Value Valley set, which is comprised entirely of items at the $1 price point.

Overall, we continue to be pleased with the strong performance of this program and the value it offers to our customers. In addition, we believe we are well positioned to continue serving both new and existing customers, and we are moving with great intentionality to build on our momentum. To this end, we are excited about our plans for 2023. Building on the investments we made in 2022, we plan to make a larger targeted incremental investment of approximately $100 million in our stores this year. This investment will primarily consist of incremental labor hours to support our expectations regarding consistent store standards while further enhancing the associate and customer experience. In turn, we believe this investment will position us to drive greater on-shelf availability and capture additional market share while amplifying the potential of our initiatives and ensuring our readiness for our growing customer base.

And with the progress we have made in the supply chain, the prior investments we have made in wages, and the growing customer engagement we are seeing, we believe we are well positioned to see a meaningful return on this investment. We operate in one of the most attractive sectors in retail and we believe our innovation will continue to distance and differentiate Dollar General from the rest of the retail landscape. In summary, we are excited about our plans to deliver strong growth in 2023 while also making significant and deliberate investments in the business. We believe our customer and communities will need us even more as we move throughout 2023. And as a mature retailer in growth mode, we are well positioned to serve them while also creating long-term value for our shareholders.

With that, I will turn the call over to John.

John Garratt: Thank you, Jeff, and good morning, everyone. Now that Jeff has taken you through a few highlights of the quarter and full year, let me take you through some of the 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. As Jeff discussed sales, I will start with gross profit. For Q4, gross profit as a percentage of sales was 30.9%, a decrease of 35 basis points. This decrease was primarily attributable to an increased LIFO provision, a greater proportion of sales coming from the consumables category, and increases in inventory shrink, damages and markdowns, partially offset by higher inventory markups and a reduction in transportation costs.

Of note, product cost inflation continued as a significant headwind, resulting in a LIFO provision of approximately $164 million during the quarter and approximately $517 million for the full year. SG&A as a percentage of sales was 21.7%, a decrease of 29 basis points. This decrease was driven by expenses that were lower as a percentage of sales, the most significant of which were retail occupancy costs, incentive compensation and retail labor. These were partially offset by certain expenses that were greater as a percentage of net sales in the current year period primarily utilities. Moving down the income statement. Operating profit for the fourth quarter increased 17.1% to $933 million. As a percentage of sales, operating profit was 9.1%, a decrease of 6 basis points.

Our effective tax rate for the quarter was 23.2% and compares to 21.2% in the fourth quarter last year. This higher effective income tax rate was primarily due to decreased income tax benefits associated with the stock-based compensation compared to 2021. Finally, EPS for the fourth quarter increased 15.2% to $2.96. For the full year, EPS increased 5% to $10.68 and included an estimated positive impact of approximately 4 percentage points from the 53rd week. Turning now to our balance sheet and cash flow, which remains strong and provide us the financial flexibility to continue investing for the long term while delivering significant returns to shareholders. Merchandise inventories were $6.8 billion at the end of the year, an increase of 20.4% overall and 14.3% on a per store basis.

This increase continues to reflect the impact of product cost inflation as well as a greater mix of higher-value products, particularly in the home and seasonal categories, primarily due to the continued rollout of NCI as well as the earlier receipt of seasonal goods. While inventory growth is still elevated, the pace is moderating as we expected. Notably, our Q4 inventory growth rate per store was essentially half of what it was in Q3. Looking ahead, we anticipate more normalized growth rates as we move through 2023. Importantly, we continue to believe the quality of our inventory is in good shape. In 2022, the business generated cash flows from operations totaling $2 billion, a decrease of 31%, which was primarily attributable to higher inventory levels.

Total capital expenditures were $1.6 billion and included our planned investments in new stores, remodels and relocations, distribution, transportation projects and spending related to the strategic initiatives. During the quarter, we repurchased 4.5 million shares of our common stock for $1.1 billion and paid a quarterly dividend of $0.55 per common share outstanding for a total payout of $121 million. At the end of the year, the remaining share repurchase authorization was $1.4 billion. Our capital allocation priorities continue to serve us well and 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 and quarterly dividend payments, all while maintaining our current investment-grade credit rating and managing to a leverage ratio of approximately 3x adjusted debt to EBITDA.

Moving to our financial outlook for the fiscal 2023 year. We anticipate the challenging economic and operating environment to continue into 2023, but we believe we are well positioned to drive strong growth as we move throughout the year. For 2023, we are reiterating the financial guidance we provided on February 23, 2023, and providing additional financial guidance to include the following expectations. Net sales growth in the range of approximately 5.5% to 6%, including an anticipated negative impact of approximately 2 percentage points due to lapping the 2022 53rd week; same-store sales growth in the range of 3% to 3.5%; and EPS growth in the range of approximately 4% to 6%, including estimated negative impacts of approximately 3 percentage points due to higher interest expense and approximately 4 percentage points due to lapping the 2022 53rd week.

Our EPS guidance assumes an effective tax rate in the range of approximately 22.5% to 23%. We also expect capital spending to be in the range of $1.8 billion to $1.9 billion, which includes the impact of significant inflation in the cost of certain building materials, construction of new distribution centers and continued investment in our strategic initiatives and core business to support and drive future growth. With regard to shareholder returns, our Board of Directors recently approved an increased quarterly dividend payment of $0.59 per share. We also plan to repurchase a total of approximately $500 million of our common stock this year. This is a lower amount as compared to the recent years but consistent with our capital allocation priorities and reflects our commitment to our current credit rating, our continued strong liquidity position and confidence in the long-term growth opportunity for our business.

Let me now provide some additional context as it relates to our outlook. In terms of quarterly cadence, we expect EPS growth to be much stronger in the second half compared to the first half. This is due in part to our expectation of continued headwinds from sales mix pressure, higher interest expense and increased shrink and damages as we move through the first half of the year. We anticipate certain of these headwinds to be most pronounced in Q1, including an estimated year-over-year increase in interest expense of approximately $40 million, inventory damages and residual impacts of the storage capacity constraints and related inefficiencies that Jeff mentioned earlier. In addition, we expect the year-over-year net impact of the labor investment to be most significant in Q1 as we don’t begin lapping last year’s smaller investments until Q2, and we believe the benefits of the incremental labor will become more significant later in the year.

As we move into the back half, we also anticipate a benefit from lapping the significant supply chain costs and winter storm impacts from the second half of 2022. Turning now to gross margin for 2023. In addition to the material benefit from lapping the increased supply chain expenses in the second half of 2022, we expect significant benefits from greater distribution center capacity and productivity, lower carrier rates, expansion of our private tractor fleet and other distribution and transportation efficiencies. We also expect to continue realizing benefits from our initiatives, including DG Fresh and NCI. Furthermore, we anticipate a significant contribution from our DG Media Network, which Jeff will discuss in more detail in a moment. Partially offsetting some of these expected benefits are the anticipated sales mix pressure and increased inventory shrink and damages I mentioned, as well as increased markdowns as we return to rates more in line with the historic norms.

With regard to SG&A, we expect continued investments in our strategic initiatives as we further their rollouts. However, in aggregate, we continue to expect they will positively contribute to operating profit and margin in 2023, as we expect the benefits to gross margin from our initiatives will more than offset the associated SG&A expense. And as Jeff noted, we plan to make an incremental investment of approximately $100 million in our stores, primarily through additional labor hours. While this investment will pressure SG&A in 2023, we believe it is the right thing for the business and will drive stronger in-store execution, positioning us well to build on the momentum we have with our customers. We expect a headwind from inflationary pressures in our business.

So we continue to pursue efficiencies and savings through our Save to Serve program, including Fast Track. In closing, we are grateful for the team’s hard work to deliver for our customers in 2022. Looking ahead, we are excited about our growth plans for 2023, including strong sales and operating profit while simultaneously making significant and deliberate investments in the business. 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. We are 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.

With that, I will turn the call back over to Jeff.

Jeffery Owen: Thank you, John. Let me take a few minutes to update you on our operating priorities and strategic initiatives, which have transformed this company in recent years, resulting in strong growth and enhanced profitability. Our first operating priority is driving profitable sales growth. Starting with NCI. With the initial rollout phase now complete, we will focus on continuing to refine the assortment and enhance the treasure hunt offering to provide value to our customers in the non-consumable categories. Overall, we are very pleased with the success of NCI including market share gains in non-consumable sales in Q4. Moving to our pOpshelf store concept, which further builds on our success and learnings with NCI.

As a reminder, pOpshelf aims to engage customers by offering a fun, affordable and differentiated treasure hunt experience delivered through continually refreshed merchandise, a differentiated in-store experience and exceptional value with the majority of our items priced at $5 or less. During the quarter, we opened 37 new pOpshelf locations, bringing the total number of stores to 140 at the end of 2022, located within 14 states. While sales in this economic environment have been somewhat softer than our earlier results, we continue to be pleased with the customer response. Looking ahead, we plan to more than double the pOpshelf store count in 2023, bringing the total number of pOpshelf stores to nearly 300 by year-end, and we are excited about our goal of approximately 1,000 locations by year-end 2025.

Turning now to DG Fresh, which is a strategic, multiphase shift to self-distribution of frozen and refrigerated goods along with a focus on driving continued sales growth in these areas. We are now delivering perishable products to more than 19,000 stores from 12 facilities, and we continue to be pleased with the cost savings from this initiative and importantly, the significantly enhanced profitability of our perishables offering. In addition to capturing cost savings, DG Fresh also aims to increase sales in frozen and refrigerated categories. We are pleased with the performance on this front, including enhanced product offerings in stores and strong performance from our perishables department, which had our strongest rate of comp sales growth during 2022.

Going forward, we expect to realize additional benefits from DG Fresh as we continue to optimize our network, further leverage our scale, deliver an even wider product selection and build on our multiyear track record of growth in cooler doors and associated sales. And while produce is not included in our initial rollout, we continue to believe that DG Fresh provides a potential path forward to expanding our produce offering to more than 10,000 stores over time. To that end, at the end of 2022, we offered fresh produce in more than 3,200 stores with plans to expand this offering to a total of more than 5,000 stores by the end of 2023. Finally, DG Fresh has also extended the reach of our cooler expansion program. During 2022, we added more than 66,000 cooler doors across our store base.

And we plan to install a similar number of cooler doors in 2023. Importantly, despite the meaningful improvements we have made and savings we have realized to date as a result of DG Fresh, we believe we still have an opportunity to drive significant additional returns with this initiative in the years ahead. Turning now to an update on our health initiative, branded as DG Wellbeing. As a reminder, the initial focus of this project is an expanded health offering, which consists of approximately 30% more selling space and up to 400 additional items as compared to our standard offering. This offering was available in nearly 4,400 stores at the end of 2022, and we plan to expand to a total of more than 5,500 stores by the end of 2023. Looking ahead, our plans include further expansion of our health offering and testing of our mobile clinic with the goal of increasing access to basic health care products and ultimately, services over time, particularly in rural America.

Finally, we also plan to make significant enhancements to our private brand offering in 2023 as we know how important these value offerings are for our customers. We are increasing private brand offerings across many important categories, including candy and snacks, perishables, pet food and over-the-counter health care products. We believe these products will further differentiate Dollar General in the marketplace as we look to provide our customers with tremendous value on quality products. In addition to the initiatives I just discussed, as well as the anticipated supply chain efficiencies I mentioned earlier, we continue to pursue other opportunities to enhance gross margin, including improvements in global sourcing as well as shrink and damage reduction.

Our second priority is capturing growth opportunities. Our proven, high-return, low-risk real estate model has served us well for many years and continues to be a core strength of our business. In 2022, we completed a total of 2,961 real estate projects, including 1,039 new stores, 1,795 remodels and 127 relocations. For 2023, our goal remains to execute approximately 3,170 real estate projects in the United States across our Dollar General and pOpshelf banners, including 1,050 new stores, 2,000 remodels and 120 store relocations. Notably, this would be the most real estate projects we have executed in one year. Our ability to innovate on the store formats continues to be an important strength of the business, and we expect to leverage multiple formats to drive strong returns in the year ahead.

Approximately 80% of our new stores in nearly all of our relocations will be in one of our larger store formats, which continue to drive increased sales productivity per square foot as compared to our traditional store. With regard to remodels, approximately 80% will be in our DGTP format, which provides the opportunity for a significant increase in cooler count as well as the ability to add fresh produce in many stores. In addition to our planned Dollar General and pOpshelf growth, we are excited about our international expansion. We were pleased to open our first Mi Super Dollar General in Monterrey, Mexico last month, and we have been very encouraged by the customer response and community reception we have seen so far. Looking ahead, our goal is to have approximately 20 stores serving underserved communities in Northern Mexico by the end of 2023 as we look to leverage our brand awareness while extending our value and convenience proposition to a customer base that is similar to our core customer in the United States.

Overall, our real estate pipeline remains robust, and with more U.S. brick-and-mortar stores than any retailer, we are excited about our ability to capture significant growth opportunities in the years ahead. Next, our digital initiative, which is an important complement to our physical footprint as we continue to deploy and leverage technology to further enhance convenience and access for customers. Our efforts remain centered around creating a digital front porch for our customers as we look to continue building engagement across our digital properties, including our mobile app. We ended 2022 with approximately 4.5 million monthly active users on the app and expect this number to continue to grow as we look to further enhance our digital offerings.

Our partnership with DoorDash continues to serve us as an important extension of the value offering of Dollar General, combined with the convenience of same-day delivery in an hour or less. DoorDash is available in nearly 14,000 stores, and we anticipate extending this offering to an additional 1,000 stores in 2023. We are pleased with the incremental sales growth attributed to this partnership as well as its profitability, and we believe we have an opportunity to drive even stronger growth moving forward. In addition, we are excited about the continued growth of our DG Media Network. We are seeing significant interest and participation from CPG companies and brands who are seeking to connect with our more than 90 million unique customer profiles, especially rural customers, who represent about 30% of the country.

We expect our DG Media Network to grow significantly in 2023 as we expand the program and enhance the value proposition for both our customers and brand partners while substantially increasing the overall net financial benefit for the business. Overall, our strategy consists of building a digital ecosystem specifically tailored to provide our customers with an even more convenient, frictionless and personalized shopping experience, and we are pleased with the growing engagement we are seeing across our digital properties. Our third operating priority is to leverage and reinforce our position as a low-cost operator. We have a clear and defined process to control spending, which continues to govern our disciplined approach to spending decisions.

This approach, internally branded as Save to Serve, keeps the customer at the center of all we do while reinforcing our cost control mindset. Our Fast Track initiative is a great example of this approach. The first phase of this initiative, which included rolltainer optimization and self-checkout is focused on enhancing customer convenience and labor productivity in our stores. Self-checkout, which provides customers with another flexible and convenient checkout solution, was available in more than 11,000 stores at the end of 2022, and we continue to be pleased with our results, including strong customer adoption rates. Looking ahead, our goal is to have a self-checkout offering in more than 13,000 stores by the end of 2023, including the full self-checkout option in more than 2,000 stores as we look to further extend our position as an innovative leader in small box discount retail.

Moving forward, the next phase of Fast Track consist of increasing our utilization of emerging technology and data strategies, which includes putting new digital tools in the hands of our field leaders. When combined with our data-driven inventory management, we believe these efforts will drive greater efficiencies for our retail leaders and their teams while laying the foundation for additional phases of Fast Track in the future. We also continue to reduce costs through the expansion of our private tractor fleet, which is one of the largest private retail fleets in the U.S. Our fleet consisted of more than 1,600 tractors at the end of 2022 and accounted for more than 40% of our outbound transportation needs. Looking ahead, we plan to have more than 2,000 tractors in our private fleet by the end of 2023, which would account for more than 50% of our outbound transportation fleet.

Overall, our underlying principles are to keep the business simple, but move quickly to capture growth opportunities, while controlling expenses and always seeking to be a low-cost operator. Our fourth operating priority is investing in our diverse teams through development, empowerment and inclusion. As a growing retailer, we created more than 10,000 new jobs in 2022, while continuing to drive opportunities for personal and professional development, and ultimately, career advancement. Our internal promotion pipeline remains robust as evidenced by internal placement rates of more than 70% at or above the lead sales associate position. Additionally, more than 10% of our growing private fleet team, which nearly doubled in size in 2022, began their careers with us in either a store or distribution center.

We continue to have great success hiring the talent we need, and we are pleased with our staffing levels and applicant flow. Ultimately, we believe the opportunity to start and develop a career with a growing and purpose-driven company is what sets Dollar General apart from the competition and remains our greatest currency in attracting and retaining talent. We added incredible individuals across the organization in 2022 as we grew teams in our stores, distribution centers, private fleet and at our store support center, while also adding a local team in Mexico to support our new customers in those communities. In addition to new opportunities, we have made significant investments in our people, including raising average hourly retail wages by approximately 23% over the last three years and investing over 4 million training hours in 2022 to promote education and development.

The people of Dollar General are our greatest strength and the driving force of this company. In closing, we made great progress against our operating priorities and strategic initiatives in 2022, while making a difference in the lives of our customers. As we enter 2023, we are excited about our robust plans for growth, which we believe will further enhance our ability to serve our customers in meaningful ways. We are the innovation leader in our space, and we are laser-focused on executing at a high level to continue driving long-term sustainable growth while delivering strong returns for our shareholders. Finally, I want to thank more than 170,000 employees for their commitment to serving others every day, and I am looking forward to all we will accomplish together in 2023.

With that, operator, we would now like to open the lines for questions.

See also 13 Best Asian Stocks to Buy Now and 13 Best Depressed Stocks To Buy Now.

Q&A Session

Operator: Our first question comes from Simeon Gutman with Morgan Stanley.

Simeon Gutman: Open-ended question for you. So the business has executed well over a long period of time. Last couple of quarters, we’ve had some missteps or things that haven’t gone to plan. Not all of that I think is clear to us or The Street. And yet all these growth initiatives are still happening at the same time. So the open-ended question is have you debated or is the debate the balance of sort of the growth against investments that’s focusing on the core?

Jeffery Owen: Well, Simeon, thank you for the question. I first want to say, certainly, the last two quarters have been challenging. And I can tell you, we’re disappointed in our results. This team takes great pride in delivering on our commitments and we’ve been doing that for the almost 30 years I’ve been here. And that is something that is not changing. And I can tell you, we have a tremendously deep and outstanding team that’s laser focused on executing and innovating over the long term. And certainly, we have faced some challenges. But what we do here at Dollar General is we control what we can control, and that has allowed us to emerge even stronger as we move forward. So as I think about our balance between execution and innovation, one of the things I think it’s important to remember is we have a long track record of execution, and this team will continue to deliver on that.

And on the innovation front, we don’t do things on the side of our desks. And so as we do innovate, one of the things that our team does more than anything is, as you know, capital is not an issue for us. It’s all about organizational capacity. And I think the team has done an excellent job of making sure that we’ve dedicated the resources, the focus and the time to be able to grow this foundation. And it certainly served us very well. If you think about these challenging times we’re in right now, this company is in a much different place. And as our customer has gravitated towards more consumables, the investments we’ve made in our strategic initiatives have allowed us to serve her even better and more profitably. And so as we look forward, we’re excited about some of the investments we announced today, which will be on top of the strategic investments we’ve made previously, which has put us in a very, very enviable position of having a rock-solid foundation strategically and a laser-focused on execution.

And this team is committed to delivering that as we look forward into ’23 and beyond.

Simeon Gutman: And the one follow-up to that, the $100 million in wages, I don’t think it’s a big surprise, but it was maybe in man hours and not rate. So can you talk about that trade-off or the balance between those two and where — I guess, you feel comfortable where you are on rates?

Jeffery Owen: Yes. We absolutely do, Simeon, and that’s one of the — that’s a great distinction. Here, at Dollar General, for the 85 years we’ve been around, the store has always been the company. And our ability to serve local communities is something that we do better than anybody and we take great pride in that. And so when you think about the investment that we’re very excited about, the reason why it’s in hours rather than wages is because we’ve been paying competitive wages for many years. And you heard in my prepared comments that our wages have increased 23% over the last three years. So our ability to attract and retain talent remains one of our core competencies. And so I’m — the other thing you got to remember is where our stores are located.