Dollar General Corporation (NYSE:DG) Q4 2025 Earnings Call Transcript

Dollar General Corporation (NYSE:DG) Q4 2025 Earnings Call Transcript March 12, 2026

Dollar General Corporation beats earnings expectations. Reported EPS is $1.93, expectations were $1.66.

Operator: Good morning. My name is Rob, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Dollar General Fourth Quarter 2025 Earnings Call. Today is Thursday, March 12, 2026. [Operator Instructions] 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 Todd Vasos, our CEO; and Donny Lau, our CFO. After our prepared remarks, we’ll open the call up for your questions. And Emily Taylor, our Chief Operating Officer, will join us for the Q&A session. To allow us to address as many questions as possible in the queue, please limit yourself to one question. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News & Events. Let me caution you that today’s comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our financial guidance, long-term financial framework, strategy, initiatives, plans, goals, priorities, opportunities, expectations or beliefs about future matters and other statements that are not limited to historical fact.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These factors include, but are not limited to, those identified in our earnings release issued this morning under Risk Factors in our 2024 Form 10-K filed on March 21, 2025, and any later filed periodic reports and in the comments that are made on this call. You should not unduly rely on forward-looking statements, which speak only as of today’s date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law. Now it is my pleasure to turn the call over to Todd.

Todd Vasos: Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our teams in our stores, distribution centers, private fleet and our store support center for all their work to serve our customers and each other in 2025. We are proud of these efforts and pleased with our strong operating and financial results for both the fourth quarter and fiscal year 2025. We have not only stabilized our core business, but we’ve laid the groundwork to drive meaningful growth over both the near and longer term. For today’s call, I will begin by recapping some of the highlights of our fourth quarter performance as well as sharing our latest observations on the consumer environment. After that, Donny will share the details of our financial performance, financial outlook for fiscal 2026 and updated thoughts on our long-term financial framework.

I will then wrap up the call with an update on our strategy, including our strategic growth pillars. Turning to our fourth quarter performance. Net sales increased 5.9% to $10.9 billion in Q4 compared to net sales of $10.3 billion in last year’s fourth quarter. We grew market share in both dollars and units in highly consumable product sales once again during the quarter, in addition to growing market share in nonconsumable product sales. Importantly, we believe our continuing growth in sales and market share demonstrate the relevance of our unique combination of value and convenience for our customers. Same-store sales increased 4.3% during the quarter and included healthy growth in customer traffic as well as average basket size. The growth in average basket was driven by an increase in average unit retail price per item, partially offset by a decrease in average number of items.

From a monthly cadence perspective, while January was the strongest period of the quarter and included a benefit from consumer stock-up activity ahead of winter storms, all 3 periods delivered comp sales growth above 3.5%. For the fourth consecutive quarter, we delivered broad-based category sales growth with positive comp sales in each of our consumables, seasonal, home and apparel categories. Notably, sales in the combined nonconsumable categories outpaced a solid increase in consumable sales also for the fourth consecutive quarter. In addition, we finished 2025 with 3 consecutive quarters of meaningful growth in customer traffic, reflecting the essential role we play for our customer and communities as we help them save time and money every day.

Customers across all income brackets continue to stress the importance of finding value as they shop, and we are meeting this need as we continue to grow penetration with households of all income levels. And while we continue to be pleased with our pricing position against competitors and other classes of trade, we know value is multifaceted, especially for our core customer. As a result, beyond our goal of keeping prices within 3 to 4 percentage points of mass retailers, we continue to offer compelling value through our extensive offering of more than 2,000 items at or below the $1 price point. These items are clearly resonating with the customer as evidenced by the strong performance of our Value Valley offering, which is comprised of more than 500 rotating items all priced at $1.

In fact, during the quarter, this offering delivered a comp sales increase of 17.6%, once again outperforming the chain average. These results represent meaningful acceleration compared to prior quarters, further building on the strong results we’ve been delivering in this area. In addition, $1 items in our seasonal business for the quarter delivered our highest sell-through rates, reinforcing the value our customers continue to place on this important price point. Our strong value proposition is complemented by the convenience of nearly 21,000 stores located within 5 miles of approximately 75% of the U.S. population and a robust and growing digital presence to serve a wide variety of new and existing customers, all of which has uniquely positioned us as America’s neighborhood general store.

In summary, we’re proud of our Q4 and 2025 results, which were well ahead of our expectations. We are well positioned to continue driving profitable sales growth and capturing growth opportunities while creating long-term shareholder value. Now let me turn the call over to Donny.

Donny Lau: Thank you, Todd, and good morning, everyone. Now that Todd has taken you through the top line results for the quarter, let me take you through some of the other important financial details. Unless we specifically note otherwise, all comparisons are year-over-year, all references to EPS refer to diluted earnings per share, and all years noted refer to the corresponding fiscal year. For Q4, gross profit as a percentage of sales was 30.4%, an increase of 105 basis points. This increase was primarily attributable to a reduction in shrink, higher inventory markups and lower inventory damages, partially offset by an increased LIFO provision. Our shrink mitigation efforts once again contributed to strong gross margin expansion in the quarter as we delivered a 62 basis point improvement in shrink versus prior year, even while lapping a 68 basis point improvement in Q4 2024.

For the full year, gross margin expanded by 107 basis points, driven by an 80 basis point reduction in shrink. Notably, this reduction positions us ahead of the goals embedded in our long-term financial framework, and we expect further improvement over time. Turning to SG&A, which as a percentage of sales was 24.9%, a decrease of 165 basis points. The primary expenses that were a lower percentage of sales in the quarter include impairment charges primarily due to the store portfolio optimization review completed in 2024 and retail salaries, partially offset by higher incentive compensation. Moving down the income statement. Operating profit for the fourth quarter increased 106% to $606 million. As a percentage of sales, operating profit increased 270 basis points to 5.6%.

As a reminder, our Q4 2024 operating profit includes an approximate $232 million negative impact associated with the impairment charges I just mentioned. Net interest expense for the quarter decreased to $52.3 million compared to $65.9 million in last year’s fourth quarter. Our effective tax rate for the quarter was 21.8% and compares to 16.2% in the prior year. Finally, EPS for the quarter increased 122% to $1.93, which exceeded the high end of our expectations. Our Q4 2024 results include an approximate $0.81 per share negative impact associated with the impairment charges I mentioned earlier. Turning now to our balance sheet and cash flow, where we continue to make significant progress in strengthening our financial position. Merchandise inventories were $6.3 billion at the end of Q4, a decrease of $379 million or 5.7% compared to the prior year and a decline of 7% on an average per store basis.

Importantly, the team continues to do a terrific job reducing inventory while driving sales and improving in-stock levels. Overall, we’re pleased with our inventory position and moving forward, are focused on growing inventory at a rate below our sales growth. In 2025, we generated significant cash flow from operations of $3.6 billion, which represents an increase of 21.3%. Our strong cash flow generation provides flexibility to reinvest in our business, while at the same time, further strengthen our balance sheet and liquidity position. In fact, as previously communicated, we redeemed $550 million of senior notes during the fourth quarter. This was well ahead of their scheduled November 2027 maturity and brings the total level of senior note redemptions in 2025 to $1.7 billion.

We also paid a dividend of $0.59 per common share outstanding during the quarter for a total payment of approximately $130 million. Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in the business, including our existing store base as well as other high-return growth opportunities such as new store expansion, remodels and other strategic initiatives. Next, we seek to return cash to shareholders through our quarterly dividend payment and when appropriate, share repurchases, all while maintaining our goal of less than 3x adjusted debt to adjusted EBITDAR in support of our commitment to middle BBB ratings by S&P and Moody’s. Overall, we’re pleased with our strong financial results in 2025, which were significantly ahead of our initial expectations for the year.

These results are a testament to the strong execution by the team and the ongoing positive impact of key growth initiatives across the business. I’d like to now discuss our financial outlook for 2026. Our current outlook reflects continued progress against our key growth initiatives. It also considers our efforts to mitigate cost inflation and the potential for continued uncertainty, particularly in consumer behavior. In addition, keep in mind that we entered the year well ahead of schedule on several of the goals initially contemplated in our long-term financial framework, which we introduced on our Q4 2024 earnings call last March. Taking all this into account, for 2026, we expect net sales growth in the range of 3.7% to 4.2%. Same-store sales growth in the range of 2.2% to 2.7%, and EPS in the range of $7.10 to $7.35.

Our EPS guidance assumes an effective tax rate of approximately 25% and includes an anticipated negative impact of about 150 basis points from the expiration of the Work Opportunity Tax Credit on December 31, 2025, resulting in an approximate $0.13 reduction to EPS. We expect capital spending in the range of $1.4 billion to $1.5 billion, which is in line with our capital allocation priorities and designed to support ongoing growth. In addition, our Board of Directors recently approved a quarterly cash dividend payment of $0.59 per share for Q1 2026. And while our guidance does not contemplate share repurchases this year, they remain an important part of our broader capital allocation strategy at the appropriate time. Now let me provide some additional context as it relates to our outlook for 2026.

As a result of severe winter storm activity in the first 2 weeks of February, including periods of temporary store closures, sales results were negatively impacted to begin the year. Since that time, we’ve been pleased with the solid rebound in top line performance. With all of that in mind, we expect Q1 comp sales to be in the low 2% range. For the full year, we expect continued gross margin expansion though to a much lesser extent than 2025 as we lap the strong performance from prior year. We expect this improvement to be driven by our key gross margin drivers, which Todd and I will discuss in further detail shortly. On the expense side, we expect modest SG&A deleverage in 2026. While we expect to benefit from a more normalized incentive compensation level, this benefit will be partially offset by continued investments in key initiatives, including remodels and IT modernization.

Overall, we’re excited about our plans for 2026, particularly following our strong 2025 results, and we’re confident in our strategy to deliver against our long-term financial framework goals. With that in mind, I will now provide an update on certain components of our long-term financial framework. I’ll start with an update on how we currently see the path towards our 6% to 7% operating margin target over the next 3 to 4 years. Within gross margin, our plans include building on our efforts to further reduce shrinking damages. And while we have made significant progress on both fronts, particularly with shrink, we see opportunities for continued improvement as we move ahead. More specifically, we now anticipate shrink and damages combined will contribute approximately 50 basis points of incremental gross margin expansion as we continue to optimize our inventory position, improve in-store execution, and reduced store manager turnover.

We’re also executing against a combination of other gross margin drivers, including DG Media Network, nonconsumables merchandising, supply chain productivity, and category management. Importantly, many of these initiatives are still early in their maturity curves. In total, over the next 3 to 4 years, we expect these combined initiatives will contribute at least 120 basis points of gross margin improvement, including approximately 50 basis points from our DG Media Network. With regards to SG&A, we continue to target reductions through initiatives designed to simplify work and drive greater efficiencies, reduce repairs and maintenance expense and stabilize growth in depreciation and amortization. And while the goals in our framework assume a modest degree of SG&A deleverage, we’re excited about the potential to deliver savings in these areas while supporting continued growth across the business.

Finally, we are pleased to continue to return cash to shareholders through our strong dividend. We are also looking forward to resuming share repurchases at the appropriate time. Overall, our framework is centered on driving strong top and bottom line growth and improving profitability while continuing to invest in high-return growth initiatives and ultimately returning significant cash to shareholders. Importantly, we are working to further strengthen and accelerate where we see opportunity, our path to achieving these goals. In closing, we’re pleased with our strong operating and financial results in 2025 and excited about our plans to drive continued growth in 2026 and beyond. We’re confident in our business model and our long-term approach to driving sustainable growth while creating long-term shareholder value.

With that, I’ll now turn the call back over to Todd.

Todd Vasos: Thank you, Donny. As we look to build on our momentum in 2026, we’re focused on 4 strategic growth pillars: enhancing the customer experience, elevating our brand, driving greater enterprise-wide efficiencies, and extending our reach. I will take the next few minutes to discuss each of these and how we are working to accomplish our goals. First, with the customer at the center of everything we do, we are focused on enhancing the customer experience. We believe we have a tremendous opportunity to gain additional market share with both new and existing customers as we look to drive trips within both in-store and digitally. In store, we expect to further enhance the customer experience in 2026 with the introduction of a new store format and even more relevant merchandising programs, including our nonconsumable initiative.

We have reimagined our traditional store format by creating a new layout in response to what customers have told us they want from their shopping trip. This new format is designed to be more open and inviting, resulting in greater browsing and treasure hunt shopping as customers are exposed to more categories as they navigate the store. We tested this new format in a portion of our 2025 remodel projects and are pleased with the incremental sales lift and relative sales outperformance compared to traditional remodels. Ultimately, we believe this format will help drive both increased transactions and ticket as the store provides for an even fuller fill-in trip. As we look to build on our success in 2025 and further increased penetration of nonconsumable sales, we have exciting plans to drive growth in our discretionary categories.

More specifically, we’re continuing to evolve and expand our offering. And following the highly successful brand expansion in 2025 with brands such as Dolly Parton, kathy ireland and others, we expect to launch at least 15 new brands in nonconsumable categories in 2026. In addition, as we look to showcase even more value in nonconsumable categories this year, while continuing to drive profitable sales growth, we also plan to capitalize on a number of other exciting opportunities in these areas, including building on our proven closeout buying strategy, launching a loyalty program in key nonconsumable categories and growing nonconsumable sales through shoppable social marketing. Notably, our goal is to increase nonconsumable sales penetration to as high as 20% by 2029.

This would represent meaningful gross margin expansion and is an important component of our long-term financial framework. In addition to the multitude of in-store initiatives in place, we are also advancing our digital initiatives as we seek to further enhance the omnichannel consumer experience at Dollar General. We have established a robust digital ecosystem in recent years with more than 7 million monthly active users on our DG app and a total of more than 100 million marketable customer profiles. Our digital offerings are an important complement to our expansive physical store network and a key driver of incremental value and convenience for our customers. As we look to drive future growth, we are focused on scaling our delivery options, personalizing the experience for our customers and growing the DG Media Network.

We have significantly expanded the reach of our delivery options available to customers and are now delivering customers through approximately 18,000 stores and with our own myDG delivery offering, as well as through third-party partners, DoorDash and Uber Eats. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers with more than 80% of the orders delivered in 1 hour or less while also extending our value offering to a wide range of new customers who were previously underserved by delivery options in their community. As we continue to see larger basket sizes than an average in-store transaction and very strong repeat visit rates, our rapidly growing delivery platforms are becoming a more meaningful sales driver.

In fact, we estimate delivery sales contributed approximately 80 basis points to our comp sales growth of 4.3% in Q4. Looking ahead, we have ample opportunity to further drive incremental sales growth through customer experience enhancements, increased customer awareness and expanded loyalty opportunities including a planned pilot of a subscription program. As we see continued growth in our digital properties, one of the most significant components of our digital initiative is our DG Media Network, which enables a more personalized experience for our customers while delivering a higher return on ad spend for our partners. Our DG Media Network strategy is focused on accelerating on-site performance through improved search, sponsored products and a stronger e-commerce experience while expanding our ability to capture emerging off-site spends across social, connected TV and video.

We’re also creating more opportunities for advertisers to participate inside our stores that are connecting digital and physical experiences. Over time, we believe this approach positions the — our entire advertising network as a strategic lever to drive profitable sales growth, enhance the customer experience and strengthen loyalty across our myDG ecosystem. In 2025, as partners continue seeking access to our unique customer base, we delivered approximately $170 million in retail media network volume, which is highly accretive to gross margin. Overall, our digital strategy is an important component of our in-store customer experience and a key driver within our long-term financial framework. Our second strategic pillar is elevating our brand.

We believe we can drive significant sales and margin growth in this area through strategically investing in our mature store base while diligently executing on the basics of retail. In turn, we expect to deliver an elevated experience for both our customers and employees. Our mature store investments will be centered around 2 established remodel programs, Projects Renovate and Elevate. As a reminder, Project Renovate is our traditional remodel program, which impacts 100% of the store and includes adding or replacing coolers as well as upgrading to the latest store format. These projects are focused primarily on stores that are 7 or more years removed from their last touch. In 2025, we introduced an incremental remodel program called Project Elevate, which is designed to further grow sales and market share in portions of our mature store base that are not yet old enough to be part of a full remodel pipeline.

These projects include physical asset enhancements, merchandising updates, product adjacency adjustments and category refreshes, all of which impact up to 80% of the total store. We continue to target annualized comp sales lift of approximately 6% in Project renovate stores and approximately 3% in Project Elevate stores. In addition to higher sales, customer surveys indicate that both projects have had a positive impact on customer sentiment, each scoring more than 100 basis points higher post remodel as compared to the rest of the chain. Our store employees are also excited about the enhancements and the positive impact on their ability to serve our customers. In fact, following project completion, both remodel programs have lower store manager turnover rates compared to the chain average.

Importantly, these improvements contributed to an overall reduction of more than 375 basis points in company-wide store manager turnover in 2025. We have ample opportunity to continue elevating our brand through these projects and continue to expect to execute 2,000 Project Renovate remodels and 2,250 Project Elevate remodels. Our third strategic growth pillar is driving greater enterprise-wide efficiencies. We are actively pursuing a number of opportunities to drive greater efficiencies and lower costs throughout the organization, including increased supply chain productivity, further simplification of our stores, inventory optimization, and increased use of artificial intelligence. Within our supply chain, we are committed to integrating technology that can enable improved execution and drive greater productivity while maintaining operational flexibility.

In turn, we expect to see higher levels of employee engagement and lower employee turnover in our supply chain, which will further enhance productivity. Regarding transportation, we continue to leverage our private truck fleet for approximately half of our outbound transportation needs across the network. A private fleet truck represents savings of approximately 20% compared to the cost of a third-party provider, and we believe continued growth can drive substantial savings in the years ahead. Ultimately, our supply chain initiatives can support greater execution and efficiency while contributing significantly toward the operating margin goal in our framework. These efforts can also support work simplification in our stores, along with the continued focus on case pack fit, which reduces the amount of time spent stocking shelves as well as SKU rationalization and inventory optimization.

Finally, while we are still early in our AI journey, we are building an AI operating system for the enterprise focused on reshaping our workflows to improve productivity and enablement. We believe that over time, these efforts can improve our customer-facing applications while accelerating our value delivery, decision automation and continuous process improvement, lowering SG&A per unit of work and driving efficiency and processes throughout the organization. Our final strategic growth pillar is extending our reach. We continue to extend our unique combination of value and convenience to new communities across the country. In 2025, we opened 581 new stores in the U.S. and we plan to open an additional 450 new stores in 2026. Approximately 80% of our stores are in rural communities of 20,000 or fewer people and we see substantial opportunities to continue growing our store count and serving new customers for many years to come.

Importantly, these projects continue to be one of our best uses of capital and are an important part of our growth strategy. In addition to our new Dollar General store growth, we continue to test and learn and refine our strategy for international growth in Mexico. We had a total of 16 Mi Super Dollar General stores at the end of 2025 and now expect to open approximately 10 additional stores in 2026. While our core business proposition of value and convenience continues to resonate with customers in Mexico, we are leveraging our learnings and customer, real estate and merchandising insights to further extend our reach and capture more of these exciting growth opportunities. Finally, we are also pleased with the recent performance of our pOpshelf stores, which had strong comp sales that exceeded our plans in 2025.

Importantly, we also continue to leverage learnings from pOpshelf and apply them to our nonconsumable approach in Dollar General stores, which has supported our strong growth in these categories. Looking ahead, we remain excited about these concepts and its potential to be a meaningful contributor as we further extend our reach with customers of both banners. Overall, we’re excited about our plans for 2026 as well as our initiatives to drive long-term growth. We believe these strategic growth pillars provide even greater strategic focus and clarity as we continue to advance our progress toward the goals laid out in our long-term financial framework. As I conclude my prepared remarks, I want to reiterate that we are pleased with our strong performance, confident in our business model and financial framework and excited about the tremendous opportunity that we have in front of us.

I want to thank our approximately 194,000 employees for their great work in delivering strong results in 2025, and I look forward to all that we will accomplish together in 2026. With that, operator, we would now like to open the lines for questions.

Q&A Session

Operator: [Operator Instructions] And the first question comes from the line of Matthew Boss with JPMorgan.

Matthew Boss: Congrats on a nice quarter. So Todd, could you speak to the consistency of comps that you saw in the fourth quarter, drivers of acceleration in both the traffic and transaction and just elaborate on comp trends that you’ve seen in the first quarter outside of the impact from the storm? And then Donny, on the bottom line, could you just walk through the puts and takes for operating margins that you’ve embedded in this year’s outlook, notably, the drivers you see remaining with gross margin? Just your confidence in the 6% to 7% operating margin by FY ’28 plan.

Todd Vasos: Great. I’ll start. And Donny, I’ll let you jump in. Yes. Matt, our comps, we felt really good about them in Q4. Actually, when you think about Q4, as my prepared remarks talked or Donny’s, we were 3.5 at least across all 3 periods. I think it’s important though to note that November and January were the strongest. And December, again, still above, right at that 3.5, but the weaker of the 3, if you will, if you call it, 3.5 weeks. So I would say that if you look past the storm impact in January, November and January were pretty consistent, quite frankly. So feel good about that comp. And I would tell you the drivers real quickly, really, it’s value, value, value at this point for the [indiscernible] that we hadn’t talked about leading up to Q4, but I would tell you as she moved through Q4, value became even more important depending on the areas that she was shopping, not only in our consumable areas but in our nonconsumable areas.

What I’m proud of on the drivers is nonconsumables outshined again the strong consumable sales number. And that, for us, is very important, but also for our consumer, it shows that value is important to her. Here’s how I would line up the importance of the sales line for Q4 and quite frankly, as we move into Q1. Private brands, the $1 price point and a strong everyday low price. Those are the benchmarks for what our customer is looking for. On that $1 price point, Matt, we saw a very strong take rate across both consumables and nonconsumables, highest sell rates — sell-through rate, excuse me, on our nonconsumable areas in the $1 price point. And I would tell you that drumbeat has continued in Q1. In Q1, past the storm, we feel good about where the sales are, actually right back to where we thought they would be.

So very good to see. But that first couple of weeks in January, due to the storm, set us back just a bit. But we’re right back in the game, feel good about it. And I think that consumer really needs a Dollar General at this point as we look ahead with all of what’s ahead of that consumer, including the macroeconomic pressures that are out there and the geopolitical pieces that we’re all watching very closely.

Donny Lau: And Matt, in terms of the margin drivers for 2026, before we jump into that, I thought I’d just touch quickly on Q4 because I do think it set a little bit of context as you think about 2026. And so from a Q4 perspective, especially pleased with the 105 basis points of expansion we saw during the quarter, and that’s even with the 32 basis point headwind from LIFO. As you saw, the standout was once again shrink followed by markup. We liked what we saw in the damage line, which was a pretty meaningful contributor in the quarter as well. And I’ll tell you, we’re especially pleased with the 107 basis points of expansion for the full year, even with the 40 basis point LIFO headwind. And so overall, for Q4, we’re really pleased with the performance exiting the quarter and really pleased to see the momentum we’re building against our key margin drivers, which positions us well to move into 2026.

On the SG&A line, the primary drivers really here were the prior year lap of the impairment charge. Just to be clear here, though, the majority of that, we do consider discrete. Some of it is a little bit more normalized. And we are lapping — or we’ll be lapping next year higher incentive comps. So pretty outsized in 2025, lapping a below normal rate in 2024. So as we think about that setup, as we move into 2026, we do expect another year of gross margin expansion to a much lesser — to a lesser extent than 2025, just we are lapping that 107 basis point full year improvement from last year. In terms of tailwinds, we expect continued but more modest improvement in shrink. Again, we’re lapping 80 basis points of improvement in the prior year.

We expect continued improvement in damages, which again was a meaningful contributor in 2025, and continued momentum across our other gross margin drivers, which we touched on, including the DG Media Network, what we’re seeing out on our consumables, we’re seeing some nice contribution from supply chain and category management as well. In terms of the headwinds, we are watching the changing tariff environment. We are watching the potential for the changes in higher gas prices. But overall, we do continue to believe there are more tailwinds and headwinds and feel really good about the momentum we’re seeing on this front. In terms of SG&A, we do expect modest deleverage on the SG&A line. We are lapping that, the higher incentive count so we expect more normalized incentive count, compensation levels this year, but we’re also expecting continued investments in our key growth initiatives and IT modernization and remodels are a couple to call out.

But overall, I’d say our expectations for SG&A are pretty much in line with the annual targets outlined in our long-term financial framework. The one thing I did want to touch on for 2026 is the tax. We anticipate a full year tax rate of 25%. That compares to 23% in 2025. As I alluded to in my prepared remarks, this includes about 150 basis point headwind from the exploration of the work opportunity tax credit at the end of 2025, and that will result in an approximate $0.13 reduction to EPS. And just as a reminder, the work opportunity tax credit, it’s a federal tax credit available to employers who invest in job seekers or barriers to employment. So think veterans, some are youth employees, SNAP recipients and residents of rural renewal counties.

The good news here is Congress has extended the program 3 times in the past 10 years. And so while there are no guarantees they’ll do it again, there is precedent. In all cases, that extension has provided for full catch-up provisions. So more to come here, but we’re watching it closely. And then just quickly, in terms of our confidence level in the op margin targets of 6% to 7%, what I’d tell you is we feel really good about our ability to deliver against that goal. I think one way to think about it, and Todd mentioned it in his prepared remarks, but we really do believe we stabilized the core business, stabilized the core business in 2025. And while there’s still work to do, one of the things that’s most encouraging to me is when you look across many of our key operating metrics, including things such as in-stock levels and on-time deliveries and inventory per store, among others, we’re seeing strong improvement versus 2023 levels.

And in many cases, we’re seeing sequential improvement quarter-over-quarter, which tells us we’re really building momentum across the business. And I think that’s what was reflected in our strong Q4 and full year financial results. And so when you add it all up, seeing good momentum across many aspects of the business, we’re ahead of schedule and some of the initial goals contemplated in our long-term framework. And importantly, we’ll continue to accelerate our path to achieving these goals where we see opportunity. And one of the things that I think will be helpful as we move forward is as you think about our priorities for 2026 and beyond, they really are underpinned by the 4 strategic growth pillars that Todd alluded to. And in short, I think they’re going to really help guide our decision and investment as we move ahead.

And so overall, a lot of reasons to be optimistic as we move forward. And I really do believe we’re well positioned to grow sales, enhance margin, increase profit and capture more share going forward.

Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley.

Simeon Gutman: As a follow-up to that last question, if you put the marginal together, we just don’t have the interest, but it looks like it’s kind of flattish year-over-year, maybe up a little bit. So if you look at operating margin, if you can just speak to that. And then, let’s say, your comp comes in, I don’t know, 3% or so. Are you leveraging expenses at that level? Does it need to be a bit higher? I’m not trying to be cute with 3%, but just trying to think about what are the tiers where we start to see more meaningful SG&A leverage such that whatever you’ve built into ’26 ends up being better.

Donny Lau: Yes. No, thanks, Simeon, for the question. I think you’re thinking about things the right way. As I alluded to, we do expect gross margin improvement, but to a much lesser extent in — versus 2025. And to your point, that will be partially offset by modest SG&A deleverage. And to your point also, the amount of SG&A deleverage will be somewhat dependent on our comp sales performance for the year. And more specifically, we do expect deleverage will occur until we’re slightly ahead of that 3 points of comp. All that said, what I’ll tell you is we feel really good about the guidance we provided today based on what we know today and especially in light of the evolving landscape, including some of the uncertainties that I mentioned, whether it’s tariff rates or gas prices or consumer behavior.

But keep in mind, we’re well ahead of several of the goals contemplated in long-term financial framework. And just to contextualize, right? When we introduced the framework last March, we contemplated that the more meaningful contributors to gross margin in the first 2 to 3 years would be shrink and damages. So think more operational in nature. And we expect the benefits from other gross margin drivers ramping throughout this time frame and contributing more over time. And that expectation hasn’t changed. What has changed is the margin recapture opportunity from shrink and damages has occurred at a much higher and faster rate than we initially contemplated. And the good news is we now expect even more benefit from these drivers than we initially thought.

And the other gross margin drivers are progressing generally in line with our original expectations. And so in short, what’s most encouraging for me is as you think about 2025, we were able to capitalize on opportunities to really accelerate our progress towards our long-term goals. And we’re going to continue to focus on opportunities to further accelerate where we can. But overall, there’s still a lot of the year left, but I like how we’re positioned coming into 2026. And again, I think there’s a lot of reasons to be optimistic as we move forward.

Todd Vasos: And Donny, I would just add. On that SG&A rate, in that long-term framework, AI is not contemplated within that framework. And we’ve got a nice jump start there. And more to come as we continue to unfold the AI initiatives here at Dollar General. But I would tell you, they’re squarely focused on 2 big areas, one being the customer and driving more sales and profitability with the customer, but also number two, the efficiencies that will come with — through our supply chain, through our stores and, of course, all back of house with AI. So that should be a nice top spin as we move over the next couple of years as well.

Operator: Our next question comes from the line of Robby Ohmes from Bank of America.

Robert Ohmes: Actually two, just inflation. Can you talk about how much inflation helped in the fourth quarter? And then given the LIFO charges, maybe just walk us through what the inflation expectations are in consumables and nonconsumables and what’s driving that for 2026? And then the second thing would just be I’d love to hear — I know you guys started doing a lot of SKU reductions. What’s been the benefit there? Is there more of that coming this year? And what are you — how is that helping sales comps, margins, et cetera?

Donny Lau: Yes. Maybe Robby, I’ll take the first question. In terms of inflation, we are seeing inflation consistent with what others have referenced. So very low single digits as you think about consumables and nonconsumables. So pretty balanced there. I think in terms of the amount of inflation we’re seeing, I mean, again, one way to think about that as a LIFO provision. It was a $45 million impact in the fourth quarter, so essentially 32 basis points. And so just as a reminder, LIFO reflects the cost increases, primarily based on the current tariff rates as well as what’s been absorbed by vendors. And so something we’re watching closely, but that’s — our expectations are embedded into our full year guidance.

Todd Vasos: And what I’ll do is just quickly start, but I’d like to pass over to Emily Taylor to talk a little bit about the SKU reduction. But it’s been the cornerstone of part of our stabilization of retail. And I would tell you that the team has done just a fabulous job over the last 2 years, quite frankly, in reducing inventory. And there’s more to come. So Emily, maybe if you were to talk about that.

Emily Taylor: Sure. We’ve had aggressive SKU reduction plans really over the last few years, over 1,500 SKUs have been taken out the assortment. And I’ll echo what Todd said. The team has done an excellent job of navigating that while also supporting growth in the business. We do have a net reduction plan for ’26, and the team is well underway on getting that executed. Some of the benefits that come from it, and Todd mentioned inventory reduction, certainly has been helped with the SKU reduction in addition to a lot of other work that’s gone around inventory optimization. But also, it ultimately supports the simplification effort that we’ve had, not just as it relates to our store activity but also our entire supply chain. And I’ll call out a couple of other things that have really helped that effort.

The team has also reduced floor stands pretty significantly in stores, which has helped reduce the overall really clutter inside our stores, and that continues to be executed as done. And then from a supply chain perspective, our DCs are executing more aggressive seasonal sorts, which helps to make sure stores are able to get product to the shelf faster, and we’ve seen great results there. Todd mentioned case fit earlier, that continues to be a focus of the team, which also supports overall SKU reduction inside the store. And it really does come together to support higher and better in-store conditions, which we’re measuring in terms of clean, in-stock, recovered and engaged, and all metrics as it relates to that are up significantly versus prior year.

So really excited about the results that the team’s achieved and really believe it gives us momentum as we move forward to continue to drive these results.

Operator: The next question is from the line of Rupesh Parikh, Oppenheimer.

Rupesh Parikh: So two quick ones for me. So just from a modeling perspective, anything to highlight from a quarterly cadence perspective on the bottom line? And then with your nonconsumable efforts, just overall confidence in sustaining momentum, what’s performed better than expected? And what are you assuming for trade in this year?

Donny Lau: Yes. So I’m happy to take the first question, Rupesh. I think not a lot to add versus what we’ve already talked about in terms of the margin side of the house. Again, expect another year of margin expansion. We talked about the tailwinds and the headwinds. We talked a little bit about the SG&A and tax. The one thing maybe I will touch a little bit on is just overall, how we think about the headwinds and tailwinds for sales. And so from a tailwind perspective on the sales line, we are seeing great momentum across many of our initiatives, specifically what we’re seeing out of remodels and nonconsumables. And as Todd alluded to, private label and digital, quite frankly. And all of this is really resonating with the customers.

And I like the growth we’re seeing with new customers and the trade-in customers and feel really good about our plans to retain a lot of them. And overall, spending remains pretty resilient from a consumer perspective. And also keep in mind, right, the OBBA, we do expect the tax relief to come in. We think that we’ll be able to capture our fair share and hopefully more, and we’re still early in the season there. In terms of headwinds, as Todd touched on, we also touched on in our prepared remarks, we do expect a modest impact, negative impact of sales just driven by the 2 weeks in Q1 by the winter storm activity, including temporary store closures. And consumer sentiment does remain cautious and stagnant, and inflation remains sticky and the macro environment continues to evolve, and we touched on tariffs and gas prices already.

But overall, what I would tell you is really encouraged by our sales trends, feel good about the guidance we provided based on what we know today. And again, there’s still a lot of year left. We’ll see how things play out, but the goal is for us to be there for the customer, and we’re really focused on delivering as much sales as possible.

Todd Vasos: Rupesh, thanks for the second part of that question. I’m also going to pass it over to Emily in just a moment. But we’re really proud of that nonconsumable business that we have cultivated and grown over the years, but definitely refocused over the last year and now leading into ’26 with a lot of great momentum. I would tell you that with value being at front and center and the cornerstone of what the consumer is looking for, there’s no better place to shop than Dollar General when you think of that especially in that nonconsumable world. And I would tell you that the customers really — is really seeing that benefit. And then lastly, I would just tell you before I pass it over to Emily for some more detail is that our pOpshelf group has really done a nice job inside their stores, but also in helping inform our nonconsumable direction and businesses in the mother ship, if you will, or the Dollar General store.

So that has really helped and will continue to help on both sides of the equation.

Emily Taylor: Yes. And I would just say I’m very excited about the trajectory in the nonconsumable business. I mean Q4 is fourth consecutive quarter of positive same-store sales, fourth consecutive quarter of nonconsumables outperforming our strong results in the consumable area. And it really is a result of the great work that the merchant team has done to set up that area of our store. We are offering more for the customer today, not just in terms of value in this space, but also in terms of newness, and that’s really helping to drive the results. So we’ve talked a lot about our brand partnerships, really focused on Dolly, kathy ireland, both very successful launches for us in ’25. But as we move forward, the team has much more aggressive plans in place, and we’re excited to bring that to life.

I won’t take you through the whole list, but 15 brands will launch this year, and I think it will resonate very strongly with the customer. Again, emphasizing that value component but also the surprise and delight that the team has worked so hard to bring to life in this space. In addition to assortment changes, though, I don’t think it can be understated that launching shoppable social is a big game changer for us in this space. This is a brand-new way of shopping for a category that shoppers do tend to engage digitally more than with the rest of the store. And so bringing that to life through our delivery network that we built out in the nonconsumable space really changes the way our customer can interact with this area of our store. In addition to that, the team will keep working on making sure that we’re bringing the right value to life, whether that’s through direct purchase programs or through closeout buying, and the team looks at that closely.

We think there’s more opportunity on closeout again to drive even better value, but also find those surprise items, surprise brands perhaps that a customer wouldn’t expect inside our store. So I think it all comes together to say, it helps explain the great trajectory that we’re already on but also gives us a lot of confidence in building on that as we move ahead.

Operator: The next question come from the line of Kate McShane with Goldman Sachs.

Katharine McShane: We were wondering with regards to the delivery that you’ve been so successful at rolling out. It has seemed fairly seamless. But we wondered what you’ve had to do on your end to ensure the customer experience has continued to be positive. And if there’s any kind of incremental labor that has been needed as a result of rolling this out.

Todd Vasos: Kate, thanks for the question. Great to hear from you. I would tell you that it has been fairly seamless. Now as you would imagine, with a company our size and scope that we were paddling pretty hard on the backside to make it look seamless. The important thing is for the consumer, they have loved the initiative so far. As you imagine, we’re only a couple of years into this. And last year, being quite frankly, a very strong year for us. And you heard that 80 basis points of our comp in Q4 was delivered through that delivery mechanism. I would say that as I look forward, the great thing about the delivery program for me is that the customer is already resonating and we’re just getting started, right? And so we’ve been on the third-party journey for the last couple of years, but really just launched in earnest myDG delivery in 2025.

And that’s really where we’ll get the majority of the leverage to include that media network, which has already contributed greatly to the gross margin, and we’ll continue to do so. And Emily, you may want to give us just a couple of bullet points on delivery.

Emily Taylor: Yes, sure. So from a delivery perspective, really excited about it. I’ll address some of the focus areas for us in delivery. I mean, certainly, in stocks matter a lot as it relates to the ability to fulfill the delivery orders. And that’s where our in-stocks in Q4 were up about 250 basis points above where they were same time period last year. So we’ll continue that focus. And that, of course, helps our in-store business as well as delivery. We’re also very focused on the digital experience for the customer. And so we have enhancements that are coming out that I think our customers are going to be very excited about, including an improved and expanded search capability, which is very important for the customer.

It’s also important for the media network. But all in, excited about what we’re seeing out of delivery. I’ll give a couple more points. We see our existing customers who use delivery shop us more often with this capability, which is exciting to us. We see new customers at a very high rate getting exposed to Dollar General through our delivery channels, and that’s also very exciting. So what we really like is it’s highly incremental to sales, and it is a profitable business for us. And then just as Todd mentioned, it supports our efforts around media network as well. And this has really helped to drive the business to the $170 million that we quoted in the prepared remarks. And as we move ahead, we see continued opportunity there as well. Advertisers love that we offer a unique and unduplicated reach into the communities that we serve for them.

And we have a lot of initiatives underway to help drive this business forward as we move ahead, and the expansion of Media Network, of course, grows as we’re able to grow our digital assets and delivery certainly helps us do that. So it’s very much cojoined with our strategic priorities going forward.

Donny Lau: Yes. And the thing that probably excites me the most, everyone, is really — I do believe this represents 2 incremental profit pools for us, right? So as Emily alluded to, delivery is highly accretive from a sales and profit perspective, right? Media Network is highly accretive from a profit perspective. And the beauty of it is, right, they are self-reinforcing. And so as we continue to grow delivery, we’ll continue to grow DG Media Network, which in turn should help fill even more delivery growth. And so really excited about what this could mean for the business. And the great news is we’re still early days, but a lot of opportunities as we move ahead.

Operator: Our next question is from the line of Kelly Bania with BMO Capital.

Kelly Bania: Just wanted to go back to the bigger picture of the margin discussion. It sounds like shrink, obviously, the outlook is 50 basis points higher than your prior plan from last year. Can you just talk about the processes or reasons of why that should go higher? I think you also commented that inventory should maybe start to grow maybe less than sales, but albeit grow? And then on the flip side, I think it sounds like the DG Media contribution is maybe a little bit lower than what it was previously. Is that accurate? And can you just talk about what kind of digital penetration and growth you need in order to achieve the targets that you’ve outlined today?

Todd Vasos: I’ll start, and Emily, you could fill in a little bit on the Media Network and what we’re seeing there. I would tell you that we feel really good, Kelly, about where we’re headed on that shrink side and damage side. This is nothing new for Dollar General. We know what to do here. I said that over a year ago, and I said that when I first came back in the chair in 2023. And we’ve executed very, very nicely. We believe that there’s still more to come. We were — I wouldn’t say conservative, but knowing that the macro environment had changed some since 2019, we leaned into that 2019 levels of shrink to be able to get back to. But we’re starting to see where it could be back to 2017 type of levels even. And so the team has done a great job.

But again, there’s no big silver bullets there. It’s really execution. It’s taking the self-checkout units out, turning them into assisted lanes was a big win, staffing that front end 100% of the time, a big win. And then the inventory control is a huge opportunity, has been and will continue to be, especially as we move forward in the damage side of the equation while shrink has moved a lot faster in the positive for us, damages have moved positive, but not at the same pace. We believe that ’26 is the year ’26 here will be the time for damages to move at that quick rate. Matter of fact, just out of the chute, yes, only one period in, in Q1, we’re already seeing that on the damage line and happy about what we’re seeing there. So more to come, more to like there.

And how I would think about that in totality is it gives us, and Donny mentioned, a much more confidence in achieving even at higher ends of the framework that we put out there. So that’s how I would look at it as an investor. But Emily, you may want to just talk a little bit about the Media Network and all the great things that we’ve got there.

Emily Taylor: Sure. So just first, as a reminder, we started the Media Network here at Dollar General back in 2018. The team has done a really nice job building it into the $170 million business than it is today, but we do see a big opportunity as we move ahead to continue to increase that. Some of the specific opportunities that we see would first be growth in owned and operated properties. So this is in our app, our website and our stores as well. From an app and website perspective, the search that I mentioned previously that matters so much to our customer is also very important to advertisers, and that is going to roll out this year, and we’re excited to bring that to life. From an in-store perspective, we are rolling out new opportunities, including an in-store audio program this year.

And in-store media overall, which is, of course, right at the point of purchase where our customers really appeals to the advertisers that we have in the network because of the high returns that they see and because of the scale that we can deliver with our 21,000 stores. And at the same time, as we’re focused on growing owned and operated, we are expanding our off-site footprint as well, looking into more expanded social placements, connected TV and video. And as we roll that out, we do have in place closed-loop measurement for our advertisers so that they’re able to see returns and, of course, so that we can monitor and measure and help drive those as well. So really a lot going on in the media network that gives us good confidence that we can continue to grow it.

And as we said, growing delivery matters a lot as we increase our audience size. And so I do think that also gives us a tailwind as we continue to scale that business.

Operator: Our last question will be coming from the line of Seth Sigman with Barclays.

Seth Sigman: Great progress. I wanted to focus on free cash flow, which has increased pretty meaningfully over the last year again. A lot of things working. Can you talk a little bit more about that opportunity to further optimize inventory? But also payables, that’s been a big benefit here. What’s changing? How much more can that go? And then finally, related, how do you think about returning to the market for buybacks? How should we think about the time frame?

Donny Lau: Yes. No, I appreciate the question. And maybe I’ll just take a step back and talk a little bit more about capital allocation, which will kind of dovetail a little bit more in the cash flow generation ability of this business, which obviously is very substantial. Yes, as we alluded to in the prepared remarks, our capital allocation parties really haven’t changed there at Dollar General. Yes, that the goal is really we want to ensure ample liquidity. I think about it as maintaining a fortress balance sheet. But we also want to obviously maintain the investment-grade credit rating. We’re going to invest in high-return projects. We’re going to maintain the dividend. And then we want to return excess cash to shareholders through share repurchases where appropriate.

That said, the focus has been on deleveraging of the balance sheet in order to really further improve our leverage metrics while continuing to enhance our flexibility. And the great news is, right, just given the significant improvement in cash flow this year, again, as a reminder, operating cash flow was up 21%, $3.6 billion. And so even when you exclude CapEx, the cash flow yield of the business is pretty substantial. Just given the strength of that, it did provide us the opportunity to redeem a total of almost $1.7 billion in senior notes in 2025. And the beauty about this is it helps to further strengthen the balance sheet, reduce future interest expense and provide even more flexibility going forward. To your question on share repurchases specifically, while our guidance does not assume the repurchase of any shares this year.

Share repurchases are an important component and driver of the long-term financial framework. And the model contemplates we restart our repurchase program in 2027. And so more to come here, but feel really good about the progress we’re making from a balance sheet and liquidity perspective. And then in terms of cash flow, obviously, something we’re very focused on. We think there’s still opportunities to optimize inventory levels in our position. And we do expect continued AP leverage as we move ahead. But not to the extent that we saw in 2025.

Operator: Ladies and gentlemen, this will conclude our question-and-answer session, and will also conclude today’s conference. We thank you for joining us today and for your participation. You may now disconnect your lines, and have a wonderful day.