Q4 2020 Dollar General Corp Earnings Call
Good morning, My name is Donna and I'll be your conference operator today at this time I would like to welcome everyone to the dollar General fourth quarter 2020 earnings call. Today is Thursday March 18th 2021, all lines have been placed on mute to prevent any background noise.
At this call is being recorded instructions for listening to the replay of the call are available in the company's earnings press release issued at this morning.
Now I would like to turn the conference over to Mr. Donny Lau, Vice President of Investor Relations and corporate strategy. Mr. Lal you May now begin your conference.
Thank you Donna and good morning, everyone on the call with me today are towards the use of our CEO, Jeff Bowen, our CFO and John Garratt, Our CFO our earnings release issued today can be found on our website at Investor day at dollar General Dot Com under news and events. Let me caution you that today's comments include forward looking statement.
As defined in the private Securities Litigation Reform Act of 1995, such as statements about our strategy plans initiatives goals priorities opportunities investment guidance expectations or beliefs about future matters and other statements that are not limited to historical facts. These.
Eight months are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections, including but not limited to those identified on our earnings release issued this morning under risk factors in our 2019 form 10-K filed on March 19, 2020, and in our form 10-Q filed on December 3rd 2020.
And in the comments that are made on this call.
You should not unduly rely on forward looking statements, which speak only as today's date.
All of our general disclaims any obligation to update or revise any information discussed on this call unless required by law. We also may reference certain financial measures that have not been derived in accordance with GAAP reconciliations to the most comparable GAAP measures are included in this morning's earnings release, which as I mentioned is posted on investor.
The dollar general Dot com under news and events.
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 if necessary now it is my pleasure to turn the call over to Todd.
Thank you Donny and welcome to everyone. Joining our call. We are pleased with our strong finish to fiscal 2020 and I. Thank all of our associates for their extraordinary efforts over the past year to support our customers our communities and each other.
Despite the challenging operating environment, our team remains steadfast in their dedications of fulfilling our mission of serving others Bye Bye bye provide even the affordable convenient and close to home access the everyday essentials and I could not be more proud of their efforts.
Throughout the pandemic, our priority has been the health and safety of our employees and customers while meeting the critical needs of the communities, we serve as an essential retailer.
In response to the Covid pandemic, we implemented several safety protocols enhanced our benefits and leave policies invested in personnel and personal protective equipment dedicated certain store hours for the most vulnerable members of our communities and most recently removed Barry.
Yours for our frontline associates to receive the vaccine.
In total we invested approximately $248 million in response to the pandemic in 'twenty, 'twenty, including about 167 million and appreciation bonuses.
For eligible frontline employees to demonstrate our appreciation for their exceptional performance during an incredibly challenging year.
At dollar General we remain committed to being part of the solution and believe we are uniquely positioned to continue supporting our customers through our network of more than 17000 stores located within five miles of approximately 75 per cent of the U S population.
At the same time, we remain focused on advancing our operating priorities and strategic initiatives as we continue to meet the evolving needs of our customers and further position dollar general for long term sustainable growth.
To that end, we're excited to share an update on some of our plans for 2020 one.
First we plan to further the rollout of several value, creating initiatives, including our non consumables initiative.
The fast track and the completion of our initial rollout of DG fresh.
In addition, while still early we are very pleased with the results of our pop shelf stores, which have far exceeded our initial expectations for both sales and gross margin.
As a result, we plan to accelerate our pace of new store openings for pop shelf in 2020 one.
And expect to incorporate this concept into a number of our larger format dollar general locations as we look to capitalize on the significant growth opportunity we see for this differentiated concept.
We are also pleased to highlight the key changes to our development strategy, including plans to build on the success of our dollar general plus store or D. G. P. <unk>.
And the introduction of two new store formats, which we began testing in 2020.
Similar to our larger footprint D. G. P concept. The first new format has selling space of approximately 8500 square feet, which compares to about 7300 square feet of selling space for our traditional store.
Beginning later this year this new format, along with R. D. G. P concept will become our base prototypes for nearly all new stores, replacing both of our traditional and higher cooler count D. G. T P formats, allowing for a more optimized assortment.
That meant and room to accommodate future growth.
Our second new format is even larger with approximately 9500 square at selling feet and will be deployed opportunistically across new store relocation and remodel opportunities.
Notably on average our D. G P and new store formats are outperforming the chain on a comp sales basis and have considerably higher sales volumes compared to both the traditional and D. G T P store, which bodes well for the future as we look to increase their unit.
<unk> in the years ahead.
Finally, we are pleased to provide an update on a number of our new small box store opportunities, we see available in the continental United States, which represents an increase compared to our prior estimate.
Jeff will discuss these updates in more detail later in the call.
But first let's recap some of the highlights for the fourth quarter and full year.
The quarter was once again highlighted by strong growth on both the top and bottom lines.
We're pleased that for the quarter, our three non consumable categories. Once again delivered a combined comp sales increase well in excess of our consumable business.
Of note. This represents our 11th consecutive quarter of year over year comp sales growth in our combined non consumable categories, which we believe space to the strong and sustained momentum in these product categories.
From a monthly cadence perspective comp sales in December increased in the high single digit range with similar mid teens growth in both November and January.
In total fourth quarter net sales increased 17, 6% the $8 $4 billion, primarily driven by comp sales growth of 12, 7%.
These results include significant growth in average basket size and units in particular, partially offset by decline in customer traffic and while our customers continue to consolidate trips on average they are spending more with us compared to last year.
Once again this quarter, we increased our market share in highly consumable product sales as measured by syndicated data driven by a meaningful increase in both units and dollars.
Importantly, our data suggests an increase in new customers this quarter as compared to Q4 of 2019. These new customers continue to skew younger higher income and more ethnically diverse underscoring the broadening appeal of our value and convenience proposition.
We continue to be encouraged by the retention rates of new customers.
And we are working to drive even higher levels of engagement with more personalized marketing and continued execution of our key initiatives.
We're particularly pleased that we delivered significant operating margin expansion, which contributed to the fourth quarter diluted EPS of $2.62, an increase of 24, 8% over the prior year.
For the full year net sales increased 21, 6% to $33 $7 billion, including net sales growth of 28, 1% and our comp combined non consumable categories.
Comp sales for the year increased 16, 3%, representing our 30 <unk> consecutive year of same store sales growth.
In 2020, we celebrated the opening of our 17000 store and the launch of our newest store concept pop shelf.
In total we completed a record 2700 80 real estate projects during the year exceeding our initial target of 2500 80 projects as we continue to build and strengthen the foundation for future growth.
From a position of the strength. We also made targeted investments in other key areas, including the acceleration of certain strategic initiatives to strengthen our competitive position and further differentiate end distance dollar general from the rest of the discount retail landscape.
Collectively our fourth quarter and full year results reflect strong and disciplined execution across many fronts and further validate our belief that we are pursuing the right strategies to enable sustainable growth, while creating meaningful long term shareholder value.
As a mature retailer in growth mode. We are also laying the groundwork for future initiatives, which we believe will unlock additional growth opportunities as we move forward.
We operate in one of the most attractive sectors in retail and the in an environment, where customers continue to seek safe and convenient experiences. We believe our unique store footprint further enhanced through our multiyear of niche initiatives provides a distinct competitive advantage and positions us.
Well for continued success.
Overall, I am proud of our associates and all that we've achieved over the past year.
We feel very good about the underlying business and I'm excited about the opportunities that lie ahead.
With that I'll now turn the call over to John Thank you Todd and good morning, everyone. The.
Now the Todd has taken you through a few highlights of the quarter and full year.
Let me take you through some of its important financial details unless we specifically note otherwise all comparisons are year over year, all references to EPS refer to diluted earnings per share in all years noted referred to the corresponding fiscal year as Todd already discussed sales I will start with gross profit, which was positively impacted in the quarter by a significant increase in sales.
The impact of COVID-19.
Gross profit as a percentage of sales was 32.5 per cent in the fourth quarter, an increase of 77 basis points, which represents our seventh consecutive quarter of year over year gross margin rate expansion.
This increase was primarily attributable to a reduction Mark downs as a percentage of sales higher initial markups on inventory purchases, a greater proportion of sales coming from non consumable categories and a reduction in shrink as a percentage of sales.
These factors were partially offset by.
Increased transportation and distribution costs, which were impacted by increased volume some of which is attributable to the COVID-19 pandemic as well as higher transportation rates and discretionary employee bonus expense for our distribution center in private fleet employees S.
SG&A as a percentage of sales was 22.2% an increase of 48 basis points as the increase was primarily driven by incremental costs related to COVID-19, including appreciation bonuses paid to our frontline retail employees and health and safety related expenses as well as increased incentive compensation expense and hurricane related expenses.
These items were partially offset by certain expenses, which were lower as a percentage of sales, including occupancy costs retail labor and depreciation and amortization.
Moving down the income statement operating profit for the fourth quarter increased 21% to $872 million as a percentage of sales operating profit was 10, 4% an increase of 30 basis points.
Operating profit in the fourth quarter was positively impacted by COVID-19, primarily through higher sales the benefit from higher sales was partially offset by approximately $96 million or of 110 basis points of incremental investments that we made in response to the pandemic, including approximately $69 million in appreciation bonuses for eligible frontline.
Please and additional measures taken to further protect our employees and customers our effective tax rate for the quarter was 22, 7% and compares to 23 per cent in the fourth quarter last year. Finally, as Todd noted earlier EPS for the fourth quarter increased 24, 8% to $2.62, which contributed to full year EPS.
At $10.62, an increase of 59, 9%.
Turning now to our balance sheet and cash flow, which remains strong and provides us the financial flexibility to further support our customers employees. During these unprecedented times, while continuing to invest for the long term and provide meaningful returns to shareholders merchandise inventories were $5 $2 billion at the end of the year, an increase of 12, 2% overall and.
Six 3% on a per store basis, well out of stocks remain higher than we would like for certain high demand products. We continue to make good progress with improving our in stock position and are pleased with our overall inventory levels. In 2020, we generated significant cash flow from operations totaling $3 $9 million, an increase of one $6 billion or so.
Three two per cent.
Total capital expenditures for the year were $1 billion and included our planned investments in new stores, Remodels and relocations distribution transportation projects and spending related to our strategic initiatives.
The quarter, we repurchased four 3 million shares of our common stock for $900 million and paid a quarterly dividend of 36 cents per common share outstanding at a total cost of $87 million with todays announcement of an incremental share repurchase authorization. We have remaining authorization of approximately $2 $4 billion under the repurchase program.
Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority of 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 invest.
The grade credit rating and managing to a leverage ratio of approximately three times adjusted debt to EBITDA.
Moving to our financial outlook for 2021, we continue to operate at a time of uncertainty regarding the severity and duration of the COVID-19 pandemic, including its impact on the economy consumer behavior in our business. Despite continued uncertainty we are providing select annual guidance in an effort to provide the best view, we reasonably can based on what we currently know.
That said there could be a number of potential headwinds and tailwind this year, which are not incorporated into our guidance as the timing degree and potential impacts on our business. Our currently unclear, including but not limited to the recently approved the government's stimulus package other unknown external factors related to the ongoing health crisis, including its impact on consumer behavior.
And additional changes to minimum wage rates with this in mind. We currently expect the filing for 2021 net sales in the range of eight 2% declined the flat at same store sales decline of 4% of 6%, but which reflects the growth of approximately 10% to 12% on the two year stack basis.
And EPS in the range of $8 80 to $9 50, which.
Which reflects a compound annual growth rate between 15% and 20% or between 14 and 19% on an adjusted basis over a two year period, which is well above our long term goal of delivering at least 10% annual EPS growth on an adjusted basis, our EPS guidance assumes an effective tax rate in the range of 22% the 23.
At the center.
Capital spending is expected to be in the range of one point of $5 billion to $1.15 billion as we continue to invest in our strategic initiatives and core business to support and drive future growth with regards to shareholder returns as outlined in today's press release, our board of Directors recently approved a quarterly dividend payment of 42 cents per share.
Which represents an increase of 16.7%. We also plan to repurchase a total of approximately $1 $8 billion of our common stock this year, reflecting our strong liquidity position and confidence about the long term growth opportunity for our business. Finally as noted in today's press release, our outlook for 2021 real estate projects remains.
Unchanged from what we stated in our Q3 earnings release on December three 2020, let me now provide some additional context as it relates to our expectations given the unusual situation I will elaborate on our comp sales trends thus far in Q1.
Despite approximately 8400 lost store operating days as a result of closures due to winter weather across the country same store sales for the month of February increased five 7%, reflecting a healthy comp sales increase of 11, 2% on a two year stacked basis from the end of February through March 16th comp sales decreased approximately <unk> <unk>.
16% as we are in the midst of lapping our most difficult monthly comp sales comparison of the year as a reminder, comp sales growth for the month of March in 2020 was 34 five per cent. Looking ahead, we remain cautious in our 2021 sales outlook given the continued significant uncertainty that still exists as well as the unique comparisons against last year.
That said as you think about the sales cadence of 2021 of our performance is expected to be stronger in the second half given the more difficult sales comparison in the first half and in particularly in Q1.
Turning to gross margin in 2020 gross margins benefited from a greater proportion of sales coming from our higher margin non consumable categories driven by a full year net sales percentage increase of these categories well in excess of our consumables business.
We expect our sales mix will ultimately shift towards our consumables categories in 2021, resulting in pressure on a range. However, the timing of when this dynamic may occur and its corresponding impact to gross margin are currently uncertain gross margins. In 2020 also benefited from a reduction in markdowns, including the benefit of higher sell through rates as a result of.
Significant customer demand in seasonal and other clearance sensitive non consumable categories.
2021, we expect our markdown rates will increase somewhat from the abnormally low levels. We saw on 2020, which likely will create some gross margin pressure compared to last year.
In addition, while we continued to see the effect of higher carrier rates and fuel costs are ongoing efforts to improve efficiencies and reduce expenses, including further expansion of our private fleet are expected to help partially mitigate these cost pressures in 2021 also please keep in mind that the second and third quarters represent the most challenging laps of the year from a gross profit rate per.
Specter of filing improvements of 167 basis points in Q2, 'twenty 'twenty and of 178 basis points in Q3 2020.
In terms of SG&A, while we expect to incur ongoing expenses related to the pandemic in 2021 overall, we anticipate a meaningful reduction in COVID-19 related costs compared to last year. However, the leverage from these reduced costs is expected to be offset by deleverage associated with lower comp sales and approximately $60 million to 70.
An incremental year over year investments related to our strategic initiatives as we further their rollouts with regard to our strategic initiatives in aggregate, we anticipate they will positively contribute to operating profit and margin in 2021, driven by NCI and DG fresh as we expect the benefits to gross margin from our initiatives were more than offset the.
Associated expense finally, we estimate operating profit will be negatively impacted by approximately $35 million to $40 million in Q1 as a result of lost sales from stores closures and expenses related to the widespread winter weather that we experienced in February at.
In closing we are very proud of the team's execution and performance, which resulted in ex exceptional fourth quarter and full year results 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 remain confident in our business.
Model and our ongoing financial priorities to drive profitable same stores sales growth healthy new store returns strong free cash flow and long term shareholder value with that I will turn the call over to Jeff.
Thank you John Let me, let me take the next few minutes to update you on our operating priorities, including our strategic initiatives and plans for 2021.
Our first operating priority is driving profitable sales growth the team did a fantastic job in 2020 executing against our portfolio of growth initiatives.
Highlight some of our more recent efforts as we look to further build on our progress in 2021.
Starting with our non consumables initiative or NCI.
As a reminder, NCI consists of a new and expanded product offering in key non consumable categories.
The NCI offering was available in more than 5800 stores at the end of 2020, including nearly 400 stores in a light version of this compares to our prior expectation of more than 5600 stores at year end.
Given our strong performance to date, we plan to expand this offering to about 5700 additional stores. This year, bringing the total number of NCI stores to more than 11000 by year end.
This total includes over 'twenty 100 stores in our light version, which incorporates a vast majority of the NCI assortment, but through a more streamlined approach.
Moving to our newest concept pop shelf, which further builds on our success and learnings with NCI pop.
Pop shelf aimed to engage customers by offering of fun affordable and differentiated treasure Hunt experience delivered through continually refreshed merchandise of differentiated differentiated in store experience and exceptional value with about 95 per cent of our items priced at $5 or less.
We opened our first five locations in 2020 and as Todd mentioned, given our strong results to date, we plan to accelerate the rollout of Pops shelf in 2021 and.
In fact, we are now targeting to have a total of up to 50 pop shelf stores open by year end compared to our previous goal of about 30 total locations.
In addition to the stores. We also plan to incorporate this concept and up to 25 dollar general stores in 2021.
In terms of our store within a store concept a smaller footprint pop shelf shop will be prominently positioned in the center of the store and we will display both dollar general and pop show branding on exterior entrances to build and maximize awareness.
From these initial stores our goal was to test learn and ultimately expand more locations over time as we look to leverage the unique strengths of these complementary formats and build on our early success with pop shelf by making it more available to a broader range of customers.
Turning now to DG fresh, which is of strategic multi phase shift to self distribution of frozen and refrigerated goods.
The primary objective of DG fresh is to reduce product costs on our frozen and refrigerated items and we continue to be very pleased with the product cost savings. We're seeing in fact DG fresh continues to be the largest contributor to the gross margin benefit we are realizing from higher initial mark ups on the inventory purchases.
And we expect this benefit to grow as we continue to scale. This transformational initiative.
Another important goal of DG fresh is the increase sales in these categories. We are pleased with the success. We are seeing on this front driven by higher overall in stock levels and the introduction of new products in select stores being serviced by DG fresh.
Given our success to date, we are further accelerating the rollout of additional offerings with the recent introduction of even more products, including both national and private brands as we look to further optimize our assortment, while increasing our relevance with customers.
And while produce is not included in our initial rollout plans. We believe DG fresh provides the potential path forward to expanding our produce offering to more than 10000 stores over time as we look to further capitalize on our extensive self distribution capabilities in.
In total we were self distributing to more than 16000 stores from 10 facilities at the end of 2020. This compares to our previous expectation of over 14000 stores at year end overall, we remain well on track to complete our initial rollout across the chain in 2021.
Moving to our cooler expansion program, which continues to be our most impactful merchandising initiative.
During 2020, we added more than 62000 cooler doors across our store base in total we expect to install more than 65000 cooler doors in 2020 one as we continue to build on our multiyear track record for growth in cooler doors and associated sales.
As a reminder, in 2019, we began incorporating higher capacity coolers into the majority of our new remodeled and relocated stores, creating additional opportunities to drive higher on shelf availability and deliver a wider product selection all enabled by D. G.
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Next a quick update on our Fedex relationship.
This convenient customer pick the customer package pickup and drop off service is now available in over 8500 stores with plans to be on a total of over 9500 stores by year end further.
Further advancing our long track record of serving rural communities.
In addition to the gross margin benefits associated with NCI and DG fresh we continue to pursue additional opportunities to enhance gross margin, including improvements in private brand sales global sourcing and supply chain efficiencies.
With regards to our supply chain. Our plans for 2021 include further expansion of our private fleet, which accounted for more than 20% of our outbound fleet at the end of 2020.
Reducing stem miles is also an important contributor to these efforts and the recent opening of our Walton, Kentucky dry distribution center is expected to drive additional efficiencies as we move ahead.
We also plan to open two additional DG fresh facilities in 2020, one as we look to further optimize our fresh network and support future growth.
In addition, we anticipate our combination of DG fresh and dry distribution center in Blair, Nebraska will be completed in late 2022, which should contribute to a further reduction in stem miles overtime.
Finally, while we are very pleased with our progress in 'twenty 'twenty shrink reduction remains an important area of opportunity.
We continue to build on our success with electronic article surveillance by increasing the number of items tagged while further leveraging technology to drive even higher levels of in store execution.
Our second priority is capturing growth opportunities.
Our proven high return low risk real estate model continues to be of core strength of our business.
In 2020, we completed a total of 2000 and 780 real estate projects, including 1000, New stores 1670, Remodels and 110 relocations. Additionally, we.
We now have produce more than 1100 stores.
For 2020, one we expect to open 1050, new stores remodel 1750 stores and relocate 100 stores, representing 2900 real estate projects in total.
We also plan to add produce and approximately 700 stores, bringing the total number of stores that carry produce to more than 1800.
In addition, as Todd noted earlier, we continue to advance the evolution of our store base with plans to build on the success of our D. G. P format, including the introduction of two new format types.
With about 8500 square feet of selling space, both our first new format and D. G. P concept allow for expanded high capacity cooler counts and extended queue line and a broader product assortment, including NCI of larger health and beauty section and produce in select stores.
In total we expect more than 550 of our overall real estate projects. This year to be in one of these format types as we look to further enhance our value and convenience proposition, particularly in rural America.
The.
The new format consists of about 9500 square feet of selling space. In addition to an extended queue line of broader assortment. This larger layout also includes nearly 50 high capacity coolers and expanded produce offering fresh meat and additional checkout lanes, including a self checkout bullpen with multiple state.
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We believe this even larger format better positions us to meet the growing needs of our customers, particularly in highly underserved markets and we are targeting more than 100 locations by year end.
Overall, these larger formats allow us to incorporate our best and most impactful initiatives and are designed to expand high growth traffic building categories in a more customer friendly format, all while continuing to drive strong returns.
Moving to an update on the number of new store opportunities through a combination of our growing relevance with customers format innovation and evolving retail landscape and leveraging new technologies. We estimate there are now approximately 13000 additional small box.
Store opportunities in the Continental U S, which are available for a dollar general store. This compares to our prior estimate of nearly 12000 opportunities and is inclusive of our 2021 new unit pipeline.
Although these opportunities are available to all small box retailers as a leader in small box retail combined with our proven track record of New unit development and format innovation. We believe we are well positioned to capture a disproportionate share as we move ahead.
And while we continue to evaluate we are currently we currently estimate pop shelf could at approximately 3000 additional store opportunities in the Continental U S with about another 1000 additional opportunities available for our smaller footprint D. G ex format.
When taken together, we estimate there are a total of approximately 17000, new store opportunities available across our format types, which we believe represents a long runway for new unit growth.
Overall, our real estate pipeline remains robust and we are excited about the significant new store opportunities ahead.
Next our digital initiative, which is an important complement to our brick and mortar footprint as we continue to deploy and leverage technology to further enhance the customer in store experience.
Overall, our strategy consists of building of digital ecosystem that is specifically tailored to provide our customers with an even more convenient.
Frictionless and personalized shopping experience.
We made significant progress in 2020 highlighted by the accelerated rollout of DG pickup our buy online pick up in store offering to more than 17000 stores, providing another convenient access point for those seeking a more contactless shopping experience.
During the year. We also saw continued growth in customer engagement across our digital ecosystem, including our digital coupon offering shopping was feature cart calculator shopping and budgeting tool E. Commerce site D. G go mobile checkout, and our mobile App, which ended the year with nearly $4 million.
Monthly active users.
Looking ahead, our plans include providing more relevant meaningful and personalized offerings with the goal of driving even higher levels of customer engagement and loyalty.
Our third operating priority is to leverage and reinforce our position as the low cost operator.
Yeah.
Over the years, we've established a clear and defined process to control spending which governs our disciplined approach to spending decisions. The zero based budgeting approach internally branded at save deserve.
It 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 where our goals include increasing labor productivity in our stores enhancing customer convenience and further improving on shelf availability.
We continue to be pleased with the labor productivity improvements we are seeing as a result of our efforts around both roll tenor and case pack optimization, which have led to the more efficient stocking of our stores.
The second component of fast track of self checkout, which provides customers with another flexible and convenient checkout solution.
While also driving greater efficiencies for our store associates.
Self checkout was available in more than 1600 stores at the end of 'twenty 'twenty with plans for an aggressive expansion as we move ahead. In fact, we expect to introduce this offering into the vast majority of our stores by the end of 2022.
Our underlying principles are to keep the business simple, but move quickly to capture growth opportunities, while controlling expenses and always seeking to be of low cost operator.
Our fourth operating priority is investing in our diverse teams through development empowerment and inclusion.
As of growing retailer, we continue to create new jobs in the communities, we serve and for those associates already on our team. This growth is resulting in numerous opportunities for career advancement.
In fact more than 12000 of our current store managers are internal promotes and we continue to innovate on the development opportunities. We can offer our teams, including continued expansion of our private fleet and those issues and those associated with DG fresh as well as pop shelf.
In addition, we transitioned to a virtual learning environment in 2020, resulting in the continued development of our people, including nearly 3 million training hours for our employees all supported by our award winning training and development programs.
Importantly, we believe these efforts continue to yield positive results across our store base as evidenced by continued record low store manager turnover record staffing levels healthy Apple can flows and a robust internal promotion pipeline.
We believe the opportunity to start and develop a career with a growing and purpose driven company is a unique competitive advantage and remains our greatest currency in attracting and retaining talent.
Overall, we are making great progress against our operating priorities and strategic initiatives, we have a robust set of initiatives in place for 2021 and are confident in our plans to drive long term sustainable growth, while creating meaningful value for our shareholders.
In closing I am proud of our team's performance performance in our 2020 results, which further demonstrate our unique combination of value and convenience continues to resonate with customers and positions us well going forward.
I want to offer my heartfelt. Thank you to each of our more than 157000 employees across the company for the incredible work. They do every day to fulfill our mission of serving others I look forward to all of that we can accomplish together in the year ahead.
With that operator, we would now like to open the lines for questions.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad I'll confirmation tone will indicate your line is at the question queue you.
You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing starkey.
On the interest of time, but we are asking you to limit yourself to one question and one follow up once again Thats Star One to register a question at the time.
Our first question today is coming from Michael Lasser of UBS. Please go ahead.
Good morning, Thanks, a lot for taking my question. So it looks like you're guiding to about 60 basis points of operating margin expansion between 2019, and 2021, well why wouldn't it be more than that given you're comping better than your algorithm would suggest on a two year stack basis plus.
You're benefiting from all of these margin enhancement enhancing initiatives like DG fresh fast tracked and the other NCI and others and how within that how would you.
Specced your gross margin to shake out this year versus 2019.
Yes, I'll tackle both of those questions. Michael This is John so.
The first of all I'll say, we're really pleased with with what we did in 2020 of expanding our operating margin 223 basis points, we didn't give specific guidance on operating margin or the components, but you know we did call out that are some of the headwinds the biggest headwind being the SG&A deleverage that goes along with.
Slower comp sales this year.
We also talked about anticipating a mix shift back toward consumables, which does have a margin impact to both the sales mix as well as markdowns as we would be lapping unusually low clearance markdowns last year and then we also mentioned higher carrier rates and fuel costs. So these are all <unk>.
Cost at at pressure on operating margin. Overall now you also asked about gross margin you know as you think about.
Gross margin again, we feel great about what we did this year are delivering 77 basis points of gross margin expansion. This is our seventh consecutive quarter of doing that 117 basis points for the year end you know to your point initiatives like DG fresh at NCI of really contributing and impactful to the biggest drivers that we called out the three biggest.
Rivers', we called out were lower markdowns higher initial markups and the mixed benefit at NCI and DG fresh were significant contributors to those but we also as I mentioned.
Are seeing in the near term higher distribution and transportation costs. So as we look ahead in the near term. These will these will weigh on the near term.
But as you look at the longer term, we do feel like we're well positioned to continue expanding resume expanding gross margin and operating margin over the longer term for the reasons you mentioned the scaling of these initiatives that are the gifts.
At that keep on giving and all of the levers we've talked about before within gross margin and within the SG&A, but at the same time at its noted that we continued to invest in the business and so to make sure we sustain our ambition of being 10% double digit EPS growers over the long term, we are continuing as we called out.
To reinvest in the business, we mentioned $60 million to $70 million debt hitting on SG&A next year and then the other thing I'll mention is in terms of Covid expenses. We will continue to have some COVID-19 expenses associated with protecting and ensuring the health and safety of our employees and customers.
Much of that is gonna be varies on what the situation dictates, but we've captured all of our best estimates and the guidance for these drivers.
Understood. That's very helpful. In the end my second question at its very myopic and we're all just trying to figure out whats going to happen as we get through the the next several months.
In if we just take the math of down 16% versus the 34.5% in March of last year. It would imply a high teens two year stack.
So can you give us some.
Flavor for how March unfold. The last year have you have you are you just now entering the tougher compares within the month such that Ah ha high teens, two year stack would be a kind of of false positive indication on what to expect over the than the next few months.
Yeah, I can help you there Michael.
Start by saying, it's at its bumpy right Yeah, Theres a lot of noise here you had the storm in February and then in March you're extrapolating over very short period of time, which was pretty bumpy last year, but you know to help you out here, we called out yes. As you mentioned the negative 16% month to date from the end of February through March 16th of this year if you.
Look at the corresponding period of time last year. It was not dissimilar to the 34.5% comp where we ended the period. So so at fairly representative but again.
There's a fair bit of noise within this so I would.
I'd be cautious and extrapolate too much based on that but hopefully that helps you understand where we were at this point.
That's certainly Doug. Thank you so much and good luck.
Excuse me. Thank you. Our next question is coming from at Simeon Gutman of Morgan Stanley. Please go ahead.
Thanks, Good morning, everyone.
Couple of questions I guess, the first one on the comps the the 10% to 12%. The you mentioned in the release on a two year stack.
It actually felt like that's a doable.
Number going forward, if you take all the initiatives.
And so yet youre still going to have stimulus at least in the first part of the year, probably now and for a little while longer and so I guess the the top line feels a little conservative in that regard.
Can you talk about that any thoughts on around it why if the 10 to 12 and our view is doable why why couldnt at top line end up being a little bit stronger.
Sure, let me unpack that for your end and again just dialing the clock back a little bit you know we've said historically that this model works really well at at 2% to 4% comp. That's the engine of the 10% plus EPS growth algorithm. So with the two year comp stack of 10% to 12% over two years that represents a pretty meaningful.
Step change improvement over that.
And I would tell you we feel great about the fundamentals of the business you know as you said the relevance of the brand the broadening the appeal the new customers. We've brought in at the bigger baskets were enjoying I'd say the business model has never been stronger end and as noted the initiatives are really clicking and contributing.
To this relevant so we feel good about the guidance that we've provided but we did note that at.
And it's based on what we know, but what we did note was that we didn't include the impact of stimulus because its really relatively unknown what impact it will have to what degree at might help.
So that's not taken into consideration in the guidance it could be an upside I hope it is but there's just a lot of uncertainty when you think about you know what.
One compared to the previous stimulus rounds, which helped us.
The economy is opening up now at more and so we are competing with other segments of the economy outside of retail for that share of wallet. So how much we get is uncertain and then the other piece is surveys of consumers have said that they plan to save more of this time they plan to spend.
It's been more paying off bills now.
A lot of times with people stay on due is two different things and so it remains to be seen if that's the case. So we're cautiously optimistic we didn't build it in it could be an upside, but it's just very difficult to say, if it'll be upside and to what degree.
Okay. That's helpful. And then my follow up on May.
Take another shot at something Michael just asked if you'd look at the gross margin versus 2019, and John you mentioned some transportation costs is there any reason why they shouldn't be higher than 2019.
Yeah, again, I don't I don't want to get into the specifics of guidance around the operating margin for this year, we wanted to get at the high degree of uncertainty when we wanted to give some guidance that we gave the top line and the bottom line.
I'll, just say that you.
Yeah, we're really pleased with the performance we've been delivering over the last few years.
Growing our gross margin.
And the operating margin again over two points this year, but again theres a lot of unknown. This year of lot of potential pressures with that comp that we mentioned when you look at this year you know that does create some deleverage and again, we are investing in the business now again that investment piece is accretive, but then you do have.
Other pressures such as carrier rates.
And then obviously you do have.
Other inflationary pressures.
Fair enough. Thank you very much good luck.
Thank you. Our next question is coming from Matthew Boss of Jpmorgan. Please go ahead.
Great, Thanks, Todd or John maybe on <unk> on the same store sales acceleration to the mid two.
We've seen.
So far what have you seen from discretionary versus consumables and then on the double digit two year stack that you've forecasted for this year, how much of the acceleration relative to the past two years do you believe is driven by new customer acquisition or market share gains trying to get a sense.
For the two year stack of double digits relative to the mid to high single digits. The trailing two years how much of this acceleration do you believe it's sustainable.
Yeah. This is Todd I would tell you let me take the the.
Second part first I would tell you that the.
That comp we believe that we are retaining.
A nice portion of the new customers that we saw come in we can see that with our with our data.
At at a pretty good real time right.
And the Great thing is we've seen them.
To come back so repeat as well so we feel good about that going into 'twenty. One we see them still here in 'twenty, one which is really good to see and again with all of our initiatives Matt. The we've got got put together I would tell you that it gives her a lot of comfort.
The continue to shop with us so.
No I'm not going to give you exactly what you're looking for but I would tell you that.
It plays a portion of it but I would also say that all of our initiatives also.
Really come into play here.
And then what we've seen so far just to give you a little bit more color on non consumables or the discretionary side of the business continues to do very well for us into the early part of Q1 here.
And and as we moved through March it will become even more meaningful.
As you recall, the the stock up trip from last year.
With the pandemic with paper and cleaning and many of the the.
The consumable food perishable areas really took off last year.
And the non consumables were a little soft quite frankly, and we're seeing the opposite quite frankly right now so that's great to see.
But what we can also see is at our initiatives around non consumables is really help because our baskets.
It seemed to be a little higher with those non consumables on them as well so they're spending at a at a good rate there.
And we believe that you'll continue to do that as we move into the middle part of the year.
Great and then maybe just a follow up John on on the SG&A front could you just help quantify what you've embedded in the guidance from the Covid expense perspective, just so we can be flying at and then ex the strategic investment is there any change to the tune of half the 30% I think that's roughly at that in the underlying.
Line comp leverage point in the model of any change to that.
Yeah, I'll tackle both of those first in terms of the Covid spend.
Obviously, we're going to do what's necessary to ensure the health and safety of our employees and customers. The guidance captures the best guess of the spending needs associated with that that's of course going to vary based on the severity and duration of the <unk>.
The N demick, but safe to say, we built at a considerable reduction of that assuming a an improvement of the situation there and that's what's captured in the guidance. We didn't give a specific number on that but it is a considerable step down.
As you think about SG&A in the 2.5% to 3% leverage point, we've kind of dissuaded people from sticking to that because there is that geography that you noted you know one we are investing in SG&A to drive overall operating margin expansion, particularly gross margin and so as you look.
At things like.
DG fresh is we're taking over self distribution NCI.
Spend a little bit on the SG&A to save a lot more and drive a lot more benefit on gross margin. So it's.
Very beneficial overall, but it does throw off the math on that and then there are some other initiatives like pop shelf and others that are more have more of a startup cost nature. So at pressures that and then the other thing. We've done is we've really stepped up the remodels and so that puts a little bit of pressure on the front end of that so.
If you strip all of those out and it has lots of strip out you know that as well as the Covid expenses, yes, we're still looking at that 2.5% to 3%.
The leverage point nothing has structurally changed.
At our certainly our focus on cost containment.
Is is sharper than ever.
But that's really the only change to that but at the next few years as we scale those and they end, we operationalize DG fresh you have to put a little bit of labor in the stores for instance, at a little bit of contract labor to remodel the stores, that's really the big the big driver of that but overall, it's accretive from a dollar perspective at a rate perspective.
That's great color best of luck.
Thank you.
Thank you. Our next question is coming from Scot Ciccarelli of RBC capital markets. Please go ahead.
Good morning, guys, I'm, sorry, I apologize upfront about another sales related question, but we do know that the the stack comps start to get the store did when we deal with bigger numbers and bigger swings. So if we were to basically dollar is your comps start back at the lack of a better term it looks like there really wasn't much of a change in your sales run rate like from the sales per store prospect.
The between March February and March the two questions first is that a fair assumption and then related to that assuming you maintain a pretty steady are you assuming that youre going to maintain a pretty steady sales per store cadence for the balance of the year or are you expecting a deceleration in kind of sales per store during the course of the year as we hopefully enter a more normalized environment.
<unk>.
Yeah. It's a good question I'll start with the second question you know as you look at the guidance we provided this year.
We do kits at key element of that is assuming that we retained a considerable portion of the new customers that came in in the bigger baskets that came in a big piece of that is the initiatives. We've put in place like NCI that positioned us so well to get a piece of that.
Share of wallet as people came into the came into the brand and liked what they saw as well as the coolers.
That provided a fuller fill in trip when people are looking for grocery. So we've assumed a pretty considerable retention of that but as we've looked at it throughout the year. We've also said that the share of wallet, probably will shift a little bit.
Right now there is.
Concurrent with the pandemic there is a consolidation of trips and we're benefiting from that as well as again benefiting from net share of wallet. So as you go through the year, we assume you do lose a little bit of that tailwind as you're competing with other segments of the economy for that for that share of wallet.
Still.
Gary.
The positive on how much we can retain and again the fundamentals of the business and the relevance of the brand is as people have come in and again you know as we said I don't want to dissect.
February and March too much because of it because again it was pretty bumpy with the storms in February end.
A lot of puts and takes in March and again Youre extrapolating over a pretty short period of time. So when you strip out you know all of the noise.
I would tell you that again with the guidance we provided.
That contemplates.
What we've seen up to this point and I think the wildcard is again stimulus and we just didn't putting in for that because we just don't know what that benefit will be end to what degree.
John just to be clear like the only in terms of sales per store, maybe at a different way to look at it did you see much of the change between February and March.
No I would say as you strip out some of the noise I mentioned.
We think the core business is performing similar and performing very well when you look at the stacks.
I appreciate that thank you.
Yeah.
Thank you. Our next question is coming from Karen short of Barclays. Please go ahead.
Hi, Thanks, very much I, just wanted to get a little bit of color in terms of how we should think about.
Kind of the composition of traffic versus ticket as we go into 'twenty calendar 'twenty. One I mean, obviously you saw a pretty meaningful I think deceleration in traffic in February.
But that's off of the pretty high number in February of the prior year. So wondering if he could talk a little bit about that just broadly and then I'll.
I wanted to talk a little bit more of at 22 as it relates to gross margin. So the question I have one that is how should we think about the base level of gross margin for 'twenty two because it seems like you are at a much more permanently elevated base on the gross margin front end.
I know 21 is the so hard to talk true because there's so many moving parts, but I wanted to kind of pivot the conversation to 'twenty two on the gross margin front.
Thanks for the question Karen I'll take the first part and the kick it over to John for the 22 gross margin discussion so on the traffic side.
Again February was pretty choppy you had you had the storms that quite frankly, we are you saw on the in the release of 8500 store hours.
Hours of of lost time.
But the bigger thing as we you know for of day to almost two days, we had anywhere from 20% to 30% of our store base close for that time, so it's a little choppy to be able the to talk about traffic in.
At February and then what's happened in March but I.
I think the the way to look at it is we feel really good about that traffic number overall, where we see at it was very similar to where it had been.
Coming out of out of Q4.
As John said as you start to pull away. Some of these puts and takes I think its important you know we saw a little bit of an uptick in traffic when that stimulus came out.
The second round of stimulus.
And with only a couple of days to measure we've seen an uptick.
And in traffic and in overall sales with.
This recent stimulus, but again I caution, it's still very early to tell what's going to happen here, but.
I think the bigger picture is you know we are retaining a lot of those customers as I mentioned earlier that we got during the pandemic and we're still working very hard to keep dollar general top of mind to those customers. So that when she continues to consider where to shop for her everyday needs and.
Many of these new non consumable type items that we've got in our stores. She still comes to US. So we believe we were seeing that repeat customer and there's no reason why we we deserve in and have the right to keep that customer based on our.
Our service of her in the past as well as what we believe we can do in the future for her John Yeah and then.
To the second part of the question and I agree with you. There's just a lot of noise in 'twenty 'twenty. One I think one thing I would point to as you look at over that two year period.
Lots of puts and takes but when you get to the bottom line at <unk>.
Two year CAGR of 15% to 20% I think really speaks to the step change performance on the top line and the flow through at makes you feel good about the future now I don't want to give specific guidance around 2022 at its premature for that but you know as you unpack the drivers of gross margin.
In Q4 and for the full year as I mentioned, it's the strategic initiatives, which are the core drivers of that end, though still have a lot of tentacles and legs to those that did help us going forward and we're reloading with other initiatives to help drive.
Gross margin now the one thing that we mentioned Joost.
'twenty 'twenty 'twenty of little bit was the mix. So that's why we caution that we expect the mixed the normalized or move back toward consumables somewhat which is a bit of a drag.
But the thing the other items driving that gross margin expansion. We expect to continue on so that's why I mentioned that as we get through the noise of this year end with encourage people to look at that two year stack at push forward. The same drivers are there that makes you feel good about our ability to continue to grow gross margin.
Over the long term not only the scaling of the existing initiatives of new ones, but really pleased what we've seen.
With the shrink improvement the supply chain efficiencies a lot of opportunities still around private brand penetration expansion foreign sourcing expansion. The team continues to do a great job with category management and again when you look at our scale and our growing scale is the limited SKU shop at really puts us at a very favorable position to get.
Best pricing, there and protect our margins while also.
Being well priced and on the price front, we'll always reserve the right to invest as needed, but you know as we look at at now and as we've seen for quite a while now we feel like we're in the best position on pricing, we've been in and don't see at least for the foreseeable future the need to invest there. So we feel good about the long term ability to continue to grow.
Gross margin, while also driving traffic and sales.
I would also just say real quick and then get to the next question is at.
I feel as good about this business than.
And then I have the 12 is almost 13 years that I've been here and the long term outlook of our of this business is stronger than ever and as John indicated I think once we get through the noise of of 'twenty one.
I believe that algorithm is very much intact and as you have seen even prior to Covid, we were running at.
At the top end of that algorithm of many of the components of it and Theres No reason why that shouldn't continue as we can as we go long term.
No I completely I I, just want to clarify on the 8400 last day as I get that the it's about 180 basis points to the comp is that fair.
I think the way too.
Yeah.
Yeah, I think the way to look at this is I think we did we did quantify the impact of the storm.
On operating profit at a meaningful piece of that was the the sales impact. So if you look at.
The overall dollars, we quantified about half of that was sales flow.
Flow through so maybe at the way the Dimensionalize that.
Okay, great. Thank you.
Thank you. Our next question is coming from.
Of Oppenheimer. Please go ahead.
Good morning, Thanks for taking my question. So I guess, John first starting with guidance I was curious what your team of assuming for the promotional backdrop and the.
End of your trends of turned negative in a number of other players are also starting to turn negative I was just curious if you've seen any shifts in the promotional backdrop of lately.
Yeah as you look at the promotional backdrop, we think it remains rational it's been that way for the last about a year and a half so things have been pretty consistent.
And so as we look forward, we're not assuming.
Any major changes there because we feel like we're very well positioned on price and Todd do you want to add anything on <unk> I would tell you end up from a position of strength last year, we we positioned ourself to be in the best position on pricing that we've been in many many years of.
And so if you take a look at our everyday pricing.
We are better than we've been across all channels of trade and as John indicated the promotional environment has been pretty stable and tame and quite frankly has been that way for a year and a half. So we feel pretty good about where we are but always reserve the right. If we need to help our consumer out, we'll we'll do that but.
Right now, we don't see that in the near future.
Okay, Great and then maybe just one follow up question. So at Todd just curious on your latest thoughts on what Youre seeing from your consumer based on your sort of because it does appear at also I mean, it is a fairly strong consumer out there of stimulus coming just wanted to get your thoughts there.
Yeah, I would tell you the consumer.
Our core consumers always stretches you know, but I have to repeat that each time, because she really is.
And I would tell you that.
In the last six to eight months. She has felt the of the stress of this pandemic are probably a little bit more than she was feeling in the early part of the pandemic and in some cases because of again lack of work or not working at full 40 hour shift of that full time that she was doing in many cases so.
On our core consumer is probably a little bit more stretched at this point in saying that.
What we have also seen though is her ability to spend when she needs to end stimulus has really helped that so we're in round three and as I indicated at its very early on in that third round. We're bullish on her ability to have some extra money to spend and you know we're also bullish when we.
When we think about the back half of the year the child tax credit piece that will be coming out of.
For for children from July through December should also benefit our core consumer and then obviously the extension of the snap benefit piece also help. So there is a lot of tailwind we just in our guidance.
It didn't contemplate any of that because again, it's so at first of all of its so new and we just don't know how to dimensionalize it but I think the the important thing a refresh to keep in mind is that we're well positioned to capture a large portion of that if she's outspending at and I believe she will spend at that is who our core consumer is but as John.
<unk> said there there are other we're not as concerned about retail we believe we will get our of more than our fair share at retail. It's just some of these other areas that are now open whether it be a dining out whether it be travel to some degree that will be competed against but we still feel good about build of service her.
Sure of what that extra money.
Okay, great. Thank you for all of the color and best of luck for the year.
Thank you.
Thank you. Our next question is coming from.
Of Goldman Sachs. Please go ahead.
Yeah, Hi, Thank you for taking my question I wanted to talk about the.
Got you spoke of today, and especially with the BOP Shell you mentioned, you know doing store within a store concept.
<unk>.
Signage for both the of option then of Shelton and the dollar general banner of outside.
Think about your core customer.
What gives you confidence you know at that that the cost of it had been not seen on aviation to the core of banner with the at all.
On the Dublin signage outside in the stores within the store concept.
You think about that.
Yeah. That's of Great question, and I would tell you first of all our core consumer.
Is a little bit of of different consumer than the pop shelf consumer but in the areas that we're looking to.
Put the store within the store concepts.
It is a little higher demographic than our core.
So just to give you some color.
These areas of the the demographics of our more in the 50 to 75000 dollar income range versus our true dollar general of 35 to 40 range somewhere in there. So it's not quite the pop shelf, we're at 75, plus but I believe that the crossover.
There's enough there to.
Entice the consumer to come in.
The second piece of it is that we believe that and we've already proven that with some cross pollination of items within dollar general that were in pop shelf and and how well they sold within it within the.
The box of just the true dollar general without even having any signage up with pop shelf. So we know those same items will resonate with even our core consumer. So we believe we can capture both sides of that equation higher end as well as continue to service the lower end consumer with this new box at.
As a test right. So just keep that in mind it'll be 25 stores this year, but.
If it works and we believe it will there.
There could be some additional ones that we do in 'twenty two end and many more as we've continued to move forward.
Got it and then my follow up is around.
New customer retention strategy that you mention during our third quarter call it around.
How did you get out of basically maintaining those new customers could you give an update on that as to what you're doing.
Yeah.
<unk>, new customers that you've been doing the film.
Thank you and we started that retention effort back in September.
We thought it was the right time to start launching at because we knew.
Because of the way we were doing at this wasn't of price and item retention strategy. This was the retention strategy. The keep dollar general top of mind with these newer customers and when the pandemic started to wane.
We.
Keep.
The dollar general is still being would still be in the consideration set so to be able to do that it takes months to be able to instill that.
That piece into the customer's mindset and so we've been working at hard now for the better part of five months coming on six months and and we believe that we've seen the benefit of that already.
When we saw the of the benefits of stimulus start to wane in November and even early December before the second wave came out we were still seeing that repeat customer come into the store. So that gave us confidence that what we were doing was working and now even into Q1 as I mentioned earlier, we're still seeing.
The core customer or I'm, sorry that new customer show up within our stores, even though the pandemic is starting to wane, even a little bit more.
We're still seeing the that customer we will not leave.
The the foot off the accelerator here, we believe that we'll continue to do.
Do everything we can to drive that consumer in and as John indicated.
A large part of that comp this year is predicated on on retaining a good portion of those are consumers, which again, we believe we have the right to.
The service at consumer based on what we've seen so far.
Thank you so much good luck.
We're showing time for one final question today, our last question will be coming from Paul Trussell of Deutsche Bank. Please go ahead.
Yeah.
Oh good morning.
You've always cared a lot of.
Today. So thank you for the color I guess, maybe I'd be looking for some additional details on where you are on some of your initiatives and what we should be.
Thinking about over the course of the next 12 months specifically.
D G crash.
Would love for you the elaborate there.
In addition to you know DG go.
In other ways, the two largest overall kind of attacking to.
To keep market share.
Hey, Paul This is Jeff. Thank you for that question and we are very proud of our accomplishments with DG fresh the team has done a fantastic job of accelerating that rollout and the capabilities that it is providing for us so to be in 16000 stores plus is.
An accomplishment and <unk>.
Originally as we talked about DG fresh was all about reducing product costs, improving in stocks and a broader assortment and we've.
Hit on all three so that is performing very well the other thing that we're excited about is the future and what it can potentially provide for us as we continue to grow when the.
You think back for the second on the formats that we also introduced the reason we're able to build larger stores with more coolers is really dependent on our strategic planning process at started several years ago on DG fresh is of certain.
Core to all of that and so when you think about the future and our new format prototype that we're gonna be moving to in the mid part of 'twenty. One DG fresh is going to play a key role in being able to continue to broaden that assortment for the customer and then as you looked at the future. We also believe that DG fresh plays.
The key role in unlocking our ability to do produce and over 10000 stores. As we look ahead. So DG fresh again complicated initiatives that the team did a phenomenal job of of implementing but is going to set us up for the future and of big way on the digital side, you know I would say.
Remember on DG pickup 17000 stores plus going from pilot to full rollout and lesson of years is again, a tremendous accomplishment of the team, but I will say, we continue to make great progress there and at expanding the assortment we've optimized our substitution technology.
And you know one thing you got to keep in mind is we're providing optionality for this customer, but our store itself as the incredibly convenient proposition and when you combine being five miles within 75 per cent of the population and self checkout that we've gotten 16 hundreds of stores right now the.
The convenience bar continues to rise, but we're very pleased with what we're seeing so far there and then finally I would tell you in terms of engagement with the customer that's the other thing on the digital side. She is asking for and with 4 million active users and.
And growing we feel real good about what we're doing there as well so to.
Two key initiatives that we look to continue to contribute to our future success.
Thanks, so much for that color just lastly.
John I appreciate the Capex and kind of share buyback guidance, maybe just talk about your approach to cash kind of priorities overall and how to think about that even beyond 2021.
Yeah, I'll start by saying our capital allocation priorities haven't changed in the first priority remains investing in high return growth opportunities like new store growth Remodels and the strategic initiatives that just provide a fantastic returns.
And it's still continuing to pay a competitive dividend, which we recently increased 16, 7% and then its buying back shares with the excess cash and debt capacity, but as we've always noted we want to protect our at current investment grade credit ratings. So we keep the leverage ratio around.
Three so we bought back this year I mean, we were able to do all end buyback $2 $5 billion of.
Shares with the with the extra cash next year, we're targeting a 1 billion eight and then I think also meaningfully what you saw last year is we accelerated virtually every strategic initiative with the extra cash which is again, our first priority of investing in the business. So that served us very well and remains unchanged.
Thank you best of luck.
Thank you.
Yes.
Okay.
Thank you for your interest in dollar General you may disconnect your lines and log off of the webcast and have a wonderful day.
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