Dollar General Corporation (DG) Earnings Call Transcript & Summary

Good morning, everybody. Well, I love that. Well, welcome to the 2024 Annual Meeting of Shareholders. My name is Todd Vasos, I'm the CEO. And the Board of Directors has appointed me the Chairman of this meeting, which I now call to order. Let me first begin with introductions. My fellow Board members and executive officers are in attendance today in the meeting. Our Board members are; Mike Calbert, our Chairman of the Board; Warren Bryant; Ana Chadwick, Pat Fili-Krushel, Tim McGuire, David Rowland, Debra Sandler and Ralph Santana. Our executive officers in attendance today is; Kelly Dilts, our Executive Vice President and Chief Financial Officer; Steve Deckard, our Executive Vice President of Store Operations and Development; Kathy Reardon, our Executive Vice President and Chief People Officer; Emily Taylor, our Executive Vice President and Chief Merchandising Officer; Rhonda Taylor, Executive Vice President and General Counsel; and Carman Wenkoff, Vice President and Chief Information Officer; Rod West, our Executive Vice President of Global Supply Chain; and Anita Elliott, Senior Vice President and Chief Accounting Officer. I'd like to thank our Board of Directors and executive officers for their continued dedication, teamwork and leadership here at Dollar General. Finally, Josh Trusley is in attendance today on behalf of Ernst & Young, our independent registered public accounting firm; and [ Ken Frank ] is here in attendance on behalf of Broadridge, our Inspector of Elections. I'll now turn the meeting over to Christine, our Corporate Secretary, to review the meeting announcements. Christine?

Good morning. We are holding today's meeting pursuant to the notice provided to shareholders beginning on April 5, 2024. Please note that this meeting is being recorded. Shareholders of record at the close of business on March 20, 2024 or their duly appointed proxy holders may vote on the items of business at this meeting. For your convenience, additional copies of the meeting agenda and rules of conduct, along with the 2023 Annual Report and the 2024 proxy materials are available in the back of the room as well as on proxyvote.com. In addition, a copy of the shareholders list as of the record date is available for inspection by shareholders of record or their confirmed agents or attorneys. Our Board has appointed Broadridge to serve as the Inspector of Election. Broadridge has informed us that they are present today in person or by proxy, the holders of not less than the majority of the shares issued and outstanding as of the record date. Having a quorum, the polls are now open for shareholders who have not already voted or who want to change or revoke their vote. To do so, please see Mr. Frank before the polls close at the end of discussion on the last voting item. [Voting]

We'll begin the meeting with a presentation of the voting items followed by up to 15 minutes to address any written questions that the proposals -- about the proposals that were submitted before or during the meeting in accordance with the rules of conduct. Mr. Vasos will present the management proposals and shareholder proponents' designated representative will have 3 minutes to present the shareholder proposal. The polls will then close and we'll adjourn the meeting, followed by a brief business update. After the business update, we'll take up to 15 minutes to answer general questions that were submitted before or during the meeting in accordance with the rules of conduct. Only shareholders of record or their duly appointed proxy holders may submit questions at the meeting. Each shareholder may submit up to 2 questions per voting item and up to 2 questions during the general Q&A session. Please submit questions whether regarding voting items or for the general Q&A session before the polls close to Kevin Walker, our Vice President of Investor Relations. I'll now turn the meeting back to Mr. Vasos to introduce the items of business.

Thank you, Christine. There are 3 management proposals and 1 shareholder proposal being voted on today as described in the media notice and in the proxy material. The first item is the election of the 9 directors listed in the proxy statement to hold office until the next annual meeting and until their successors are duly elected and/or qualified. Our Board recommends that you vote for these directors. The second item of business is the advisory vote to approve the resolution regarding the compensation of Dollar General's named executive officers as disclosed in the proxy statement. Our Board recommends that you vote for this proposal. The third item of business is the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal '24. Our Board recommends that you vote for this proposal. The fourth item of business is a shareholder proposal to expand the clawback policy for unearned executive pay. This proposal is being presented by a representative of Mr. John Chevedden. Would the proponent please stand and we'll bring you a microphone to present your proposal.

Proposal 4, improved clawback policy for unearned executive pay, sponsored by John Chevedden. Shareholders ask the Board of Directors to amend the company policy on recruitment of incentive pay to apply to the each named executive officer and to state that conduct or negligence, not merely misconduct shall trigger mandatory application of that policy. Also, the Board should report to shareholders in each annual meeting proxy, the results of indeliberations regarding the policy, including the Board's reasons for not applying the policy after specific deliberations conclude, about whether or not to cancel or seek recoupment of unearned compensation paid, granted or awarded to named executive officers under this policy. There shall not at least be the full -- there shall at least be the full web address of the complete clawback policy in each annual meeting proxy. This is a stronger clawback policy than the policy Dollar General recently has adopted. Wells Fargo offers a prime example of the need for a strong policy. After 2016, Congressional hearings, Wells Fargo agreed to pay $185 million to resolve claims of fraudulent sales practices. The Wells Fargo Board of Directors then moved to clawback $136 million from 2 top executives. Wells Fargo, unfortunately concluded that the CEO had only turned a blind eye to the practice of opening fraudulent accounts and that there would be no recoupment in spite of Wells Fargo paying $185 million penality. The Ohio nuclear bribery scandal is another example of the need for a strong clawback policy. Speaker of the House of Representatives, Matt Borges and 3 others were accused in July of 2020 of accepting $60 million in bribes from the utility FirstEnergy in exchange for $1.3 billion worth of benefits in the form of Ohio House Bill 6, in what became known as the Ohio nuclear bribery scandal. FirstEnergy stock price plummeted. July 2021, the U.S. Attorney for the Southern District of Ohio announced that FirstEnergy would be fined $230 million for its part in the scam. Please vote yes, improve clawback policy for unearned executive pay, proposal #4.

Thank you. Our Board recommends that shareholders vote against this proposal, which is item 4 on the ballot. No other business was submitted pursuant to our bylaws for consideration at this meeting. Before we address any questions about the voting items, let me remind shareholders of record and their proxy holders that this is the final opportunity to submit or change your vote as the polls will close immediately following this discussion. And this is also the final opportunity to submit questions about the voting items or the general Q&A session that will follow my business report. Christine, have we had any questions submitted?

No, there have been no questions regarding the voting items.

Since no questions have been submitted relating to the voting items, so we will continue to the preliminary voting results. The polls are now closed. Following the announcement of the preliminary voting results the business of the meeting is adjourned. Christine will you please announce the preliminary voting results.

Based on the preliminary report of the inspector of election, each of the 9 nominees standing for election has received a majority of the votes cast in favor of his or her election. The compensation of Dollar General's named executive officers has been approved on an advisory basis. The appointment of Ernst & Young as the company's independent registered public accounting firm for fiscal '24 has been ratified and the shareholder proposal listed as Item 4 on the ballot has not been approved. The final certified voting results will be reported on a Form 8-K. Before we turn to the business report, we would like to caution you that today's comments may contain forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act. Forward-looking statements can be identified because they are not limited to historical matters and regard our strategy, plans, intentions, expectations or beliefs about future occurrences or results, including but not limited to, statements regarding our future potential key operating priorities and initiatives, opportunities, strategies and business as well as planned investments. Actual results might differ materially from those projected in the forward-looking statements as a result of a variety of important factors, including but not limited to, those described in the Risk Factors section of our Form 10-K filed with the SEC on March 25, 2024 and other factors that may be discussed today. We caution against undue reliance on these forward-looking statements, which speak only as of today's date. The company disclaims any obligation to publicly update or revise these statements, except as may be required by law.

Thank you, Christine and thank you all for being here today. I'm excited and honored to address you today at our 2024 Annual Meeting of Shareholders. As we embark on our 85th year, our long-standing mission of serving others remains at the center of everything we do at Dollar General. In 2023, we helped our customers navigate a challenging macro environment and provided them with the products they need and want at great values in convenient, friendly and easy-to-shop stores. I'm proud of the resilience of the Dollar General team. We have made a consorted effort across all levels of the organization to optimize the business for the current retail environment, while staying true to the fundamentals that have been foundational to our success over the past 85 years. Through it all, we remain focused on keeping the customer at the center of everything we do. During fiscal 2023, we completed more than 3,000 real estate projects. And today, we operate more than 20,000 stores nationwide, allowing us to reach more customers and more communities than ever before. As the largest retailer in the U.S. by store count, we continue to serve our customers and communities with the unique value and convenience proposition, helping them save time and money every day. As we seek to further strengthen our business and continue on a path of sustainable, profitable growth while keeping our customers at the center of everything we do, we remain committed to our 4 key operating priorities. Our first operating priority is driving profitable sales growth. We have a robust portfolio of sales driving and margin-enhancing initiatives, including DG Fresh, which facilitates self-distribution of fresh and frozen refrigerated items in our stores and our nonconsumable initiative, which enhances the treasure hunt opportunity for our customers at tremendous values. These initiatives are providing our customers with even more value and convenience and strengthen the foundation for future growth. Our second operating priority is capturing growth opportunities. Our proven high-return, low-risk real estate model have served us well for many years. And coupled with our ongoing format innovation continues to be a core strength of the business. Our larger formats are the current primary focus of our new store rollout as we provide more products that our customers want and need while also driving greater sales productivity. These larger store formats enable us to bring enhanced product offerings such as our fresh produce initiative, which we know is important to our customers, especially in rural communities. Our digital initiative complements our unique and expansive brick-and-mortar footprint, as we seek to deploy and leverage technology to further enhance the convenience proposition for our customers, while also offering a more personalized shopping experience. Our third operating priority is enhancing our position as a low-cost operator. Our established Save to Serve approach continues to drive efficiencies and deliver savings as we seek to help our business simplify the -- while staying focused on our customers. Our cost control mindset is pervasive across the organization and is fundamental to our ability to serve our customers with value and convenience every day. Our fourth operating priority is investing in our diverse teams through development, empowerment and inclusion. We continue to focus on attracting, developing and retaining talented employees. We have made significant investments in wages, benefits and training opportunities, which we believe are resonating with our team as we drive improvements across the organization and position our associates for future success. Importantly, we continue to prioritize direct engagement with our teams, which allows us to enhance our position as an employer of choice. Ultimately, we believe that the opportunity to build a long-term career with a growing retailer is our most important currency to attract and retain talent. To advance our 4 key operating priorities, in the near term, we have implemented a refreshed approach to getting back to the basics, which focuses on the following 3 key areas; to drive operational excellence, better serve our customers and create long-term shareholder value. To better inform these efforts, the leadership team has spent a significant amount of time over the last couple of months directly engaging with our associates throughout the organization, including listening sessions in stores, distribution centers and our store support center. We also hosted more than 400 field leaders in Nashville in February and then several of us spent time on the road with more than 1,000 additional leaders across the country. These sessions allowed us to follow up on the feedback we've received, share our action plans and commitments and align our expectations with the teams across the organization. We continue to prioritize this direct engagement with our associates and value the actionable feedback we gain to continue enhancing the way we support our teams and serve our customers, all while strengthening the sense of pride and purpose we all share here at Dollar General. First, in our stores. In 2023, we made a significant labor investment in our stores with a goal of driving improved execution in important areas such as store standards, inventory management and in-stock levels. Additionally, to facilitate a positive customer experience, we deployed labor to ensure a stronger presence at the front checkout. Finally, we are also taking actions aimed at reducing turnover at the store manager position, which we believe will benefit the employees and customer experience. Next in our supply chain. In 2023, we made significant progress in addressing distribution center capability constraints while also reducing the number of outside storage facilities. We also made meaningful progress towards the goal of optimizing inventory levels and improving operational efficiencies and productivity throughout our supply chain. These actions have driven improved service levels and on-time deliveries for our stores and the customers we serve. And finally, in our merchandising, as always, we remain focused on offering great value on the products our customers want and need. Thanks to dynamic actions that we took as a team in 2023, Dollar General continues to be positioned well in both everyday pricing and price gaps relative to our peers and other classes of trade. We have taken measures to provide even greater value for our customers by highlighting private brands and other opportunities for savings, while also maximizing the effectiveness of promotional activities designed to drive traffic and share growth. Now let me share with you some of the financial highlights for fiscal '23, including net sales of $38.7 billion, a same-store sales increase of 0.2%, operating profit of $2.4 billion, net income of $1.7 billion, diluted earnings per share of $7.55 and cash flow from operations of $2.4 billion. We also invested $1.7 billion in capital expenditures to grow and improve our operations. In fiscal '23, we opened 987 new stores. We also remodeled 2,007 stores and relocated 129 stores for a total of 3,123 real estate projects. We are operating a total of 31 distribution centers at the end of fiscal '23 to support our ongoing growth. In 2024, we expect the majority of our new stores to be in one of our larger formats as we look to continue to not only expand the number of communities we serve but also the ways in which we are able to serve them. We are very proud of our growth in '23 and excited about the growth opportunities ahead of us in '24 and beyond. Our greatest strength of Dollar General is our people and we are committed to providing opportunities for their growth and development while fostering an inclusive and an enriching culture. We continue to make investments to enhance the employee experience across the organization. We created more than 14,000 new jobs in '23. And at the end of the year, we have approximately 185,000 talented and dedicated Dollar General employees in our stores, DCs, fleet and store support centers, helping to serve customers in their communities across the United States. In 2023, we continued to invest in our employees' education and development, which resulted in our employees completing more than 5.5 million training courses. Within retail operations, more than 70% of store associates at or above the lead sales associate position were internally placed, as evidenced by our high internal promotion rates, our focus on providing development, opportunities to continue to grow our internal bench and prepare employees for the next level. We are grateful for the entire Dollar General team whose tireless commitments to our mission, our customers and each other, make our growth a reality and bring our mission to life each and every day. Dollar General's culture remains firmly rooted in our mission of serving others. We are deeply connected to the communities that we call home and we continue to be intentional about investing in these communities to nourish the mind, body and the planet. During 2023, Dollar General and our foundations donated more than $27 million to charitable causes with a primary focus on uplifting and empowering individuals of all ages through literacy and basic education. Since its inception in 1993, the Dollar General Literacy Foundation has awarded more than $239 million in grants to nonprofit organizations and more than $20 million -- 20 million, excuse me, individuals have received assistance. I encourage everyone to take a look at our Serving Others Report available on our website, if you'd like more detail on how we are prioritizing serving our employees, customers and communities. We are excited about these efforts and are proud to partner with these various organizations and foundations to extend hope and opportunity to individuals throughout these communities. In closing, I want to once again express my sincere appreciation for the hard work of the entire Dollar General team. With clarity and purpose and a well-defined path to execution, we have laid the groundwork for continued meaningful operational performance improvements in 2024. As our teams continue to execute our strategy, we believe Dollar General is poised to capture tremendous growth opportunities ahead and we look forward to continuing to deliver enhanced value for our customers, employees and create long-term value for our shareholders. Thank you for your investments in Dollar General and we appreciate your continued support. At this time, I will answer any questions that were submitted in compliance with the rules of conduct for the meeting. Christine, have any questions been submitted?

Yes. We have -- it looks like 6 questions. And the first question pertains to product quality. Dollar General's diversity and inclusion materials and its public statements commit the company to understanding and celebrating that our differences make a difference. What measures are Dollar General taking to inform customers who don't speak English about chemical hazard information, for example, California Prop 65 notices?

Dollar General is committed to selling safe, effective and affordable products that meet or exceed the company's quality and performance standards as well as legal and regulatory requirements, including the communication of such.