Dollar General 3Q15 Earnings Call Notes

Todd J. Vasos

Because our consumer is cash strapped, she tends to shop closer to the holiday

“As we see it, our core consumer, because she is always very cash strapped. She does shop closer to the event, so whether it would be 4th of July during the summer, whether it would be Halloween in the fall, or even holiday time around Christmas, she tends to shop heavier in the days leading into those holidays. Now she is always been that way, but we’ve seen it get a little bit closer to the holiday each and every year now for the last two years.”

What does it mean to change to zero-based budgeting

“There’s a couple of key changes when you move to zero-based budgeting, and I’ll say we’ve had great process rigor in discipline in place here. Thus your switch to zero-based budgeting it really is a fundamental process change where you’re doing a bottoms-up budget making trade-offs and forcing prioritization versus building a budget off of a prior year base. It’s also a cost management change focused on dual ownership where you have department — traditional department budget owners as well as horizontal cost category experts who help drive, increase scrutiny and resource allocation. And then also really driving the ownership mindset where we’re putting our best resources against the best uses to the ones that Todd mentioned of what touches the customer and what’s aligned with our strategic priorities, while also mitigating against risk and making sure we’re putting our money where we have the biggest returns. That’s what I would say are the key differences, and we’re well into that process of implementing that.”

People tend to leave a job for two reasons: supervisor and workload

“The two things that are most — most, very important aspects of turnover and the reason that people leave. Number one, the relationship with their supervisor, and number two, workload.”

The quarter showed a very tame pricing environment

“the quarter really showed a very tame pricing environment to be very honest with you. No significant promotional activity above last year and I’m happy to say that our price competitiveness is exactly the same as it has been to get all channels at trade.”

Still plenty of room for 6-7% sqft growth

“we don’t see anything structurally that gets in a way of a 6% to 7% square footage growth rate as we go out into the outer years. In saying that those opportunities are a nice fine balance of urban, suburban if you will and our rural locations, and that’s the great thing about how we’ve set this up is that, as we continue to open stores in the outer years it will continue to be a fine balance between those two and there is still tons of opportunities in both urban areas and our metro suburban areas.”

We haven’t seen much inflation, have seen deflation in some categories

“Like most retailers we haven’t see a lot of inflation. And as you indicated in some key commodity areas like fluid, milk, some coffees et cetera, we’ve seen some deflation. Those are big categories for us. So sure that is a headwind for us in some of our food categories where that deflation has slowed our top line or out the door retail a little bit. But the great thing about Dollar General and how we look at the business is any time we can offer the consumer a lower price, its best for her and it gives her more money to spend elsewhere and hopefully in our stores.”

Our customer does seem to be spending this gas price savings differently than expected

“to your point, she seems to be spending this — in this savings and gas prices a little differently. I think you almost look at it as; she’s sort of spending on deferred maintenance for her household. So and/or whether it be the automobile they just — they didn’t quite fix because they didn’t have the money or the refrigerator that they’ve been putting off buying for the last few years, it looks like she’s spending money on that right now. ”

We feel good about November, but our consumer, as usual is under pressure

“our November sales were right on our original plan or original forecast. So we feel very strong about November. And when you look at the overall comment, it is the environment that our consumer is in. Our consumer is always under pressure. I mean, she lives that way, but she’s so resilient and she figures it out. But she needs us to help her figure it out, and that’s what we’re here to do. She is facing a lot of headwinds especially in rents. I mean, rents are up tremendously over the past few years. Our core consumer — our core, core consumer nearly 50% of her take home pay is going to rent today versus just a few short years ago 37%. So you can see the headwind that she’s gotten and quite frankly not a lot of wage growth for her. ”

John W. Garratt

Wage pressures are on the rise, but we are doing a good job managing them

“we continue to watch as wage pressures in some areas are on the rise, but I have to tell you that our operating team in hiring our ROE employees have done a fabulous job. And we are competitive where we need to be competitive and we’ve seen virtually no difference today than we have in the past year.”