Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dollar General First Quarter 2021 Earnings Call. Today is Thursday, May 27, 2021. [Operator Instructions] This call is being recorded. [Operator Instructions] I'd now like to turn the conference over to Mr. Donny Lau, Vice President of Investor Relations and Corporate Strategy. Mr. Lau, please begin.

Thank you, and good morning, everyone. On the call with me today are Todd Vasos, our CEO; Jeff Owen, our COO; and John Garratt, our CFO. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News & Events. Let me caution you that today's comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our strategy, plans, initiatives, goals, priorities, opportunities, investments, guidance, expectations or beliefs about future matters and other statements that are not limited to historical fact. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections, including but are not limited to, those identified in our earnings release issued this morning, under Risk Factors in our 2020 Form 10-K filed on March 19, 2021, and in the comments that are made on this call. You should not unduly rely on forward-looking statements, which speak only as of today's date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law. 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.dollargeneral.com under News & Events. At the end of our prepared remarks, we will open the call up for your questions. [Operator Instructions] 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 start to fiscal 2021, and I want to thank our associates for their unwavering commitment to supporting our customers, communities and each other. As a testament to their efforts, our first quarter results exceeded our expectations, reflecting strong underlying performance across the business, which we believe was enhanced by the most recent round of government stimulus payments. The quarter was highlighted by net sales growth of 16% in our combined nonconsumable categories, a 208 basis point increase in gross margin rate and double-digit growth in diluted EPS. Despite what continues to be a challenging operating environment, we are increasing our sales and diluted EPS guidance for fiscal 2021 to reflect our strong first quarter performance. John will provide additional details on our outlook during his remarks. As always, the health and safety of our employees and customers continue to be a top priority while meeting the critical needs of the communities we serve. And we believe we are uniquely positioned to continue supporting our customers through our unique combination of value and convenience, including our network of more than 17,000 stores located within 5 miles of approximately 75% of the U.S. population. Overall, we are executing well against 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. Now let's recap some of the top line results for the first quarter. As we lapped our most difficult quarterly comp sales comparison of the year, net sales decreased 0.6% to $8.4 billion, driven by a comp sales decline of 4.6%. Notably, comp sales on a 2-year stack basis increased a robust 17.1%, which compares to the 15.9% 2-year stack…

Thank you, Todd, and good morning, everyone. Now that Todd has taken you through a few highlights of the quarter, 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 and all years noted refer to the corresponding fiscal year. As Todd already discussed sales, I will start with gross profit, which we believe was positively impacted in the quarter by a significant benefit to sales, particularly in our nonconsumables categories from the most recent round of government stimulus payments. Gross profit as a percentage of sales was 32.8% in the first quarter. As Todd noted, this was an increase of 208 basis points and represents our eighth consecutive quarter of year-over-year gross margin rate expansion. This increase was primarily attributable to: higher initial markups on inventory purchases, a reduction in markdowns as a percentage of sales, a greater proportion of sales coming from our nonconsumables categories and a reduction in shrink as a percentage of sales. These factors were partially offset by increased transportation costs, which were primarily driven by higher rates. SG&A as a percentage of sales was 22%, an increase of 152 basis points. This increase was driven by expenses that were greater as a percentage of net sales, the most significant of which were store occupancy costs, disaster expenses related to Winter Storm Uri, retail labor and depreciation and amortization. Moving down the income statement. Operating profit for the first quarter increased 4.9% to $908.9 million. As a percentage of sales, operating profit was 10.8%, an increase of 56 basis points. Our effective tax rate for the quarter was 22% and compares to 22.2% in the first quarter last year. Finally, EPS for the first quarter…

Thank you, John. Let me take the next few minutes to update you on our operating priorities and strategic initiatives. Our first operating priority is driving profitable sales growth. We are off to a great start to the year as our team continues to drive strong execution across our portfolio of growth initiatives. Let me take you through some of the more recent highlights. Starting with our nonconsumables initiative, or NCI. As a reminder, NCI consists of a new and expanded product offering in key nonconsumable categories. The NCI offering was available in over 7,300 stores at the end of Q1, and we remain on track to expand this offering to a total of more than 11,000 stores by year-end, including over 2,100 stores in our light version, which incorporates a vast majority of the NCI assortment but through a more streamlined approach. We're especially pleased with the strong sales and margin performance we continue to see across our NCI product categories. Notably, this performance is contributing to an incremental comp sales increase in nonconsumable sales of 8% in our NCI stores and 3% in our NCI light stores as compared to stores without the NCI offering. Given our strong performance to date, coupled with the added flexibility of a more streamlined approach, our plans now include completing the rollout of NCI across nearly all of the chain by year-end 2022. Moving to our newest concept, pOpshelf, which further builds on our success and learnings with NCI. pOpshelf aims to engage customers by offering a fun, affordable and differentiated treasure hunt experience delivered through continually refreshed merchandise, a differentiated in-store experience and exceptional value with the vast majority of our items priced at $5 or less. During the quarter, we opened 3 new pOpshelf locations, bringing the total number of…

[Operator Instructions] Our first question comes from the line of Simeon Gutman with Morgan Stanley.

My first question is on the business, a look maybe 1 year later or 1 year after this COVID started. Can you talk about the traffic? I know the rural store bases across retail seem to do well. Can you talk about how you're doing on the lap? And then anything changing in the basket that you're seeing, whether you're doing well and still in the consumables or how the basket may be evolving?

Yes. Simeon, this is Todd. Thanks for the question. Yes, we're very happy with what we're seeing [indiscernible] now a year out of the pandemic or again, lapping the pandemic, maybe a better term. When you look at it, what we've seen is those customers that we were able to bring in during the COVID crisis or the heat of it, we have retained a very large portion, better than what we had anticipated doing. As you may recall, we launched a very aggressive, back in that August-September time frame, an aggressive campaign to not only retain but keep her engaged at Dollar General. And that seems to be working very, very nicely. But as we've indicated in the past, when we see that our core consumer has more money to spend and stimulus has given her some of that tailwind, if you will, what she tends to do is contract on the number of visits but spends a lot more, and that's exactly what we saw. We saw our basket size increase very nicely with our core consumer as well as with these trade-in consumers that we saw during the heat of the battle of COVID that we've been able to retain. So it really sets us up nicely as we continue to move through this year. We feel very good about what we're seeing. And we're staying squarely focused on what we can control here and that's driving profitable sales growth.

And the 2-year stack, I think if I did the math right, or if I heard the numbers right, I think it's running now 14 in May, if that's right. What are the puts and takes to that? I think there's a little more stimulus coming. Do you think this could be the run rate that you can hold going forward?

Yes. In terms of -- you're right in terms of the stack in terms of the cadence. If you look at the cadence of the quarter, it picked up nicely with the onset of the stimulus, where we're very well positioned to get more than our fair share of that. You did see sequentially on a 2-year stack basis, it moderates somewhat but remain very strong and very strong across the board when you look at 2-year stacks, both on the nonconsumables as well as the consumables but particularly when you look at the nonconsumables, just a fantastic 2-year stack as we shared. And I think that really speaks to the strength of what we've done with the initiatives on both the consumable side of the business to provide that fuller fill-in trip grocery shop as well as on the nonconsumable side to get a fair share of these folks coming in as we take share from specialty retail. As we look ahead, the laps get actually easier in the back half of the year from a comp standpoint but we just feel fantastic about the fundamentals of the business.

Our next question comes from the line of Matthew Boss with JPMorgan.

Congrats on the performance. So Todd, maybe just take a step back. Could you speak to new customer acquisition that you're seeing in market share that you see driving the performance continuing? And maybe on that taking a step back, how would you compare what you're seeing today to maybe the time at which we were exiting the financial crisis as we think about customer acquisition, new households shopping Dollar General? And then if you were to rank, where do you see market share opportunities by category from here?

Yes, Matt, I'll try to weave all that in. But I would tell you that we're very happy with what we see on that customer acquisition side. Let me try to go to one part of your question, that is financial crisis coming out of that compared to what we are seeing now on the back side of COVID. Very similar from the standpoint that, that consumer is still very engaged. I think the biggest difference here is the amount of stimulus that is in the system right now. So our core shopper continues to be -- have a lot more money than she normally would, and she's spending a great deal of that with us, which is great to see. And I think the other side of the equation is that, that trade-in shopper is financially doing pretty well as the economy opens back up. As we can see, it's opening up in a very robust manner. And I think the difference of '08 and now is that, that consumer has more money to spend. And the great thing is she continues to come back to Dollar General, that higher-income shopper and shop with us. And that's exactly what we saw in '08 but in a way, she didn't have a lot of money. This time, she does have money but still continues to shop. So I think that just speaks to the relevancy that we've built in this box since that '08 crisis. This box, as you know, has transformed tremendously since then. So we feel good about those trends and our core shopper trends. As it relates to market share, we're seeing gains across the board. Drug continues to be our #1 donor share. Grocery is donating as well as, I think, consumers start to go back to some normal shopping patterns as it relates to food at home. And we're seeing those come back to Dollar General in a nice way. And then even in our own space, we're taking share, which is great to see. So it's really across the board. And I think it's a real testament to the initiatives that we put in place years ago. This isn't a -- just because of COVID, this underlying business, as I've said before, is as strong as I've ever seen it.

Todd, maybe as a follow-up to that, what inning would you characterize those key initiatives? If we think about DG Fresh, NCI, private label, I think you have a laundry list that you've walked through. But what inning would you characterize overall these initiatives as we think going forward?

Yes, you heard Jeff's prepared remarks. But if I step back and take a look at NCI as an example, we'll be completely rolled out by the end of '22. So I would tell you, we're probably halfway through the game as we go through this year and then into next, which feels really good. In our cooler initiative and DG Fresh just in general, I would tell you that we're in the -- we're still in the fourth inning, maybe closer to the bottom of the fourth inning but still in the fourth inning. We've got a lot of runway ahead of us there. And that's been the largest contributor on our initiative side that we've seen both on the top line and bottom line. And the great thing is that we've got a lot of runway yet to go there. pOpshelf, I mean we're just coming up to bat. We're really happy with what we're seeing there. And we supplied a little more color. Hopefully, it was helpful on what we're seeing early on in our sales and margin coming out of there. And we're very, very encouraged there. And I would tell you, as you know Dollar General pretty well, as we start to see more evidence that this is a very good initiative, we can go very quickly. So stay tuned on that. And our digital side, this will be an ongoing initiative. But I would tell you, we're in the infancy stages, very early innings on our initiatives there in and around digital. So a tremendous amount of opportunity, both top line and bottom line because these initiatives are aimed at both. And that's the -- I think that's the important aspect here is that we're controlling every line of that P&L.

Great. It sounds like a lot of balls still to play. Best of luck.

Absolutely.

Our next question comes from the line of Karen Short with Barclays.

I wanted to see if you could give a little color in terms of the May sales trends with respect to discretionary versus consumables. And I do have a question related to how you answer that from a bigger picture perspective.

Yes. So if you look at May, we gave the May -- through the 23rd, comp sales were down 7%, but obviously, as we mentioned, a pretty strong 2-year stack in the 14th. There was a question also in terms of did that month-to-date differ from the full month, and it didn't change much at all. So strong performance continued and we saw continued strength in our nonconsumables, but also the consumables when you look at a 2-year stack, so very strong performance from both sides of the box.

Okay. So just bigger picture, when I look at your mix in discretionary, you're up almost 200 basis points -- well, 200 basis points since 2018 in terms of mix shift in discretionary. So -- and I guess, when you look at your overall gross margins, it seems -- and you've talked to the fact that there is significant opportunity on the gross margin front. So I guess what I'm wondering is looking maybe a year or 2 out, what do you think the discretionary mix could be within your sales? And then how should we think about gross margins as we look into 2022? I mean, I realize '21 has some very tough compares than 2022.

Karen, I think as you look at the nonconsumables business, obviously, there's some tailwind that you got from -- during the pandemic and from the stimulus. But I would just point to the ongoing strength that we've shown there. We've delivered comp growth in nonconsumables for 12 consecutive quarters, and I think that just really speaks to the relevance we've put into that piece of the box. And as you continue to see the share we're taking, how we're outperforming others. We have noted that the lap does get tougher as we get into Q2. You're lapping sales growth in the nonconsumables category of 40.8% last year. So that's a tough lap, puts pressure on that. But I would tell you, we feel great about the nonconsumables business as we look forward and as we continue to scale that, almost doubling that this year and then taking the best of the best from that, importing that across the chain and then taking the learnings from that and putting that into pOpshelf and then cross-pollinating the best ideas between the 2. We feel fantastic about that business.

And any thoughts on how -- what would be a normalized -- or not normalized, but how that -- how we should think about gross margins going into 2022?

Yes. Obviously, we're not giving '22 guidance just yet. But what I'd tell you is this, is you look at the performance in gross margin. We've delivered 8 consecutive quarters of gross margin growth, up 208 basis points this quarter, lapping 49 basis points this quarter last year. And when you look at the drivers of that, again, there was some tailwind from nonconsumables from the stimulus. But when you look at the drivers, it's the strategic initiatives driving that. The top 3, we've been talking about these top 3 for several quarters now. It's higher initial markups, that's DG Fresh driving that. And that is a gift that keeps on giving as we scale that, complete that across the chain and then drive efficiency than that. The next 2 we talked about were lower markdowns and the mix benefit. And again, you got some extra tailwind from the stimulus, but it's nonconsumables driving that and that's been a consistent driver for some time now. And then you look at shrink, shrink was another benefit. Now as you look at the near term, as I mentioned, we hit a very difficult lap around nonconsumables, which will pressure that year-over-year mix even though we feel great about the nonconsumables. And then as others have talked about it, we do see pressures this year associated with transportation costs, but we do believe that's more of a near-term pressure, not something structural that will last forever. And so as we push through those 2 pressure points, we feel good about what we've been doing in terms of driving gross margin and operating margin expansion and our ability to keep doing so, not only with these strategic initiatives I mentioned but then all the other drivers we talk about, not just shrink but private brand penetration, foreign sourcing penetration, supply chain efficiencies we continue to drive to mitigate the pressures that others are seeing and so it's not as impactful to us. And then we always talk about our buying power. And then last but not least, we will invest in price if needed, if warranted. But I can tell you, we feel like we're in a great pricing position right now and don't see the need to. So we feel good about our ability to drive it higher over time, both gross margin and operating margin overall.

Our next question comes from the line of Edward Kelly with Wells Fargo.

Nice quarter. Maybe the first one turns out to be a little bit of a follow-up now. But as it relates to product cost inflation, can you just talk about what you are seeing and what you're expecting from product cost inflation standpoint, especially in consumables? And then what are your expectations for pass-through? And to what extent are you in the driver seat? To what extent do you kind of need to follow what Walmart does? Are you seeing anything out there to suggest that you wouldn't be able to pass through higher product cost inflation if that happens?

Ed, this is Jeff. Thanks for the question. Certainly, on the product cost, on the first part of that question, what I would tell you is that our merchants have done a fantastic job of partnering with our suppliers. And this is where the model at Dollar General really performs well in the sense that our scale and our limited SKU assortment allows us the opportunity to really find innovative ways to protect that underserved customer and certainly find ways that we can mitigate the cost pressures. But certainly, as many retailers have talked about, we have seen that. But again, real pleased with our pricing position. We feel really good about where we are. We talked about this before. We've made some strategic decisions last year to get in some of the best pricing position we've been. And so feel good about where we are. We'll continue to fight for that customer every day. As you know, here at Dollar General, price and value are so important to her and we're here to serve her. So I'm really pleased with where they are. We'll continue to monitor that but feel good about the team's performance to date on that front.

Okay. And then just one on labor cost here. Can you just provide some color on what you're seeing out there? I mean, obviously, a lot of companies have talked about challenges. You grow a lot, so you're adding a lot of employees. Has it caused you to rethink wage levels at all? Do you see this as transitory? Just how do we think about the pressure there and how that's changing?

Ed, we have seen some pressure as many retailers have said. But you know what, I'm so proud of what our team has done to respond. And certainly, in April, we announced our national hiring event with a goal to hire up to 20,000 additional employees. And I'm very pleased that already we have beaten that goal by 50%. So I think it points to the thing we've said all along, and that is Dollar General is such an amazing place to start a career. And so again, we feel real good about the opportunity we can provide with over 12,000 store managers internally promoted. We've got a robust internal pipeline. We still be -- we're still able to attract, so we feel real good there. And certainly, as we have always talked here at Dollar General, we're surgical in the way that we respond to different challenges. So the comments you've mentioned, we're not seeing it widespread. There are pockets, and so we'll certainly tailor our solution to where it makes sense. We always pay competitive wages. We have and we will continue to. And still very pleased at our turnover rates that point to this opportunity here at Dollar General to attract folks, provide a great growth opportunity. And so right now, we are certainly making progress mitigating these challenges, and I'm really pleased with the progress I'm seeing.

Our next question comes from the line of Michael Lasser with UBS.

Your 2-year compound annual growth for consumables grew 12% in the fourth quarter -- 12% in the third and fourth quarter last year. You grew [ 11% ] in the first quarter [indiscernible] only by 100 basis points. How much of that slowdown would you attribute to consumers going back out to eat and so they don't need to visit Dollar General as often for those [ same ] interests? Or how much is it your expectation that some of that is due to consumers got a $1,400 check at least. And so they might be going to Walmart or Target or some other discretionary retailer and rolling up on a big-ticket item, and while they're there, purchasing other goods that's taking away a trip from Dollar General?

Yes. It was very difficult, Michael, to understand you and the question. But if I got some of the sense of it, yes, we feel good about our consumable and nonconsumable businesses where they're at. And as I mentioned earlier, we continue to take share from all different classes of trade out there. So I feel better than I ever have on being able to continue to drive the top line on both our consumables and nonconsumables side of the business. And if I missed that question or if you like to ask it again, I'm happy to answer it.

The question is your 2-year compound annual growth rate for your consumables business slowed modestly from 4Q to 1Q. How much do you attribute that to the people going back out to eat so they don't need to fill in [indiscernible]? Or they got a $1,400 check, so now they're going to Walmart to buy a TV and while they're there, they're filling up their basket, which may also be taking away a fill-in trip from DG.

Yes. I apologize, Michael. Thank you for repeating that. Yes, I would tell you, it's definitely not the latter that we've seen. It's probably more -- the little slowdown that we have seen there was one, such a robust last year and even into the fourth quarter. The economy is opening up a little bit. So that consumer has the ability to go do some other things. And food away from home, I'm sure, like yourself, a lot of people wanted to get out and get out of the house, so I think that definitely played into Q1. What we're already seeing though in early Q2 is that some of that food at home is being -- it looks like it's pretty sticky. And while I'm not ready to talk about Q2 right now, I can tell you that especially in those areas like DG Fresh, our perishable areas, we're seeing very, very nice sales, robust sales in there. So it really shows that, that consumer still has a propensity to have food at home. And I would tell you, just like anything, when things last more than a quarter or 2 or half a year, they become pretty ingrained. And I think food at home has become pretty ingrained. Now that doesn't mean that they won't go out to eat, but I think they're going to be doing more food at home than they had prior to the pandemic. And we're already seeing that, as I mentioned, start to materialize here in Q2.

Got it. On the gross margin, 200-plus basis points, John. You did provide the order of magnitude. But could you put a quantification around how much of the gross margin was due to factors that have been driven by your initiatives like DG Fresh, NCI, which should continue? Is it 100 basis points over the next couple of quarters versus other factors that might be temporary such as mix or lack of promotions within the environment? And are you already starting to see more promotions come back such that, that could be a risk factor to offset those factors that you have within your control over the next few quarters?

Yes, Michael. So as you look -- as you pointed out, those are in the order of importance and the #1 called out, and it was a good bit higher than the other 2, although all were quite impactful, was higher initial markups, and that was DG Fresh. And that is something I would say continues and actually improves as we scale that across the system and get the efficiencies. As you get to the next 2, the lower markdowns, certainly a big piece of that was the higher sell-through on the nonconsumables. But if you recall, we were calling out lower markdowns even before that as we got tighter and tighter around promotional activity, and we've stayed tight on promotional activity. While I would say compared to last year, it's up a little bit because last year there was virtually no promotional activity. If you compare to 2019, it's down. So we're not seeing that much more promotional activity. We're actually seeing a little bit less. If you go back to 2019, there just was none last year. And so things remain pretty tame that way. And then on the mix benefit, again, certainly got some extra juice from the stimulus. But again, 12 consecutive quarters of nonconsumable comp growth. And when we're virtually doubling that initiative and putting the best of the best across the chain, we think that continues to help us. And again, shrink, that was a benefit not related to the current environment. So it's certainly a mix. It's hard to when you look at nonconsumables to untangle what was stimulus and what was just what we did to make that piece of the box more relevant. I'd say we set ourselves up very well in that regard. And then again, I would like to think that the higher carry rates is more -- is not something structural. It's more of a supply and demand imbalance that should sort itself out later. One of the things I'll mention that is a wildcard that's not in our guidance, and that is what impact the child tax credits will have. And so while there's -- we've not assumed any more stimulus, we've not assumed any more child tax credits, just given the number of potential macro puts and takes, including the child tax credits, but then conversely, what happens when the -- some of the enhanced benefits are removed. So that's another wildcard in the back portion of the year. But as you look at the gross margin, I would tell you, a big chunk of this is structural as evidenced by the strong fundamentals driving it and the track record we've delivered. But as we mentioned, there's just some near-term pressures over the next few quarters.

That's very helpful. Could I just clarify what you -- one point you made that you're not -- you're seeing promotions better today than they were in 2019? So you're not seeing conventional grocery stores promote more because their sales are under -- on decline as consumers go out to eat more?

Yes. We watch this very closely, Michael. And I would tell you, John hit it right on the head, and that is we're seeing a little bit more promotional activity than we did last year because it was absolutely none last year. But it is substantially, substantially lower than it was in 2019. And so I would tell you that, that tame promotional environment that we've been talking about even prior to the pandemic and through the pandemic still persists. We have not seen that whatsoever.

Our next question comes from the line of Rupesh Parikh with Oppenheimer & Co.

So my first question is with the comp guide. I was curious how you guys are thinking about traffic for the balance of the year.

Yes. I think the way you think about traffic, we've been talking about this, there's been quite a bit of trip consolidation. So people have been coming in a little less frequently. They've been putting a lot more in their basket. Now what I would tell you is we looked across recent periods, we've seen the traffic start to pick up. And so what we would expect as the mobility picks up, the traffic will pick up. The baskets will come down somewhat, but our goal is to hold as much of that bigger basket that we gained. It's pretty impressive when you look at the 2-year stacks on the growing basket on top of basket growth last year, again, as we provide -- position ourselves to that fuller fill-in trip. But what we would expect is that traffic to continue to pick up as people get out more.

Okay, great. And then maybe just one follow-up on pOpshelf. So clearly, very upbeat commentary in terms of what you guys are seeing so far. So I guess, Todd, what has surprised you so far with the concept?

I'm sorry, what was the question?

Yes, on pOpshelf, you guys have seen very strong results so far. So I was just curious what has surprised you so far with the performance there?

Oh, surprise. Yes. I would tell you that we're very happy with what we're seeing. I believe that the biggest surprise probably was when you launch a brand from ground zero, you don't normally see the amount of traction and sustained traction that we are seeing and repeat customers that we're seeing. The other thing that's really a surprise is the customer feedback that we're getting. We're getting promoter scores in the upper 80s and 90% range, which is unheard of. And so that's what gives us great optimist, if you will -- optimistic that we will continue to be able to grow this piece. Stay tuned. And as I mentioned earlier, because of what we're seeing not only on the sales line, but I think the other nice surprise was on that margin side at 40% margins. And I would tell you, the upside to that is great, very great, quite frankly, as we scale this. So we think that between those 2, and you know us well, we'll move fast in store openings once we get another few weeks behind our belt here.

Ladies and gentlemen, our final question this morning comes from the line of Scott Mushkin with R5 Capital.

Seeing that pOpshelf, it's just an insane format, one of the best I've seen in about 20 years, so I look forward to hearing more about it. But my actual question is on DGX, you guys didn't mention it. Maybe not as much sizzle as the pOpshelf but seems like it almost could supplant the normal convenience stores. It's about 10,000 7-Elevens. And I look at that store and say, "Gosh, like, why would I ever go to a 7-Eleven if there was a DGX in the neighborhood?"

Scott, thank you for the question. And we are real excited about DGX. And certainly, as we talked before, during the pandemic, as you remember, DGX is situated to locate where you work and play. And certainly during the pandemic, we saw some pullback, obviously, with so much remote and work at home. But we feel real good about what we're seeing now. We've talked earlier about how we're seeing the economy kind of open up and folks get out more and we're seeing that come back nicely in our DGX stores. And so you're right. We're very excited. You'll recall last conference call, we talked about the opportunity for 1,000 possible DGX locations across the country. And then you know us well. If we find a concept that can work even better and increase that over time, we'll certainly try to do that. But right now, the offering inside the DGX, we also have very high customer satisfaction scores like the pOpshelf brand as well. We are real pleased with what the customer is saying and we're also pleased with the opportunity. So stay tuned, but that just gives us yet another leg of growth. So you got pOpshelf where we've talked about incremental 3,000 opportunities; DGX, an incremental 1,000 opportunities; and then our traditional fleet where we believe there's 13,000 additional opportunities. So 17,000 opportunities in total gives us great confidence that we can continue to grow this great brand across the country. So we're really excited about what the future holds there.

And if I could have a follow-up -- I guess I get a follow-up. On the pricing side, kind of taking that and turning it on its ear a little bit. I mean if you look at what's going on in your business, you obviously talked about gross margin expansion possibilities as well as labor efficiency possibilities and, of course, the limited SKUs you guys offer. Why wouldn't I think that you can use -- and we've seen this, our pricing surveys kind of coming -- the gap coming down with Walmart. Why wouldn't we see that continuing? Like you have a lot of levers to pull.

Yes. We watch it very closely. You know us pretty well. And pricing is one of my pet projects here at Dollar General. I'm intimately involved in it because it's so important to our consumer. And I would tell you that, and Jeff alluded to it again, we took 2020 and we quietly got in the best position we've ever been in. We took advantage of that dislocation that was out there. And that advantage continues today. And to your point, we've made inroads even against all classes of trade, including mass. But also especially even in our class of trade here at discount, we've made extreme moves as well. So we're happy with what we -- where we are. Hey, we always reserve the right to continue to make sure our customer has the ability to shop what she needs. So if that does need to happen, we have the wherewithal to do anything on price that we consider we need to do. But right now, we feel good. And as Jeff indicated, even in this environment where we're seeing some price pressure from CPG like other retailers are, we have a lot of levers at our disposal to make sure that we don't have to pass all that on to the consumer. And that's exactly what you've seen here in Q1 so far.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.