Good morning. My name is Robert, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Dollar General's First Quarter 2022 Earnings Call. Today is Thursday, May 26, 2022. [Operator Instructions] This call is being recorded. Instructions for listening to the replay of this call are available in the company's earnings press release issued this morning. Now I'd like to turn the conference over to Mr. Donny Lau, Vice President of Investor Relations and Corporate Strategy. Mr. Lau, you may begin the conference.

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 financial guidance, strategy, initiatives, plans, goals, priorities, opportunities, investments, expectations or beliefs about future matters and other statements that are not limited to historical fact. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These factors include, but are not limited to, those identified in our earnings release issued this morning under Risk Factors in our 2021 Form 10-K filed on March 18, 2022, and any later filed periodic report 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. At the end of our prepared remarks, we will open the call up for your questions. [Operator Instructions] Now it's 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 2022, and I want to thank our associates for their unwavering commitment to serving our customers, communities and each other. Our Q1 performance was led by stronger-than-expected sales results in our consumable category, where we delivered comp sales growth of 4.6%. This increase was offset by a decline of 15.1% in our combined nonconsumable categories, which we believe reflects the challenging lap of the stimulus benefit in Q1 of 2021. In addition, we continue to experience headwinds from ongoing global supply chain pressures and rising cost inflation. Despite these challenges, we remain focused on controlling what we can control, and the team's disciplined execution was the key to delivering solid financial results that exceeded our Q1 expectations for both sales and EPS while also advancing our key operating priorities and strategic initiatives. I'm also pleased to report that we have continued to make improvements in our overall in-stock position, which we believe positions us well to drive strong top line performance through the remainder of the year. In addition, while we continue to see ongoing product cost inflation, we feel good about our price position as our price indexes relative to competitors and other classes of trade remain in line with our targeted and historical ranges. And with more than 18,000 stores located within 5 miles of about 75% of the U.S. population, we believe we are well positioned to continue supporting our customers through our unique combination of value and convenience, especially in a more challenging economic environment. Looking ahead, we remain focused on advancing our operating priorities and strategic initiatives as we continue to strengthen our competitive position while further differentiating Dollar General from the rest of the retail landscape.…

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 periods noted refer to the corresponding fiscal period. As Todd already discussed sales, I will start with gross profit. As a reminder, we expanded our gross margin rate by 208 basis points in Q1 2021, which was positively impacted by a significant increase in sales, including net sales growth of 16% in our combined nonconsumable categories. For Q1 2022, gross profit as a percentage of sales was 31.3%, a decrease of 151 basis points. The decrease compared to Q1 2021 was primarily attributable to a greater proportion of sales coming from our consumables category, a higher LIFO provision, increases in transportation costs, markdowns as a percentage of sales and distribution costs and higher inventory damages. Of note, while we have seen some moderation from Q4, our Q1 supply chain expenses were significantly higher compared to Q1 2021, resulting in a headwind to gross margin of approximately $85 million. In addition, product cost inflation was greater than expected, resulting in a LIFO provision of approximately $61 million during the quarter. These factors were partially offset by higher inventory markups. SG&A as a percentage of sales was 22.8%, an increase of 78 basis points. This increase was driven by expenses that were greater as a percentage of sales, the most significant of which were retail labor, store occupancy costs, depreciation and amortization and utilities. These increases were partially offset by reductions in incentive compensation and winter storm-related disaster expenses. Moving down the income statement, operating profit for the first quarter…

Thanks, 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 we continue to make good progress across our portfolio of growth initiatives. Let me take you through some of the recent highlights. Starting with our nonconsumables initiative, or NCI, which was available in more than 13,000 stores at the end of the first quarter. We continue to be very pleased with the strong sales and margin performance we are seeing across our NCI store base, including continued incremental 2.5% total comp sales increase, on average, in NCI stores in their first year post implementation, along with a meaningful improvement in gross margin rate. We expect to realize ongoing sales and margin benefits from NCI in 2022 and are on track to complete the rollout across nearly the entire chain by the end of the year. Moving to our pOpshelf store concept which further builds on our success and learnings with NCI. As a reminder, 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 11 new pOpshelf locations, bringing the total number of stores to 66. Additionally, at the end of Q1, we had a total of 25 store-within-a-store concepts, which incorporates a smaller footprint pOpshelf store into one of our larger-format Dollar General market stores as we continue to be pleased with the results. We are on track to nearly triple the pOpshelf store count this year, as well as open up to 25 store-within-store concepts,…

[Operator Instructions] Our first question comes from Karen Short with Barclays.

Congratulations on a good quarter. So I wanted to just ask, so obviously, your format is very resilient in a weaker macro and should outperform, in general, in a weaker macro. But I think investors have been very concerned regarding discretionary risk as it relates to the comp and also to gross margin. So I was wondering if you could provide a little more color on how your -- with respect to your guidance on how you're thinking about comps with respect specifically to discretionary versus non and then general gross margin outlook as it relates to both categories because, I mean, my personal view is that you're obviously a lot more resilient than people realize -- or investors realize in terms of both those segments, comps and gross margins. So any color on that would be helpful.

Sure. I'll take that question, Karen. With respect to sales -- and with both of these, that's obviously factored in. With respect to sales, feel very good about the raised guidance that we've provided there. We have taken into account that the overperformance was really driven by consumables, so that's been factored into the margin as well. So we continue to feel great about both sides of the business but have reflected the fact that it is more driven by the consumables. And the team has done a fantastic job of proactively adjusting the orders accordingly to minimize markdown risk. The other thing I'll note, just to give a little more color on the shape of the year with regard to sales, the way we see this is as we get past the -- now past the stimulus lap that has a significant impact on last year, both with sales, but also, it's the most difficult -- it's the most difficult, rather, mix lap of the year because they had a disproportionate effect on nonconsumables. Now that we're past that, we see a market improvement in our sales throughout the year, relatively even throughout the year and strongly positive. And then, obviously, you don't have as much -- while we expect a continued mix towards consumables, the lap isn't as significant now that you're past Q1. And again, that's all been reflected.

Okay. And then just to clarify, in terms of April meant 2Q off to a strong start. Any more granularity you could provide on that?

Yes, Karen. We're happy with what -- how we ended Q1. And as I indicated in my opening remarks, pretty upbeat on what we have seen in the first few weeks of Q2. And I would tell you, from a consumer perspective, the consumer is behaving intentional in their purchases, I have to say. But in saying that, she still is shopping both sides of the fence, both consumables and nonconsumables, and I think that really goes to the value that we have in both consumables and nonconsumables side of the business. We've done so much work around that discretionary side with NCI and all the other work that we've done that it's a compelling offering. Even when times are tough for the consumer, she always wants a little bit of an indulgence, and we offer that ability at a real low price. So yes, we feel good about the equation as we move forward, as John indicated.

Our next question comes from Michael Lasser with UBS.

How much did trade down contribute -- or customers trading down, those who may be facing some incremental economic stress, contribute to 1Q? How much have you assumed that will contribute to the rest of the year? And in that vein, how much did like-for-like price increases contribute in the quarter? And how much do you expect it to contribute to the rest of the year?

Yes. Thanks for the question, Michael. I'll take that. And I'll tell you that the consumer, overall, has been fairly resilient through this hyperinflation that we've seen, not only in the products that she has to buy, but the fuel she has to put in her car and other means. So I would tell you that the consumer is holding up well, and it really goes toward what I've talked about all along. And that is as long as she's gainfully employed, that makes the biggest difference in how she shops and gives her that confidence to spend. The great thing at Dollar General is that we offer that value that I just mentioned earlier, and we're already starting to see that our core customers start to shop more intentionally, and we're starting to see that next tier of customers start to shop with us a little bit more as well. Matter of fact, when you look at the COVID customer, I would call it, the one that we attracted and now have retained since COVID, it is still running at or slightly above where we thought we would be right now, and that's a little higher-end consumer. So that tells you that, that trade down and trade in is alive and well and is starting to probably pick up steam as we move through Q2 and into the back part of the year as things continue to tighten up. Lastly I'll mention is the gas prices. What would normally also occur and we're starting to see is she starts to shop closer to home, not only our core consumer, but that next cohort up, so that trade in that you mentioned, because let's admit it, right, the gas price is at $4.40, $4.50 a gallon now, on average, is keeping her closer to home. So those shopping patterns are definitely changing, and we're seeing it happen right before our eyes.

And at the risk of being a little bit of a downer, and I apologize for that, one of your big competitors this morning announced they're going to be making some investments to narrow the price gap. Do you think you'll need to take down your prices further and maintain that price gap to continue to enjoy the success that Dollar General has achieved?

Yes. Michael, I would tell you we look at all competitors when we look at our price, and there's some much bigger competitors out there than the one that you are referring to that we watch really closely. The great thing is, is that our prices are right in our historical ranges, and we feel great about price. We've got plenty of ammunition to do whatever we need to do. But I would tell you that we've never felt better about our price position as we continue to move through Q2 and into the back half of the year. We've taken the opportunity, and I've mentioned this before, over the many, many months of -- through COVID to sharpen our prices even more, and I believe that what we're seeing right now against all classes of trade would tell you that Dollar General is in a great spot and has all of the levers that is disposable to continue to keep that positioning. We don't see anything on the horizon that gives us any concern there at all.

Our next question comes from Matthew Boss with JPMorgan.

Congrats on another nice quarter.

Thank you.

Thank you.

So Todd, on value and convenience, it seems like this is really the key driver that you're citing as one of the main pieces to the continued momentum in the business. I guess how much do you attribute all of this to company-specific top line drivers? What initiatives do you think that you're the most excited about that still have legs? And then more so, as we think about the back half of the year, help us to think about the in-stock opportunity or other key drivers of the business on a year-over-year basis.

Yes. Matt, thanks for the question. I would tell you that our initiatives continue to push forward and also drive that top line. So if you think of DG Fresh, that continues to be our top driver. But one area that we have started to talk about recently and we'll continue to hear more and more about is our digital initiative, and I would tell you that, that digital initiative will continue to help propel that top line as well. It's driving not only our current customer but a different cohort of customer into Dollar General, and that is that cohort that is a little bit more digitally savvy. We have spent some nice capital over the many years building the platform for this. And really, in earnest, in the last 6 to 8 months, have really turned the dial up on moving that digital piece. So while others are worried about fixing fundamentals, we're really moving the needle forward on a lot of those big initiatives. So you think of DG Fresh, self-distribution of produce coming up in our supply chain as well. You think about digital. And then, of course, we're so excited still about NCI and pOpshelf. POpshelf is performing very well, even in a climate that one would consider the nonconsumable discretionary side of the business may be challenged. But pOpshelf continues to do well. That's what gives us a lot of confidence as we move forward into the upcoming months and years ahead. So we've got a tremendous amount of drivers, a lot more than value and convenience. But when they come into the store through all these other means that we're driving traffic into the store, they are definitely gravitating to value and convenience because everybody loves a deal.

Great. And then, John, maybe on the gross margin. How best to think about the build for the second quarter and the back half of the year relative to the first quarter? And just with that, if we think larger picture and maybe similar to my top line question, what inning would you say the company-specific benefits that you've seen from DG Fresh, NCI, maybe the private fleet, what inning are these in today as we think about margin benefits?

Sure. No, great questions, Matt. I'll start with the first part of the question, just around how we're looking at gross margin. I'll start by saying we're very pleased with what we've been able to do to hang on to that gross margin goodness. While we were down about 1.5 points this quarter, we were lapping over 2 points of expansion last year. And if you go back to pre-pandemic levels, we're still 1 point above where we were. I think it really speaks to the impact of the initiatives. Now certainly, there are some near-term pressures that we called out. We talked about on the call the pressure from supply chain costs, which were an $85 million year-over-year headwind. Now that was down from Q4, which was $100 million. The other thing that we talked about was the LIFO provision of $61 million that we booked based on the anticipated inflation for the full year. And of course, we had the mix challenge. But again, as I mentioned before, much more pronounced in Q1 as we lap the significant impact of stimulus. So as we look forward, I mentioned we expect continued pressure on a year-over-year basis, not as much as we saw in Q1 as we get away from stimulus. We also expect continued pressure from supply chain, fuel costs, as well as product cost inflation. However, we expect it to improve as we move through the year. The lapse ease, particularly in the second half of the year, as we lap the very heavy inflation from last year. And we anticipate some moderation. We're seeing some moderation in the cost pressures due, in part, to the benefits of the initiatives and the cost reduction actions we've put in place. We mentioned the private fleet. We're going to double that in size this year as we convert tractors and trailers in-house that drives 20% savings. And we've done other actions to lock in more third-party capacity to manage our inventory very well, adjust to the changing demand of the customers. So we feel we're very well positioned. And as we look ahead, we're not giving specific guidance on gross margin, but we expect EPS to improve sequentially as we go from quarter-to-quarter throughout the year for the reasons I mentioned and really see ourselves as you look at, again, the scaling impact of the initiatives you mentioned, we're in early innings there. They vary. But I would say in macro, we're probably, on average, third, fourth inning in most of these, on average, both in terms of the sales benefit as well as the gross margin benefit. So as these scale and as we work the other levers we've talked about, as we leverage our scale and as Todd mentioned, is we're in a very good place in price. We see ourselves in a very nice position to, over time, continue enhancing our gross margins.

Our next question is from Simeon Gutman with Morgan Stanley.

John, I have a follow-up to that question. It's on overall margin or incremental margins. I think you spoke to gross. So this was embedded in the guidance, even when you issued it in the fourth quarter, that you have the step-up in incremental margin sequentially throughout the year. Sales get better. But if you look at the incremental against the sales, it's still an above average rate for what this business has done historically. So I heard some of the commentary that you just said within the gross and why that gets better, but it seems like cost pressures that were present 3 months ago may be getting worse, not better. And then how do you reconcile that versus accelerating incremental throughout the year?

No. I wouldn't say we see cost pressures getting worse. We mentioned the cadence around the inflation. I would say the moderation is going to be more gradual than originally thought, but we still are seeing moderation. We still expect moderation, and that's why we see that sequential improvement in EPS and overall margins as we move through the year. In terms of SG&A, we don't see any increased cost pressure there in terms of wage inflation. We've talked about that. We expect that growth in wage inflation to be well less than prior year, a little more than pre-pandemic levels but still manageable, and it's tracking where we expected there. We also mentioned making some targeted investments and specifically labor hours. It's really from a position of strength to continue driving the sales momentum to make sure we're good for the customer in terms of in-stock levels and customer experience but not a material step up there. So we feel very good about the guidance we've provided, maintaining the full year EPS guidance despite enhanced, as everyone has called out, inflationary pressures. I think the team has done a great job mitigating those and improving the in-stocks in the right categories to be ready to drive the top line and the bottom line.

And Todd mentioned that there's some tightening that's happening, that the maybe trade down is starting to pick up steam. Are you willing to share was that built into your plan? Are you seeing it happen quicker than the way your plan was built?

Yes. I would tell you that some of it was built in. We knew that the consumer was going to get tighter in 2022, just because of the lack of stimulus compared to last year. But I would tell you that because of other pressures, more inflation coming through on her everyday needs, as well as that fuel that I talked about, has quickened the pace a little bit. So we believe that she'll flee even further to value as she moves into the back half of the year. Especially as she gets to that holiday time frame, I believe that you'll see that. So we're very prepared for that. The last thing I'll also mention that shows us that she is starting to move that way a little quicker is, one is she's coming more often in those basket, unit sizes are a little bit smaller. That's the true sign. And also the $1 price point that we are really pushing and getting behind has really accelerated as well, and we're seeing that. So that would tell you that she's trying to make ends meet, and we'll be there for her because that's what we do best.

Our next question is from John Heinbockel with Guggenheim Partners.

Todd, maybe to start with, right, the business is in a far better place than it was in '08 and '09, right? We did extremely well. How does the recession playbook look differently than back then in terms of -- and how quickly do you play that? What do you have to see to want to lean into that playbook?

Yes. John, it's a good question, and thanks for that. I would tell you that we're in a much different spot, not only economically, meaning the consumer is in a little different spot here. And I think the biggest piece is that her employment is still very healthy across all cohorts of customers that we serve. So I think that's one of the big differences here than '08, '09. Now could that roll over? We're watching that, very well could, which would then just quicken the pace, that flight to value. But we haven't seen that yet but because of the other inflationary pieces we have seen. So there really isn't a lean-in in the playbook as much as it is knowing what that customer is going to do from historical times and then servicing I mentioned. And the reason we're leaning into that $1 price point is because we know how important that is during those times. Private brand, we've seen an acceleration in our private brand business as well in recent weeks. That's a true sign that she's starting to feel that pressure. So how do we respond? Well, you'll see more endcaps, more off-shelf displays of both $1 and private brand as we move through Q2 and then to the back half of the year. So we're really good and nimble, as you know, and to be able to move very quickly, so you'll see more and more of that. I think the important thing here is we're so different as a company than we were in '08, '09. I would hate to be fixing fundamentals right now because the opportunity to gain share is going to be tremendous as we, I believe, move through this year. And we're so far beyond that with all of the initiatives that we've put in place over the last 6, 7 years. It's nice to see that we're going to be in a position to take an oversized amount of share, we believe, as we move through the back half of the year.

And then maybe secondly, right, on your -- the health and beauty assortment, maybe it's too early to tell. But when you look at those items in the basket or the people who are buying them, what are you seeing, right, in terms of frequency of shop, basket size, co-purchases? And that's typically a very loyal customer. Do you think that will drive more frequency? Is that the primary benefit you think you'll see?

John, this is Jeff, and thank you for that question. As we think about health, we've been saying this for quite some time, the largest share donor we're seeing in our business certainly is from the drug channel. And so that's one of the reasons, as you've heard us say before, why we're leaning in here. And so certainly, with 30% more selling space and 400 additional items, we're really pleased to be in 1,800 stores and be in 4,000 by the end of the year. And what we're seeing in the customer's response is very good, and we're excited about what we're seeing, not only in her take rates, but also when you break down the basket. So when you think about Dollar General, I think the best way to think about this is this way. When you look at our mainstays, like home cleaning and paper where we have closer to a 10% share and when you think about this particular area where we're closer to a 4%, it really paints the opportunity for us to continue to grow share in this particular area. And as we've said before, we do classify this as consumable, but it has margins that are akin more to nonconsumable. And when you step back and you think about the larger footprint that we talk about, where 80% of our stores in 2022 will be in that larger 8,500 square foot footprint, it gives us the full theater to put this in place. So I think you see from -- why we're so excited, but also, I think you see the intentional nature of how we layer this into our strategic view of the business and how we look forward and around the corner. So I think you'll see more to come there. We're really excited about what we see.

Our next question is from Rupesh Parikh with Oppenheimer.

So I have 2 questions on the inflation front. So first, what are you seeing right now from a product cost inflation perspective? And then second, are you -- are there any challenges you're seeing right now in passing through some of the higher prices?

Rupesh, it's Todd. Real quickly, obviously, we've seen what others have seen on that. We're in a little different spot, though, and our product mix is much different than the broader retail spectrum. So I would tell you that we're seeing, on average, a lot less cost pressure than what you would find in retail in general. That's number one. The second piece is we have the ability here to trade off items and to trade down sizes, which we've been very active over the last 6, 8 months on when we saw inflation starting to move in a little different direction. So we've got the ability to do that. That's what we do best on our merch side, and so we've done a lot of that to also push off some of those costs to the consumer. But as it relates to when we do have to put costs out there -- I'm sorry, additional retail to cover some of that CPG cost, we've been able to do that because we do it the Dollar General way, right? And we make sure that we can layer it in where the consumer still knows and sees the value of what we offer. And again, as I mentioned in my earlier comment, we haven't felt better about where we are. We're right in historical levels of our pricing index as compared to all classes of trade, so I believe we've got the ability to pass on where we need to, but more importantly, to help defray some of that pass-on to the consumer through our category management efforts, which, again, we're probably one of the best in the industry on.

Great. And then maybe just one follow-up question. Just on your discretionary categories, just given many of the concerns out there, did anything differ versus your expectations during the quarter? I know weather did have an impact potentially on some of the categories but just curious if you've seen any changes in consumer behavior within those discretionary categories.

Yes. As I mentioned also a little earlier, the consumer is becoming more and more intentional in her purchases. We've seen that, and what that means is taking care of her family a little bit more on the consumable side of the business, where she needs to make sure she buys; and then on that discretionary side, obviously, tightening the belt a little bit. So yes, we saw that. We knew that was going to occur, just because of the stimulus lap. But as I also mentioned, we saw it probably accelerate a little faster than where we thought it would as well. But the great thing is the buying team has been all over this. So what we're already doing is as we see the -- with the third and fourth quarter and be able to still yet adjust, we're able to go in and adjust the products that we're selling on that discretionary side as well as making sure that the prices are right on that discretionary side, especially as we get to the important fourth quarter selling season. So we feel like we've seen where that consumer is probably going to land on a mix basis, discretionary versus non, but we also believe we've made the right trade-offs, and as John indicated, feel real good about our inventory levels there and not concerned at all at this point on any markdown risk that may be there.

Our next question is from Kate McShane with Goldman Sachs.

Our first question was just around the SNAP benefit, just how the SNAP composition has changed at DG over the last couple of quarters and what your projection is for the rest of the year.

Yes. It continues to be elevated over pre-pandemic levels. The Thrifty Food Plan is still a benefit there. And while you have some states pulling out of the emergency waivers, it's been very gradual. And so it's still mixing quite a bit higher than norm, just not at the same peak level it was in the middle of last year, but doing very well there, continue to gain share with that customer and serve them very well.

Question is just about traffic. Is there an expectation of when you think that can inflect positively?

Yes. I would tell you that we actually closed out Q1 with a positive traffic number, which was really good to see. And as I indicated in my opening comments, like what we see on our start to Q2, and I think you can actually take from that, that our traffic number is looking much better than it was. So we feel as we get further and further away from that stimulus lap that John referred to, we believe we've got the right products, initiatives, price points, especially in this environment to drive that traffic long term.

Our final question comes from Corey Tarlowe with Jefferies.

Firstly, on international as it relates to Mexico, can you provide an update as to where you are on progress for expansion into that region?

Thanks, Corey. This is Jeff. So in Mexico, I'm really pleased with what the team has been able to accomplish in a relatively short period of time. I would tell you, we have assembled a fantastic team of retailers, and folks are really excited about joining the opportunity. So first and foremost, the team is incredibly impressive with decades of experience. That's the first point. The second point is, is that we continue to make great progress around learning how to serve this customer. And as we've mentioned before, we have a lot of analogs that gave us great confidence to even expand internationally from a lot of the performance and customers we serve along the border, which we've done historically incredibly well here at Dollar General. So as we learn more and more about that consumer, we're really excited about what we are able to offer her and tailor it to her needs and also really rely a lot on what we've been able to do so well here in the United States. So feel great about the assortment and the build that we're doing there, feel real good about the supply chain progress and then also on the real estate. In fact, we've been down there a couple of weeks ago and headed down there here shortly to continue to look at the sites and been very pleased with what we're seeing in terms of our ability to be convenient and be that community-serving retailer that we are here in the U.S. and excited about what we're going to be able to do in Mexico. And we still feel real good about our initial expectation of up to 10 stores by the end of the year.

That's great. And then just a follow-up question for John. As it relates to capital allocation, how are you thinking about the balance sheet and cash levels, balancing the dividend, close to $3 billion in share repurchases and then $1.5 billion in CapEx?

Yes. We're still thinking about the same way in terms of the priorities. Our first priority remains investing in the business. When you can get these kind of returns on new stores and the kind of returns we're getting on our strategic initiative that positions us so well, that's where we're going to continue to invest first. Then it's paying a competitive dividend, which we increased 31% year-over-year on a quarterly basis. And then the business generates a tremendous amount of cash, which allows us to buy back shares. And as you mentioned, we're going to target $2.75 billion this year, so really meaningfully investing in the business, meaningfully returning cash to shareholders in these forms. And in terms of CapEx, with these kind of returns, we're going to invest what we need to. But again, I think with that amount, we're doing quite a bit with it. It is up a little bit as a percent of sales from historical norms. But the biggest piece of that is just steel inflation. And so if you strip that out, it's kind of back down to that historical level of a little over 3% of our sales. So feel really good about the allocation. It's working very well for us and I think working very well for the investors.

Well, thank you for all the questions, and thanks for your interest in Dollar General. I'm proud of our team which continues to execute at a high level for our customers every day. I'm sure you can tell I'm more excited about this business than ever before. We are a mature retailer in growth mode, and our strategic focus has differentiated us in a discount retail landscape, particularly as we have transformed this company in the last few years. As a result, I believe we are very well positioned to capitalize on the enormous growth opportunities we see in front of us. Thank you for listening, and I hope you have a great day. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.