Good morning. My name is Robert, and I'll be your conference operator today. At this time, I would like to welcome everyone to Dollar General's Fourth Quarter 2022 Earnings Call. Today is Thursday, March 16, 2023. [Operator Instructions] This call is being recorded. [Operator Instructions] Now I'd like to turn the conference over to Mr. Kevin Walker, Vice President of Investor Relations. Kevin, you may begin your conference.

Thank you, and good morning, everyone. On the call with me today are Jeff Owen, our CEO; and John Garratt, our CFO. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News and 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 the call unless required by law. [Operator Instructions] Now it is my pleasure to turn the call over to Jeff.

Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our associates for their dedication to serving our customers and communities this year. I am inspired by this team's commitment to our mission of serving others and the passion they have for helping our customers save time and money every day. Our fourth quarter performance was led by strong comp sales growth of 5.7%. And while this result was below our expectations, our performance included market share gains in both consumables and nonconsumables and contributed to a net sales increase of 17.9% to $10.2 billion. Our Q4 comp sales were driven by an increase in average basket size, primarily attributable to inflation and partially offset by a slight decrease in customer traffic, primarily due to a decrease in customer traffic in late December. And similar to recent quarters, average units per basket were down. Notably, both November and January comp sales at 6.7% and 6.5%, respectively, were within our expected range of 6% to 7% for the quarter. However, our December sales performance was negatively impacted by winter storm Elliott, which had the most significant effect on our stores in the final days leading up to Christmas. The quarter was also impacted by greater-than-anticipated inventory damages, which contributed to diluted EPS results that were below our expectations. While the storm had some damages impact, we also incurred higher damages than expected as we work through the residual impact of the storage capacity constraints and related store and distribution inefficiencies we experienced during the second half of the year. Although we expect some of these related impacts to be with us through the end of Q1, we are pleased to have the storage capacity constraints largely behind us, which we believe positions us well moving…

Thank you, Jeff, and good morning, everyone. Now that Jeff has taken you through a few highlights of the quarter and full year, let me take you through some of the 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 Jeff already discussed sales, I will start with gross profit. For Q4, gross profit as a percentage of sales was 30.9%, a decrease of 35 basis points. This decrease was primarily attributable to an increased LIFO provision, a greater proportion of sales coming from the consumables category, and increases in inventory shrink, damages and markdowns, partially offset by higher inventory markups and a reduction in transportation costs. Of note, product cost inflation continued as a significant headwind, resulting in a LIFO provision of approximately $164 million during the quarter and approximately $517 million for the full year. SG&A as a percentage of sales was 21.7%, a decrease of 29 basis points. This decrease was driven by expenses that were lower as a percentage of sales, the most significant of which were retail occupancy costs, incentive compensation and retail labor. These were partially offset by certain expenses that were greater as a percentage of net sales in the current year period primarily utilities. Moving down the income statement. Operating profit for the fourth quarter increased 17.1% to $933 million. As a percentage of sales, operating profit was 9.1%, a decrease of 6 basis points. Our effective tax rate for the quarter was 23.2% and compares to 21.2% in the fourth quarter last year. This higher effective income tax rate was primarily due to decreased income tax benefits associated with the stock-based compensation compared to 2021. Finally, EPS…

Thank you, John. Let me take a few minutes to update you on our operating priorities and strategic initiatives, which have transformed this company in recent years, resulting in strong growth and enhanced profitability. Our first operating priority is driving profitable sales growth. Starting with NCI. With the initial rollout phase now complete, we will focus on continuing to refine the assortment and enhance the treasure hunt offering to provide value to our customers in the nonconsumable categories. Overall, we are very pleased with the success of NCI including market share gains in nonconsumable sales in Q4. 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 majority of our items priced at $5 or less. During the quarter, we opened 37 new pOpshelf locations, bringing the total number of stores to 140 at the end of 2022, located within 14 states. While sales in this economic environment have been somewhat softer than our earlier results, we continue to be pleased with the customer response. Looking ahead, we plan to more than double the pOpshelf shell store count in 2023, bringing the total number of pOpshelf stores to nearly 300 by year-end, and we are excited about our goal of approximately 1,000 locations by year-end 2025. Turning now to DG Fresh, which is a strategic, multiphase shift to self-distribution of frozen and refrigerated goods along with a focus on driving continued sales growth in these areas. We are now delivering perishable products to more than 19,000 stores from 12 facilities, and we continue to be pleased with the cost savings from this…

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

Sorry about the noise. Open-ended question for you. So the business has executed well over a long period of time. Last couple of quarters, we've had some missteps or things that haven't gone to plan. Not all of that I think is clear to us for the Street. And yet all these growth initiatives are still happening at the same time. So the open-ended question is have you debated or is the debate the balance of sort of the growth against investments that's focusing on the core?

Well, Simeon, thank you for the question. I first want to say, certainly, the last 2 quarters have been challenging. And I can tell you, we're disappointed in our results. This team takes great pride in delivering on our commitments and we've been doing that for the almost 30 years I've been here. And that is something that is not changing. And I can tell you, we have a tremendously deep and outstanding team that's laser focused on executing and innovating over the long term. And certainly, we have faced some challenges. But what we do here at Dollar General is we control what we can control, and that has allowed us to emerge even stronger as we move forward. So as I think about our balance between execution and innovation, one of the things I think it's important to remember is we have a long track record of execution, and this team will continue to deliver on that. And on the innovation front, we don't do things on the side of our desks. And so as we do innovate, one of the things that our team does more than anything is, as you know, capital is not an issue for us. It's all about organizational capacity. And I think the team has done an excellent job of making sure that we've dedicated the resources, the focus and the time to be able to grow this foundation. And it certainly served us very well. If you think about these challenging times we're in right now, this company is in a much different place. And as our customer has gravitated towards more consumables, the investments we've made in our strategic initiatives have allowed us to serve her even better and more profitably. And so as we look forward, we're excited about some of the investments we announced today, which will be on top of the strategic investments we've made previously, which has put us in a very, very enviable position of having a rock-solid foundation strategically and a laser-focused on execution. And this team is committed to delivering that as we look forward into '23 and beyond.

And the one follow-up to that is the $100 million in wages, I don't think it's a big surprise, but it was maybe in man hours and not rate. So can you talk about that trade-off or the balance between those two and where, I guess, you feel comfortable where you are on rates?

Yes. We absolutely do, Simeon, and that's one of the -- that's a great distinction. Here, at Dollar General, for the 85 years we've been around, the store has always been the company. And our ability to serve local communities is something that we do better than anybody and we take great pride in that. And so when you think about the investment that we're very excited about, the reason why it's in hours rather than wages is because we've been paying competitive wages for many years. And you heard in my prepared comments that our wages have increased 23% over the last 3 years. So our ability to attract and retain talent remains one of our core competencies. And so I'm -- the other thing you got to remember is where our stores are located. They're located in rural communities. 75% are in communities at 20,000 or less. And we prevent -- we provide career growth opportunities that are unmatched in retail, which leads to our staffing levels being very robust, which we mentioned. And that gives us the opportunity because we're in such a good position to invest in the hours. And so as we think about hours, we're pleased at what we believe this will do to elevate our store standards and our consistency, which we believe the customer will benefit and the associate will benefit. And so as you -- as we move throughout '23, when you combine the improvements we're making in our supply chain, which really gives us the timing to do this, and you combine that with the in-stock improvements, our customers will begin to see our standards improve, our on-shelf availability will improve, and we'll be ready to serve that growing customer base that we're really pleased that we're seeing. And so that's what gives us the confidence in this. We feel this is the right level of investment. And the reason we feel that way is because we've been testing and learning this in 2022. You know Dollar General very well. We don't do things just on a whim. We test and learn. We've been doing that in '22. We liked what we saw. And we wanted to make sure our supply chain was in a position where we could take advantage of the ability to elevate the experience for the customer while we flow goods freely to the stores. And right now, we're in a good position to do that as we enter '23, and we're excited about what this is going to do for the customer and ultimately, the return we're going to see over time.

Our next question is from Matthew Boss with JPMorgan.

So Jeff, could you speak to recent behavior that you're seeing from the low-income consumer? Or maybe any changes in the ranking of their priorities from those customer surveys that I know you run regularly? And John, help us to think about the cadence of comps as we think about the year? Or just any color on the first quarter same-store sales? Or any comments on business to date just relative to that 3% to 3.5% full year forecast?

Well, thanks, Matt. I'll start, and then I'll kick it over to John. As you think about the customer, one of the good things about Dollar General is we're an all-weather brand. And we've shown over the last 3 decades how we can serve that customer in any economic environment. But what we're seeing right now with our customer is the best news we have is that she's still employed. And as we've talked about for many years, that is the single most important factor to her economic health. But we are certainly, as we talk to our customers, and as you know, Matt, we do this very, very frequently, and our digital capabilities allow us to do it in many different ways, which we're pleased, we're seeing that she's worse off financially. And it's primarily due to food inflation. And obviously, as you think about how that changes her behaviors, one of the things we're seeing is she's relying more on savings, credit cards, and also borrowing money, quite frankly, from friends. And as that shows up in the store, what we're seeing in the shopping behavior is that translates into our customer coming more often, she's buying fewer items on occasion. And I got to tell you, one of the things we're very, very pleased with is the fact that we are still leaning hard into our dollar price point. And we're there for that customer. And as you saw in our prepared comments, that is resonating extremely well with her, as you saw from the comp sales we're seeing in that category. But also, we're seeing her lean into private brands, and we're seeing her shift her purchases more to consumables. But as you know, our core customer, she's the smartest customer, I believe, in retail, and she figures this out over time. And our box is more relevant than ever as a result of the investments we've made over the last several years. And that allows us to go where the customer wants us to go and do it more profitably. And that's a very enviable position for us, and I think our market share gains kind of show that. But that's kind of what we're seeing from the customer standpoint. And certainly, there's some near-term challenges that have just recently emerged. I'll let John talk about that in Q1.

Yes. So in terms of the customer, as Jeff said, we're continuing to see an increasingly economically strained customer, and we're seeing shopping behaviors indicative of this environment. The two recent events we're monitoring is the termination of SNAP benefits, the emergency waivers in the remaining states, coupled with lower tax refunds in recent weeks. It's possible this could further pressure the low-income customers somewhat in the near term remains to be seen. We didn't see an impact last year. Some rolled off, but the customer is in a different place now. So we'll carefully monitor that, but we continue to believe that the customer needs us even more in tough environments as history has shown, and our full year guidance is reflective of all we know today. In terms of the shape of the year, I'll kind of talk to first half, second half and then Q1, both in terms of sales as well as earnings. As you look at the shape of the year, as we indicated, it's really a back half story for EPS growth. Now we're expecting sales comp to be relatively even between the first half and the second half, slightly higher in the second half. But then we expect continued headwinds, as we mentioned, from sales mix pressure, higher interest expense and increased shrink and damages as we move through Q1 or rather the first half. And then in the second half, we anticipate a pretty sizable benefit from lapping the significant supply chain costs and winter storm impacts from the second half of 2022 as well as the benefit of the initiatives that we're driving. Now as you look at Q1, we mentioned that we anticipate certain headwinds to be most pronounced in Q1. That includes the estimated year-over-year increase in interest expense, which we quantified as $40 million as well as inventory damages and then the residual impact of the storage capacity constraints and related supply chain efficiencies -- inefficiencies we've mentioned. And then the other piece is with regard to the labor investment. We expect the year-over-year net impact -- pressure from that to be most significant in Q1. And that's because we don't begin lapping last year's smaller investments until Q2 and believe the benefits of the incremental labor will be more significant later in the year.

Great. And then maybe just a follow-up, John, on the balance sheet. Could you just update us on free cash priorities? What is the multiyear debt leverage target? How best to think about CapEx as a percent of sales moving forward? And just share repurchase as a use of cash going forward?

Sure. I'll start by saying that our capital allocation priorities have not changed. Our first priority remains investing in the business. When you have high return growth opportunities like new store growth, remodels and our strategic initiatives, that's where we focus our capital. Then our second priority is then returning the excess cash to shareholders based on the excess cash and debt capacity, paying a competitive dividend as we increased this quarter, and then by buying back shares with the remaining excess cash and debt capacity. But we remain focused on protecting our current investment-grade credit rating by keeping our adjusted debt to EBITDA around 3. In terms of CapEx, that is up a bit this year. We guided to $1.8 billion to $1.9 billion. Really includes the impact of pretty significant inflation, particularly when you think of steel. As we accelerate the unit growth story here, the remodels as well as build, we're working on three distribution centers here, which is going to help our capacity. So it takes some capital to do that, but we see great returns in these. And as you look at the stores, not only are we doing more stores, we're doing bigger stores. And we love what we see with these bigger stores with more sales, more profit per store. So a little more CapEx but really like the return from these. So I think that's the way to think about our capital allocation priorities and the drivers.

Our next question is from Peter Keith with Piper Sandler.

You had commented just on one of the last questions around tax refunds and SNAP as potential headwinds. I was hoping you could also address the social security cost of living increase that kicked in at the beginning of the year. Has that been any tailwind to your business that you've noted so far?

Yes. I'll elaborate on SNAP a little bit, and then I can talk about tax refunds and then talk about COLA. In terms of SNAP, it's interesting. You had an increase -- a pretty good increase in the tender over the last few years since the pandemic, as states enacted the emergency allotment benefits. Over the last couple of years, we've seen about 18 states roll off -- some of our key states. And what we saw is with the elimination of this, we saw an offset in other tender methods. And we didn't see an overall impact to our sales. What we are monitoring though, is that, coupled with the tax refunds, which are lower in general, they're a little bit ahead in terms of the number of returns filed. But per return, what we're seeing so far and everybody is seeing, is a lower return overall in terms of the dollars. And so we're monitoring the two. Too early to call, but monitoring if those two and where the customer is at right now has a different impact remains to be seen. In terms of COLA, we did see some bump from COLA, particularly those consumers and those stores that over-index with that consumer that receives benefits based on COLA. However, I would say, while a benefit, we saw some bump, not a significant impact.

Okay. And then I wanted to ask you a little bit about the LIFO impact. So $517 million in the full year is pretty meaningful headwind that you've experienced. I guess if the Fed's going to achieve their mission and moderate inflation here over the next year or 2, you should probably have less of a LIFO charge. Do you have any LIFO benefit or lower charge here factored in for 2023 at this point?

Yes. The way to think about this is very significant LIFO charge last year. We don't expect a deflationary environment this year, so we do expect a LIFO charge. But we are assuming a more moderate LIFO charge. So less of a headwind this year. I think one thing to just bear in mind as you think about the year-over-year, we did mitigate where we could, the LIFO charge by taking targeted pricing actions as we saw the market move. So that mitigated the impact of that. So I wouldn't consider this fully a tailwind, but certainly less of a headwind as we go into this year.

Our next question is from Scot Ciccarelli with Truist Securities.

First, can you just clarify, John, like are you expecting earnings to actually be down in the first half or just lower? And then my main question is, we've seen a pretty significant decrease in payables to inventory over the last couple of quarters. This quarter, for example, inventory was actually up over $1 billion, payables were actually down year-over-year. Can you just provide any more color on what's happening there? And do you expect that to ramp up to -- kind of the payables inventory to ramp up to historical levels? Or is there some sort of structural change, whether it's mix or capacity changes, et cetera, that is influencing that?

Yes. So in terms of the cadence for the year, what we said is it really is a back-half story. You really are going to see the growth in the back half of the year. We're not anticipating a sizable drop in the first half. We're looking at it to be modestly up to flattish. But -- so then it's really a back-half story in terms of the earnings. In terms of the AP to inventory, what we have seen is the driver of that is really higher inventory levels, coupled with the timing of payments. As you look at the timing of payments, one of the things, for instance, that impacts with the 53rd week, it then pulls in the week 1 rent payment. So as we look further, we expect inventory levels to normalize. As you look at -- in Q4, we saw our inventory per store dropped in half. It went -- it was 14% on a per store basis, which was about half the growth rate we saw in the previous period -- or previous quarter. And again, it reflects the same drivers that's really the product cost inflation and a greater mix of higher-value products, particularly in NCI as we completed the rollout of that. Important thing to note here is it is seasonal goods -- or it's early receipt of seasonal goods or was there other driver. But it's important to note that these are evergreen-type products, which aren't time-sensitive. So we feel really good about the quality of the inventory, the ability to move through that and expect this to continue to normalize as we move through the year.

Our next question comes from Rupesh Parikh with Oppenheimer.

I also wanted to ask on CapEx. So historically, CapEx has been about 3% of sales. And last year and this year, it's about 4%. So just want to get a sense of where you think the normal level of spending could be in a normalized environment as a percent of sales or any other commentary?

Sure. Again, getting back to the capital, a big driver of that was the inflation as well as the stepped up real estate and the number of projects we're doing in terms of DCs, working on three DCs in one quarter. So again, feel great about the returns of these. I don't want to speculate on -- and give future guidance on CapEx. Could see an environment where with the inflation coming down, it would moderate that. But more to come in terms of the CapEx, but what we are really focused on is the returns of these and feel great about the returns and we'll see what's required to grow the business going forward, but more to come.

Great. And then maybe just one follow-up question. So DG Media, the commentary is very positive there in terms of what you're seeing with your vendors. As you think about the dollars there, how do you think about reinvesting the business versus flowing that through the bottom line?

Rupesh, you're right. We are very excited about what we're seeing on our DG Media Network. And quite frankly, our digital acceleration in general. One of the things that we've learned over the last couple of years when we started this journey was how digitally savvy our customer is and how much it helps her to be more connected and more loyal to Dollar General and it shows up in her ability to spend with us. Certainly, as you think about the network and you think about what we're able to bring to the market, we're able to bring access to a segment of the population that's really difficult to connect with. And when you think about the rural population, 30% of the United States population, that's meaningful. And that's why our brand partners and our CPG partners are very excited to partner with DG, and we're excited about where the media network will go over time. In terms of kind of how we handle the dollars that we're receiving from that, obviously, one of the things that's great about this company is our ability to grow our operating profit and reinvest in the business. And this is one of the ways it allows us to do that. And so that's why we're all very excited about the strategic foundation we've built here, the muscle we've built. And we're excited about some of the initiatives that we're going to bring to the forefront as we look forward, especially in '23 and beyond.

Our next question comes from Karen Short with Credit Suisse.

And John, sad to see you go. It's been great working with you. I just wanted to go back to the overall algorithm for DG. Obviously, there's noise in '23, and we all appreciate that. But can you just maybe give a little bit of an update on what you think the long-term algorithm should be as we get beyond '23? And then I wanted to just clarify on the wage investment and/or wage. Can you just let us know what your average hourly wage rate is? And how you think about that as opposed to investing more in dollars, and I realize you need to invest in hours, but dollars?

Yes, it's Karen. I'll take the first part of that question, and then John, I'll kick it to you for the algorithm question. But Karen, we don't disclose our average hourly rate. But what I can tell you is, as I said earlier, is we have and we continue to pay very competitive wages. And I think the one nuance to Dollar General that I frankly believe is underappreciated is the ability to come into this company as a part-time sales associate and grow into a career. . And you can do it faster than you can in any other retailer because we're committed to internal development, and we have the opportunity to provide you with growth opportunities because of our dynamic growth. So I think those two things are the reason why we feel great about our staffing levels, our ability to attract and our ability to retain our talent. And so that's why we're investing in hours. And right now, we're very pleased to see that wage grow 23% over the last 3 years. So we're in a great position, and that's why we're able to put this investment more towards the hours in the store rather than having to catch up on wages. And John?

As you think of the algorithm and if you just step back and look over the last 3 years, while it's been up and down over the last 3 years in this environment, every element of that well in excess of the algorithm. If you look at sales comp, well in excess of the algorithm; expansion of gross margin and operating margin; operating income, EPS, well in excess of the algorithm. So we feel very good about the performance over this period of time, and we feel the model remains very strong and very resilient. We continue to see ourselves as 10%-plus EPS growers over the long term, not every year. Some years, we see it prudent to invest to protect that growth over the long term. But if you look at the business model and fundamentals, they're very strong with the unique combination of value and convenience resonating as strong as ever. We continue to see very compelling store-level economics in new store returns and then significant bumps from the remodels. And we continue to see 16,000-plus new store opportunities for everybody in our space. But obviously, we've been getting an outsized share of that. So significant runway for growth. The initiatives are performing very well, helping both the top line and bottom line. They're focused on both. And we see, as I mentioned, a lot of levers within gross margin to continue to expand that over the long term. And the business generates a lot of cash to then buy back shares and reinvest in the business. So we think top to bottom, the business model and fundamentals remain very strong.

So is it fair to say or reasonable to think that, that's more of a '24 return? I mean I know you haven't given guidance, but just some...

I don't want to give specific guidance, but I would just say we feel very good about the future and the strength of the business.

Our final question is Corey Tarlowe with Jefferies.

And congrats, John, on your retirement announcement. It's been a pleasure to work with you. My first question for Jeff on market share. You talked in your prepared remarks about seeing customers trade in the Dollar General. You talked about higher income consumers trading down to Dollar General. So I think it's clear that Dollar General is gaining share across income cohorts and categories, and you talked about Value Valley as well, comping up over, I think it was 30%. So maybe could you talk a little bit more about where you think this market share is coming from? And where you see it likely to come from even more so as we look ahead?

Well, Corey, first of all, we are very pleased at the market share gains that we've been able to achieve, both on the consumable and on the nonconsumable segments of our business. And when you think about our customers as well, we're also incredibly pleased with the fact that we were able to increase our productivity with really all segments of our core customer. We increased our share of wallet, our share of trips. Those are all really encouraging signs and very pleased to see that. It's a credit to our team and their ability to connect with this customer, bring an assortment that she's looking for and delivered in a consistent fashion. As you think about the donors, it's really the same donors we've had for quite some time, primarily drug is our biggest share donor. And so as we look forward to continuing to refine our assortment, our strategic initiatives, really allow us to really bring even more, we believe, relevant assortment to our customer. We think we're in the early to mid-innings on many of these initiatives when you think about our treasure hunt with NCI, when you think about DG Fresh and the relevance of the perishable and frozen offering, you think about produce. And we're very pleased on our digital strategy that's allowing us to, quite frankly, through our first-party data, our ability to understand this customer on an even greater level than we ever have before, we'll be able to continue to bring the relevance she's looking for. And when you think about our growing store base, we continue to see our share opportunity very, very optimistically, and we would expect us to continue to take it from the same donors we've seen in previous.

Great. And then just a follow-up for John. So it sounds like there's a couple of moving parts in terms of the gross margin, specifically as you look out over this year, and I recognize it's a first half, second half story, but could you maybe stack rank the drivers that you anticipate from maybe most important to least important, to be affecting the gross margin line this year? I recognize mix shift is also a fairly prevailing factor in this. So how does that also factor into how you're thinking about the consumables mix shift as we look ahead for the next 12 months?

Yes. As you think of the headwinds and the tailwinds, I'll start with the headwinds, but then go to what we see as a pretty sizable tailwind -- tailwinds. The ones we talked about were one, sales mix, that pressure continuing. So we've assumed that. We've also assumed shrink and damages as we move through the first half, in particular. And then increased markdowns, and that's really just getting back to rates more in line with historical norms. I wouldn't say of these one really stands out significantly over the others, but they all contribute as headwinds. And then, again, the shrink and damages more of a first half pressure than back half as we see it now. Damages, in particular, Q1 pressure as you look at the cadence of the year. We mentioned the LIFO impact, and we do think that will provide some benefit, but I wouldn't flow the whole thing through because you had the pricing that went with that last year. But then as you think of the tailwinds, the biggest one I would point to and the biggest overall driver I would point to here is the supply chain. We expect a pretty material benefit from lapping the increased supply chain expenses in the second half of last year as well as the sizable benefits from greater distribution center capacity and productivity, lower carrier rates as well as the benefit of expanding our private tractor fleet, which we're growing from 1,600 tractors at the end of last year to over 2,000 by the end of next year. And again, as we make those conversions, it's about a 20% savings in addition to other benefits that we expect as we optimize DG Fresh, NCI, and then expect a pretty sizable benefit from DG Media Network to name a few. And then obviously, we intend to leverage our scale as we have as a limited SKU operator, and that's another lever amongst the other levers we've mentioned in the past. So again, as you look at the guide for the year, we gave the top line, the bottom line, we didn't give gross margin, but I think it implies a pretty healthy operating profit growth than rates overall despite pretty sizable investment in the business.

We have reached the end of the question-and-answer session. I'd now like to turn the call over to Jeff Owen for closing comments.

I'd like to thank you all for your questions and your interest in Dollar General. And while our operating environment is dynamic for our customer and business, we are staying focused on the things that we can control, which is continued innovation and execution in our business. If I could summarize our discussion today, I'd like to leave you with these three things. First, we have a powerful growth strategy. Second, we are investing in the future. And third, we are doing this while also planning to deliver strong results in 2023. We're excited about this business, and I am confident we are well positioned to serve our customers and also create value for our shareholders in the year ahead. Thank you for your listening today, and I hope you have a great day.

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