Business Model Viability
Q: Is the small-box model structurally challenged, and how will you rebuild margins?
A: Todd Vasos asserts they fundamentally don't believe the model is structurally challenged. New store productivity remains strong, with continued market share gains and cannibalization in line with history. The consumer is financially strapped, especially at month-end, so they're going on the offense with markdowns and promotions to regain market share. Kelly Dilts says margin rebuilding over time will come from sales growth, managing costs, and mitigating shrink and mix headwinds. Cash from operations was up 127%, enabling continued investment in the business.

Margin Outlook
Q: Will margins stay subdued during the transition, and does it change reinvestment plans?
A: Todd Vasos acknowledges margin pressure during the transformation but sees ample opportunity to improve margins, particularly by reducing shrink, which they expect to turn into a tailwind in Q4 and more substantially in 2025. Their back-to-basics plan shows progress in operations, staffing, and shrink reduction.

Traffic Trends
Q: How did traffic and ticket evolve, and any concerns on low-income consumers?
A: Todd Vasos notes they gained 1% in traffic but aim for more. Competitors, especially in Bentonville, are capturing available traffic, so they're going on the offense to regain share. Kelly Dilts adds that June was the strongest month, with a step down in July, particularly in transactions. The last week of each month was the weakest, indicating customers running out of money. Surveys show the core customer feels worse off financially than six months ago.

Guidance Conservatism
Q: Is there more conservatism in the new guidance?
A: Kelly Dilts explains the guidance reflects softer sales trends and the impact of markdowns. They're assuming a macro environment that's neutral to slightly softening, with the low end of guidance contemplating further softening of the core customer's ability to spend. The high end assumes stable trends similar to Q2.

Competitive Positioning
Q: Why aren't you seeing normal share gains during tough times?
A: Todd Vasos believes the trade-in from higher-income customers has been slower due to a still decent job market and lower unemployment. Middle to upper-income consumers are relying more on online channels, which may slow their trade-in to Dollar General.

Pricing and Markdowns
Q: How are price gaps evolving, and what markdown actions are you taking?
A: Todd Vasos feels good about their everyday price position, which remains competitive. They're increasing promotional activities in categories like food, cleaning, paper, and pet to drive traffic. Kelly Dilts adds that markdown rates in the second half will be similar to last year, returning to 2019 levels on a full-year basis.

Expense Leverage
Q: Can you lower the comp needed to leverage expenses, and any unlocks like rolltainers?
A: Todd Vasos acknowledges labor rates are up more than anticipated. They're working on initiatives like rolltainer sort to improve store efficiency, not to reduce labor hours but to enhance customer experience. They're exploring other SG&A levers to manage expenses.

Inventory Management
Q: With inventories down and in-stocks up, how do you view this dynamic?
A: Todd Vasos feels good about reducing inventory while maintaining fresh, sellable goods. They've reduced non-consumable inventory, improving store space and customer experience. Kelly Dilts commends the team for reducing inventory while improving in-stocks, focusing on optimization and rightsizing what's brought into distribution centers and stores.