U.S. Markets closed
  • S&P 500

    -43.28 (-1.04%)
  • Dow 30

    -127.93 (-0.38%)
  • Nasdaq

    -193.86 (-1.59%)
  • Russell 2000

    -15.69 (-0.78%)
  • Crude Oil

    -2.65 (-3.49%)
  • Gold

    -53.10 (-2.75%)
  • Silver

    -1.22 (-5.17%)

    -0.0114 (-1.0473%)
  • 10-Yr Bond

    +0.1360 (+4.00%)
  • Vix

    -0.40 (-2.14%)

    -0.0173 (-1.4106%)

    +2.5460 (+1.9797%)

    -188.83 (-0.80%)
  • CMC Crypto 200

    -1.43 (-0.27%)
  • FTSE 100

    +81.64 (+1.04%)
  • Nikkei 225

    +107.41 (+0.39%)

Dollar General Corporation (NYSE:DG) Q3 2023 Earnings Call Transcript

Dollar General Corporation (NYSE:DG) Q3 2023 Earnings Call Transcript December 1, 2022

Dollar General Corporation misses on earnings expectations. Reported EPS is $2.33 EPS, expectations were $2.54.

Operator: Good morning. My name is Robert, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Dollar General Third Quarter 2023 Earnings Call. Today is Thursday, December 1, 2022, . This call is being recorded. Instructions for listening to the replay of the call are available in the company's earnings press release issued this morning. Now I'd like to turn the conference over to Mr. Kevin Walker, Vice President of Investor Relations. Kevin, you may now start your conference.

Kevin Walker: 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 this call unless required by law. At the end of our prepared remarks, we will open the call up for your questions. Now it is my pleasure to turn the call over to Jeff.

Dollar General Corp. (NYSE:DG), Logo, Sign, Cars, Automobile, city, cup
Dollar General Corp. (NYSE:DG), Logo, Sign, Cars, Automobile, city, cup

Action Sports Photography / Shutterstock.com

Jeffery Owen: Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our entire team for their ongoing commitment to serving our customers, communities and each other. The quarter was highlighted by strong performance on the top line, led by comp sales growth of 6.8% and included increases in traffic and in market share of both consumable and nonconsumable product sales. During the quarter, we experienced significantly higher-than-anticipated cost pressures, including challenges within our internal supply chain, sales mix pressures and higher inventory damages and shrink, all of which impacted gross margin. We will elaborate more on these cost pressures in a bit. But despite these challenges, we delivered a double-digit increase in diluted earnings per share, along with strong same-store sales growth.

As the economic environment continued to evolve during the quarter, we remain focused on serving the needs of our core customer. We continue to see customer behaviors in Q3 that we believe indicate they are feeling increased financial pressure, including reductions in the number of items purchased per basket and in discretionary spending, which was softer than anticipated during the quarter. Customers also continued to shift spending to more affordable options, such as items that are dollar price point and private brands, while also shopping closer to payday at the first of the month. Importantly, we are growing more productive with our core customer as well as seeing an increase in customers with annual household incomes up to $100,000. This growth underscores our belief that our value and convenience proposition resonates with a broad spectrum of customers and will continue to be important to all customers in this challenging economic environment.

In turn, we remain focused on delivering value and convenience and continue to feel good about our pricing position relative to competitors and other classes of trade. Further, we remain committed to offering products at the $1 price point, and we're pleased with the strong comp sales performance of these products during Q3, as they collectively outperformed the chain average. With nearly 19,000 stores, located within 5 miles of about 75% of the U.S. population, we believe we are well positioned to support our customers even in a challenging economic environment. We're building on this foundation, I'm excited to share our real estate growth plans for next year. In fiscal 2023, we plan to execute approximately 3,170 projects in the United States including 1,050 new store openings as we continue to lay and strengthen the foundation for future growth.

I'll share more details on these plans in just a few minutes, along with an update on our plans for our supply chain as we continue to support our significant growth. But first, let me recap some additional financial results for the third quarter. Our strong comp sales performance helped drive a net sales increase of 11.1% to $9.5 billion. From a monthly cadence perspective, the comp sales momentum we saw building in Q2 continued into all 3 months of Q3, with September being our strongest month of performance. And I'm pleased to note that Q4 sales are off to a strong start as well. Our Q3 comp sales were primarily driven by an increase in average transaction amount, largely driven by inflation. And as we would expect during a more challenging economic environment, average units per basket were down.

As I mentioned earlier, we were excited to see a second consecutive quarter of increasing customer traffic contribute to the growth. With regards to the supply chain cost pressures I mentioned earlier, I want to touch on what happened and the actions we have taken to address these challenges. As a reminder, since the early days of the pandemic over 2 years ago, we have seen demand and sales grow at a robust pace. In addition, the overall mix of products we are shipping has evolved significantly with the growth of our nonconsumable initiative in pOpshelf. As our distribution needs grew and evolved, we strategically designed permanent warehouse capacity solutions to support our growth. We plan for them to be operational starting in the back half of this year while making greater use of temporary storage facilities in the near-term.

However, as we move through Q3, we experienced unexpected delays in opening additional temporary storage facilities, primarily due to external challenges such as permitting. At the same time, seasonal goods came in earlier than anticipated. The resulting constraints from these factors led to more than $40 million and additional supply chain costs in Q3 compared to what we had previously expected. These costs included retention fees incurred for delays in returning shipping containers. Costs associated with inefficiencies in moving freight within our distribution centers and higher transportation costs as a result of servicing stores from less-than-optimal distribution center alignments. While these issues have resulted in a gross margin headwind in the back half of this year, the team has worked hard to move past these delays with the opening of additional storage and warehouse facilities, which have already begun to relieve some of the capacity pressures.

In fact, within the past few weeks, we increased capacity by more than 2 million square feet with the opening of 2 new permanent regional distribution hubs in Georgia and Texas, which will serve as intermediary facilities between import points and the rest of our distribution centers. With the opening of both the temporary and permanent facilities, we believe we are well positioned to drive continued improvement as we move ahead, as we better optimize store alignment with distribution centers, lower capacity utilization within our existing footprint and improve the overall flow of goods. Of note, these regional hubs will be followed by the opening of our new combination distribution center in Nebraska, which is scheduled to begin shipping by the end of this fiscal year.

In addition, our previously announced facilities in Arkansas, Colorado and Oregon are expected to come online over the next 18 months. Collectively, all of these new distribution centers will ultimately result in a more than 20% increase in total capacity and position us well to support continued growth in the years to come. Overall, while internal supply chain challenges have impacted our EPS outlook for 2022, we believe the significant growth in demand that contributed to these challenges is a testament to the growing relevance of Dollar General. And we are confident in our plans to support this growth going forward. Looking ahead, we remain focused on advancing our operating priorities and strategic initiatives from a position of strength, as we continue to distance and differentiate Dollar General from the rest of the retail landscape.

We continue to operate in one of the most attractive sectors in retail. And as a mature retailer in growth mode, our transformational strategic actions have positioned us well for continued success, while supporting long-term shareholder value creation. With that, I will turn the call over to John.

John Garratt: Thank you, Jeff, and good morning, everyone. Now that Jeff has taken you through a few highlights of the quarter, let me take you through some of its important financial details, beginning with gross profit. 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. For Q3, gross profit as a percentage of sales was 30.5%, a decrease of 27 basis points. This decrease was primarily attributable to a higher LIFO provision, a greater proportion of sales coming from the consumable category as well as increases in distribution costs, markdowns, inventory shrink and damages partially offset by higher inventory markups.

Of note, product cost inflation was greater than anticipated, resulting in a LIFO provision of approximately $148 million during the quarter. And while we believe cost increases are beginning to moderate, we anticipate LIFO will continue to pressure Q4 as well. SG&A as a percentage of sales was 22.7%, a decrease of 23 basis points. This decrease was driven by expenses that were lower as a percentage of sales, the most significant of which were retail labor, incentive compensation, hurricane-related disaster expenses and occupancy costs. These were partially offset by expenses that were greater as a percentage of sales, including utilities, repairs and maintenance and travel and training costs. Moving down the income statement. Operating profit for the third quarter increased 10.5% to $736 million.

As a percentage of sales, operating profit was 7.8%, a decrease of 4 basis points. Our effective tax rate for the quarter was 22.8% and compares to 22.2% in the third quarter last year. Finally, EPS for the third quarter increased 12% to $2.33. Turning now to our balance sheet and cash flow, which remains strong and provide us the financial flexibility to continue investing for the long-term, while delivering significant returns to shareholders. Merchandise inventories were $7.1 billion at the end of the third quarter, an increase of 34.8% overall and 28.4% on a per store basis. Similar to the first half of the year, this increase primarily reflects the impact of product cost inflation, a greater mix of higher-value products, particularly in the home and seasonal categories, primarily due to the continued rollout of our non-consumables' initiative, and the early receipt of seasonal goods.

Importantly, we continue to believe the quality of our inventory is in good shape, and we anticipate that we will begin to see lower levels of inventory growth beginning in Q4. Moving down the balance sheet. We issued $2.3 billion of senior notes during Q3, and we now expect to incur total interest expense of approximately $210 million for the full year, an increase of approximately $53 million over the prior year. Turning to cash flow. Year-to-date through Q3, the business generated cash flows from operations totaling $1.2 billion, a decrease of 44%, primarily due to higher inventory purchases. Total capital expenditures through Q3 were $1.1 billion and included our planned investments in new stores, remodels and relocations, distribution and transportation projects and spending related to the strategic initiatives.

During the quarter, we repurchased 2.3 million shares of our common stock for $546 million and paid a quarterly cash dividend of $0.55 per common share outstanding for a total payout of $123 million. At the end of Q3, the remaining share repurchase authorization was $2.5 billion. Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in high-return growth opportunities, including new store expansion and our strategic initiatives. We also remain committed to returning significant cash to shareholders, to anticipated share repurchases and quarterly dividend payments, all while maintaining our current investment-grade credit rating and managing to a leverage ratio of approximately 3x adjusted debt to EBITDAR.

Moving to an update on our financial outlook for fiscal 2022. On year-to-date sales performance and our expectations for the remainder of Q4, we are reiterating our fiscal 2022 full year expectations for net sales growth of approximately 11%, including an estimated benefit of approximately 2 percentage points from the 53rd week, and we are updating our expectation for same-store sales growth for Q4, which we expect same-store sales growth in the range of 6% to 7%, which would result in growth toward the upper end of our previous range of approximately 4% to 4.5%. Turning to gross margin. We've experienced many challenges over the course of this year, including those related to product cost inflation, supply chain dynamics and the evolution of consumer spending.

Since our last update and like many retailers, we have seen an increased headwind from lower-margin consumables, sales mix as customers face growing financial pressure. We expect this headwind to grow in Q4 as our guidance assumes customers continue to feel financial pressures and shift more of their spending to consumable items. And while we are making good progress toward resolving our storage capacity constraints, we expect some of the cost pressures we have experienced as a result of the delays will carry over into Q4, but will be largely resolved by Q1 of next year. Finally, we are seeing a greater headwind from inventory shrink and damages than we anticipated for the back half of this year. Overall, while we are confident in the actions, we are taking to address our supply chain challenges, we anticipate the total headwind to gross margin in Q4 from all of these factors will be higher than what we previously contemplated within our financial guidance.

With all this in mind, we are updating our EPS guidance. For the fourth quarter, we now expect to deliver EPS in the range of $3.15 to $3.30, which would result in a growth for the full year of approximately 7% to 8%. This is compared to our previous expectation of 12% to 14% EPS for the full year. Both the current and previous ranges include an estimated benefit of approximately 4 percentage points from the 53rd week. And our EPS outlook now assumes an effective tax rate toward the upper end of the previously provided range of 22% to 22.5%. We now expect capital spending for 2022 to be approximately $1.5 billion, which is at the top end of our previously stated range. Finally, our expectations for share repurchases remain unchanged from what we stated in our Q2 earnings release on August 25, 2022.

Overall, despite the near-term challenges, we are confident in the business and our outlook for the remainder of the year. While we plan to share 2023 guidance on the Q4 call, we feel good about the sales momentum going into next year, coupled with moderating cost pressures. Let me provide some additional context as it relates to our Q4 outlook. As a reminder, we expect to continue realizing benefits from our initiatives, including DG Fresh and NCI through the remainder of the year. In addition, we expect the significant expansion of our private fleet, will drive additional benefits going forward despite anticipated continued internal supply chain pressures in the near-term. With regards to SG&A, we expect continued investments in our strategic initiatives as we further the rollouts.

However, in aggregate, we continue to expect these initiatives will positively contribute to operating profit margin in 2022, as we expect our benefits to gross margin will more than offset the associated SG&A expense. Consistent with Q2 and Q3, our outlook includes continued investments to further enhance the customer experience, primarily toward incremental labor hours to drive continued improvement in overall in-stock levels and customer experience. Finally, we also continue to pursue efficiencies and savings through our Save to Serve program, including Fast Track and are seeing savings in 2022, offsetting a portion of wage inflation. As always, we continue to be disciplined in how we manage expenses and capital with the goal of delivering consistent, strong financial performance, while strategically investing for the long-term.

We're working hard to address the near-term challenges, most of which we believe will be behind us as we enter 2023. Importantly, we remain confident in our business model and our ongoing financial priorities to drive profitable same-store sales growth, healthy new store returns, strong free cash flow and long-term shareholder value. With that, I will turn the call back over to Jeff.

See also 11 Best Machine Learning Stocks To Buy and 10 Best S&P 500 Stocks To Buy According To Hedge Funds.

Jeffery Owen: 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 continuing to make significant progress executing against our robust portfolio of initiatives. Let me take you through some of the recent highlights. Starting with our nonconsumable initiative, or NCI, which was available in more than 16,000 stores at the end of the third quarter. With over 75% of the assortment at $5 or less, this treasure hunt offering continues to resonate with customers who are seeking value. We continue to be pleased with the sales and margin performance we are seeing from our NCI offering, including market share growth in nonconsumable product categories.

Looking ahead, we expect to realize ongoing benefits from this initiative throughout the remainder of the year and remain on track to complete the rollout across nearly the entire chain by year-end. 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. We recently celebrated the 2-year anniversary of the first pOpshelf store, along with our 100th store opening. And we are pleased to see the concept continuing to resonate with customers.

During the quarter, we opened 23 new pOpshelf locations, bringing the total number of stores to 103 located within 9 states. Additionally, we opened 15 new store-within-a-store concepts during Q3, bringing the total number of Dollar General market stores with a smaller footprint pOpshelf store included to a total of 40. We remain on track to nearly triple the stand-alone pOpshelf store count this year, which would bring us to a total of nearly 150 stand-alone pOpshelf locations by year-end. Looking ahead, we plan to nearly double the pOpshelf store count next year, as our real estate plans for 2023 include opening approximately 150 additional locations, bringing the total number of pOpshelf stores to about 300 by the end of 2023. Overall, we remain excited about the pOpshelf concept and 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. As a reminder, we completed the initial rollout of DG Fresh across the entire chain in 2021 and are now delivering to nearly 19,000 stores from 12 facilities. The initial objective of DG Fresh was to reduce product cost on our frozen and refrigerated items, and we continue to be very pleased with the savings we are seeing. Another important goal of DG Fresh is to increase sales in frozen and refrigerated categories. We are pleased with the performance on this front including enhanced product offerings in stores and strong performance from our perishable department.

Going forward, we expect to realize additional benefits from DG Fresh, as we continue to optimize our network further leverage our scale, deliver an even wider product selection and build on our multiyear track record of growth in cooler doors and associated sales. And while produce is not included in our initial rollout, we continue to believe that DG Fresh provides a potential path forward to expanding our produce offering to more than 10,000 stores over time. To that end, we offered Fresh produce in more than 3,000 stores at the end of Q3. And looking ahead, plan to add produce in approximately 2,000 stores in 2023, for a total of approximately 5,000 stores by the end of next year. Finally, DG Fresh has also extended the reach of our cooler expansion program.

During Q3, we added more than 17,000 cooler doors across our store base, and we are on track to install more than 65,000 cooler doors in 2022. Importantly, despite the meaningful improvements we have made to date as a result of DG Fresh, we believe we still have significant incremental opportunity to drive additional returns with this initiative in the years ahead. Turning now to an update on our health initiative, branded as DG Wellbeing. The initial focus of this project is an expanded health offering, which consists of approximately 30% more feet of selling space and up to 400 additional items as compared to our standard offering. This offering was available in more than 3,200 stores at the end of Q3, and we plan to expand to a total of more than 4,000 stores by the end of 2022.

As we seek to further connect customers with our expanded health offering, we have recently launched a partnership with a third-party payment platform to allow customers to use health plan supplemental benefits to purchase various health and wellness-related items in their local Dollar General stores. And most recently, I'm excited to announce that we launched a pilot of a mobile health clinic provided by DocGo On-Demand to provide basic preventative and urgent care services at a small number of stores in Q3. We plan to test this offering in select stores over the next few months as we continue to work with customers on how to help bring affordable health and wellness closer to home, while further establishing Dollar General as a trusted health partner in the local community.

In addition to the gross margin benefits associated with the initiatives I just discussed, we continue to pursue other opportunities to enhance gross margin, including improvements in private brand sales, global sourcing, supply chain efficiencies and shrink and damage reduction. Our second priority is capturing growth opportunities. Our proven high-return, low-risk real estate model has served us well for many years and continues to be a core strength of our business. In the third quarter, we completed a total of 798 real estate projects, including 268 new stores, 485 remodels and 45 relocations. For 2022, we now plan to execute approximately 2,945 real estate projects in total, including 1,025 new stores, 1,795 remodels and approximately 125 store relocations.

Looking ahead, as I mentioned earlier, we plan to execute approximately 3,170 projects in the United States in 2023 across our Dollar General and pOpshelf banners, including 1,050 new stores, 2,000 remodels and 120 relocations. Our ability to innovate our store formats continues to be an important strength of the business, and I want to take a moment to provide some additional color on our 2023 real estate strategy. Approximately 80% of our new stores and nearly all of our relocations will be in one of our larger store formats, which continue to drive increased sales productivity per square foot as compared to our traditional box. With regards to remodels, approximately 80% will be in our DGTP format, which will provide the opportunity for a significant increase in cooler count as well as the ability to add Fresh produce in many stores.

In addition to our planned Dollar General and pOpshelf growth, we are very excited about our plans to expand internationally, and our goal is to open our first store in Mexico by the end of this fiscal year. As a reminder, these stores, which will be branded under the name Dollar General will be located in underserved communities in Northern Mexico. Looking ahead, we plan to have up to 35 stores open in Mexico by the end of 2023, as we look to extend our value and convenience proposition to a customer base that is similar to our core customer in the United States. These stores will be incremental to our planned 1,050 new store openings. As we head into 2023, our real estate pipeline remains robust. We see more than 16,000 total opportunities for small box retail stores in the United States, including more than 12,000 for Dollar General stores, approximately 3,000 for pOpshelf and approximately 1,000 for DGX.

With these opportunities and our existing footprint of more U.S. brick-and-mortar stores than any other retailer, we are excited about our ability to capture significant growth opportunities in the years ahead. Next, our digital initiative, which is an important complement to our physical footprint, as we continue to deploy and leverage technology to further enhance convenience and access for customers. Our efforts remain centered around creating a digital front porch for our customers, as we look to continue building engagement across our digital properties, including our mobile app. We ended Q3 with over 4.5 million monthly active users on the app, and expect this number to grow as we look to further enhance our digital offerings. Our partnership with DoorDash continues to resonate with both new and existing customers as we look to extend the value offering of Dollar General, combined with the convenience of same-day delivery in an hour or less.

This offering was available in more than 13,000 stores at the end of Q3, and we are very pleased with the year-to-date sales results. In addition, we are excited about the continued growth of our DG Media Network. We are seeing significant interest and participation from CPG companies and brands, who are seeking to connect with our more than 90 million unique profiles, especially our rural customers, who represent about 30% of the U.S. After establishing the foundation over the last few years, we are beginning to meaningfully grow this business. As we expand the program and enhance the value proposition for both customers and brand partners, while increasing the overall net financial benefit for the business. Overall, our strategy consists of building a digital ecosystem specifically tailored to provide our customers with an even more convenient, frictionless and personalized shopping experience.

And we are pleased with the growing engagement we are seeing across our digital properties. Our third operating priority is to leverage and reinforce our position as a low-cost operator. We have a clear and defined process to control spending, which continues to govern our disciplined approach to spending decisions. This approach, internally branded as Save to Serve, keeps the customer at the center of all we do, while reinforcing our cost control mindset. Our Fast Track initiative is a great example of this approach, where our current goals include increasing labor productivity in our stores and enhancing customer convenience. The current focus of Fast Track is self-checkout, which provides customers with another flexible and convenient checkout solution, while also driving greater efficiencies for our store associates.

Self-checkout was available in more than 10,500 stores at the end of Q3, and we continue to be pleased with our results, including strong customer adoption rates. We are also excited about our pilot in select stores, which provides customers the option to utilize self-checkout in all lanes, but also choose a staff register, if preferred. We believe this full self-checkout option could further enhance our convenience proposition, while enabling store teams to dedicate even more time to serving customers. We are currently testing this layout in approximately 250 stores and are pleased with the early customer and associate response. Looking ahead, we are on track to expand our self-checkout offering to a total of up to 11,000 stores by the end of 2022, as we look to further extend our position as an innovative leader in small-box discount retail.

Moving forward, the next phase of Fast Track consists of increasing our utilization of emerging technology and data strategies, which includes putting new digital tools in the hands of our field leaders. When combined with our data-driven inventory management, we believe these efforts will reduce store workload and drive greater efficiencies for our retail leaders and their teams. We also continue to reduce costs through the expansion of our private fleet, which consisted of more than 1,300 tractors at the end of Q3. As a reminder, we have been focused on significantly expanding our private fleet in 2022, as we plan to more than double the number of tractors from 2021, which we expect will account for approximately 40% of our outbound transportation fleet by the end of the year.

Our underlying principles are to keep the business simple, but move quickly to capture growth opportunities, while controlling expenses and always seeking to be a low-cost operator. Our fourth operating priority is investing in our diverse teams through development, empowerment and inclusion. As a growing retailer, we continue to create new jobs and opportunities for personal and professional development and ultimately, career advancement. Our internal promotion pipeline remains robust as evidenced by the more than 70% of our store employees at or above the lead sales associate position who were placed from within. In addition, approximately 15% of our growing private fleet team began their careers with us in either a store or distribution center.

We are pleased with our turnover trends and staffing levels. And applicant flow continues to be strong, further validating our confidence that we are taking the right actions to attract and retain talent. Ultimately, we believe the opportunity to develop a career with a growing and purpose-driven company is a unique, competitive advantage and remains our greatest currency in attracting and retaining talent. We also recently completed our annual Community Giving Campaign, where our employees came together to raise funds for a variety of important causes. And I was once again inspired by the generosity and compassion of our people. We continue to add incredible talent across the organization in our stores, distribution centers, private fleet and at our store support center.

As this new talent joins our tremendous team, I am continually reminded that the people of Dollar General are our greatest strength. In closing, I am excited about the future as we continue to make great progress against our operating priorities and strategic initiatives, with the number of initiatives we have in place and a unique and strong strategic planning process, we are confident in our plans to drive long-term sustainable growth, while creating meaningful shareholder value. Finally, as we are in the midst of our busy holiday season, I want to thank our approximately 173,000 employees for their commitment every day to serve our customers. I am excited about our work together as we head into the final weeks of our year. With that, operator, we would now like to open the lines for questions.

To continue reading the Q&A session, please click here