Todd Vasos
Chief Executive Officer at Dollar General
Thank you, Kevin, and welcome to everyone joining our call.
I want to begin by thanking our team for their continued dedication to serving our customers while executing our back-to-basics plan across the organization. This dedication was on full display at our leadership meeting earlier this month as we had the opportunity to host more than 1,500 leaders of our organization here at Nashville. This event served as a powerful reminder of the passion and talent of this team and the mission of serving others that unites us.
On today's call, I will begin by recapping our Q2 performance, I will then share updates on our back-to-basics work as well as an update on our plans for the remainder of 2024. After that, Kelly will share the details of our Q2 financial performance as well as our updated financial outlook for the full year.
Turning to our second quarter performance. We continue to make important progress on our back-to-basics plan. However, we are not satisfied with our overall financial results. On the top line, net sales increased 4.2% and to $10.2 billion in Q2 compared to net sales of $9.8 billion in last year's second quarter. Importantly, despite a weaker sales environment for our core customer than we had anticipated, we continue to grow market share in both dollars and units in highly consumable product sales. Same-store sales increased 0.5% during the quarter, which was below our expectations. The increase was driven by a 1% growth in customer traffic and was partially offset by a 0.5 point decline in average transaction amount, which was driven by lower average unit retail price per item.
The comp sales increase was driven entirely by the growth in our consumable category, as customers continue to focus their spending on the items they need at most for their families. This growth was partially offset by declines in our seasonal home and apparel categories. From a monthly cadence perspective, same-store sales growth was strongest in June before turning negative in July, notably, the three softest comp sales weeks of the quarter were the last week of each of the calendar months. This pattern suggests that our customers are less able to stretch their budgets through the end of the month. With that in mind, as well as our continued softness in discretionary sales in our own customer data and survey work, we believe the softer-than-anticipated sales performance in Q2 is at least partially attributable to a core customer that is less confident of their financial position.
I want to provide some additional context around what we're seeing and hearing from our customers. The majority of them state that they feel worse off financially than they were 6 months ago as higher prices, softer employment levels and increased borrowing costs have negatively impacted low-income consumer sentiment. As a result, our core customer who contributes approximately 60% of our overall sales comes predominantly from households earning less than $35,000 annually. Inflation has continued to negatively impact these households with more than 60% claiming they have had to sacrifice on purchasing basic necessities due to the higher cost of those items, in addition to paying more for expenses such as rent, utilities and health care.
More of our customers report that they are now resorting to using credit cards for basic household needs and approximately 30% have at least one credit card that has reached its limit. And in our latest survey, 25% of our customers surveyed noted they anticipated missing a bill payment in the next 6 months. While middle and higher income households are seeking value as well, they don't claim to feel the same level of pressure as low-income households. As customers have felt more pressure on their spending, we have also seen corresponding elevation in the promotional environment beyond what we had anticipated coming into the year.
Importantly, we continue to feel very good about our everyday low price position relative to competitors and other classes of trade. However, the increased promotional activity has pressured both sales and gross margin, and we anticipate this will likely continue for the duration of the year. That said, we remain committed to our back-to-basic strategy, which focuses on controlling the things that we can control, including a timely and accurate supply chain, in-store execution and customer-centric merchandising. With this in mind, we have already begun taking decisive action to respond and strengthen our position over the back half of the year.
I want to take the next few minutes to update you on our back-to-basics progress, which is foundational to our future. And then I will discuss the actions we are taking to build on that progress and deliver a stronger customer experience. I will start with our stores where everything begins and ends for our customer. Our efforts in the stores have centered around further enhancing the customer experience to deliver the value and convenience they expect in a clean and friendly shopping environment.
We have increased the employee presence at the front end of our stores, with our associates committed to providing friendly, welcome and elevated level of engagement to our customers while also facilitating the positive checkout experience. We have also focused labor hours on perpetual inventory management in our stores in an effort to significantly improve our in-stock levels and support our sales growth. These efforts have paid dividends as we continue to see year-over-year improvements in our in-stock levels.
Our supply chain and merchandising teams have also contributed to the in-store progress by helping to simplify operations for our teams, which should enhance both the associate and customer experience in our stores. All of these improvements have continued to drive lower year-over-year turnover at all levels within our retail operations, including regional director, district manager, store manager, assistant store manager and sales associates. We are proud of the progress in the stores, and pleased to see our actions continue to resonate with our team in the field as well as with our customers. And we are working hard to continue to advance our progress and further elevate the experience within our stores.
Next, let me provide a quick update on our supply chain. Our top priority in this area continues to be improving our rates of on-time and in-full truck deliveries, which we refer to as OTIF. Our focused efforts here have led to significantly higher OTIF levels compared to the same time last year, and we are pleased with what we have seen both in our traditional and fresh supply chains. We have also made good progress in optimizing our distribution capacity. As a reminder, we had previously announced plans to close 12 temporary facilities by the end of the year. We have already exited 11 of these buildings, and now believe we can close at least two more by the end of this year.
While closing the less efficient temporary facilities, we have built and opened two new permanent distribution centers in Arkansas and Colorado. We expect both to ramp up operations in the coming months and to ultimately contribute to a reduction in stem miles and lower transportation costs over time. Finally, we are undertaking the first full-scale refresh of our sorting process within our distribution centers since the launch of our Fast Track initiative in 2017.
As a reminder, the ultimate goal of this effort is to enable our store teams to stock shelves more quickly, which should drive greater on-shelf availability for our customers and ultimately support ongoing sales growth. We have made significant progress on this front, and, as planned, we are on pace to complete this work by the end of the year. Overall, we remain focused on enhancing the agility of our supply chain, allowing us to meet changing demands and respond quickly to challenges, all while keeping costs low, driving greater efficiencies and further improving the experience for our store teams and customers.
Finally, I want to provide an update on getting back to the basics of merchandising. Providing a meaningful value to our customer continues to be a top priority. We have a multifaceted approach to deliver that value, including a strong everyday low price on national and private brands, compelling promotions on sales events and low opening price points, including approximately 2,000 items at or below $1 every day. We have also continued to make strong progress reducing total inventory this year, which Kelly will discuss in more detail in a moment. In 2024, we began working toward a net reduction of approximately 1,000 SKUs within our chain by the end of the year, and we are well on our way to meeting that goal.
Finally, our merchants have done a fantastic job working with our operators to reduce activity and simplify work inside the stores. For example, we have reduced the number of floor stands by approximately 25% through the first half of the year, and we anticipate removing more than 50% by the end of the year. Additionally, we have reduced the number of times we rotate some of our displays, allowing our store teams to spend more time engaging with our customers. Collectively, these actions are designed to save time within our stores for our teams and ultimately result in an improved associate and customer experience. Overall, we are making nice progress as you have heard, and we are executing on the goals we have set for our team. And importantly, we believe we will continue advancing these efforts as we move throughout the remainder of the year.
Moving forward, we believe our back-to-basic actions will drive improvements in customer satisfaction, including on-shelf availability and convenience, further enhance the associate experience in stores, including improved employee engagement and retention, and ultimately drive improvements in financial results in 2025 and beyond. However, as I previously mentioned, we are not happy with our Q2 financial results. We know the retail landscape has continued to evolve in terms of the promotional environment and financial constraints felt by our customers, and we are taking immediate action to respond to serve them, while also positioning the business for growth and value creation.
With all of that in mind, we are increasing our investment in markdown activity in an effort to support our customers, further drive customer traffic and improve sales. We are investing from a strong everyday price position to further support our customer and maintain a favorable competitive positioning. We believe this investment will work in conjunction with our back-to-basic efforts to further enhance our value and convenience proposition.
In summary, I want to reiterate that we are pleased with the operational progress we're making, and feel good about the actions we are taking to build on that momentum. We need to be at our best for our customers in times like this, and we are excited about the opportunity to serve them. We have a strong track record of delivering exceptional value, and we have seen that when we do so consistently, we build strong brand loyalty that contributes to healthy share gains over the long term. And with store locations within 5 miles of approximately 75% of the US population, we are uniquely positioned to serve customers and communities with value and convenience.
I am confident this team will continue to rise to the occasion and seize the opportunities in front of us to further enhance the way we serve our customers, improve our financial results and create long-term shareholder value.
With that, I'll now turn the call over to Kelly.
