Good morning. My name is Hope, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dollar General Second Quarter 2017 Earnings Call. Today is Thursday, August 31, 2017. [Operator Instructions] This call is being recorded and instructions for listening to the replay of the call are available in the company's earnings press release issued this morning. Now I would like to turn the conference over to Ms. Mary Winn Pilkington, Senior Vice President of Investor Relations and Public Relations. Ms. Pilkington, you may begin your conference.

Thank you, Hope, and good morning, everyone. On the call today are Todd Vasos, our CEO; and John Garratt, our CFO. After our prepared remarks, we will open the call up for questions. Our earnings release issued today can be found on our website at dollargeneral.com under Investor Information, News and Events. Let me caution you that today's comments will include forward-looking statements about our expectations, plans, future estimates and other nonhistorical matters, including but not limited to our fiscal 2017 financial guidance and store growth plans, investments and initiatives, capital allocation strategy and related expectations, future economic trends or conditions and conversion of acquired store locations. Forward-looking statements can be identified because they are not statements of historical fact or use words such as outlook, will, believe, anticipate, expect, forecast, estimate, plan, opportunity, continue, focus on, intend, looking ahead, our goal and similar expressions that concern our strategies, plans, intentions or beliefs about future matters. Important factors that could cause actual results or events to differ materially from those projected by our forward-looking statements are included in our earnings release issued this morning under Risk Factors in our 2016 Form 10-K filed on March 24, 2017 and in the comments that are made on this call. We encourage you to read these documents. In addition, note that the company's financial guidance does not reflect any potential impact from disaster-related expenses, including fixed asset and inventory impairment losses related to Hurricane Harvey, given the assessment of damage is still in process. 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 except as maybe otherwise 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, Mary Winn, and welcome to everyone joining our call. Before we begin our prepared remarks, our thoughts are with our employees, customers and the local communities impacted by the devastating damage caused by Hurricane Harvey and the record flooding across the region. Our primary concern continues to be the safety of our teams and helping our team members that have been displaced. Across Dollar General, it has been heartwarming to see the outpouring of support for the Gulf Coast region from our store support center, store operations and distribution and transportation networks. Turning now to our results. I'm pleased with the strong same-store sales growth during the second quarter, which was driven by both customer basket and positive traffic. As we shared with you last quarter, we anticipated that our traffic would be positive for the second quarter. Our team's execution was strong and I anticipate we will be able to capitalize on the momentum in the business. In today's dynamic retail and consumer landscape, we continue to make targeted investments in our business to support our focused strategic and operating initiatives. We believe these investments will contribute to sustainable improvements over time. As we have shared with you over the last several quarters, we continue to believe that the sales impact of certain headwinds we have been confronting are transitory such as average unit price deflation and customer behavior that we believe to be associated with changes to the federal SNAP benefits program. Although these macroeconomic headwinds continue to impact our same-store sales performance in the quarter, we believe that macroeconomic factors as a whole have less of an impact on our same-store sales than in recent quarters. Given the improved performance in our mature store base during the quarter, we are -- we also believe that…

Thank you, Todd, and good morning, everyone. As Todd has taken you through the highlights of our second quarter, I'll share more details on the rest of the quarterly financial results, starting with gross profit. Gross profit for the 2017 quarter was $1.8 billion or 30.7% of sales, a decline of 47 basis points from last year's second quarter. As compared to the prior year second quarter, higher markdown primarily for promotional activities and a greater proportion of sales of consumables, which generally have a lower gross profit rate than our other product categories, and the sales mix within consumables, each reduced the gross profit rate. These factors were partially offset by higher initial markups on inventory purchases and an improvement in our inventory shrink rate. SG&A expense increased by 51 basis points over the 2016 quarter to $1.3 billion or 22.3% of sales in the second quarter. This quarter's results reflected increased retail labor expenses primarily as a result of our investment in store manager compensation implemented earlier this year and occupancy costs, both of which increased at a rate greater than the increase in net sales. In addition, we incurred expenses related to our acquired store locations primarily for lease termination costs. Partially offsetting these items were lower waste management costs primarily resulting from our recycling efforts, reductions in advertising costs and a reduction in workers' compensation costs. Moving down the income statement. Our effective tax rate for the quarter was 37.2% as compared to 36.8% in the second quarter last year. The effective income tax rate was higher in the 2017 second quarter due primarily to the recognition of a tax benefit in the 2016 period associated with stock-based compensation that did not reoccur to the same extent in this quarter. Looking at a few items on…

Thanks, John. We are executing our plans, which, overall, are delivering our anticipated results. We are doing what we said we would do. We believe that, over time, our merchandising initiatives, coupled with our store manager pay and training investments, will continue to contribute to our same-store sales growth. Our real estate model remains healthy and our 2018 new store pipeline is strong and growing. For fiscal 2017, we plan to add about 1,285 new stores, including the net acquired sites. Our model of value and convenience is relevant to a broad cross-section of shoppers. I believe the much reported demise of retail is an inaccurate narrative. Retail is just changing and we believe that we are very well-positioned. As I listen to the commentary about retail by others, I'm reminded of the many advantages we have at Dollar General and how uniquely positioned we are. I believe it is important for us to keep in mind how Dollar General is different. As we think about our many strengths, a common thread is the combination of value and convenience. I view this combination as a differentiator for us across retail shopping occasions and our customers' trip missions. Our convenient small-box stores with strong economics allow us to serve an underserved customer. Our shopping occasions tend to be a convenient fill-in trip versus a stock-up trip. Our average basket contains about 5 items with an average ticket of about $12. Our stores and product mix are designed with convenience in mind, making it easy for our customers to get in, find what they need and be on their way. We have a range of formats from 3,500 square feet to 16,000 square feet to capture growth opportunities in areas ranging from rural to metro locations. Our unique geographic footprint of 14,000…

[Operator Instructions] Your first question comes from the line of John Heinbockel with Guggenheim Securities.

So 2 questions, one tactical, one strategic. On the tactical side, the markdowns you had in the quarter related generally to what categories? And are we sort of through those as we head into the second half?

Yes. The markdowns, John, they were a combination of a few things. Obviously, we had some markdowns as we continue to be very aggressive in our ability to deliver price to the consumer. And that was our biggest source of markdown, so both promotionally and everyday price-wise. As I said, we're committed to driving traffic in the store and delivering that everyday low price our consumers know and trust from us. There was some other markdowns on some of the seasonal and non-consumable categories, but overall, they were much smaller in nature than the overall promotional activity to drive that top line.

All right. Then, secondly, more bigger picture if you think about e-commerce. Is the nature of the dollar store customer and box, does it not lend itself operationally to things like BOPUS, home delivery, maybe using an instacard to ship from store? Is it just -- in the case you're trying to be simple and low-cost, does it just not work and does your customer not want it?

Yes. We engage with our customers all the time, John, to understand where she's at in any given piece of her shopping business, including the digital side and where she's at. I can tell you today that while she is on a digital journey, she is definitely lagging somewhat behind where the total U.S. population is. I would never say never on any of those points that you bring up, but I can tell you that we're squarely focused on driving our customers into our 14,000 locations through any means that she wants to engage with us to include digital. We're up to nearly 10 million subscribers now on our digital coupon platform, which is growing each and every week, and that is a great source for her as she gets on our Dollar General app to understand what we offer her long-term. Now stay tuned. As I mentioned on our last call, one of our strategic initiatives that we launched earlier this year is around digital and how digital will play with our Dollar General consumer as we go forward. So longer term, it is an initiative, but we'll have some milestones we'll be able to share with you as more comes available, John.

Your next question comes from the line of Chuck Grom with Gordon Haskett.

Just on the gross profit margin that softened in the quarter, you called out several pluses and minuses, but curious how you're thinking about the back half of the year and the complexion on the gross margin line.

Yes. So as we've said, we're very focused on driving traffic and pleased with the results that we got there. As we look long-term, we continue to see opportunities to increase margins or strategically invest back as needed to drive traffic and grow sales. We're not commenting specifically on the mix between gross margin and SG&A, but rest assured we're going to be focused on all the levers within both to deliver that. We continue to see opportunity to improve shrink, pleased with 3 straight quarters of improvement there. The team continues to do a very good job of category management while making sure we have what the customer wants. We continue to see opportunity over time to increase sales of private label, direct foreign sourcing and continue to drive efficiencies on supply chain. So we see an opportunity to enhance gross margin over time, but we're going to do what's right for the business for the long term and making sure we drive that traffic.

Okay. That's helpful. And then, the second question would be you called out traffic as positive in the second quarter. Could you shed some light on the improvement? And also how the quarter trended month-by-month and any perspective on the quarter-to-date trends? And then, just geographically, any major differences more recently, particularly down in Texas?

Chuck, first of all, when you take a look, we are very pleased with those traffic numbers turning positive and actually gaining strength as we move through the quarter. The great thing that we've seen is that, in the quarter, all of our periods were positive and it shaped up very nicely as we expected it would. And as we look geographically, I tell you, it was very, very balanced throughout the country. And obviously we're experiencing a little bit of turmoil right now. My heart goes out to those folks down in the Gulf Coast region because they're suffering through a real tough time. The great thing is that we've got some fabulous people down in that area that are really taking care of our customers. We've had upwards of 300 stores closed at any given time. We have -- we're down to probably 100 or less at this point. And I could tell you our teams are working diligently to be able to service that customer down there. But more to come. Things are pretty fluid still down there so we're not able yet to get to a few of our stores just because of the floodwaters and the blockage down there.

Your next question comes from the line of Robbie Ohmes with Bank of America Merrill Lynch.

I was hoping you could remind us or give us some color on the Dollar Express impact on your results. It looked like because of the timing of the closing, it makes the sort of simple calculation in new store productivity look a little light for the second quarter. But could you sort of let me know if that's true and how the core new store productivity looked in the second quarter? And then, is there anything that we should anticipate for the back half as those Dollar Express stores come in? Maybe remind us, are they a starting with much lower gross margins than chain average? Is there a further expense pressure we should think about?

So a couple of pieces there. In terms of the impact of Dollar Express on Q2, as we hadn't opened these stores yet during that period, we had no revenue, but did have costs associated with that. We had called that out as $0.02 in total. And if you look at the SG&A line, if not for -- the reason we deleveraged on SG&A was really a function of that coupled with the investment we've made earlier this year in store manager pay. Now we're opening these stores. As we get into the back half of the year, we'll have revenue associated with that. We're very excited about these units. They're highly complementary. They're in places that we wanted to go. We feel very confident in our ability to open these and deliver great results with these. And as we've said before, it would be modestly accretive to the year just given the back-loaded nature of getting these stores opened and the front-end costs associated with that.

Got it. That's helpful. And just a separate question. Any update on the DGX format and how that did in the second quarter?

As you know, we only have -- we actually have 3 open now. We opened our third one just recently in Philadelphia. And we're happy with the progress that we've seen there. So obviously, with only 3 stores, it really doesn't have a material impact on the total with 14,000, but the great thing about that format is it allows us to get into highly dense areas, vertical living type areas where, in the past, we have not been able to go into. And many of those areas, as you know, houses a lot of that millennial customer that will continue to be a great source of revenue for us and others as they continue to mature in their age curve. So we're pretty happy so far, but again, with only 3, we're just cautiously optimistic about what that could do, but we're also learning at the same time. And I'm sure what the box looks like today will change over time as we learn more and more what the customer wants out of that format.

Your next question comes from the line of Brandon Fletcher with Bernstein.

My follow-up is actually -- and I appreciate the strategic outlay. Just a third point. I spent most of my career harvesting expenses and then was amazed at how many more hands were out to invest that money than were out to find similar savings. And what I worry about is the discipline you have on real estate is truly fantastic. Do you feel confident that the same discipline is being applied in other investments? So when you find an efficiency in freight, when would you find something else, do you feel confident that if you don't hand that money back to shareholders, you really are using the same investment rigor to make sure that you're getting a meaningful return in that and it's not people just kind of going, well, if we didn't do this, sales would be lower, so you have to let me raise the marketing spend or whatever it is? Just love some approach that you guys have on that topic.

Yes. So I would say, as with real estate, we're disciplined in all capital and we look at everything through the lens of does it touch the customer, does it align with our strategic priorities, does it put the business at risk? And if it doesn't, we don't spend that money. We have teams dedicated at both the expense and capital side, removing all those costs to make sure that we're tight on that. And the way we look at it, everything has to have a return here. And referring back to the new stores, I should have mentioned earlier, we're continuing to see productivity in that 80% to 85% range. So we're seeing great returns. It's still north of 20%. And we target 18%, 20%, still at that 20% range. So we're getting great returns there and feel very good about the targeted investments. I think the other thing I'd stress is the investments we've made have been very targeted. And we're pleased with the results we're seeing there, whether it be the store manager compensation where we see a return there and are pleased with what we're seeing there, whether it be what we've done to drive traffic and pleased with the results we've seen in traffic, whether it be the investment in new stores or acquired stores where we see the same compelling returns and great unit level economics.

Okay. Great. And then, just the direction, just as a follow-up, that could mean that as you go through this process, you could find that all of the rational investments have been made, some other efficiency comes out and it's still possible for margin to go up. In a particular scenario -- I'm not saying you're committing to that obviously, but it's still possible. You would still consider that your profit margin might go up if you found all this extra money.

Yes. We still see opportunity managing all the levers within gross margin and SG&A to enhance our operating margins over time. At times like this year, we will make investments, but we see opportunity to enhance that over time given all the levers we have and the team's track record of working these levers very effectively.

Your next question comes from the line of Vincent Sinisi with Morgan Stanley.

I wanted to just kind of get your view of the low end consumer. I know you said kind of continue to see constrained consumer and what not. But obviously during the second quarter, it was encouraging to see the positive ticket as well as traffic. How would you kind of parse that out? You were going up against some of the onset of the heavier promos last year, the SNAP reductions, but knowing that you're expecting to be toward the upper end of the range for the full year. So kind of what are you seeing out of that consumer? What's in the basket? And maybe any commentary on kind of more discretionary categories as well as we get into the second half year?

Vinnie, when we take a look at the quarter, the consumer, it was behaving about where we thought that she was at in her economic cycle, and that is she is feeling a little bit better. But always keep in mind, this consumer is always stretched because of her economic condition as well as the expenses that she has in front of her. In saying that, I think the company did a great job, our merchants, our operators, in delivering a real good product to that consumer. Our consumable business definitely outpaced our non-consumable business, but it was very good to see both were positive, albeit consumables being a little bit more positive. So as you look at that basket, there was more consumables in that basket than non. The great thing I believe that we have to look forward to as I look to the back half of the year and I look at what we have for fourth quarter and Christmas holiday selling season, we have a great lineup ahead of us. And we're fairly bullish on what that should return as far as what the consumer will gravitate to. The product looks great. It's great value. And with our 14,000 store convenient locations, I believe that we're set up pretty well for the back half of the year.

Okay. That's helpful. And just for the follow-up, if I could go back to store growth for a second. So we know obviously that DGX, only 3 at the moment. Also, the smaller kind of 6,000-foot stores. Are you guys seeing pretty consistent performance within those specific smaller formats? And as you're looking at some of your real estate possible sites going forward within kind of that normalized 6% to 8% annual growth, do you think -- is it safe to say that the smaller formats as a class will become more a part of that going forward?

Sure, Vinnie. I would tell you that we're very happy with all the different formats and we are seeing a very consistent return based on each and every format that we have. In saying that, the small format continues to do very well to your point. It's a great format to have in the arsenal, both for very rural crossroad-type areas in rural locations and then in more of our metro and satellite city areas. It gives us the flexibility and opportunity to get into some of those. I still have to say though that our workhorse, our 7,200 to 7,400 square foot sales floor box is definitely the most productive. And you'll see the majority of our stores in the near future still built under that format, but we'll be opportunistic in using the other formats where that 7,200 or the 7,400 square foot store may just -- may not fit just right in there. We just won't turn down a site that we believe is very good over the long-term just because it doesn't fit into one prototype or the other. We'll make sure that we're able to get into those with our great array of formats that we have available today.

Your next question comes from the line of Karen Short with Barclays.

I would agree with you that the demise of retail is inaccurate, but not everyone believes that. But, I guess, the question I would have is that it does seem from your results the concern would be that to generate a comp, it's going to take a lot more investing, I guess, whether it be margin or labor or whatever, I mean, both in this case in this quarter. So, I guess, the question I have is maybe can you give a little color on that? Do you think that first half is just maybe a trough or, I guess, the peak in terms of the investments and then it tends to abate in the back half? And then, I guess, the second question I would just have is looking at your guide -- implied guidance for the second half, obviously, consensus is at the high end of your range for the second half. And maybe a little color on where you think people are off, whether third quarter versus fourth quarter, in terms of being too high? Or is it pretty evenly distributed?

Sure. So starting with in terms of the investments, what I would say is that the investments we made this year, we don't see anything on the horizon this time of that magnitude. We felt these were the right investments for the long term of the business. As we look out, we don't see any of that magnitude. In terms of the store openings, we continue to see great results there. As I mentioned, we continue to see the stores performing right around that 100% comparison pro forma within the 80% to 85% productivity, returns of 20%, a short payback and haven't seen -- cannibalization continues to be consistent with what -- where we've been and what we expect. We're seeing great results there. Yes, we made these investments with the long term in mind and are seeing great results from that and are pleased with results. But we feel very confident in the long-term growth of the business and the strength of the business unit, the business fundamentals and what we're seeing and the cash we're generating, too, from these stores. So feel very good about that. If you look at the guidance, yes, we thought, as we look halfway through the year and the back half expectations, that it was appropriate to point toward the high end, the upper end of the comp range and appropriate to narrow the range of EPS. In terms of the cadence, I think the thing we try to stress here is that, yes, the -- from a performance standpoint, the lap is more challenging in Q4 than Q3. And in Q4, you have that 53rd week. So as we look at the cadence between the 2, we'd look for a much stronger Q3 compared to Q4. I think that's something to consider as you model out the back half.

Your next question comes from the line of Scott Mushkin with Wolfe Research.

So I just want to poke you a little bit again on the margins, particularly on the gross margin side of things. I know you guys said that you had some higher markups in the consumable area. Just trying to understand, as we look out at the competitive landscape over the next 12 to 18 months, how we -- how that won't be an ongoing theme? That's my first question.

Yes, sure. As I'd consistently talked about, and not just I, but many years in the past, it is our intent here at the Dollar General to drive units through this -- our boxes here at Dollar General and delivering that value to the consumer. And we did exactly what we said we were going to do and we did that and invested in some price to do that through promotional price as well as some of the everyday low prices. I can tell you though that most of it is done through everyday low price. And as you look at our pricing position today, we are as good, if not better, than any point in time in the 9 years that I've been here across all geographic regions which we do business in as well as against any class of trade. So I think we're in a great, great position as we go forward to be able to attract the consumer into a -- in a Dollar General. And if you take a look at our share as well overall, our share is as strong as it's been in many years and growing and gaining traction as we move through the quarter. So our prices and where we are today is definitely resonating with our consumer. And we feel that, right now, we're in a real great position to offer her that convenience and that value as we move through the back half.

As far as expecting gross margin investment on kind of a go-forward basis as you look at the competitive environment, is that something we should expect? I mean, we obviously have a lot going on particularly in some of your core markets.

Again, we're very competitively priced today. I would tell you, as we look out, that we're well-priced today and I don't see us having to do anything that's very dramatic. But the great thing that I believe that we have here is the ability to continue to get our margins in other areas such as global sourcing, such as our private brands, such as our areas of transportation and distribution. We've got some real opportunities in that. And as I mentioned earlier, we're very bullish on what we see coming in the fourth quarter with our non-consumable sales and our business there with the lineup that we have coming into the fourth quarter. So we see opportunities to grow margin over time and we don't believe that we're in any long-term strong investment periods. We just don't see that as we go forward right now.

Your next question comes from the line of Michael Lasser with UBS.

So you said you feel good about where your prices are and they haven't been this good in 9 years. So does that mean that you're just not seeing others invest in price? Or you're matching the price investments that others are making and you're able to navigate it through only modest decreases in your gross margin?

As we look out, we obviously monitor price across all geographic regions that we do business in. And again, I would say that we are as good a price, if not better, than we've been in many years, including the 9 years that I've been here. And as we look at that, we did not have to take any large price decreases to get there. So they were very modest in nature. I think they were very well-balanced, but they were definitely targeted in areas of our consumable businesses to drive traffic and to give the consumer that value that she knows and trusts from Dollar General. I think that's the way to look at it and it's probably the way to look at it as we go through the back half of this year.

And given some of the commentary you've made, did you pull forward some markdowns that you were going to otherwise make in the back half of the year into the second quarter such that the gross margin pressure will get less bad moving forward?

We really didn't pull any markdowns forward. But in saying that, I would tell you that we have gross margin opportunities ahead of us that we'll hopefully start to see some moderation of the year-over-year declines as we move through the back half of the year.

Your next question is from the line of Alvin Concepcion with Citi.

I just want to dive into the store resets a little bit. It sounds like some of the things you're doing are driving a comp lift even with produce. I'm just curious what kind of uplift you're seeing? I think remodels, you've mentioned in the past, were a 4% to 5% uplift, but it sounds like some of these things might be driving a growth higher than that. So I'm wondering if you could shed some color on that.

Yes. We are very happy with our new stores as well as our remodel and relocation program. As it relates to the remodels, we are right on track to where we thought we would be on the remodels, both the number of remodels as well as the returns that we expected to see. The great thing about the 300 that we called out, which we've done just over 185 or so of them to-date with about 1/3 of them with the produce, they are producing 3 to 4x what a normal remodel produces. So we're very excited about that. And we believe that it has broader application across many of our areas where we'll need to remodel stores over the next few years. So we believe that, overall, this could be a real win for Dollar General and for our consumers because what it does is it offers our consumers items such as produce, expanded fresh, frozen and dairy type products as well as expanded areas of dry grocery as well as some of our non-consumable areas. So when you look at the complete package of these remodels, we feel very comfortable and confident that we have a blueprint to go forward with into next year.

Great. If I could squeeze one in. I'm just curious if you have any updated thoughts on what comp level you can leverage SG&A at. I'm wondering if there's opportunities to bring that lower since it sounds like you have a lot of tools under your belt and levers to pull.

Yes. So I think if you just look at this quarter, as I've mentioned, the reason we didn't lever was because of those 2 items, those 2 investments. So if you think of it that way, you're coming in at 2.6% comp. We've set our goal with 2.5% to 3%, and you're right there. So I think that's the way to look at it. Last year, we were able to leverage at a lower point. The team really was able to flex down a difficult environment. But we want to have that right balance when needed pulling back, but making investments as needed for the long-term as well. So I still think that 2.5% to 3% over time is the right way to look at it. And again, if not for those 2 items, we would have been there.

Your next question comes from the line of Paul Trussell with Deutsche Bank.

Most of my questions have been asked. So just one more quick clarification and follow-up. One, the gross margins. You did make a comment a little while ago about expectations or opportunities for the moderation of the year-over-year declines we've seen in the first half. I just wanted to maybe go into just a little bit more detail on the puts and takes there because obviously -- specifically, you did face a number of headwinds beginning in the third quarter of last year where you had markdowns and promotions and inventory clearance in 3Q last year. And so I just want to ensure that it is fair for us to assume that, on that easy compare, we will see nice sequential improvement on gross margins as we think about the third quarter.

I think that's a fair statement. As you look to the third quarter, it's a fair statement to expect an improvement there and that's what we're expecting. And you're right. I think with the investments we made last year, we're in a good spot and will meet year-over-year at that level. So we should see an improvement.

Okay. Fair enough. And then, as we think about the 2.6% comp obviously driven by strong traffic, your guidance obviously for the balance of the year kind of implies comps on average probably something a little bit lighter than that. Just help us kind of with the thought process of how you're thinking about DG's ability to consistently put up this level of comp performance. And again, just kind of the puts and takes on your ability to sustain the current level of comps that you just reported.

Paul, I think the thing to point to here is we feel very good about our initiative both on the short-term and long-term initiatives that we have moving through. And our short-term ones are really starting to just take hold now and are really starting to benefit the comp. So whether it's the health and beauty initiative, whether it's the cooler expansion initiative and we have a plethora of other ones through due course of business, I would tell you that we feel good about where we're headed on the comp side. But keep in mind, there's still half a year to go still. And being the fourth quarter our largest sales quarter, we thought it prudent to sit back and at least let everyone know we anticipate being at the top end of the guidance range for sales. And I think that's a good place to pinpoint right now. If that changes as we move out of the third quarter, we'll definitely make sure everyone understands where we are coming out of Q3 and into Q4.

Your next question comes from the line of Stephen Tanal with Goldman Sachs.

All right. So at the risk of beating a dead horse. My first question is sort of still on the margins here. And I got the gross down, I think, but if we think about SG&A for a moment, I guess, the acquisition-related costs is, I guess, about 15 basis points. I think salary hikes are said to be worth about 30. So those 2 pieces get me to 45 if I think about what's sort of nonrecurring, which still leaves us about 6 bps of deleverage. And I know I'm not getting the Georgia DC in that number. So I'm wondering if you can kind of quantify that investment. And if that's in excess of 6, like, you probably would have levered on this comp, yes?

Yes. So I would say your numbers are a little low. And for that reason, if you add up those 2 numbers, that would have gotten us to a point where we didn't delever. So you are in the ballpark, but a little low there. And again, these are onetime items that we wouldn't see as we go forward next year.

Got it. Okay. And so the idea is you probably would have levered in a more normal environment on the 2.6%, yes?

That's correct.

Okay. And then, I guess, just a lot has been discussed already, but as you kind of think about the improvement in consumables despite what, I guess, many of us are thinking about is a pretty intense competitive environment, what worked better here? Or did the backdrop get a little bit little less tough? How would you sort of talk through that?

I think the way to look at it is 2 different ways. One, the lap did get a little easier because some of the transitory issues that we brought out last year in unit price deflation as well as the SNAP benefit reductions that took place started to moderate in Q2 and will continue to moderate as we move through the back half of the year. The other piece though, I think, to really think about is our initiatives and how well they're performing and taking hold. That was a big piece of our comp driver in the quarter and a lot of those initiatives were centered around our consumable areas. Remember, health and beauty, for us, falls in our consumable numbers and are reported through that as well as our cooler expansions are in there. So we've got a lot of initiatives centered around consumables, not only just the food side, but health and beauty and other areas. So I believe that's the way to look at it and also the way to look at it as we move through the back half of the year.

Hope, I've let the call a runover a little bit. And so I think we've taken our last question. So everyone that we've left in the queue, I apologize. I'm available for any questions. And as always, we appreciate your interest in Dollar General.

This does conclude today's conference call. You may now disconnect.