Jun 2, 2015
Executives
Mary Pilkington - IR Rick Dreiling - Chairman and CEO Todd Vasos - COO David Tehle - CFO and EVP
Analysts
Paul Trussell - Deutsche Bank. Michael Lasser - UBS Matthew Boss - JPMorgan Scot Ciccarelli - RBC Capital Markets Dan Binder - Jefferies Charles Grom - Sterne Agee Dan Wewer - Raymond James Alvin Concepcion - Citigroup Matt Nemer - Wells Fargo Securities John Heinbockel - Guggenheim Securities Stephen Grambling - Goldman Sachs Scott Mushkin - Wolfe Research
Operator
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 First Quarter 2015 Earnings Call. Today is Tuesday, June 02, 2015.
All lines have been placed on mute to prevent any background noise. 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. I would now like to turn the conference over to Ms.
Mary Winn Pilkington, Vice President of Investor Relations and Public Relations. Ms.
Pilkington, you may begin your conference.
Mary Pilkington
Thank you, Hope, and good morning, everyone. On the call today are Rick Dreiling, our Chairman and CEO; Todd Vasos, our COO; and David Tehle, our CFO.
We will first go through our prepared remarks, and then we will open up the call for questions. Our earnings release issued today can be found on our website at dollargeneral.com under Investor Information, Press Releases.
Let me caution you that today's comments will include forward-looking statements about our expectations, plans, predictions, and other non-historical matters such as our 2015 forecasted financial results and capital expenditures; our planned fiscal 2015 operating initiatives and merchandising initiatives; our 2015 and 2016 store growth initiatives, our share repurchase expectations and capital allocation strategy and statements regarding future consumer economic trends. Important factors that could cause actual results or events to differ materially from those reflected in or implied by our forward-looking statements are included in our earnings release issued this morning, our 2014 10-K, which was filed on March 20, 2015, our 2015 first quarter 10-Q filed this morning, and in the comments that are made on this call.
We encourage you to read these documents. 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. Now, it is my pleasure to turn the call over to Rick.
Rick Dreiling
Thank you, Mary Winn, and thanks to everyone for joining our call. Last week we had very exciting news announcing that Todd Vasos would be the next CEO of Dollar General.
Todd will be an excellent CEO and I believe a great future lies ahead for Dollar General under his leadership. I have worked side-by-side with Todd for many years, and I know firsthand his ability to be both strategic and tactical to not only visualize success but put together the right team with the right strategy to make account.
At Dollar General, I have loved our spirit of service and our passion for taking care of our customers, helping our employees grow and giving back to our community. Working this team has been incredibly rewarding and although this will be my last earnings conference call, I am excited to have the opportunity to remain as Chairman until the end of the fiscal year to support Todd as we drive the business.
With that, let's now turn to our results for the first quarter of 2015. This quarter is a very good start to the New Year, as we look to capitalize on the numerous opportunities ahead of us.
Let's recap some of the highlights of the first quarter of 2015. First quarter sales increased 8.8% to $4.9 billion.
We delivered same-store sales growth of 3.7% for the quarter. Overall, we were pleased with the sales of cadence for the quarter particularly in the light of the Easter Holiday shift to earlier in the year.
In the quarter same-store sales growth was balanced across both consumables and non-consumables. The non-consumable categories have now had five consecutive quarters of improvement, with seasonal, apparel and home, all comping positive in the first quarter.
I am pleased with the progress we have made in our non-consumable categories. For the 29th consecutive quarter, we increased both our customer traffic and average ticket.
Gross margin expanded by 45 basis points to 30.5%, which is our first margin expansion in nine quarters. From a timing perspective, this generally coincides with our launch of tobacco in early of 2013.
Net income for the first quarter increased 14% to $253 million. For the quarter, diluted earnings per share increased 17% to $0.84.
In the first quarter the negative financial impact from the West Coast port slow down was not as great as we anticipated. Due to the diligent work across both our supply chain and merchandizing teams, we successfully mitigated the expected drag to sales and gross margin we had projected at the time of the fourth quarter call.
During the quarter, we returned $600 million to shareholders through the repurchase of 7.1 million shares of common stock and the payment of a quarterly dividend. Given our performance in the first quarter, we are maintaining our sales and earnings guidance for the year.
We are constantly striving to fill the needs and meet the changing demands of our customers. As we entered the year, I shared with you that we were cautiously optimistic for our core customer, as there appear to be potential for tailwind to outweigh the headwinds for macro trends.
Even as gas prices have moved up from the recent lows year-over-year, gas prices are still off about a dollar a gallon or down nearly 30% from last year's peak. Recent economic news includes unemployment claims falling to their lowest level in 15 years with many economists believing that the U.S.
is approaching full employment. So while this is encouraging news, our core customers are still struggling to stretch their household budget.
Historically, our core customer is often a first to feel the negative effects when the economy weakens, and she lags a benefiting from improvements in the economy. As always, we will continue to look for ways to provide our customers with the everyday low prices that they can count on from Dollar General.
Now I'd like turn the call over to Todd to talk about our operating initiatives for 2015.
Todd Vasos
Thank you, Rick. Let me first say how excited and honored I'm to have the privilege to lead Dollar General.
I am grateful that Rick will remain as Chairman as his guidance and counsel will be incredibly valuable to me. Turning to the first quarter, we have made notable progress against our key initiatives for 2015.
We continue to grow transactions and item units in syndicated share data for the quarter. In the most recent syndicated data, we experienced consistent mid to high single digit growth in both units and dollar share for the 4, 12, 24, and 52 week periods.
As we share with you last quarter, we are on track to make targeted labor investments to grow market share in a competitive environment while providing for positive financial returns. Currently, we are in the midst of rolling out these selective labor investments in phases.
We have three phases within the program. Our Phase 1 source are now receiving the incremental labor investments.
The store operations team has specific metrics and time-table for determining the financial return criteria for achieving results based on a similar 2014 test in loan program. Our 2014 test and loan stores continue to show improvement across performance metric such as sales, shrink, in-stock which are all very encouraging.
The great part of this initiative is that we can be nimble in making adjustments to the model as appropriate. Based on the 2014 test results, and the early results of Phase I, we are very encouraged by our progress.
We anticipate rolling this investment to the Phase II and Phase III stores in the second half of the year. The labor hour investment in this select group of stores is designed to ensure, we deliver on our consumer expectations in more competitive markets with product in stock and a convenient shopping experience.
Our goal is to reduce the truck to shelf time for merchandising the stores, further supporting our goal to providing our consumer with the right product at the right time and at the right price. The second investment in labor comes from the realignment of our store operations management structure to optimize the scale of our divisions, regions and districts to improve accountability and maximize mentorship and teamwork all while driving stronger, more sustainable results.
By reducing the average number of stores per district and optimizing their scale, we have reduced the time, our district managers spend driving, so they can invest more time mentoring and coaching our store managers on developing and strengthening their teams. These changes have been in place since February while as still early our operational structure is better reliant for our field leaders to focus on store standards and ultimately create a better and more consistent shopping experience for our consumers.
Our expectation is that, overtime this should help both our consumer satisfaction and our store manager turnover. In addition over the last several months, we have been testing a number of inventory management initiatives.
For example, a new sky shelf program has been rolled out across the third of the chain to allow for the placement of inventory directly above respective categories. This allows our teams to get product out of the back room to facilitate improve stocking and ultimately drive labor efficiencies.
To-date, we are pleased with the test results and are planning on expanding the sky shelf program chain wide. We expect the roll-out to be completed by the third quarter of 2015.
On a combined basis, we believe these labor investments and inventory management initiatives are significant steps to improving our in-stock position which is critical component of our overall consumer satisfaction and a driver of sales performance. On the merchandizing front, we had balanced same-store sales growth across all categories in the first quarters.
Strength in consumables was driven by tobacco, perishable, healthcare and candy and snacks. In addition, we had broad based strength across apparel with our ladies, men's and boy's, infants and shoes continuing to exhibit strong performance with all these department comping inline or above the company average.
Seasonal and home comps trends were very encouraging as well. Affordability is playing a key role as we look to expands skews across the store at our sweet spot of $1 to $5.
For the first quarter, nearly 50% of our consumer's baskets contained at least one item priced at a dollar. Our fast way to save digital coupon program is growing, signups are increasing and as we exited the quarter, our redemption rate for digital coupons continue to improve.
During the quarter we executed our fast way to save spring in the savings event, which had strong activity for the program, measured on a weekly basis redemptions, trips and signups by consumers all improved during this promotion. In addition, sales of participating items significantly outpaced respective categories and our overall comp sales.
We have embarked on the next phase of our offering by providing personalized coupons for our consumer's based on their purchase behavior. We are able to use data captured from this program like a loyalty card but without the incremental cost.
For instance, we plan to use these insights from a consumer shopping trip to customized individual promotions, which we believe will ultimately drive incremental trips and larger baskets. The data we gather also allows us to target media to these consumers in order to reach them more effectively and efficiently.
Shrink improvement has been and continues to be one of our largest gross margin opportunities. We remain committed to reducing our shrink at store level.
For the quarter, we are very pleased with our shrink improvement. The progress is broad based with 19 of our 24 product departments showing improvement.
For store inventories performed so far this year, approximately 70% of our regions also improved year-over-year. Going forward, our teams continue to be focus on leveraging our defensive merchandising tools, technology and training to reduce shrink.
In order to enhance our productivity gains, we are once again elevating the category management process. We are optimizing all areas of the store beyond the planograms to include all-shelf and end cap displays.
Additionally, we are collaborating with our vendor partners through our joint business planning process to develop our merchandising plans and activities even further out on the calendar to enhance our consumer shopping experience. Over the last several years, we have made significant strides in the productivity of our planograms through skew selection and ongoing refinement.
Our affordability philosophy is fully ingrained in our category management process. As a result, we have established a strong foundation of planograms that we can redefine periodically.
We are concentrated on simplifying worker store at the store by reducing the complexity of planogram resets in capturing labor saving that can be reinvested. At Dollar General, the real estate model is disciplined and focused on financial returns.
We continue to see new store productivity at around 85% of our comp based, all while driving strong returns. We are very optimistic about our new store outlook for 2015, as our pipeline is full.
The Dollar General stores in our three new states of Maine, Rhode Island and Oregon are off to a good start and their sales performance continues to accelerate. We have driven down the capital investments required for remodels, while also driving strong sales list of 4% to 5% and an improved return on investment an excess of 200 basis points.
The real estate team is well on its way in building the pipeline for 2016. The planned growth in selling square feet of approximately 7% translates to approximately 900 new store openings.
Our development pipeline is nearly 50% complete for planned 2016 store openings. We have released additional strategic trade areas to our real estate team and our experience increased deal velocity.
We have a strong track record of delivering exceptional returns in our new store program and are confident in our model going forward. In today's environment, we are extremely focused on doing everything we can to provide our customers with the value and convenience, they expect from Dollar General.
We continue to be committed as ever to providing our consumers with the everyday low price they know and trust. Now David will share a more detailed review of our first quarter financial performance and our outlook.
David Tehle
Thank you, Todd, and good morning everyone. Rick and Todd have taken you through the highlights of our first quarter in many of our strategic initiatives.
So I’ll share more details on the rest of the financial results starting with gross profit. Gross profit for the first quarter was $1.5 billion or 30.5% of sales, an increase of 45 basis points from last year's first quarter.
As compared to the prior year, the most significant drivers were higher initial inventory markups, better inventory shrink performance and lower transportation cost. SG&A expense increased by 13 basis points over the 2014 period to $1.1 billion or 21.8% of sales in the first quarter.
The majority of the SG&A increase was due primarily to higher incentive compensation, advertising cost and repairs and maintenance. Partially offsetting these items were increased cash back related convenience fees.
Our tax rate for the quarter was generally flat to last year at 37.7%. Moving out to our balance sheet and cash flow, at quarter end merchandised inventories were $2.8 billion up 9% in total and 3% on a per store basis.
We generated cash from options of $344 million in the quarter, an increase of $92 million compared to the first quarter of 2014. During the quarter we repurchased $7.1 million share of our common stock for $535 million.
We also paid our first dividend of $0.22 per common share outstanding totaling $66 million. Since the inception of the share repurchase program in December 2011, we have repurchased over $2.8 billion of our common stock, we currently have a remaining authorization of approximately $689 million.
We remain committed through our disciplined capital allocation strategy, we aim to create lasting value for our shareholders through anticipated quarterly dividends and share repurchases all well maintaining our investment grade ratings and managing to a leverage ratio of approximately three times adjusted debt-to-EBITDAR. Now turning to guidance, looking forward, we continue to expect top line sales for 2015 to increase 8% to 9%.
Overall selling square footage is expected to grow approximately 6% and same-store sales are expected to increase by 3% to 3.5%. We also continue to expect operating profit growth to be in the range of 7% to 9% over adjusted 2014 operating profit.
Our expectation for diluted earnings per share remains $3.85 to $3.95 for the year. Capital expenditures are expected to be in the range of $500 million to $550 million.
For the year, we plan to open approximately 730 new stores and relocate or remodel 875 stores, further we plan to open approximately 900 stores in 2016, consistent with our plans as we enter the year, we would expect stronger growth rates in the first half of 2015 given that our labs are most challenging in the second half of the year. As our long-term track record demonstrates, Dollar General is well positioned to serve our customers in a wide variety of economic condition and in turn deliver strong results for our shareholders over time.
With that, I would like to turn the call back to Rick.
Rick Dreiling
Thank you, David. As this is our last earnings call together please accept my many thanks for your friendship and business partnership.
What you’ve done over your career at Dollar General has been significant from taking the company private in 2007 to return to the public market in 2009. You’ve been instrumental in transforming Dollar General and in fuelling and in fuelling our impressive growth.
For all of us Dollar General, thank you for all you done for over the last 11 years. Our long-term commitment to growth in shareholder value are unchanged even as the competitive landscape continues to evolve, we had a business model that is proven and resilient.
Our business generate significant cash flow and we are in a position to invest in store growth while continuing to return cash to shareholders through consistent share repurchases and dividends, to all of the 109,000 Dollar General employees that fulfill our mission of serving others by providing our customers with continued value and service everyday please accept my appreciation and thanks. With that, Mary Winn we would now like to open up the call for Todd and David for questions.
Mary Pilkington
Okay we will take the first caller please.
Operator
Your first question comes from the line of Paul Trussell with Deutsche Bank.
Paul Trussell
Good morning and congrats Todd, and also congrats to you on the successful transition Rick and David. So just want to talk about cadence.
Rick, you spoke to being pleased with the sales cadence. Could you please help us understand how you started and ended the period from a same-store sales standpoint?
And quantify any impact from any one-off headwinds such as the earlier Easter, whether there was an impact that's notable from weather or West Coast ports? And also on sales, David reiterated the guidance regarding the first half better than the second half.
Just any other color as we should be thinking about the second quarter trend to date would be helpful.
Todd Vasos
Paul this is Todd, let me first say that the first quarter sales trajectory and trend were pretty much exactly like we thought they would be. Obviously we knew the calendar, we knew that the Easter shift would play a key factor in how the quarter shaped up and it played out exactly the way we really thought it would and that was benefiting period two of the quarter and then taking away some sales in period three.
So the quarter shaped up pretty much like we thought, there was some headwind, as you indicated with the little weather that we saw just like everyone else I’m sure in that latter part of February, early March timeframe but as that subsided and mitigated, our sales return to more normalized pattern and again where we thought. And as we look forward Paul, we are pretty satisfied and confident in our guidance of sales that we put out at the beginning of the year.
So I think the best way to look at it is that we are well on track to be within that guidance.
Paul Trussell
Thank you for the color. Now on gross margins very good performance there, could you give a little bit more detail on what is driving the higher mark-ups and are there any headwinds that we should be thinking about going forward that could offset some of the improvement and shrink in lower transportation cost?
Todd Vasos
Paul, we are very pleased with our gross margin performance, I think the teams did an outstanding job and they call out a few of the teams in supply chain and merchandising in particular, they did a real good job in mitigating some of that West Coast issue that we were facing and they did it over a course of the long period of time as they saw this chart to materialize, they made some very early changes late last year to move some goods to the East coast and that really helped us. Then as we looked at the quarter, the mix really did benefit us and as you heard from the prepared remarks, we are very happy with our sales and our sales trajectories in non-consumables.
And so as you look at the non-consumable piece, it helped our margins as we looked year-over-year. DC and trans did a nice job as I indicated not only on the West Coast piece but also they continue working their productivity gains within the DCs, as well as looking at how we mitigate any issues with some of the driver shortages that have been out there, again our teams I think have done a pretty good job with that.
And of course fuel helped a little bit as it is a much lower than last year and then lastly we are very, very encouraged by our shrink results and our trajectory on shrink. We think that the work that’s been done over the last 12 to 18 months has some legs to it and we are seeing it broad based as we indicated across many, many categories.
So we feel pretty good but as you look just to keep in mind, gross margins, the headwinds get a little bit tougher and the lasts get a little tougher as we move through the quarter - through the rest of the year and to the upcoming quarter. So keep that in mind as you take a look at that.
Paul Trussell
Thank you.
Mary Pilkington
All right. Hope, we'll move onto the next question please.
Operator
[Operator Instructions] We'll now go to Michael Lasser with UBS.
Michael Lasser
Good morning. Thanks a lot for taking my question and congrats to everybody on new roles and moving on.
I want to talk a little bit more about the labor investment that you’re here making. Can you give us some sense of the economic return that you've seen from the test and how scalable you think that the return will be in what form it will be mostly going to be a sales lift.
Thank you.
Todd Vasos
Michael, it's Todd once again. I think the best way to look at it is that our operations teams have a real defined metric goal that they need to reach and as we indicted, it is, it is goals around sales being the number one driver, the whole thought around this is to make sure that our in-store experience for the consumer is half notch as she enters - as she enters our stores.
And as we’ve said for the last couple of calls, this labor investment at store level is about getting product on the shelf, about getting all the backroom and getting the truck work in a more timely manner so that as the consumer enters the store, she has what she needs on the shelf at the time she needs it, she can get out of the store quickly. So there definitely is metrics involved and we are pretty pleased with what we see so far but again it's early but we are pretty pleased and look forward to rolling out Phases 2 and 3 of the program as we work through the rest of the year.
Michael Lasser
Should we - I appreciate your commentary about the comparison getting tougher but with the labor investment, should we expect that some of the comparison will be mitigated by the sales lift that you anticipate you’ll achieve through this initiative?
Todd Vasos
Yes and I think that’s fair to say but again, we knew going into the year as we laid our guidance, we’ve laid – layer that in as being a benefit for us but I think Michael you’re exactly right. It’s fair to say that that should help us as we move into the back half of the year.
Michael Lasser
Okay. And then my last question Todd is you mentioned some headwinds that you’re going to be facing aside tough comparison in the gross margin side.
What exactly are you referring to in the gross margin headwinds and so we should not expect that the 45 basis points of expansion is necessarily sustainable?
Todd Vasos
Yes, I think the way to look at it is one, we’re fairly confident that we will have expansion for the year but as we continue to move throughout the year, the compares get a little tougher to last year and that rate of growth with gross margin will subside somewhat as we continue to move but we feel pretty confident that we will have expansion as we move through the rest of the year.
Michael Lasser
Okay, super. Thank you so much and good luck to everyone.
Todd Vasos
Thank you.
Mary Pilkington
Great. Hope, we’ll go to the next caller please.
Operator
Your next question comes from the line of Matthew Boss with JPMorgan.
Matthew Boss
Hi, good morning and congrats on the nice quarter.
Todd Vasos
Thank you, Matt.
Matthew Boss
On the topline with 3 to 3.5 same-store sales guidance if in a year it appears prudent given the tougher compares as the year progresses. And my question, have you baked in any change in macro back drop with some of wage increases and then from the category perspective, what areas have of the store would you expect to outpace that guidance over the next 12 months?
Todd Vasos
Well, you know, as we look at it, we really haven’t factored anything for the wages and we watch all trends in retail, wages being one of them. I think we’ve got a pretty strong track record of doing what we need to do at the time we need to do it and the nice thing about Dollar General is we have the flexibility to be able to do that.
So, we feel pretty confident in that but we will watch it and as we look at sales as we move through the rest of the year, the work that the teams have done in non-consumables, I have to tell you, we feel very good about that and again, that work has been ongoing for years Matt as you know. And as we’ve always said, as the consumer starts to have a little bit more money, we think that we’ve got the right formula for her on non-consumables.
So, we still consider non-consumables as a great rounding of the basket and I think Q1 showed that and I think as we move through the rest of the year, our non-consumable categories will continue to perform very well for us.
Matthew Boss
Great. And then can you just talk about what you’re seeing in the competitive environment?
And particularly any changes that you’ve noticed with some of your peers currently under transition today?
Todd Vasos
Yes, I think when you look at the macro environment out there in retail, it’s always very competitive but I think the best way to still characterize it is it’s been rational across all channels of trade, mass grocery and drug. And we watch, just like everyone, we watch everything everyone is doing and we’ll act accordingly but I have to tell you, at this point we really haven’t seen anything that is out of the ordinary but we’re doing and we’re doing things and we are controlling what we can control and working our plan and where we think the year is going to fall out and that’s where we’re squarely focused and if we keep our head down and do that and then also watch what’s going on around this, I think we’re going to have a pretty good year here.
Matthew Boss
Great. Best of luck.
Mary Pilkington
Great. We’ll go to the next question please.
Operator
Your next question comes from the line of Scot Ciccarelli with RBC Capital Markets.
Scot Ciccarelli
Two questions. First of all, you’ve made a couple comments just regarding in stock levels and one of the reasons you’re increasing the labor investment is to improve the in stock levels make sure the stores are prepared.
I guess the question is, do you think you had an issue with in stock levels first? And then second, just kind of again this is a broader macro question I guess, but a lot of data that suggests that blue collar labor trends continue to improve, we're starting to see some upward pressure on wages, which I would think would create a good environment for Dollar General.
I’m wondering how you would characterize the health of your core consumer at this point.
Rick Dreiling
Sure Scott. I think it’s fair to say on the in stock piece that we haven’t been fully satisfied with where our in stocks have been and been trending.
In saying that, I think we’ve done some very prudent things and taken some action as you heard in my prepared remarks to offset some of those in stock issues that we’ve seen start to pop-up over the last 12 to 18 months. Now in saying that we’ve got a lot of things in place to make sure that our in stock levels are appropriate, but as you can tell we do have some opportunities still.
So we’re working that plan and stay tuned for more information as we continue to move through the year on it, but we’re confident that we’ll be able to rule that in and get our in stocks back to where we think they should be. As it relates to our core consumer, I think you nailed it.
I think that the consumer is feeling a little bit better, but again our core consumer is always a little bit stretched and as you know she is the first usually to start to feel it when the economy starts to grow a little sideways and she is also the last to usually roll out of that when she starts to go back to work and things start to get a little better. But I think the way to look at it is that she also has to feel confident over a longer period of time and I think as we continue to move through the year and if everything stays where it’s at or gets a little bit better her confidence level is going to build and her spending will probably build with that because again, she doesn’t have a lot of disposable income.
She doesn’t have bank accounts and credit cards and so she has to see a sustained time where she starts to feel good and once that happens I think you’ll start to see her spend a little bit more.
Scot Ciccarelli
Got it. Thanks a lot guys.
Rick Dreiling
Absolutely, thank you.
Mary Pilkington
Hope, we move on to the next question please.
Operator
Your next question is from the line of Dan Binder with Jefferies.
Dan Binder
Hi, good morning, thank you and congratulations to both of you, Rick and Todd. My question was follow-up on the labor investments.
Can you just remind us how many stores were in the tests, how many were in Phase 1, and then considering the investments you’re making where we -
Operator
Hi Dan did we lose you? I think the line disconnected.
Mary Pilkington
Okay, Dan if you - Hope if Dan is there we will come back to you and where you can bring him back right now?
Operator
One moment.
Mary Pilkington
Thank you. Hope, if its easier to we can just move on to the next question and we’ll get back to Dan.
Operator
Okay. Your next question comes from the line of Charles Grom with Sterne Agee.
Charles Grom
Good morning guys. Still Dan's question - sorry Dan.
In 2014, labor initiatives I don’t know if it was really his question actually. But on the 2014 test that you did, can you just give us some perspective on how many stores that you tested in and what the degree of improvement was in your in stock levels and also from a sales perspective what the lift was?
Todd Vasos
Yes. When we rolled out the 2014 test, I think it’s fair to say, it was done in a pretty big group of stores and it was done across a lot of different geographic areas of the country to make sure that we felt good about the results that were coming out of it.
So in our tests and learn program as you know using APT we have the unique ability to be able to really focus in on that and then glean the learnings from it. So it was broad based in a lot of geographic areas, but I think the biggest thing to take away was that we saw significant sales increases that were sustainable and as well as our in stock positions had increased and what we’re waiting for to come through on this as well that will be a trailer to both the 2014 test and anything we do in 2015, were hoping to get some shrink goodness out of this as we continue to move as well.
But again that will be yet to come and we won't probably recognize that later this year and into early next year.
Charles Grom
Okay, great. And then just to ducktail into that, David when we think about SG&A, dollar growth in the balance of the year 9.5% here on the first quarter.
So we think about that rising as we roll-out the labor initiative to more stores?
David Tehle
Yes, I think as we look at it, we still believe it takes approximately a 3.5 comp on an ongoing basis to lever our SG&A. Now having said that, that ebbs and flows and it depends upon what our investments in a particular quarter and obviously we were a little higher in Q1 on incentive comp advertising in repairs and maintenance.
And yes, as we go through the back half of the year we will be making some investments in labor that will reduce the leverage in terms of how much we can lever SG&A. And as Todd said, we think that’s a great investment, but it takes a little bit of time to get that payback as customers - obviously the hope is we’ll get more transactions in a bigger basket as customers come in the store and that will come over time.
So again big expectations for it, but as we're implementing at the back half of the year, it puts a little pressure on SG&A.
Charles Grom
Okay, great. And then one more for you David, just on a cash flow statements.
It looks like you had some hop on the payables front, an increase from the end of the year when, it looks like typically over the past few years you guys see a decline. Just wondering why the payable balance rose so much?
David Tehle
Yes, two things there. Last year on payables, we had a little bit of a negative and this year we had a little bit of a positive, the same items.
It had to do with the receipts and we talked about the West Coast situation and this year we got a whole slug of receipts in whether late in the quarter that we didn't have to pay for right away. And last year we got receipts a little bit earlier that we paid for it little quicker.
So little bit of hurt last year and a little bit of help this year putting together that was enough you say kind of stick out on the cash flow statement.
Charles Grom
Okay, great. And congrats on your retirement.
David Tehle
Thank you.
Mary Pilkington
Hope, we got the next caller.
Operator
We do have Dan Binder back online with Jefferies.
Rick Dreiling
Welcome Dan.
Dan Binder
I’m not sure what happened, I apologize, we're able to hear you, you couldn’t hear us though. And Chuck is a friend, so I’ll forgive him for taking my question.
But anyway, I did have some other question. So you recently opened 12,000 store, maybe you can give us a little bit of an update based on kind of a wide space and the opportunities competitive environment, what do you think the opportunity is for Dollar General here?
Rick Dreiling
We think the opportunity is very bright. We've stated that we got 13,000 opportunities that exist in the Continental United States.
We know we’ll get our very fair share of those, matter of fact as we’ve already announced we’ve accelerated our growth to ensure that we get the very best sites that are out there. So we feel very good about the wide space it’s there still and we feel good about the new states that we've entered and where those sales trends are moving.
So all-in-all, the future is pretty bright when you look at building stores and store expansion and our future expansion plans.
Dan Binder
Okay. And then just one other question, you talked about better in stock levels, I’m not sure if you want to quantify, but what is sort of the ideal economical level of in-stocks that you think you want to be at longer term.
And maybe if you could also include in that conversation, how much of the inventory is being pushed to the stores versus pulled, is it all essential replenishment or do they have do still managers have some flexibility there to request product too?
Todd Vasos
Those are good questions and when we look at inventory levels, there is no doubt that we do have specific goals in mind by category and even down to the goods and sales. So in our top 250 items we want 99% plus in-stocks.
And as you go down the food chain if you will on items, that expectation becomes a little less, because we know that we’re not - we wouldn't want to be 99% in stock across the Board. But in saying that, our consumers expect a very high level of in-stock when they come into the store and we feel that by making sure that we’ve got the product on the shelf.
And again implementing the sky shelf program as I indicated will help to keep that those goods out of the backroom and customer facing. So those are some of the initiatives we’re working onto make sure that those in-stock level stay pretty high.
And then, when you look at just overall our inventory, we feel that it’s pretty clean and we feel good about it.
Dan Binder
Okay, thanks.
Mary Pilkington
Hope, we'll go to the next caller.
Operator
Your next question is from the line of Dan Wewer with Raymond James.
Dan Wewer
Thanks Todd, I just wanted to ask you about your thoughts on private label opportunity. So when we look at competitors such as Audi, obviously remarkable successful with almost 100% private brand assortment.
I’m assuming that family dollars private labels assortment will grow once it becomes part of Dollar Tree. So when you think about Dollar General, do you see an opportunity to further push your private label penetration higher or do you think just the opposite to differentiate yourself from those competitors perhaps focus more on branded product?
Todd Vasos
Yes, those are good questions. We very much love private brands.
We know that they’re definitely a pillar of our inventory that we have. Matter of fact our consumers look to us for a great alternative in private brands.
So to answer to your question specifically, we look to continue to expand our private brands not only the items, but also the quality that we put forward to the consumer. And we also want to make sure that it's an extreme value for our consumers.
The other lever that we have that we continue to expand and you’ll see a further expansion as we go through 2015, will be our smart and simple label, which in fact gets us to even a lower price point for our consumer to really hit that affordability piece that she craves right now especially in a lot of the consumable type area. So, we're bullish about our private brand program and you’ll continue to see us move forward and expand that as we move into the later part of this year and into next.
Dan Wewer
And just Todd one follow-up question. With the 900 stores opening next year, I don't think our retailers ever opened that many stores in a year, is it your experience that Dollar General finds that first year volumes are greater when you are the first small box value retailer in a market, is that the key reason why you’re pushing the expansion rate higher?
Todd Vasos
The way we look at it is first of all 900 stores is a big number, but our real estate team is very, very good at what they do. We’re confident in the site selection and that’s probably the most important thing around volume is getting the right site and our proprietary tools that we use really hones in those sites for us and enables us to get there.
Now there is no doubt that being first mover does give you some advantage and we’ll continue to capitalize on any dislocation that maybe out there. But 900 stores is aggressive, but we feel very confident in delivering that.
Dan Wewer
Okay, great. Thank you and good luck.
Todd Vasos
Thank you.
Mary Pilkington
Hope, we'll move to the next question please.
Operator
Your next question is from the line of Alvin Concepcion with Citigroup.
Alvin Concepcion
Hi good morning, thanks for taking my question and congrats Rick and Todd. I think you touched upon personalizing promotions, I’m just curious how far away are you from being able to do that and are you partnering with anyone on the data analytics?
Todd Vasos
To answer your question specifically, we're already doing targeted marketing based on purchase habits from our consumers on that card. Again the beauty of this is, it looks and feels like a loyalty card, but it has no that back stage cost that is very prohibitive out there.
So, we are partnering with many of the CPG companies and quite frankly the majority of them are very, very excited about partnering with us to offer our consumers a real deal on these digital coupon platforms, but with or even more jazzed about if you will is the ability to see them based on their purchase history with coupons at a very relevant to them. And we’re pretty happy with the early results of it and you’re going to see a lot more from us as we move over the next few quarters.
Alvin Concepcion
Great, thank you. And just another one about operating profits, I think, grew about 13% a quarter, your guidance is 7% to 9% for the year.
I know there is some comparisons in the back half of the year. I'm wondering is there some conservatism build into that as well and how much of it is, is from labor investments incrementally stepping up.
Just wondering if you could help us through the puts and takes on margins over the course of the year.
Todd Vasos
Well clearly it is early in the year. We’ve only been through one quarter and as you said the comparisons do get a little more difficult as we get in the second half of the year.
So I think let's just stay tuned on that one, and we’ll see how it all plays out. We are making more investment in labor as we go through the year.
We talked about that and again, we believe we’ll have a great return on that, it is just going to take a little while for us to get their return.
Alvin Concepcion
And last one from me and just wondering if you talk about direct sourcing as an opportunity in 2015, just an update there.
Rick Dreiling
Again direct sourcing is one of our key pillars of gross margin and gross margin expansion but also offers our consumers a real value and affordability in that sweet spot of $1 to $5. So we want to continue and we will continue to grow our global sourcing efforts and as we move through 2015 and into next year, we continue to put satellite offices in more countries around the globe to make sure that we have boots on the street and really finding the next best factories that can deliver that promise of the consumer.
So, we’re full speed ahead on global sourcing.
Alvin Concepcion
Thank you very much.
Mary Pilkington
Hope, we’ll move on to the next question please.
Operator
Your next question is from the line of Matt Nemer with Wells Fargo Securities.
Matt Nemer
Good morning. Thanks for taking my questions.
First I’m wondering if you can give us any read, early read on the repackaging of your private brands. I think the goal was to have most of those in store by mid year and I’m wondering if you’re getting any sales left from that.
Rick Dreiling
Yes Matt, as we look at, at the private brand repackaging and just the effort in general its way early to give a real solid read on it. But I can tell you that half of the goods we repackaged by about mid-year and then the remainder 90% will be done probably by the end of the second and into the early third quarter.
But the early read has been fairly positive when we look at it, we are looking at by item, by category, and there are a few changes that we've made already based on that but overall the consumer response has been very positive, and again we did a lot which we always do a lot of consumer work before we launch each and every one of those item. So we had a real good idea of what it would do and its coming very, very close to what we thought but just like anything there is always a little bit of back in forth that we need to do, and a few items that we’re changing as we speak.
Matt Nemer
Got it, okay. And then on a separate topic the digital coupon platform, can you give us a sense for how many of your customers have signed up for that or and maybe the percent of baskets, that are using a digital coupon, just so we can engage the size of that, that effort right now.
Rick Dreiling
We really Matt haven't quantified that but I can tell you that, we've got goals and metrics in place to hit and we are on actually exceeding those signups already through Q1 and now as we go in the Q2 and as you heard we're launching different programs in each quarter to encourage signup and to get people really involved in it. So stay tune more to come on that because it's in infancy stage but we think it’s a real differentiator for our channel.
Matt Nemer
Okay, that's fair. And then just lastly on the sky shelf initiative, is there more about the flow of inventory through the store or adding safety stock to the store and if it's the ladder, how does that impact inventory dollars per store overtime.
Rick Dreiling
Matt, it really is the first and that is it facilitates getting product out of that backroom and getting it right in front of the customer. Our store teams do a fabulous job.
They are taking care of our customers. We want to make it easier for them and the easiest way to stock the goods on the shelf would not to be to go back in the backroom and have to find it, but would be able to look right above the items and build a stock at very effectively and efficiently that way and that was really the impetus behind us doing that was to make it easier on the stores.
Now the byproduct of that is better in-stocks because once again if you see an out and you happen to passing by the aisles, you may not have time in the way we did it in the past to run in the backroom to get the item, but you know what you definitely have time to stop for a few seconds look up and if it’s there pull a few down and put it on the shelf. So I think it is going to kill two birds in one stone and make things a lot easier for the stores, but also be able to enhance our in stock position.
David Tehle
Anything from a working capital point of view it should reduce working capital because it will be out there, you get it on the shelf quicker, it will sell quicker in it, it should, in no way will add inventory just being more efficient with the inventory and actually hopefully making it turn even quicker.
Matt Nemer
Makes a lot of sense. Todd, congrats in your new role.
Todd Vasos
Thank you, Matt.
Mary Pilkington
Hope, we'll move to next question please.
Operator
Your next question is from the line of John Heinbockel with Guggenheim Securities.
John Heinbockel
Thanks, congratulations everyone. Could you follow-up on corporate brand topic, so how satisfied do you think you’re with corporate brand pricing particularly versus the hard disc counters and then what’s smart and simple, how much do you think - will there be a smart and simple alternative in every category and subcategory and where do you get the shelf space for that.
Is that national brand or phasings?
David Tehle
John, couple of good questions. Number one, we look at pricing whether it’s national brand or private brand across the entire spectrum of where we do business every two weeks.
So we’re very, very attuned to pricing and we feel pretty confident on both our national brand, but especially our private brand pricing as it relates to mass grocery and drug. Now in saying that well we continue to watch pricing as national brands may get more aggressive.
We also then make sure that we watch our spreads between national brand and private brands and at those times we will reduce our prices if maybe to keep those spreads. But as you look at our private brands and the way that they we’re looking at them smart and simple does play a key role in that affordability piece.
And I wouldn’t say that we’re going to have it in the every single category, but I can tell you that right now the 45 or 50 items that we launched this year, late last year and into this year has been very, very good for us. The consumer has - it has resonated with the consumer.
They like the value and the affordability that smart and simple offers with a pretty good promise on the quality of the item. So stay tuned John I think you’re going to see an acceleration of smart and simple as we go forward.
Because we know that it’s a true differentiator for us, but also it really helps the consumer.
John Heinbockel
And then lastly as a follow-up note. If you think about your share is still very small in any of your categories, where is the best opportunity to drive you think beyond 2015 investing in more labor investing in price is there enough elasticity if you invest in price, if you drive some of that share, how do you look at the two versus each other?
David Tehle
Well, we look at both all the time and we look at the marketplace all the time. And I think you know us pretty well if we feel that, that we need to invest in labor we do.
If we feel like we need to invest in price we do. The real key and we’ve said it many, many times is driving unit.
If we drive units through the store and those transactions, then comp sales come. So we’re confident in that model and the nice thing is we have the flexibility and we’ve proven that over time to be able to take whatever action we need to take to make sure that we continue to drive market share.
And by the way our market share continues to grow as you heard and we don't see that stopping because we've got a real good strong category management plan out there that will leverage up on a lot of different areas to be able to drive that market share.
John Heinbockel
Okay. Thank you.
Todd Vasos
Thank you.
Mary Pilkington
Hope, we’ll move to next question please.
Operator
Your next question is from the line of Stephen Grambling with Goldman Sachs.
Stephen Grambling
Good morning, thanks for taking the question. This is actually just a follow-up on an earlier comment on the non-consumables, can you just provide a little more detail on what has changed in a payroll specifically to drive the better results and maybe what are some of the ongoing initiatives that will continually to be benefiting this part of the mix?
Todd Vasos
That's a great question. A few things and we’ve been working on a payroll for many years but Cindy Long and her team have done a phenomenal job in getting us very, very relevant in a payroll.
And when we look at payroll it’s both basics and then fashion basics. We are not out there on the cutting edge of fashion but fashion basics is really where Cindy and her team have brought us and the consumers really resonating.
And then as we took her learnings from it and then put in the affordability pieces that we’ve now engrained within our category management process to include a payroll, the consumers have really, really responded to that. So we are pretty bullish on a payroll, I don’t think any of us would have probably said that a few years ago but I can tell you that the team has done some real nice work there and we see that only enhancing as we continue to move through the rest of this year.
Stephen Grambling
Great, that's helpful. And then maybe changing gears, I realize often times comment on these specifically, but can you just talk to your thought process more generally about evaluating acquisitions?
Todd Vasos
We've always said and David can also chime in here, we look at anything that maybe out there but the great thing about our model is that and you’ve heard little earlier, we have got 13,000 or so opportunities in the Continental United States alone. So we’re very, very focused on that organic growth right now but never-say-never and we’re always going to look at everything but we feel very confident in our real estate model and where we are headed right now.
Stephen Grambling
Thanks. Best of luck in your new role.
Todd Vasos
Thank you.
Mary Pilkington
Hope, we are right at top of the hour, maybe we will take one more question.
Operator
Okay. Your next question comes from the line of Scott Mushkin with Wolfe Research.
Scott Mushkin
Thanks for squeezing me in, and so I guess my question was more as we look out I mean, obviously this year is going - kind of plan and maybe even a little bit better but as we move out to next year and we talk about the labor investments, got another competitor of your is now hopping, starting salaries to $10, so it's going to put some further pressure on that labor line, plus the 900 stores, it just seems like kind of looking '17, it looks a little harder from my perspective but I wanted you to talk me out of that?
Todd Vasos
I think it's fair to say, we’ve got a very, very strong plan that we're executing against for this year. We've already laid plans for 2016, stay tuned, I think you’re going to be pretty happy as we continue to move through this.
We’ve proven that we can continue to move comp sales, we have proven that we can continue to balance the P&L pretty strong and still return a lot to the shareholders. And I think that you’re going to continue to see that from us but as it relates to the wages, we’re continuing to monitor that, we monitor everything out there at retail and wages are no different.
But keep in mind, we still have a lot of flexibility and the real hallmark of a great retailer is the ability to drive productivity at store level and we will continue to do that. And if we can continue to do that, it will afford us that flexibility to do whatever we need to do to be competitive.
Scott Mushkin
And then one just follow-up, I just noticed, I think your rent growth is close to 15% last year. As we accelerate the stores and obviously we're at tail end of the - looks like economic cycle which is more at the end, how is rent growth, how should we think about rent growth going forward, is it harder to get prices as you pay more or no?
Rick Dreiling
Yes, I think - and again we don’t give specific guidance on individual line items but we have a extremely sophisticated effective real estate process. As Todd mentioned earlier, we’re very pleased with what we see out of that, we believe we’re getting the lowest rent possible for somebody in our space.
We are happy with what we’re driving there. And again it’s all about productivity in the box.
As we look at the individual boxes, we are dealing with little higher rents and we got to figure out how to make that box more productive to pay for that rent and again I think we’ve got a lot of programs to do that also. So it's just part of the evolution of our model as we move forward and I think we've got a lot of strategies to help offset those higher rents.
Scott Mushkin
That's perfect. Thanks again for squeezing me in and as everyone said congratulations to all of you guys.
Mary Pilkington
Thank you. I know we are leaving some people in the queue, so I apologize about that but Matt Hancock and I will be around to take any calls, so please feel free to give me a call.
And thank you for joining us today.
Operator
Thank you. That does conclude today's conference call.
You may now disconnect.