Kelly Dilts
Executive Vice President and Chief Financial Officer at Dollar General
Thank you, Todd, and good morning, everyone.
Now that Todd has taken you through a few highlights of the quarter, let me take you through some of the important financial details. Unless we specifically note otherwise, all comparisons are year-over-year, all references to EPS refer to diluted earnings per share, and all years noted refer to the corresponding fiscal year.
As Todd already discussed sales, I'll start with gross profit. For Q1, gross profit as a percentage of sales was 30.2%, a decrease of 145 basis points. This decrease was primarily attributable to increases in shrink and markdowns, a greater consumable sales mix, and lower inventory markups. These were partially offset by a lower LIFO provision. Shrink continues to be our most significant headwind, and with 59 basis points worse in the first quarter compared to prior year. As Todd noted, we are taking multiple actions aimed at reducing shrink, and I'll discuss our expectation for this headwind for the remainder of the year in just a bit.
With regards to markdowns, we're seeing promotional levels more similar to 2019 levels, as we anticipated coming into the year. As Todd noted, customers are seeking value, and we saw strong take rates on promotional items during the first quarter.
Turning to SG&A, it was 24.7% as a percentage of sales, an increase of 97 basis points. This increase was primarily driven by retail labor, depreciation and amortization, incentive compensation, and repairs and maintenance.
Moving down the income statement. Operating profit for the first quarter decreased 26.3% to $546 million. As a percentage of sales, operating profit was 5.5%, a decrease of 242 basis points. Net interest expense for the quarter decreased to $72 million, compared to $83 million in last year's first quarter. Our effective tax rate for the quarter was 23.3% and compares to 21.8% in the first quarter last year. This higher rate is primarily due to the effect of certain rate impacting items on lower earnings before taxes and expense recognition attributable to stock-based compensation. Finally, EPS for the quarter decreased 29.5% to $1.65, which exceeded the high end of our internal expectations.
Turning now to the balance sheet and cash flow. Merchandise inventories were $6.9 billion at the end of Q1, a decrease of 5.5% compared to prior year and a decrease of 9.5% on a per store basis. Notably, total non-consumable inventory decreased 19.1% compared to last year and decreased 22.5% on a per store basis. The team continues to do great work reducing our overall inventory position, while simultaneously optimizing our mix and driving higher end stocks. We're pleased with the significant progress on this important goal, which not only frees up more cash in the business, but also helps to mitigate further shrink risk. And importantly, we continue to believe the quality of our inventory remains good.
The business generated cash flows from operations of $664 million during the quarter, an increase of 247%, as we improved our working capital primarily through inventory management. Total capital expenditures were $342 million and included our planned investments in new stores, remodels and relocations, distribution and transportation projects, and spending related to our strategic initiatives. During the quarter, we returned cash to shareholders through quarterly dividend of $0.59 per common share outstanding for a total payout of $130 million. Overall, we're pleased with our progress and proud of these results, including gains in customer traffic and market share, significantly lower inventory levels and improved cash flow from operations.
Moving to our financial outlook for fiscal 2024. While it's still early in the year, we believe our positive first quarter results reinforce the importance of our stores to the communities we serve as well as the progress of our Back to Basics work. With that in mind, we're reiterating our financial guidance for 2024, and continue to expect net sales growth in the range of approximately 6.0% to 6.7%, same-store sales growth in the range of 2.0% to 2.7% and EPS in the range of $6.80 and $7.55. This guidance continues to assume an estimated negative impact to EPS of approximately $0.50 due to higher incentive compensation expense, and an effective tax rate in the range of approximately 22.5% to 23.5%.
We also continue to anticipate capital spending in the range of $1.3 billion to $1.4 billion, as we invest to drive ongoing growth. We continually evaluate and seek to optimize the use of this capital. And as a result, we have updated our expectations for real estate projects in 2024. We now expect to remodel approximately 1,620 stores this year compared to our previous expectation of 1,500 remodels. To facilitate this increase in remodels, we're reducing the number of planned new stores to 730 compared to our previous expectation of 800 new stores. We continue to expect to relocate 85 stores. In total, this increases our expected total real estate project count from 2,385 to approximately 2,435. We're excited about this increase in projects and the expanded investment in our mature stores, and we believe this is an appropriate reallocation of our capital.
As a reminder, our capital allocation priorities are unchanged, and we believe they continue to serve us well. Our first priority is investing in our business, including our existing store base as well as high return organic growth opportunities, such as new store expansion and strategic initiatives. Next, we seek to return cash to shareholders through a quarterly dividend payment, and over time and when appropriate, share repurchases. Finally, although our leverage ratio is currently above our target of approximately 3 times adjusted debt to adjusted EBITDAR, we are focused on improving our debt metrics in support of our commitment to our current investment-grade credit ratings, which, as a reminder, are BBB and Baa2.
Now, let me provide some additional context as it relates to our outlook for 2024. Our customer continues to be very value-driven, and we anticipate they will continue to be price-sensitive as we move through the year. With this in mind, we expect sales mix pressure to be above our original expectation. And as I mentioned earlier, we have seen and continue to expect the promotional environment reversion to pre-pandemic levels as we move throughout 2024. As such, we expect our promotional markdown headwinds to gross margin will continue at least through the first-half of the year. As Todd noted, shrink is currently trending worse than we initially expected coming into the year, and we now expect this headwind to be greater in 2024 than what was originally contemplated in the financial guidance we provided on our earnings call in March. We're taking aggressive and decisive action to mitigate this challenge, and we're expecting to see improvement later in the back-half of 2024 than we had previously anticipated, and more significantly into 2025.
Turning to SG&A, our expectations are relatively unchanged from what we previously provided on our Q4 call. We continue to anticipate a significant headwind this year from the normalization of incentive compensation in 2024, as well as an ongoing headwind from depreciation and amortization. While we don't typically provide quarterly guidance, given the somewhat atypical cadence of this year and some of its specific headwinds, we're providing more detail on our expectations for the second quarter. To that end, we expect comp sales to increase in the low-2% range in the second quarter, with EPS in the range of approximately $1.70 to $1.85.
In summary, we're pleased with the solid start to our year, including exceeding our top- and bottom-line expectations for first quarter. We believe our actions are resonating with our customers, strengthening our competitive position and reinforcing our foundation for future growth. We remain committed to maintaining our discipline in how we manage expenses and capital as a low-cost operator, with the goal of delivering consistent, strong financial performance, while strategically investing for the long-term. We continue to believe that this model is resilient and strong. We're excited about the long-term future of this business, including plans to drive profitable same-store sales and meaningful operating margin growth, healthy new store returns, strong free cash flow and long-term shareholder value.
With that, I'll turn the call back over to Todd.
