Thank you, and good morning, everyone. On the call with me today are Todd Vasos, our CEO, and Donny Lau, our CFO. After our prepared remarks, we'll open the call up for your questions, and Emily Taylor, our Chief Operating Officer, will join us for the Q&A session. To allow us to address as many questions as possible in the queue, please limit yourself to one question. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News and Events. Let me caution you that today's comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our financial guidance, long-term financial framework, strategy, initiatives, plans, goals, priorities, opportunities, expectations, or beliefs about future matters, and other statements that are not limited to historical fact.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These factors include, but are not limited to, those identified in our earnings release issued this morning under Risk Factors in our 2025 Form 10-K filed on March 20, 2026, and any later filed periodic report, and in the comments that are made on this call. You should not unduly rely on forward-looking statements which speak only as of today's date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law. Now it is my pleasure to turn the call over to Todd.
Thank you, Kevin, welcome to everyone joining our call. I want to begin by thanking our teams in our stores, distribution centers, private fleet, and store support center for their continued commitment and dedication to serving our customers. Overall, we're pleased with our first quarter performance, particularly our EPS result, which exceeded our expectations as strong operating margin expansion more than offset the impact of severe weather and higher fuel costs. For today's call, I'll start by recapping highlights from our first quarter performance. Donny will then walk through our financial results and outlook. I'll close with an update on our strategic growth pillars. Turning to our first quarter performance. Net sales for the quarter increased 3.4% to $10.8 billion, compared to net sales of $10.4 billion in last year's first quarter.
We grew market share in both dollars and units in highly consumable product sales once again during the quarter, in addition to growing market share in non-consumable product sales. Importantly, in an environment where customers are feeling more pressure on their household budgets, we believe this market share growth reflects the essential role Dollar General serves, particularly in small-town communities across America. Same-store sales increased two % during the quarter, primarily driven by customer traffic growth of 1.4% and supported by average basket growth of a half a point. Notably, this marks the fourth consecutive quarter of growth in customer traffic as our combination of value and convenience continues to resonate with customers. In addition, all four merchandising categories delivered positive comp sales for the fifth consecutive quarter, with growth rate in non-consumables once again outpacing consumables.
From a monthly cadence perspective, all three periods of the quarters were positive, led by March, which includes a benefit from the Easter holiday shift. While winter storm activity, including periods of temporary store closures, negatively impacted results during the first two weeks of the quarter in February, we were pleased with our sales performance across the balance of the quarter. Looking ahead, we are confident about our plans to drive continued growth in sales and customer traffic. Moving to an update on our core customer. While there are a variety of puts and takes on customer budgets during Q1, our core customer continues to be financially constrained, as any benefit from tax benefits was largely offset by higher fuel prices and reductions in SNAP benefit payment.
Importantly, while there has been a significant reduction in overall SNAP dollars distributed in 2026, we grew share of wallet with SNAP customers during Q1, further demonstrating the strength and relevance of our value proposition. Notably during the quarter, many of our core customers reporting cutting back on other household expenses, including food purchases, due to rising gas prices. This pressure has been more pronounced on customers in rural communities as they work to minimize trip distance and make trade-offs in their search for everyday affordability and value.
With our expansive real estate footprint of more than 21,000 stores located within 5 mi of 75% of the U.S. population, as well as our growing delivery presence, we are uniquely positioned to serve these customers as they further prioritize value and convenience. From a value perspective, we continue to be pleased with our pricing position, which is within 3 or 4 percentage points of mass retailers, as well as our extensive offering of more than 2,000 items across the store at or below the $1 price point. As part of our overall approach to this price point, we continue to emphasize and strengthen our Value Valley offering, which is comprised of more than 500 rotating items, all at $1.
Of note, this offering once again outperformed the chain average in Q1 with a comp sales increase of 18.4%, driven by broad-based performance across many sections and exceptional performance in health and beauty. Beyond our Value Valley program, we also introduced several new $1 private label items during the quarter, as well as a new frozen section, which now features a full door dedicated to new frozen items at the $1 price point. We believe this price point continues to be important to our customers and are excited about the opportunity to continue providing tremendous value through these offerings. In addition, we are seeing customer penetration growth across low, middle, and high income segments as customers across all income cohorts seek value at increasing rates.
Notably, across these cohorts, the largest increase in customer count came from the highest income segment, which earns more than $100,000 annually, contributing to a significant increase in trade in customer households during the quarter. We know that value and convenience are always important to our customers, but even more so right now. As America's neighborhood general store, we are well-positioned to help customers across all income levels save time and money every day. Overall, our consistent and balanced top-line performance with both new and existing customers further underscores our belief that Dollar General is a trusted partner in the communities we call home, with significant opportunity for ongoing growth. In summary, we are pleased with the start of the year and proud of our team's execution. We are committed to serving our customers while driving profitable sales growth and capturing growth opportunity.
With that, let me now turn the call over to Donny.
Thank you, Todd, and good morning, everyone. Now that Todd has taken you through the top-line results for the quarter, let me take you through some of the other 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. For Q1, gross profit as a percentage of sales was 31.6%, an increase of 65 basis points. This increase was primarily attributable to higher inventory markups, lower shrink, and lower inventory damages, partially offset by an increase in markdowns and transportation costs. Our shrink mitigation efforts once again contributed to strong gross margin expansion in the quarter, as we delivered a 28 basis points reduction in shrink versus prior year, even while lapping a 61 basis point improvement from Q1 2025.
We were also pleased with the improvement in damages during the quarter, which exceeded our expectations and reflects strong in-store execution by the team. Turning to SG&A, which as a percentage of sales was 25.7%, an increase of 25 basis points. The primary expenses that were a greater percentage of sales in the quarter include depreciation and amortization, utilities, and property taxes, partially offset by lower incentive compensation. Moving down the income statement. Operating profit for the first quarter increased 10.8% to $638.5 million. As a percentage of sales, operating profit increased 40 basis points to 5.9%, even with higher than anticipated fuel costs, as we continue to build on our progress towards the annual target of 6%-7% as contemplated in our long-term financial framework. Net interest expense for the quarter decreased to $47.2 million compared to $64.6 million in last year's first quarter.
Our effective tax rate for the quarter was 24.9%, compared to 23.4% in the prior year. The increase was primarily due to the expiration of the Work Opportunity Tax Credit on December 31st, 2025, partially offset by lower stock-based compensation expense. EPS for the quarter increased 12.4% to $2, which exceeded the high end of our internal expectations. Turning now to our balance sheet and cash flow, where we continue to make significant progress in strengthening our financial position. Merchandise inventories were $6.6 billion at the end of Q1, essentially flat compared to the prior year and represents a decline of 1.6% on an average per store basis. Importantly, the team has done a terrific job reducing inventory to a level we believe is appropriate to support strong sales growth and higher in-stock levels going forward.
Overall, we're pleased with our inventory position, and for fiscal 2026, continue to expect inventory to grow at a rate below our sales growth. In Q1, we generated significant cash flow from operations of $716.2 million, providing flexibility to reinvest in the business and return meaningful cash to shareholders, all while further strengthening our balance sheet and liquidity position. Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in the business, including our existing store base, as well as other high return growth opportunities, such as new store expansion and strategic initiatives. Next, we seek to return cash to shareholders through a quarterly dividend payment, and when appropriate, share repurchases, all while maintaining our goal of less than 3x adjusted debt to adjusted EBITDA in support of our commitment to middle BBB ratings by S&P and Moody's.
Moving to an update on our financial outlook for fiscal 2026. Our update reflects our strong Q1 results and outlook for the remainder of the year, while also considering our efforts to mitigate ongoing inflationary pressures, as well as the potential for continued uncertainty, particularly in consumer behavior. With all of this in mind, we now expect the following for 2026. Net sales growth in the range of 3.7%-4.2%, same-store sales growth in the range of 2.2%-2.7%, and EPS in the range of $7.20-$7.45, which compares to our previous range of $7.10-$7.35. Our EPS guidance now assumes an effective tax rate of approximately 24.5%. Our expectations for capital spending and real estate projects are unchanged from what are previously stated amounts. In addition, our board of directors recently approved a quarterly cash dividend payment of $0.59 per share for Q2 2026.
While our guidance does not contemplate share repurchases this year, they remain an important part of our broader capital allocation strategy at the appropriate time. Let me provide some additional context around our updated outlook for 2026. Despite higher than anticipated fuel costs, we continue to expect gross margin expansion for the full year, driven by continued progress against our key gross margin initiatives, many of which are still early in their maturity curves. As a reminder, our initiatives include continued improvements in shrink and damages, growth in our DG Media Network, non-consumables merchandising, supply chain productivity, and category management. On the expense side, we still expect modest SG&A leverage in 2026, even as we plan to accelerate investments in key initiatives, including AI, as we look to build on our momentum and progress towards achievement of our long-term financial framework goal.
While we have received an immaterial amount of IEEPA tariff refunds payments to date, our guidance does not include any impact from tariff refunds, as the exact timing and amount of any future potential refunds remains uncertain. In closing, we are pleased with our first quarter results and strong start to the year. Looking ahead, we're excited about our plans to drive continued growth while delivering against our long-term financial framework goals. Overall, we're confident in our business model and approach to driving profitable sales growth, high returns on invested capital, strong operating cash flow, and long-term shareholder value. With that, I'll turn the call back over to Todd.
Thank you, Donny. I'll take the next few minutes to provide an update on our four strategic growth pillars, which are supported by targeted initiatives to drive long-term sustainable growth and value creation. As a reminder, these pillars include enhancing the customer experience, elevating our brand, driving greater enterprise-wide efficiencies, and extending our reach. First, we remain focused on enhancing the customer experience. Our efforts to improve the non-consumable product offering continues to resonate with customers, as evidenced by the 4.6% increase in combined non-consumable comp sales during Q1. This performance was led by strong growth in toys, including many on-trend items that are resonating with our customers. In addition, we continue to evolve and expand our successful brand partnerships during the quarter, launching three brands, including Holly Williams in our home category.
These new brands have been popular with our customers, along with other brands launched last year, such as Dolly Parton, as we continue to deliver compelling value while creating a sense of newness and excitement in our discretionary category. Beyond our in-store initiatives, we are also advancing our digital initiatives as we seek to further enhance the omni-channel customer experience at Dollar General. Our robust digital ecosystem, which includes our popular DG app and a suite of delivery offerings, is an important complement to our expansive physical store network and continues to be a key driver of incremental value and convenience for our customers. As we look to drive future growth in this area, we are focused on scaling our delivery options, personalizing the experience for customers, and growing the DG Media Network.
We continue to grow the reach of our delivery options available to customers and are now delivering from approximately 18,000 stores with our own myDG Delivery offering, as well as through third-party partners, DoorDash and Uber Eats. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers with the ability to deliver from stores to their homes within minutes. To that point, once again during the quarter, more than 80% of the orders were delivered in one hour or less, with approximately half of those orders delivered under 30 minutes, further underscoring the strength of our convenience proposition. Our rapidly growing delivery platform are becoming a more meaningful sales driver as we continue to see larger basket sizes than an average in-store transaction and strong repeat visit rate.
In fact, we estimate delivery sales contributed approximately 70 basis points to our comp sales growth of 2% in Q1. Looking ahead, we are targeting continued incremental sales growth through customer experience enhancements, increased customer awareness, and expanded loyalty opportunities, including the planned pilot of a delivery subscription program later this year. Building on the growth within this ecosystem, one of the most significant components of our digital initiative is our DG Media Network, which enables a more personalized experience for our customers while delivering a higher return on ad spend for our partners. Our DG Media Network strategy is focused on accelerating on-site performance through improved search, sponsored products, and a stronger e-commerce experience while expanding our ability to capture emerging off-site spend across social, connected TV, and video.
We're also creating more opportunities for advertisers to participate inside our stores, including our recently expanded in-store radio network, ultimately providing better connection between our digital and physical experiences. We believe this approach positions our advertising network as a strategic lever to drive profitable growth, enhance the customer experience, and strengthen loyalty across our digital ecosystem. Digital strategy is an important component to our in-store customer experience and a key driver within our long-term financial framework. Our second strategic growth pillar is elevating our brand. We have a mature store base that uniquely enables us to serve customers in smaller and more rural communities. We continue to make strategic investments in our mature stores, particularly through our Project Renovate and Project Elevate remodel programs, which we believe can drive significant sales and profit growth.
As a reminder, Project Renovate is our traditional remodel program, which impacts the entire store and includes adding or replacing coolers, as well as upgrading to our latest store format. These projects are focused primarily on stores that are seven or more years removed from opening or their last full remodel. Project Elevate is designed to further grow sales and market share in portions of our mature store base that are not yet old enough to be part of a full remodel pipeline. These projects include physical asset enhancements, merchandising updates, product adjacency adjustments, and category refreshes, all of which generally impact up to 80% of the total store. We continue to expect to execute a total of 2,000 Project Renovate remodels and 2,250 Project Elevate remodels this year.
We made significant progress on these goals in the first quarter, completing 659 Project Renovate remodels and 711 Project Elevate remodels. We continue to target annualized comp sales lifts of approximately 6% in Project Renovate stores and approximately 3% in Project Elevate stores. These projects are not only enhancing the customer experience, but also our store associate experience. In turn, we believe we can continue to improve customer satisfaction, store manager turnover, and sales. Our third strategic growth pillar is driving greater enterprise-wide efficiency. We continue to pursue opportunities to drive greater efficiencies while lowering costs across the organization, including increased supply chain productivity, further simplification in our stores, inventory optimization, and increased use of artificial intelligence. Within our supply chain, we increased productivity in both our distribution and transportation functions during the quarter, which helped us mitigate a portion of the substantial increase in our fuel cost.
Additionally, while we are still early in our AI journey, we are building an AI operating system for the enterprise, focused on reshaping our workflows to improve productivity and enablement. Overall, we are making meaningful progress advancing our AI goals, including creating shared enterprise-wide foundations and building momentum around new AI operating models. These steps have allowed us to accelerate adoption of high-value use cases, and we believe will improve how we engage with customers and how they shop with us, as well as drive greater cost efficiencies throughout the business. Our final strategic growth pillar is extending our reach. We continue to extend our unique combination of value and convenience to new communities across the country.
In Q1, we opened 190 new stores in the U.S. as part of our continued plan to open a total of 450 new stores in 2026. Importantly, these projects continue to be one of our best uses of capital, delivering healthy returns while also expanding our access to new customers and communities. In addition to our new Dollar General store growth, we continue to test, learn, and refine our strategies for international growth in Mexico. As part of our plans to open a total of approximately 10 stores in Mexico in 2026, we opened five Mi Súper Dollar General stores in Q1, bringing us to a total of 21 stores in Mexico.
While our core business proposition of value and convenience continues to resonate with customers in Mexico, we are leveraging our customer, real estate, and merchandising insights to further expand our reach and capture more of those exciting growth opportunities. Overall, we are confident in our strategy and excited about our plans to build on our progress toward these goals laid out in our long-term financial framework. In closing, we are pleased with our Q1 performance and proud of the team's effort to start this year. Our people are our greatest strategic advantage, and I want to thank our approximately 195,000 employees for their ongoing commitment and dedication to serving our customers and communities every day. Looking ahead, we believe we are well positioned to continue advancing our progress while fulfilling our mission of serving others.
With that, operator, we'd now like to open the lines for questions.