Good morning. My name is Howard, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dollar General First Quarter 2019 Earnings Call. Today is Thursday, May 30, 2019. 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 like to turn the conference over to Ms. Jennifer Beugelmans, Vice President of Investor Relations and Corporate Communications. Ms. Beugelmans, you may begin your conference.
Thank you, Howard, and good morning, everyone. On the call with me today are Todd Vasos, our CEO, and John Garratt, our CFO. 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 will include forward-looking statements about our strategy, plans, goals, or beliefs about future matters, including but not limited to our fiscal 2019 financial guidance and real estate plans. Forward-looking statements can be identified because they are not limited to statements of historical fact or use words such as may, should, could, would, will, can, believe, anticipate, expect, assume, intend, outlook, estimate, guidance, plan, opportunity, long-term, potential, or goal, and similar expressions.
These statements are subject to risks and uncertainties that could cause actual results or events to differ materially from our expectations and projections, including but not limited to those identified in our earnings release issued this morning under Risk Factors in our 2018 Form 10-K filed on March 22nd, 2019, 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 unless required by law. At the end of our prepared remarks, we will open the call up for your questions. Please limit your questions to one and one follow-up question if necessary. It is my pleasure to turn the call over to Todd.
Thank you, Jennifer, and welcome to everyone joining our call. 2019 is off to a great start, and our strong financial performance illustrates the progress we have already made against our goals for this year. This performance was driven by our innovative merchandising and marketing strategies as well as our focus on operational excellence. We delivered value and convenience across our footprint of more than 15,000 stores, and we believe our neighborhood store concept continues to resonate with our customers. As most of you know, we have a lot of exciting things happening at Dollar General, and I'm looking forward to updating you on our progress during today's call. I'll start with a few key highlights from our first quarter before turning the call over to John for a more in-depth look at our financial results.
After that, I'll walk you through the progress we're making on our four strategic initiatives, and finally, I'll highlight the continued momentum our four operating priorities are generating for the business. Turning now to our first quarter performance. We delivered comp sales growth of 3.8%. Additionally, net sales grew 8.3% to $6.6 billion compared to net sales of $6.1 billion in the first quarter of 2018. This strong net sales performance in the first quarter of 2019 showed once again that we can continue to drive sales growth from both new stores and mature stores. Additionally, during the first quarter, we continued to gain market share in highly consumable product sales, which was a key driver of our strong and balanced performance. Syndicated data indicated we had mid to high single-digit growth in both units and dollars over the 4, 12, 24, and 52-week periods ending May 4th, 2019.
Our 3.8% comp growth rate for the first quarter of 2019 resulted from both an increase in average basket size as well as our highest customer traffic growth in over a year. Driving profitable traffic to our stores remains a priority, and we're pleased to see our efforts delivering during the quarter. We saw another very strong quarter of growth in sales of consumables. Our non-consumable sales growth was driven by strong results in both seasonal and home. As part of our ongoing merchandising strategy, we continue to reduce space for hanging apparel in order to reallocate square footage to categories that our customers are shopping most in our stores. As expected, by intentionally downsizing our apparel offering, we saw a negative overall comp in apparel.
That said, we believe we are executing the right back-to-basics apparel strategy, and we are reallocating the square footage to highly productive items that our customers are seeking. As we noted in our last call, we believe sales in the fourth quarter of 2018 benefited from the acceleration of certain SNAP payments from February to January. Although the shift in these payments created a sales headwind for Q1, I'm pleased to note that we only gave back approximately half of the benefit we saw in the fourth quarter. We attribute this result to our strategic promotional activity in the fourth quarter, which we believe drove loyalty and share gains among existing and new customers as we intended. Even as we continue to gain share, we believe there is significant opportunity for us to take even more share.
We will continue to keep the customer at the center of everything we do, and we're excited about the many opportunities we have to become an even more important partner to her as we move through 2019 and beyond. With that, I'll now turn the call over to John to provide you with a little bit more detail on the first quarter financial results.
Thank you, Todd, and good morning, everyone. I'm going to walk you through the financial details of the first quarter. Unless I specifically note otherwise, all comparisons are year-over-year. As Todd already discussed sales, I will start with gross profit. Gross profit as a percentage of sales was 30.2% in the first quarter, a decrease of 23 basis points. This decrease was primarily attributable to increases in distribution transportation costs, a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than our other product categories, and sales of lower margin products comprising a higher proportion of sales within the consumables category. Partially offsetting these items were higher initial markups on inventory purchases. As we said we would, we normalized our promotional markdown activity in the first quarter, following targeted increases at the end of fiscal 2018.
SG&A as a percentage of sales was 22.5%, an increase of six basis points. The increase was primarily driven by increased employee benefits and occupancy costs as a percentage of sales, partially offset by lower repairs and maintenance and workers' compensation expenses. As we noted on our fourth quarter call, we are investing this year in our four strategic initiatives. We remain excited about the long-term transformative potential of these initiatives and believe we are making the right upfront investments in 2019 to deliver mid to long-term benefits. Moving down the income statement, our effective tax rate for the quarter was 20.8% and compares to 21.6% last year. Diluted earnings per share for the first quarter increased 8.8% to $1.48. The team did a nice job delivering the bottom line in the quarter, despite headwinds from the investments and initiatives and the change we made to our inventory replenishment process.
Turning now to our balance sheet, which remains strong. Merchandise inventories were $4.1 billion at the end of the first quarter, up 14.3% overall and an increase of 8.2% on a per store basis. As we have previously discussed, we began implementing a change to our inventory replenishment process in the first quarter that we believe will allow us to support even higher levels of on-shelf availability. As anticipated, in addition to the gross margin headwind impact in the quarter, the change also contributed to our slightly higher overall inventory levels. In addition to our inventory replenishment efforts, we are implementing more rigorous on-shelf availability processes. These processes are focused on improving the in-stock performance of stores that do not meet our standards. In the first quarter, we saw a 26% in-stock improvement in the below-standard stores.
We know on-shelf availability is a critical component of the overall customer satisfaction and convenience, and ultimately, sales. We believe that we can continue to drive improvements in this area. We continue to believe our inventory is in great shape and that these tactics position us to support and drive sales growth in fiscal 2019 and beyond. Our goal over time remains to have our inventory growth be in line with or below our sales growth. The business continues to generate significant cash flow from operations, totaling $574 million in the first quarter, an increase of $25.5 million or 4.7%. Total capital expenditures for the first quarter were $145 million and included our planned investments in new stores, remodels, and relocations, continued investments in construction of our Amsterdam, New York, distribution center, and spending related to the strategic initiatives.
During the quarter, we repurchased 1.7 million shares of our common stock for approximately $200 million and paid a quarterly dividend of $0.32 per common share outstanding at a total cost of $83 million. At the end of the first quarter, the remaining share repurchase authorization was approximately $1.1 billion. Our capital allocation priorities have served us well and remain unchanged. Our first priority is investing in high return growth opportunities, including new store expansion and infrastructure to support future growth. We also remain committed to returning significant cash to shareholders through anticipated share repurchases and quarterly dividends, all while maintaining our current investment-grade credit rating and managing to a leverage ratio approximately three times adjusted debt to EBITDA. I want to touch upon our fiscal 2019 financial guidance. As most of you know, tariff rates recently increased from 10% to 25% on certain goods from China.
As we have discussed with you on previous calls, we have been executing on a variety of efforts to mitigate the impact of tariffs on our customers and our business. Our efforts have focused on four key areas: continual negotiations with our vendors, product substitution, product re-engineering, and country of origin diversification. We will do everything we can to minimize the impact of tariffs on our customers, but even with these efforts, we believe our shoppers will be facing higher prices as 2019 progresses. Our focus remains on maintaining our everyday low price leadership, which is a key pillar of our value proposition. Even though the outlook for additional tariffs appeared to be more positive as we entered 2019, our focus on these efforts never waned. As a result of this work and our strong start to fiscal 2019, we believe we can deliver on our current 2019 guidance.
With this in mind, we are reiterating the 2019 guidance announced on March 14th, 2019. Our guidance does not contemplate the impact of any additional increases in tariff rates or the expansion of additional products subject to tariffs beyond those currently in effect. I also want to provide you with some updated color on some of our expectations. We have noted that we are seeing a more balanced transportation marketplace, which has helped alleviate some of the pressure we saw in the back half of 2018. However, fuel costs have risen more than initially forecast, and we anticipate these costs could be a gross margin headwind throughout 2019. Despite transportation and tariff headwinds, we continue to believe that we should see improvements in the gross margin year-over-year comparison as we move throughout the year. Regarding SG&A, we continue to expect to spend approximately $50 million on our strategic initiatives in 2019.
While we expect these expenses to sequentially increase throughout the remainder of the year, we anticipate that the overall impact of these investments will most significantly pressure operating profit in the second quarter. As anticipated, the change we made to our inventory replenishment process resulted in a higher inventory level at the end of the first quarter, and we expect to see somewhat elevated levels throughout 2019. We are very pleased with our strong first quarter and are proud of the team's execution. We believe our guidance reflects the strong start to the year while contemplating known headwinds, as well as the fact that there is still a lot of year left ahead of us. As always, we continue to be disciplined in how we manage expenses and capital, with the goal of delivering consistent, strong financial performance while strategically investing in initiatives for long-term growth.
We remain confident in our business model and our ongoing operating priorities to drive profitable same-store sales growth, healthy new store returns, strong free cash flow, and long-term shareholder value. With that, I will turn the call back over to Todd.
Thank you, John. We're very pleased with the first quarter results and the strong start to 2019. We have an innovative, robust portfolio of initiatives that are beginning to gain momentum, I want to take the next few minutes to update you on the progress we made this past quarter. Starting with our non-consumable initiative, or NCI. As a reminder, NCI is our early-stage initiative focused on a new, expanded product offering in key non-consumable categories of home, domestics, housewares, party, and occasion. The NCI offering was available in more than 1,100 stores at the end of the first quarter, We plan to include it in approximately 2,400 stores by the end of 2019. We have learned a lot from these stores, We are already applying the lessons learned from successes in many non-consumable departments across the chain.
We're very excited about the results we're seeing from these stores have now moved through many replenishment cycles. We are seeing lifts in non-consumable sales, particularly within seasonal at home, also delighted to be seeing a positive halo effect in consumable sales. Additionally, while it's still early, we're seeing a positive impact on customer traffic in these stores. As a result, we are driving higher sales and seeing improvements in both mix and gross margin in these stores. Next, I want to update you on DG Fresh, which is one of the newest strategic initiatives we introduced in our Q4 call in March. As a reminder, DG Fresh is a strategic, multi-phase shift to self-distribution of frozen and refrigerated goods, such as dairy and deli.
We began shipping from our first DG Fresh facility in Pottsville, Pennsylvania, in January, We are serving more than 800 stores in the Northeast. While it's still early, we're already successfully reducing product cost on these types of items. We believe that we continue to scale DG Fresh, it will meaningfully improve our gross margin. Two other important goals for DG Fresh are to drive higher on-time delivery and in-stocks, We're encouraged by the early results, which are in line with our projections. In addition to the gross margin and in-stock benefits, DG Fresh will eventually allow us to control our own destiny in these categories. This will include a wider selection of both national and private brands that our customers seek, as well as enhanced offering of better-for-you items.
While produce is not included in the initial rollout, we believe DG Fresh could provide a path forward to expanding our produce offering to more stores in the future. We have signed leases on three more DG Fresh facilities that we intend to open in 2019. We plan to begin shipping from our second facility in Clayton, North Carolina, within the next few weeks. For fiscal 2019, our goal remains to roll out our self-distribution model to as many as 5,000 stores from up to four facilities. We're excited about DG Fresh and the many benefits it can deliver for our customer and our business, and we believe it can be accretive as early as 2020. Turning now to digital. During the first quarter, the team continued to make great strides in deploying technology to further enhance the in-store experience.
One great example of this work is our launch of the all-new Dollar General app, which redesigns the coupon clipping experience for our customer, removing friction in the clipping process in several ways. Our customers can now search for coupons by product category, type, or name, and they can also use the app to scan a product and search for any available coupon. In addition, we've introduced new features that help integrate our digital and traditional media, including an interactive circular. We are very excited with the early feedback. Our digital coupons continue to grow in popularity with our customers, and we now have approximately 17 million digital coupon subscriber accounts, and more than 300 million digital coupons were clipped in the first quarter. We also continue to innovate within the DG Go app.
As a reminder, this app allows customers to use their phones to scan items as they shop, see a running total of items in their basket using our Cart Calculator, and then skip the line by using the DG Go checkout. Through the end of the first quarter, we have had more than 200,000 downloads of DG Go and are averaging more than 40,000 monthly active users. We have DG Go checkouts in approximately 250 stores, and our goal is to have DG Go in approximately 750 stores by the end of the fiscal year. We have previously noted that our customers are using the Cart Calculator functionality frequently as a budgeting and optimization tool, even when they are not using DG Go to check out. Based on this insight, we intend to make Cart Calculator available in more than 12,000 stores by the end of the fiscal year.
As we move through 2019, we will continue to focus our efforts on developing new tools to enhance the value and convenience proposition for our customers. For example, we're working on consolidating our DG Go and Dollar General coupon apps into one easy-to-use, customer-friendly app. Additionally, we're identifying opportunities to harness the power of the data we have available to us and how we use that data to increase our ability to personalize the shopping experience for our customers. We will continue to evolve our digital suite of tools to serve not only the customers we have today, but also the customers of the future. Our digital strategy is an important component of our long-term growth strategy, and we're excited about the many opportunities ahead. Our fourth strategic initiative is Fast Track.
Fast Track is a two-pronged approach to increasing labor productivity in our stores, enhancing customer convenience, and further improving on-shelf availability. There are two key components to Fast Track. First, we are streamlining the stocking process in our stores. This starts with an update of sorting processes at our distribution centers that is facilitating our ability to optimize the way we pack our rolltainers. Our goal is to reduce the number of steps required to get product from truck to our store shelves. To help you visualize this, our goal is that each rolltainer only contain products for one or two adjacent aisles. While this may sound simple, the improved efficiencies from this change are expected to save a significant amount of store labor that can be redeployed to other customer-facing activities or channeled into labor productivity gains.
Our goal is to complete the resorting process in all existing traditional distribution centers by the end of 2020. As part of our streamlined stocking process, we will also look to incorporate more shelf-ready packaging. While this will take a little bit more time to achieve, we believe we can reduce the number of case packs that must be broken apart, and thus reduce the amount of time spent restocking shelves between deliveries and/or reduce the number of items mischaracterized as an out of stock. This should have a positive impact to us on on-shelf availability, as items that may appear to be out of stock that are actually either on our sky shelves or in our back room. The second key component of Fast Track is a self-checkout test, which will allow customers to scan and pay for their items with little to no assistance from our associates.
We believe this checkout option can further improve speed of checkout for our customers and reduce the number of labor hours devoted to checking out our customers. Our goal is to begin the self-checkout pilot in select stores later in 2019. As John mentioned, while there will be a significant SG&A price tag for Fast Track in 2019, an upfront one, we believe that it can enhance customer convenience and also drive SG&A expense over time. We believe we are the innovative leader in our channel, and we are excited about our long-term strategic initiatives. We remain committed to our four operating priorities, and I want to take our last few minutes to update you on some of the recent efforts. Our first operating priority is driving profitable sales growth. Cooler door expansion continues to be the most impactful merchandising initiative. We began our cooler expansion efforts in earnest in 2013.
In addition to being a great traffic and ticket driver, our success in expanding our cooler footprint has provided the scale necessary to initiate DG Fresh. In the first quarter, we added more than 12,000 cooler doors across the chain. We also increased the number of stores with our Better For You offering in the first quarter, bringing the total for the chain to approximately 3,400 stores. Our new Good & Smart private brand continues to be popular with our customers, and it remains an important part of our Better For You offering. We have many ongoing efforts in the health and beauty area in 2019. Most recently, we launched Believe, our private cosmetic brand, with all items priced at $5 or less. We have seen great initial customer response to this aspirational brand, and we are excited for more of our customers to try these goods over time.
The final merchandising initiative I want to highlight today is the partnership with Western Union, as we announced in the first quarter. This is a great opportunity to leverage our real estate footprint to offer our customers the ability to send or receive cash in more than 15,000 convenient locations. This agreement creates value for Dollar General in two key ways. First, we receive a commission for each transaction, and second, by delivering a new service that our customers want. We believe that it can become a traffic driver over time. As you hear from us frequently, the customer is at the center of everything we do, and this new service is another great example of offering her solutions she wants. Beyond these sales-driving initiatives, we are continuing efforts to capture several gross margin opportunities.
In addition to the gross margin benefits of NCI and DG Fresh, reducing shrink remains an important opportunity for us. We rolled out nearly 900 more electronic article surveillance units in the first quarter, bringing the total number of stores with EAS to approximately 11,000. Our goal remains to have EAS in approximately 13,000 stores by the end of the year. We also continue to pursue distribution and transportation efficiencies to support our profitable sales growth. As John noted, we are seeing some continued inflation in 2019 in transportation costs, primarily from fuel rates, which further emphasizes the importance of these efforts. For example, we continue to make progress in reducing stem miles, and our Longview distribution center has ramped up nicely since we began shipping in January. We intend to begin shipping from our distribution center in Amsterdam, New York, later this year.
We also further expanding our private fleet and intend to grow it by at least another 75 tractors by the end of fiscal 2019. This year's private fleet expansion will be largely focused on our DG Fresh facilities, and we believe it remains an important part of our overall transportation strategy. Finally, foreign sourcing remains a long-term gross margin opportunity, and our goals include increasing penetration as well as diversifying countries from which we source. The team is successfully finding products in key categories that can be sourced internationally, and we believe there are many additional products and channels to explore. Our second priority is capturing growth opportunities. Our proven high-return, low-risk model for real estate growth remains a core strength for our business. Our real estate model continues to focus on the five metrics that have served us well in evaluating thousands of new stores in recent years.
These metrics include new store productivity, actual sales performance, average returns, cannibalization, and the payback period. Even as we see changes on the competitive landscape, our real estate projections continue to perform well against these metrics, reinforcing our belief that new store growth is the best use of our capital. Our remodel and relocation program is a great supplement to our new store growth strategy, and overall, we continue to see strong results from our portfolio of real estate projects. We made tremendous progress toward achieving our real estate project goals in the first quarter. During the quarter, we opened 240 new stores, remodeled 330 stores, including 128 DGTP remodels, and relocated 27 stores. We also added produce to approximately 50 stores, bringing the total of stores across the chain offering produce to approximately 480.
As a reminder, on average, our traditional remodel stores, which have an average of 22 cooler doors, deliver a 4%-5% comp lift, and a DGTP remodel, which has an average of 34 higher-capacity coolers, delivers a 10%-15% comp lift, with the addition of produce driving comps to the high end of this range. We have a robust real estate pipeline in place. We are excited about the continued growth ahead of us in 2019. Our third operating priority is to leverage and reinforce our position as a low-cost operator. The discipline with which the team approaches spending continues to be a great strength. Our clear and defined process to control expenses governs spending decisions and has resulted in a strong cost control mindset. We continue to focus efforts around the organization on reducing costs where possible through a zero-based budgeting process.
While this operating philosophy is generally focused on cost reduction, it has also proven to be a great springboard for many of the ideas. In fact, this process was the foundation for both Fast Track and Western Union. We believe it continues to serve us well as we reinforce our position as a low-cost operator. Our fourth and final operating priority is to invest in our people as we believe they are a competitive advantage. We believe the opportunity to develop a career with a growing retailer is unique in many of the communities we call home. We are proud of the thousands of associates who have taken advantage of this opportunity. More than 11,000 of our current store managers are internal promotes. We continue to champion strong development and training programs for our associates to grow.
On the supply chain side, our first class of employees has completed the private fleet driving training program. This program pays for distribution center associates to obtain their commercial driver's licenses and furthers their careers. We keep a close eye on key metrics related to our people. We are pleased with what we are seeing. We continue to have a robust applicant flow at every level. Additionally, while it's still early in the year, store manager turnover is trending better in 2019 than 2018, which was our best year on record. We are continually engaging with our entire employee base. We believe this dialogue is vital to cultivating the strong Dollar General culture. Remaining an employer of choice is an important priority for us. We believe that we are well-positioned to continue to attract and retain talent.
In closing, we are very pleased with our strong first quarter and excited about our position and outlook for the remainder of 2019. As we said we would, we are driving growth on multiple fronts. I'm delighted with the team's ability to deliver across so many complex projects simultaneously. Our real estate growth strategy is generating thousands of new store openings and remodels. We have a portfolio of robust initiatives in place that we believe will have a meaningful, positive impact on our business for years to come. In short, we are using our mature and stable business as a foundation to drive innovation and growth. We believe we operate in the most attractive sector in retail. We continue to differentiate the Dollar General business from the rest of the retail landscape through our distinct combination of value and convenience in a unique real estate footprint.
Our mission of serving others guides all we do at Dollar General, the team remains focused on serving our customers every day while driving long-term value for our shareholders. I want to thank each of our more than 137,000 employees across the company for all of their hard work every day. I'm excited about what we can accomplish together in 2019. With that, operator, we would now like to open the lines for questions.
Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, if you have a question or comment at this time, please press star then one on your telephone keypad. Our first question or comment comes from the line of Matt Boss from JPMorgan. Your line is open.
Morning, Matt.
Hey, congrats on a great quarter, guys.
Thank you.
Thank you.
Todd, maybe to start off, you outlined a laundry list of top-line initiatives underway. I think you probably could have hosted an analyst day for how much is clearly going on. I guess maybe could you help segment opportunities you think contributed to your first quarter comp, what you're the most excited about maybe into the back half of the year versus initiatives you see accelerating into next year and beyond?
Sure. Our cooler program continues to be one of the key drivers, Matt, to what we've seen in our success so far in 2019 and also what we've seen in the past. What I'm also excited about is what we're seeing in a lot of the initiatives that we continue to work on in our HBA world, as an example. The teams are doing a great job there, and the customer is really resonating to our great prices, our values, as well as our extensive private brand and national brand offering in those areas. They continue to do very well, and our new cosmetic line, Believe, I think will continue to build momentum as we move into the second quarter and back half of this year.
As you look at the later parts of this year and into next, we believe that many of our initiatives, including NCI, will continue to build momentum. Also our DG Fresh initiative, as I look at that over the long term, later this year and into next, it's already starting to deliver the gross margin that we see through better cost of goods. Also, it's showing us that we can be better in stock by controlling our own destiny there. So we believe that'll start paying even more dividends as we move to the back half of the year. We're very bullish on what we see in our top line right now, and we'll continue to push as much as we can to continue to see these great results as we move through the back half of the year.
Great. Maybe just a follow-up. On the SG&A front, excluding the incremental $50 million of initiative spend, any underlying change to the 2.5%-3% comp as the expense leverage point? Todd, I guess larger picture, is it fair to think about this year's strategic initiatives build as a peak level as you kind of look forward?
Yeah, I'm going to jumpstart and I'll add a little color.
Yeah. In terms of SG&A, we're pleased with the Q1 cost control. We de-leveraged six basis points. As we'd mentioned, we're investing in initiatives for future growth. There was somewhat of a shift from Q1 to Q2, very pleased with the cost control. In terms of the leverage point, as we discussed before, there is an impact as you're investing in things like DG Fresh, which we see as enhancing our operating margin over time. That does put pressure on SG&A as you're investing some labor in the stores and other initiatives like that. I would say we remain laser focused on cost control. We don't see it differently, the main change here is that dynamic of investing in these strategic initiatives, which we see as helping our operating margin and being as accretive as early as next year.
Thank you. In the interest of time, we ask that you please limit yourself to one question and one follow-up, please. Our next question or comment comes from the line of Michael Lasser from UBS. Your line is open.
Thanks for taking my question. Given the success you had in the first quarter, why shouldn't we expect a comp that's better than the 2% that's implied in your full-year comp guidance of 2.5% over the next few quarters?
Yeah. Hi, Michael, this is Todd. When I look at the rest of the year, we do feel very good about where the comp is headed. We've got a lot of year ahead of us, right? There could be a lot of noise out there. We don't know what this last list of tariffs may or may not do to our core consumer and really the consumer base in general. I think our guidance reflects appropriately where we are today and where those risks still may lie. We're doing everything we can to continue to drive that top line, and of course, drive traffic. Our key here is traffic, and traffic is king. We know that. All of our efforts around our sales are really guided by that traffic growth.
On the subject of tariffs, we know that 5% of your sales come from direct imports, with China being one of those countries. Do you have an overall estimate of your cost of goods exposure to China if the list four does go through?
As you indicated, it's about 6% of our purchases measured at cost are tied to direct imports, predominantly China-centric, although we have been diversifying in recent years. This is an impact facing all retail. Our exposure is relatively lower compared to many. The team has been working very diligently to mitigate this impact, as evidenced by the updated guidance or the guidance that we maintained. The team is working on continual negotiations with vendors, product substitution, product re-engineering, and continuing to change the origin of countries where it's coming from. We're doing everything we can to minimize the impact on the customers. As you know, this is probably something that's going to impact the customers, particularly if the list 4 comes out. I'd rather not speculate on what that impact will be.
Hard to say how things will shake out there. We believe that we're very well positioned to serve our customer, and we're priced right, we're conveniently located, and we're there to help her in good times and bad.
Michael, I'll just add as well. Remember, we're a limited SKU retailer, meaning we don't have to carry everything, and we can make decisions on what to carry and what not to carry depending on cost of goods and what may or may not increase. I think the team has done a real nice job in the first few lists. While list 4 is very extensive, that work is ongoing right now as well. Stay tuned. We're hoping that there'll be some resolution here. Make no mistake that if list 4 goes in, will cost the consumer during and with her budgets. The great thing is, though, I believe that Dollar General stands ready to be able to serve that customer because she'll need us more at that time.
Sounds good. Thank you so much and good luck.
Good luck.
Thank you. Our next question or comment comes from the line of Karen Short from Barclays. Your line is open.
Hi, thanks very much. Great quarter.
Thank you.
Just a question. In terms of having such a strong one Q, obviously you indicated there will be more SG&A pressure in two Q. I guess any thoughts on keeping kind of the full year overall guidance, given that some of these costs have moved in the second half and gross margin compares also get quite a bit easier?
Yeah. I'll start by saying we feel great about the fundamentals of the business and the strong start to the year. As I did note, there was some investment spending shifted from Q1 to Q2. Importantly, we absorbed the impact of the recently enacted tariff increases not previously assumed into the guidance. As Todd mentioned, there's still a lot of year left. The comp laps are a little tougher as the year goes on. We feel great about the business, we feel comfortable about the guidance we've provided, and we're very pleased with the start of the year.
Okay. Just switching to comps for a second. On the NCI, maybe can you give a little bit of color on the comp lift that you're seeing in those stores and also the margin impact? You made a comment on the 26% improvement, I guess, in-stocks at the below standard stores. Any color you can give us on the comp benefit from having the better in-stocks?
Sure. On the NCI program, we're very pleased with the early results there. The team has done a really nice job in procuring goods. We're now into our fourth and fifth replenishment cycle. Some of the product that I've seen recently with this newest wave is even better than the previous one. I could tell you that we feel very good with what we're seeing. We're seeing overall lifts in the store, both in our non-consumable areas and our consumable areas. We're getting a very nice halo effect out of that. Not only are we seeing those lifts in our top-line sales, we're seeing gross margin benefits, of course, in our non-consumable area, but overall as well for the entire box. We're feeling very good about where we're going.
We'll do up to 2,400 stores this year and looking to see how we accelerate that as we move into 2020 and beyond. Again, we feel very good. Your second part of the question was on the in-stock piece. We've been working very hard, started at the end of last year, in re-looking at how we look at on-shelf availability. Very proud of what the team has done in and around making sure we have product on the shelf for our consumers. Now, it did come with a little bit of a cost of some inventory. As you alluded to, and we talked about in our prepared remarks, we're seeing in the 20% range increase of on-shelf availability, meaning in stocks for our customer. I could tell you that in those stores, it's meaningful, and it does add to the comp.
We'll continue to work that piece. As I also talked about, as Fast Track continues to move forward, and this would probably be more into the late 2019 and into 2020, we're going to be getting some on-shelf availability benefits from that as well as we continue to reduce those case packs and rationalize our SKU base on the shelf to better keep our in-stock levels on fast movers. Stay tuned for more of that. We believe that will pay some real benefits as we move into the end of the year and into 2020.
Great. That's helpful. Thanks.
Thank you. Our next question or comment comes from the line of Paul Trussell from Deutsche Bank. Your line is open.
Good morning, great quarter.
Thanks, Paul.
The gross margin performance in one Q was better than my forecast. Just curious how it stacked up to your expectations. Previously, you had mentioned that you expected the most pressure on a year-over-year basis in one Q. Just want to make sure that guidance still stands and just give some overall puts and takes on GPM.
Yeah. We were pleased with the performance in Q1. We'd indicated that on our Q4 call that Q1 would be pressured. We did say that we expected to see sequential improvement on a year-over-year basis as we went from Q4 to Q1. Nonetheless, we did see pressure from the change in the replenishment process, as well as the ongoing pressure of distribution transportation costs and the ongoing mix pressures. However, as we said we would, we were successful in normalizing the promotional markdown costs while at the same time delivering strong comps and traffic. We're very pleased with that. The team did a great job managing through the various headwinds, as we said in our prepared statements, we expect to see further sequential improvement over the balance of the year on a year-over-year comp basis.
Longer term, we believe we have a lot of opportunities to increase not only gross margin, but operating margin over time. As Todd indicated, we're very excited about the progress we're making on DG Fresh. As we convert items and convert stores, we're seeing the benefits and the cost savings we expected there. Very pleased with what we're seeing from NCI in terms of not only the sales lift, but also the improvement that adds to mix. We're investing more in EAS units. We're going to be adding another 3,000 this year. We've seen great success from that and the benefit it has on shrink. There continues to be opportunities for us with category management, increasing foreign sourcing penetration, increasing private label penetration, and we mentioned the non-consumable opportunity.
Lastly, while we did see pressure from transportation costs in Q1 and fuel remained a pressure, we're very pleased by what we've seen in terms of the proactive efforts of the team to mitigate these efforts and take advantage of an improving environment. We're optimistic that over the long term, we can not only maintain but enhance overall operating margin over the long term. That's the way we look at it.
Thanks for that color. Just as a follow-up, Todd, could you maybe just speak bigger picture to what your core consumer is saying about their financial health and overall sentiment on the economy? Maybe rank for us, as you look in your stores, comp gains occurring from your core customer coming more frequently versus shopping the store more broadly versus actually getting that trade down from higher income shoppers. Thank you.
Sure, Paul. When you look at our gains, our core consumer is continuing to tell us, "I feel pressured." Again, this core consumer always is under pressure financially. Her income levels are on the lower end, as we all know. In saying that she continues to tell us that she's back to work. She continues to tell us that she has got a little bit more money in her pocket, more so from productivity, meaning working more hours than actual wage growth, but yet more money. She has headwinds, make no bones about it. She still has headwinds of healthcare being one of the largest. Rents continue to be out there for her as a headwind. As we looked into last year, when we started to hear from our consumer that she was feeling a little bit more stressed, we continue to hear that.
What we do very well here is we're able to move our promotional activity, our mix inside the store, our end cap presentations to match where we believe she will be. We did that in the first quarter, and I believe very successfully. We'll continue to do that as our customer tells us where she believes she'll be in her journey as we move through 2019. As you look at our consumers overall, though, I would tell you that our consumer that makes a little bit more money, so that next level up consumer, is our fastest-growing consumer that we have here at Dollar General. That trade-in is alive and well. It's not coming at any cost of our core consumer, and our core consumer continues to come more often, as well as we're seeing that she's spending more when she's in the store.
We're both getting the transaction growth side and that basket side. We feel very good about our customer segments and where they're headed. The great thing is we're attracting a higher-end consumer, I believe, because of all of the work that we've done in this box over the years.
Thanks so much. Best of luck.
Thank you. Our next question or comment comes from the line of Rupesh Parikh from Oppenheimer. Your line is open.
Good morning. Thanks for taking my question. Also congrats on a nice quarter.
Thank you.
I had two questions on your DG Fresh effort. I guess first, anything that has surprised you thus far? I know it's only been a few months at this point. Then as you think longer term or even in the intermediate term, how do you think about what flows to the bottom line versus being reinvested in the business from some of the gross margin benefits that you expect to see?
Right now I would tell you that the DG Fresh initiative is really performing about where we thought it would perform. Again, our teams are very good at executing very complex projects. This, as you could imagine, is one of the big ones. I would tell you, opening 1,000 stores a year and remodeling another 1,000 is no easy feat. We're very good at this type of work, and I would tell you that DG Fresh was no different. It's executing as we thought and are producing the results that we thought. You heard from John, we're seeing the cost of goods savings. We're seeing better in-stocks already at store level, and we're only 800 stores in. More to come as we move through the next cycles of this. The great thing is the plan is rolling out as designed.
We've already got all four of our DCs signed and ready to go, the next one will be shipping here in the next few weeks. We feel good about that. As you continue to look at DG Fresh on that margin rate, the great thing about Dollar General is we never took our eye off of price, whether that be in our fresh area or our dry areas of the company. We're priced very well across the board. I would tell you that we feel very good about that, and we feel very good about those margin gains that should come from this over time. The majority of it should drop to the bottom line, which is very exciting.
Great. One quick follow question. Weather clearly a challenge last year, and it appears also a challenge in Q1. Just curious if you guys think it had a negative impact on your business.
What I would say is there are a lot of puts and takes between weather lapsed, weather this year, and the pull forward of the SNAP benefit. When you net all that together, all that noise together, it's about a push. Really, the 3.8% comp was a solid 3.8% comp, not impacted by any real outside noise.
Great. Thank you.
Thank you. Our next question or comment comes from the line of Anthony Chukumba from Loop Capital Markets. Your line is open.
Good morning. Thanks for taking my question. Related question on comps. In the first quarter, obviously, you had the pull forward because of the SNAP benefits of 70 basis points. It sounds like you got half of that back. Tax refunds looked like were a little bit lower than people expected. Weather was pretty bad. Putting that all together, what do you think allowed you to do close to a 4% comp with those three headwinds? Was it macro, or was it more about the positive impact of a lot of the initiatives that you talked about on this call? Thank you.
Yeah. I would tell you that our core consumer, again, has a little bit more money in their pocket. I would tell you, when you look at the performance and as we see it broken down in the categories that we watch very closely here, many of our gains occurred from the initiatives that either we worked through in 2018 that are continuing to still pay off and even some of those early 2019 ones. It gives us a lot of confidence that we're on the right track and as we move through the rest of this year.
That's helpful. Thanks a lot.
Thank you.
Thank you. Our next question or comment comes from the line of Scot Ciccarelli from RBC Capital Markets. Your line is open.
Good morning, guys. I know a bunch of people have asked about the comp momentum, Todd, specifically, you talked about how last year, where we generally saw rising average ticket but softer traffic was due to the relative health of your core customer and trip consolidation. I guess what I'm trying to figure out is, what specifically changed this quarter? You'd mentioned core expansion earlier in the call, but you've been expanding core doors for years. I guess what I'm trying to figure out, specifically in Q1, maybe what changed on the traffic front. Thanks.
Yeah. I think the best way to look at this is two things. Number 1, I mentioned earlier, this core consumer started to signal middle of last year that she was feeling a little bit more pressured, not feeling as robust as she did. I would tell you that this core consumer, her shopping patterns and habits are changing a little bit. We're seeing it. Maybe moving more back to what we were used to seeing with maybe not quite as a full basket, and coming a little bit more often. Now, one quarter doesn't make a year, we're going to continue to watch what she does. In Q1, we saw some start of that normalization back to where this core customer normally is resonating at.
The other thing that I would tell you in Q1 specifically is the actions we took in Q4 promotionally to really solidify that customer in Q4 did exactly what we thought and brought forward that customer in a very sticky manner, if you will, to Q1, and she spent accordingly. We feel good about that initiative in Q4. It did exactly what we thought in Q1, and I believe that was a big piece of why we only gave back half of that SNAP benefit that we pushed into Q4 last year from that top line.
Interesting. Okay, thanks guys.
Thank you. Our final question comes from the line of Kelly Bania from BMO Capital Markets. Your line is open.
Good morning. Thanks for fitting me in. Wanted to ask another one about tariffs. Sounds like you did a lot of work there to mitigate that and do some substitutions. I just was wondering if you can help us understand how much price you expect to pass along, and maybe too early to tell from a competitive standpoint, but how do you think you performed on that mitigation strategy relative to competitors? How much price do you think really we're going to see being passed through broadly?
Yeah. You take a look at Dollar General, and again, we've been all along, many years now, we ensure that we have the right price for our consumer. We watch price very closely here. The other thing to keep in mind about Dollar General I mentioned earlier is we don't have to carry everything. We're a limited SKU assorted retailer, and we can make decisions based on a lot of different factors to include price, meaning cost of goods. We'll continue to do that as we move through these tariffs. I think our teams have done a great job to date. I would tell you, even through the first three lists, if you will, we've seen in the marketplace, the consumer is paying a little bit more money across the board in the marketplace.
With list four looming out there, which is probably, well, not probably, it is the biggest impacted list, I would have to assume the consumer is going to bear the brunt of some of this as well. We're doing everything we can here at Dollar General to make sure we soften that blow. Again, the great thing is this model works so well in good times and not so good times. If this consumer is having to pay more across the board at every retailer because of these tariffs, we'll stand ready to be able to, with open arms, to take her in when she needs us most. We're positioning ourselves for that as we move through 2019.
Okay, thanks. Maybe just to follow up on the prior question about the stickiness and the promotional activity that you did last quarter. How do you expect that, or do you expect that stickiness to continue to impact your consumer and the traffic patterns for the rest of the year?
Yeah. What we see normally is that stickiness does stay with us for a couple quarters. We believe that we'll still see some benefit from that as we move into Q2. May not be quite as much as Q1, but again, we feel very good about where we are in our start to the fiscal year. We feel that customer resonates very well with price and value. We know that, and we continue to offer that. Even though that we've normalized the promotional activity, you got to remember who Dollar General is, and that is everyday low price on the shelf that she can count on, and she sees that when she's in the store each and every day.
Again, we feel very good about our competitiveness on price, and we feel good about our both traffic and ticket as we move into the second quarter and back half of this year.
Thank you.
Thank you. That concludes our Q&A session today. I'd like to turn the conference back over to management for any closing remarks.
Thank you very much, and we hope to talk to you soon. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.