Thank you, good morning, everyone. On the call with me today are Todd Vasos, our CEO, Jeff Owen, our COO, 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 include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our strategy, plans, initiatives, goals, priorities, opportunities, investments, guidance, 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, including, but are not limited to, those identified in our earnings release issued this morning under Risk Factors in our 2020 Form 10-K filed on March 19th, 2021, 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 on this call unless required by law. We also may reference certain financial measures that have not been derived in accordance with GAAP. Reconciliation to the most comparable GAAP measures are included in this morning's earnings release, which, as I mentioned, is posted on investor.dollargeneral.com under News and Events.
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. Now, it is my pleasure to turn the call over to Todd.
Thank you, Donny, and welcome to everyone joining our call. We are pleased with our strong start to fiscal 2021, and I want to thank our associates for their unwavering commitment to supporting our customers, communities, and each other. As a testament to their efforts, our first quarter results exceeded our expectations, reflecting strong underlying performance across the business, which we believe was enhanced by the most recent round of government stimulus payments. The quarter was highlighted by net sales growth of 16% in our combined non-consumable categories, a 208 basis point increase in gross margin rate, and double-digit growth in diluted EPS. Despite what continues to be a challenging operating environment, we are increasing our sales and diluted EPS guidance for fiscal 2021 to reflect our strong first quarter performance. John will provide additional details on our outlook during his remarks.
As always, the health and safety of our employees and customers continue to be a top priority while meeting the critical needs of the communities we serve. We believe we are uniquely positioned to continue supporting our customers through our unique combination of value and convenience, including our network of more than 17,000 stores located within five miles of approximately 75% of the U.S. population. Overall, we are executing well against our operating priorities and strategic initiatives as we continue to meet the evolving needs of our customers and further position Dollar General for long-term sustainable growth. Now let's recap some of the top-line results for the first quarter. As we lapped our most difficult quarterly comp sales comparison of the year, net sales decreased 0.6% to $8.4 billion, driven by a comp sales decline of 4.6%.
Notably, comp sales on a two-year stack basis increased a robust 17.1%, which compares to the 15.9% two-year stack we delivered last quarter. Our first quarter sales results include a decline in customer traffic, which was partially offset by growth in average basket size. While customers continue to consolidate trips on average, they continue to spend more with us compared to last year. From a monthly cadence perspective, comp sales increased 5.7% in February, despite a headwind from inclement weather across the country. For the month of March, which represents our most difficult monthly sales comparison of the year, comp sales declined 11.2%. Importantly, beginning in mid-March and in line with the timing of stimulus payments, we saw a meaningful acceleration in sales relative to the first two weeks of the month, especially in our non-consumable categories.
Comp sales declined 4.3% in April, and while year-over-year growth in non-consumable sales moderated in comparison to March, they were positive overall despite a more challenging lap. Overall, each of our three non-consumable categories delivered a comp sales increase for the quarter. Of note, comp sales growth of 11.3% in our combined non-consumable categories and 29.8% on a comparable two-year stack basis significantly exceeded our expectation and speaks to the continued strength and sustained momentum in these product categories, enhanced by the benefit from stimulus. Once again this quarter, we increased our market share in highly consumable product sales as measured by syndicated data.
Importantly, we continue to be encouraged by the retention rates of new customers acquired over the past several quarters and are working hard to drive even higher levels of engagement with more personalized marketing and continued execution of our key initiatives. We recently published our third annual Serving Others Report, which provides context related to our ongoing ESG efforts, as well as new and updated performance metrics, and we look forward to continued progress on our journey as we move ahead. Collectively, our first quarter results reflect strong and disciplined execution across many fronts and further validate our belief that we are pursuing the right strategies to enable sustainable growth while creating meaningful long-term shareholder value.
We operate in one of the most attractive sectors in retail and believe we are well-positioned to continue advancing our goal of further differentiating and distancing Dollar General from the rest of the discount retail landscape. As a mature retailer in growth mode, we are also laying the groundwork for future initiatives, which we believe will unlock even more growth opportunities as we move forward. In short, I feel very good about the underlying business, and we are excited about the opportunities that lie ahead. With that, I'll now turn the call over to John.
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 its 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 will start with gross profit, which we believe was positively impacted in the quarter by a significant benefit to sales, particularly in our non-consumables categories from the most recent round of government stimulus payments. Gross profit as a percentage of sales was 32.8% in the first quarter. As Todd noted, this was an increase of 208 basis points and represents our eighth consecutive quarter of year-over-year gross margin rate expansion.
This increase was primarily attributable to higher initial markups on inventory purchases, a reduction in markdowns as a percentage of sales, a greater proportion of sales coming from our non-consumables categories, and a reduction in shrink as a percentage of sales. These factors were partially offset by increased transportation costs, which were primarily driven by higher rates. SG&A as a percentage of sales was 22%, an increase of 152 basis points. This increase was driven by expenses that were greater as a percentage of net sales, the most significant of which were store occupancy costs, disaster expenses related to Winter Storm Uri, retail labor, and depreciation and amortization. Moving down the income statement, operating profit for the first quarter increased 4.9% to $908.9 million. As a percentage of sales, operating profit was 10.8%, an increase of 56 basis points.
Our effective tax rate for the quarter was 22% and compares to 22.2% in the first quarter last year. Finally, EPS for the first quarter increased 10.2% to $2.82, which reflects a compound annual growth rate of 38% over a two-year period. Turning now to our balance sheet and cash flow, which remained strong and provided the financial flexibility to continue investing for the long term while delivering significant returns to shareholders. Merchandise inventories were $5.1 billion at the end of the first quarter, an increase of 24.2% overall and a 17.6% increase on a per store basis as we cycled a 5.5% decline in inventory on a per store basis, driven by extremely strong sales volumes in Q1 2020.
In anticipation of a more challenging supply environment, we strategically pulled forward certain inventory purchases during the quarter, particularly in select non-consumable categories, to better support the sales momentum we were seeing in the business. While out-of-stocks remain higher than we would like for certain high-demand products, we continue to make good progress with improving our in-stock position and are pleased with the overall quality of our inventory. The business generated significant cash flow from operations during the quarter, totaling $703 million, a decrease of 60%, but which reflects a compound annual growth rate of 11% over a two-year period. This decrease was primarily driven by higher levels of inventory as a result of improving inventory positions, including the pull forward of certain inventory purchases I mentioned earlier.
Total capital expenditures for the quarter were $278 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 repurchased 5 million shares of our common stock for $1 billion and paid a quarterly cash dividend of $0.42 per common share outstanding at a total cost of $100 million. At the end of Q1, the remaining share repurchase authorization was $1.7 billion. Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in high return growth opportunities, including new store expansion and our strategic initiatives. We also remain committed to returning significant cash to shareholders through anticipated share repurchases and quarterly dividend payments, all while maintaining our current investment-grade credit rating and managing to a leverage ratio of approximately three times adjusted debt to EBITDA.
Moving to an update on our financial outlook for fiscal 2021. We continue to operate in a time of uncertainty regarding the severity and duration of the COVID-19 pandemic, including its impact on the economy, consumer behavior, and our business.
Despite continued uncertainty, as Todd mentioned, we are increasing our full year guidance for sales and EPS due to our strong Q1 outperformance, which we believe was aided by the latest round of stimulus. For 2021, we now expect the following: net sales in the range of a 1% decline to an increase of 1%, a same-store sales decline of 5%-3%, but which reflects growth of approximately 11%-13% on a two-year stack basis, an EPS in the range of $9.50-$10.20, which reflects a compound annual growth rate in the range of approximately 20%-24%, or in the range of approximately 19%-23% compared to the 2019 adjusted diluted EPS over a two-year period, which is well above our long-term goal of delivering at least 10% annual EPS growth on an adjusted basis.
Our EPS guidance continues to assume an effective tax rate in the range of 22%-23%. With regards to share repurchases, we now expect to repurchase approximately $2.2 billion of our common stock this year, compared to our previous expectation of about $1.8 billion. Finally, our 2021 outlook for capital spending and real estate projects remains unchanged from what we stated in our Q4 2020 earnings release on March 18th, 2021. Let me now provide some additional context as it relates to our full-year outlook. First, there could be additional headwinds and tailwinds this year, the timing thereof and potential impacts on our business of which are currently unclear, including but not limited to the potential impacts from legislation and regulatory agency actions. Given the unusual situation, I will now elaborate on our comp sales trends thus far in May.
From the end of Q1 through May 23rd, comp sales declined by approximately 7% as we continue to cycle extremely difficult prior year comparisons. As a reminder, comp sales growth for the month of May in 2020 was 21.5%. While we are nonetheless encouraged with our sales trends, we remain cautious in our 2021 sales outlook given the continued uncertainty that still exists, the unique comparisons against last year, and the anticipation of fading tailwinds from the most recent round of government stimulus. That said, as you think about the comp sales cadence of 2021, we continue to expect our performance to be better in the second half given a more difficult comp sales comparison in the first half. Turning to gross margin.
As a reminder, gross margin in 2020 benefited from a favorable sales mix and a reduction in markdowns, including the benefit of higher sell-through rates in more clearance-sensitive non-consumables categories. As we move through 2021, we expect pressure in our gross margin rate as we anticipate a less favorable sales mix, an increase in markdown rates as we cycle abnormally low levels we saw in 2020, and higher fuel and transportation costs. Also, please keep in mind the second and third quarters represent our most challenging laps of the year from a gross margin rate perspective, following improvements of 167 basis points in Q2 2020 and 178 basis points in Q3 2020. With regards to SG&A, while we continue to expect ongoing expenses related to the pandemic in 2021, overall, we currently anticipate a significant reduction in COVID-19 related costs compared to the prior year.
Additionally, we continue to expect about $60 million-$70 million in incremental year-over-year investments in our strategic initiatives this year as we further their rollouts. This amount includes approximately $23 million in incremental investments made during the first quarter. In aggregate, we continue to expect our strategic initiatives will positively contribute to operating profit and margin in 2021, driven by NCI and DG Fresh, as we expect the benefits to gross margin from our initiatives will more than offset the associated SG&A expense. In closing, we are very proud of the team's execution and performance, which resulted in another quarter of exceptional results. 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 for the long term.
We remain confident in our business model and our ongoing financial 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 over to Jeff.
Thank you, John. Let me take the next few minutes to update you on our operating priorities and strategic initiatives. Our first operating priority is driving profitable sales growth. We are off to a great start to the year as our team continues to drive strong execution across our portfolio of growth initiatives. Let me take you through some of the more recent highlights. Starting with our Non-Consumables Initiative, or NCI. As a reminder, NCI consists of a new and expanded product offering in key non-consumable categories. The NCI offering was available in over 7,300 stores at the end of Q1, and we remain on track to expand this offering to a total of more than 11,000 stores by year-end, including over 2,100 stores in our Lite version, which incorporates a vast majority of the NCI assortment, but through a more streamlined approach.
We're especially pleased with the strong sales and margin performance we continue to see across our NCI product categories. Notably, this performance is contributing to an incremental comp sales increase in non-consumable sales of 8% in our NCI stores and 3% in our NCI Lite stores as compared to stores without the NCI offering. Given our strong performance to date, coupled with the added flexibility of a more streamlined approach, our plans now include completing the rollout of NCI across nearly all of the chain by year-end 2022. Moving to our newest concept, pOpshelf, which further builds on our success and learnings with NCI. pOpshelf aims to engage customers by offering a fun, affordable, and differentiated treasure hunt experience delivered through continually refreshed merchandise, a differentiated in-store experience, and exceptional value with the vast majority of our items priced at $5 or less.
During the quarter, we opened three new pOpshelf locations, bringing the total number of stores to eight. While still early, we continue to be very pleased with the initial results, which have far exceeded our expectations for both sales and gross margin. In fact, year one annualized sales volumes for our first eight locations are trending between $1.7 million and $2 million per store, with an average gross margin rate of about 40%, which we expect will climb as we continue to scale this exciting initiative. As a reminder, this compares to year one sales volumes of about $1.4 million for a traditional Dollar General store and a gross margin rate of about 32% for the overall chain in 2020.
For 2021, we remain on track to have a total of up to 50 pOpshelf locations by year-end, as well as up to an additional 25 store-within-a-store concepts, which incorporates a smaller footprint pOpshelf shop into one of our larger format Dollar General Market stores. We currently estimate there are about 3,000 pOpshelf store opportunities potentially available in the continental U.S. When combined with pOpshelf's compelling unit economics, we remain very excited about the significant and incremental growth opportunities we see available for this unique and differentiated concept. Turning now to DG Fresh, which is a strategic multi-phase shift to self-distribution of frozen and refrigerated products. The primary objective of DG Fresh is to reduce product costs on these items, we continue to be very pleased with the savings we are seeing.
In fact, DG Fresh continues to be the largest contributor to the gross margin benefit we are realizing from higher initial markups on inventory purchases. We expect this benefit to grow as we continue to optimize our network and further leverage our scale. Another important goal of DG Fresh is to increase sales in these categories, and we are pleased with the success we are seeing on this front, driven by higher overall in-stock levels and the continued rollout of additional products, including both national and private brands. In total, at the end of Q1, we were delivering to more than 17,000 stores from 10 facilities and now expect to complete our initial rollout across the chain by the end of Q2, which is ahead of our previous expectation of year-end, as communicated on our Q4 call.
Moving to our cooler expansion program, which continues to be our most impactful merchandising initiative. During the quarter, we added nearly 18,000 cooler doors across our store base and are on track to install approximately 65,000 cooler doors this year. Notably, the majority of these doors will be in high-capacity coolers, creating additional opportunities to drive higher on-shelf availability and deliver an even wider product selection, all enabled by DG Fresh. In addition to the gross margin benefits associated with NCI and DG Fresh, we continue to pursue other gross margin-enhancing opportunities, including improvements in private brand sales, global sourcing, supply chain efficiencies, and shrink. Our second priority is capturing growth opportunities. Our proven high return, low-risk real estate model continues to be a core strength of our business.
In the first quarter, we completed a total of 836 real estate projects, including 260 new stores, 543 remodels, and 33 relocations. In addition, we now have produce in more than 1,300 stores. For 2021, we remain on track to open 1,050 new stores, remodel 1,750 stores, and relocate 100 stores, representing 2,900 real estate projects in total. We also now plan to add produce in more than 1,000 stores, which compares to our previous expectation of approximately 700 stores. As a reminder, we recently made key changes to our development strategy, including establishing two of our larger footprint formats, which each comprise about 8,500 square feet of selling space as our base prototypes for nearly all new stores going forward.
With about 1,200 sq ft of additional selling space compared to a traditional store, these larger formats allow for expanded high-capacity cooler counts, an extended queue line, and a broader product assortment, including NCI, a larger health and beauty section with about 30% more feet of selling space, and produce in select stores. We are especially pleased with the sales productivity of these larger formats, as average sales per sq ft are currently trending about 15% above an average traditional store, which bodes well for the future as we look to grow these unit counts in the years ahead. In total, we expect more than 550 of our real estate projects this year will be in these formats as we look to further enhance our value and convenience proposition while driving additional growth.
Next, our digital initiative, which is an important complement to our brick-and-mortar footprint as we continue to deploy and leverage technology to further enhance convenience and access for customers. One such example is contactless payment, which is now available in the vast majority of the chain, further extending our convenience proposition, particularly for those seeking a more contactless shopping experience. Overall, our strategy consists of building a digital ecosystem specifically tailored to provide our customers with an even more convenient, frictionless, and personalized shopping experience, and we are pleased with the growing engagement we are seeing across our digital properties. Going forward, our plans include providing more relevant, meaningful, and personalized offerings with the goal of driving even higher levels of digital engagement and customer loyalty. Our third operating priority is to leverage and reinforce our position as a low-cost operator.
Over the years, we have established a clear and defined process to control spending, which governs our disciplined approach to spending decisions. This zero-based budgeting approach, internally branded as Save to Serve, keeps the customer at the center of all we do while reinforcing our cost control mindset. Our Fast Track initiative is a great example of this approach, where our goals include increasing labor productivity in our stores, enhancing customer convenience, and further improving on-shelf availability. We continue to be pleased with the labor productivity improvements we are seeing as a result of our efforts both around rolltainer and case pack optimization, which have led to even more efficient stocking of our stores. The second component of Fast Track is self-checkout, which provides customers with another flexible and convenient checkout solution while also driving greater efficiencies for our store associates.
Self-checkout was available in more than 3,400 stores at the end of Q1, which represents more than double the store count at the end of Q4, and we are pleased with our results, including customer adoption rates, as well as positive feedback both from customers and employees. Our plans consist of a broader rollout this year, and we are focused on introducing this offering into the vast majority of our stores by the end of 2022 as we look to further enhance our convenience proposition while extending our position as an innovative leader in small box discount retail. Our underlying principles are to keep the business simple but move quickly to capture growth opportunities while controlling expenses and always seeking to be a low-cost operator. Our fourth operating priority is investing in our diverse teams through development, empowerment, and inclusion.
As a growing retailer, we continue to create new jobs and opportunities for career advancement. In fact, more than 12,000 of our current store managers are internal promotes, and we continue to pursue innovative opportunities to further develop our teams, including our recent announcement to partner with a leading training provider to deliver more personalized training solutions to our employees. Importantly, we believe these efforts continue to yield positive results across our organization and are an important driver of our consistent and strong execution. At the store level, we continue to be pleased with our robust internal promotion pipeline and store manager turnover, which continues to trend below historic levels. We believe the opportunity to start and develop a career with a growing and purpose-driven company is a unique competitive advantage and remains our greatest currency in attracting and retaining talent.
Overall, we continue to make great progress against our operating priorities and strategic initiatives, and we are confident in our plans to drive long-term sustainable growth while creating meaningful value for our shareholders. In closing, I am proud of our team's performance, and we are pleased with our strong first quarter results, which further demonstrate that our unique combination of value and convenience continues to resonate with customers and positions us well going forward. I want to offer my sincere thanks to each of our approximately 157,000 employees across the company for their hard work and dedication to fulfilling our mission of serving others. With that, operator, we would now like to open the lines for questions.
Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, you maybe it maybe necessary to pick up your headset before pressing the star key. In order to allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Our first question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Hey, good morning, everyone. My first question is on the business look maybe a year later or one year after this COVID started. Can you talk about the traffic? I know the rural store bases across retail seem to do well. Can you talk about
How you're doing on the lap, and then anything changing in the basket that you're seeing, whether you're doing well and still in the consumables or how the basket may be evolving.
Yes. Again, this is Todd. Thanks for the question. Yeah, we're very happy with what we're seeing now a year out of the pandemic or, again, lapping the pandemic may be the better term. When you look at it, what we've seen is those customers that we were able to bring in during the COVID crisis or the heat of it, we have retained a very large portion, better than what we had anticipated doing. As you may recall, we launched, back in that August-September timeframe, an aggressive campaign to not only retain but keep her engaged at Dollar General. That seems to be working very nicely.
As we've indicated in the past, when we see that our core consumer has more money to spend and stimulus has given her some of that tailwind, if you will, what she tends to do is contract on the number of visits but spends a lot more, and that's exactly what we saw. We saw our basket size increase very nicely with our core consumer, as well as with these trade-in consumers that we saw during the heat of the battle of COVID-19 that we've been able to retain. It really sets us up nicely as we continue to move through this year. We feel very good about what we're seeing, and we're staying squarely focused on what we can control here, and that's driving profitable sales growth.
The two-year stack, if I did the math right or if I heard the numbers right, I think it's running now 14% in May, if that's right. What are the puts and takes to that? I think there's a little more stimulus coming. Do you think this could be the run rate that you can hold going forward?
Yeah, you're right in terms of the stack. If you look at the cadence of the quarter, it picked up nicely with the onset of the stimulus where we're very well positioned to get more than our fair share of that. You did see sequentially on a two-year stack basis, it moderates somewhat but remained very strong and very strong across the board when you look at two-year stacks, both on the non-consumables as well as the consumables. Particularly when you look at the non-consumables, just a fantastic two-year stack as we shared. I think that really speaks to the strength of what we've done with the initiatives on both the consumable side of the business to provide that fuller fill-in trip grocery shop, as well as on the non-consumable side to get a fair share of these folks coming in as we take share from specialty retailers.
We look ahead, the laps get actually easier in the back half of the year from a comp standpoint, but we just feel fantastic about the fundamentals of the business.
Thank you. Good luck.
Thank you.
Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.
Great. Thanks and congrats on the performance.
Thank you.
Todd, maybe just take a step back. Could you speak to new customer acquisition that you're seeing and market share that you see driving the performance continuing? Maybe, on that, taking a step back, how would you compare what you're seeing today to maybe the time at which we were exiting the financial crisis as we think about customer acquisition, new household shopping Dollar General? Then if you were to rank, where do you see market share opportunities by category from here?
Yeah, Matt, I'll try to weave all that in. I would tell you that we're very happy with what we see on that customer acquisition side. Let me try to go to one part of your question, that is financial crisis coming out of that compared to what we are seeing now on the backside of COVID. Very similar from the standpoint that that consumer is still very engaged. I think the biggest difference here is the amount of stimulus that is in the system right now. Our core shopper continues to have a lot more money than she normally would, and she's spending a great deal of that with us, which is great to see. I think the other side of the equation is that that trade-in shopper is financially doing pretty well as the economy opens back up.
We can see, it's opening up in a very robust manner. I think the difference of 2008 and now is that consumer has more money to spend. The great thing is she continues to come back to Dollar General, that higher income shopper, and shop with us. That's exactly what we saw in 2008, but in 2008, she didn't have a lot of money. This time she does have money but still continues to shop. I think that just speaks to the relevancy that we've built in this box since that 2008 crisis. This box, as you know, has transformed tremendously since then. We feel good about those trends and our core shopper trends. As it relates to market share, we're seeing gains across the board. Drug continues to be our number one donor of share.
Grocery is donating as well as I think consumers start to go back to some normal shopping patterns as it relates to food at home. We're seeing those come back to Dollar General in a nice way. Even in our own space, we're taking share, which is great to see. It's really across the board, and I think it's a real testament to the initiatives that we put in place years ago. This isn't just because of COVID. This underlying business, as I've said before, is as strong as I've ever seen it.
Todd, maybe as a follow-up to that, what inning would you characterize those key initiatives? If we think about DG Fresh, NCI, private label, I think you have a laundry list that you've walked through, what inning would you characterize overall these initiatives as we think going forward?
You heard Jeff's prepared remarks. If I step back and take a look at NCI as an example, we'll be completely rolled out by the end of 2022. I would tell you we're probably halfway through the game as we go through this year and then into next, which feels really good. In our cooler initiative and DG Fresh just in general, I would tell you that we're still in the fourth inning. Maybe closer to the bottom of the fourth inning, but still in the fourth inning. We've got a lot of runway ahead of us there. That's been the largest contributor on our initiative side that we've seen, both on the top line and bottom line. The great thing is that we've got a lot of runway yet to go there. pOpshelf, we're just coming up to bat.
We're really happy with what we're seeing there, and we supplied a little more color. Hopefully, it was helpful on what we're seeing early on in our sales and margin coming out of there. We're very encouraged there. I would tell you, as you know Dollar General pretty well, as we start to see more evidence that this is a very good initiative, we can go very quickly. Stay tuned on that. Our digital side, this will be an ongoing initiative, but I would tell you we're in the infancy stages, very early innings on our initiatives there in and around digital. A tremendous amount of opportunity, both top line and bottom line, because these initiatives are aimed at both. I think that's the important aspect here is that we're controlling every line of that P&L.
Great. Sounds like a lot of ball still to play. Best of luck.
Absolutely.
Thank you. Our next question comes from the line of Karen Short with Barclays. Please proceed with your question.
Hi, thanks very much. I wanted to see if you could give a little color in terms of the May sales trends with respect to discretionary versus consumables. I do have a question related to how you answer that from a bigger picture perspective.
Yeah. If you look at May, we gave the May through the 23rd, comp sales were down 7%. Obviously, as we mentioned, a pretty strong two-year stack in the 14th. There was a question also in terms of did that month-to-date differ from the full month, and it didn't change much at all. Strong performance continued, and we saw continued strength in our Non-Consumables. Also the Consumables when you look at a two-year stack. Very strong performance from both sides of the box.
Okay. Just bigger picture, when I look at your mix in discretionary, you're up almost 200 basis points. Well, 200 basis points since 2018 in terms of mix shift in discretionary. And I guess when you look at your overall gross margins, it seems, and you've talked to the fact that there is significant opportunity on the gross margin front. I guess what I'm wondering is looking maybe a year or two out, what do you think the discretionary mix could be within your sales? And then how should we think about gross margins as we look into 2022? I realize 2021 has some very tough comparisons, but 2022.
Yeah, Karen, I think as you look at the non-consumables business, obviously, there's some tailwind that you got from during the pandemic and from the stimulus. I would just point to the ongoing strength that we've shown there. We've delivered comp growth in non-consumables for 12 consecutive quarters, I think that just really speaks to the relevance we've put into that piece of the box. As you continue to see the share we're taking, how we're outperforming others. We have noted that the lap does get tougher as we get into Q2. You're lapping sales growth in the non-consumables category of 40.8% last year. That's a tough lap. Puts pressure on that. I would tell you, we feel great about the non-consumables business as we look forward and as we continue to scale that, almost doubling that this year.
Taking the best of the best from that and porting that across the chain, and then taking the learnings from that and putting that into pOpshelf, and then cross-pollinating the best ideas between the two. We feel fantastic about that business.
Any thoughts on how what would be a normalized or not normalized, but how we should think about growth margins going into 2022?
Yeah, obviously, we're not giving 2022 guidance just yet. What I'd tell you is this, as you look at the performance in gross margin. We've delivered eight consecutive quarters of gross margin growth, up 208 basis points this quarter, lapping 49 basis points this quarter last year. When you look at the drivers of that, again, there was some tailwind from non-consumables from the stimulus. When you look at the drivers, it's the strategic initiatives driving that. The top three, we've been talking about these top three for several quarters now. It's higher initial markups. That's DG Fresh driving that is the gift that keeps on giving. As we scale that, complete that across the chain, drive efficiencies in that. The next two we talked about were lower markdowns and the mix benefit.
Again, you got some extra tailwind from the stimulus, but it's non-consumables driving that, and that's been a consistent driver for some time now.
You look at shrink. Shrink was another benefit. As you look at the near term, as I mentioned, we hit a very difficult lap around non-consumables, which will pressure that year-over-year mix, even though we feel great about the non-consumables. As others have talked about it, we do see pressures this year associated with transportation costs. We do believe that's more of a near-term pressure, not something structural that will last forever. As we push through those two pressure points, we feel good about what we've been doing in terms of driving gross margin and operating margin expansion and our ability to keep doing so. Not only with these strategic initiatives I mentioned, all the other drivers we talk about.
Not just shrink, but private brand penetration, foreign sourcing penetration, supply chain efficiencies we continue to drive to mitigate the pressures that others are seeing, and so it's not as impactful to us. We always talk about our buying power. Last but not least, we will invest in price if needed, if warranted. I can tell you, we feel like we're in a great pricing position right now and don't see the need to. We feel good about our ability to drive it higher over time, both gross margin and operating margin overall.
Great. Thank you.
Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your question.
Hi, guys. Good morning. Nice quarter. Maybe the first one turns out to be a little bit of a follow-up now. As it relates to product cost inflation, can you just talk about what you are seeing and what you're expecting from a product cost inflation standpoint, especially in consumables? What are your expectations for pass-through and to what extent are you in the driver's seat? To what extent do you kind of need to follow what Walmart does? Are you seeing anything out there to suggest that you wouldn't be able to pass through higher product cost inflation if that happens?
Hi, Ed. This is Jeff. Thanks for the question. Certainly on the product cost, on the first part of that question, what I would tell you is that our merchants have done a fantastic job of partnering with our suppliers. This is where the model at Dollar General really performs well in the sense that our scale and our limited SKU assortment allows us the opportunity to really find innovative ways to protect that underserved customer and certainly find ways that we can mitigate the cost pressures. Certainly, as many retailers have talked about, we have seen that. Again, real pleased with our pricing position. We feel really good about where we are. We talked about this before. We made some strategic decisions last year to get in some of the best pricing position we've been. Feel good about where we are.
We'll continue to fight for that customer every day. As you know, here at Dollar General, price and value are so important to her, and we're here to serve her. I'm real pleased with where they are. We'll continue to monitor that, feel good about the team's performance to date on that front.
Okay. Just one on labor cost here. Can you just provide some color on what you're seeing out there? Obviously, a lot of companies have talked about challenges. You grow a lot, you're adding a lot of employees. Has it caused you to rethink wage levels at all? Do you see this as transitory? Just how do we think about the pressure there and how that's changing?
Ed, we have seen some pressure, as many retailers have said. You know what? I'm so proud of what our team has done to respond. Certainly, in April, we announced our national hiring event with a goal to hire up to 20,000 additional employees, and I'm very pleased that already we have beaten that goal by 50%. I think it points to the thing we've said all along, and that is Dollar General is such an amazing place to start a career. Again, we feel real good about the opportunity we can provide. With over 12,000 store managers internally promoted, we've got a robust internal pipeline. We're still able to attract, we feel real good there. Certainly, as we have always talked here at Dollar General, we're surgical in the way that we respond to different challenges.
The comments you mentioned, we're not seeing it widespread. They're pockets, and so we'll certainly tailor our solution to where it makes sense. We always pay competitive wages. We have, and we will continue to. Still very pleased at our turnover rates that point to this opportunity here at Dollar General to attract folks, provide a great growth opportunity. Right now, we are certainly making progress mitigating these challenges, and I'm really pleased with the progress I'm seeing.
Great. Thank you.
Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Good morning. Thanks a lot for taking my question. Your two-year compound annual growth for consumables grew 12% in the fourth quarter, 12% in the third and fourth quarter last year. It was 11 in the first quarter, hit total only by 100 basis points. How much of that slowdown would you attribute to consumers going back out to eat, and so they don't need to visit Dollar General as often for those filling trips? Or how much is your expectation that some of that is due to consumers got a $1,400 check at least, and so they might be going to Walmart or Target or some other discretionary retailer and loading up on a big ticket item, and while they're there, purchasing other goods that's taking away a trip from Dollar General?
It was very difficult, Michael, to understand you and the question, but if I got some of the sense of it, we feel good about our consumable and non-consumable businesses where they're at. As I mentioned earlier, we continue to take share from all different classes of trade out there. I feel better than I ever have on being able to continue to drive the top line on both our consumables and non-consumable side of the business. If I missed that question or if you'd like to ask it again, I'm happy to answer it.
The question is your compound annual growth rate for your consumables business, a little modestly from 4Q to 1Q, how much do you attribute that to the people going back out to eat, so they don't need to?
I gotcha.
They got a $1,400 check, so now they're going to Walmart to buy a TV, and while they're there, they're filling up their basket, which may also be taking away a filling trip from DG.
Yeah, I apologize, Michael. Thank you for repeating that. Yeah, I would tell you it's definitely not the latter that we've seen. It's probably more, the little slowdown that we have seen there was one, such a robust last year and even into the fourth quarter, the economy's opening up a little bit. That consumer has the ability to go do some other things and food away from home, I'm sure like yourself, a lot of people wanted to get out and get out of the house. I think that definitely played into Q1. What we're already seeing, though, in early Q2 is that some of that food at home, it looks like it's pretty sticky.
While I'm not ready to talk about Q2 right now, I can tell you that especially in those areas like DG Fresh, our perishable areas, we're seeing very, very nice sales, robust sales in there. It really shows that that consumer still had the propensity to have food at home. I would tell you, just like anything, when things last more than a quarter or two or half a year, they become pretty ingrained. I think food at home has become pretty ingrained. Now, that doesn't mean that they won't go out to eat, but I think they're going to be doing more food at home than they had prior to the pandemic. We're already seeing that, as I mentioned, start to materialize here in Q2.
Got it. On the gross margin, 200-plus basis points, John, you did provide the order of magnitude, but could you put a quantification around how much of the gross margin was due to factors that have been driven by your initiatives like DG Fresh, NCI, which should continue? Is it 100 basis points over the next couple of quarters versus other factors that might be temporary, such as mix or lack of promotions within the environment? Are you already starting to see more promotions come back such that that could be a risk factor to offset those factors that you have within your control over the next few quarters?
Yeah, Michael. As you pointed out, those are in the order of importance and the number 1 called out, and it was a good bit higher than the other two, although all were quite impactful, was higher initial markups and that was DG Fresh. That is something I would say continues and actually improves as we scale that across the system and get the efficiencies. As you get to the next two, the lower markdowns, certainly a big piece of that was the higher sell-through on the Non-Consumables. If you recall, we were calling out lower markdowns even before that as we got tighter and tighter around promotional activity, and we've stayed tight on promotional activity. While I would say compared to last year, it's up a little bit because last year there was virtually no promotional activity. If you compare to 2019, it's down.
We're not seeing that much more promotional activity. We're actually seeing a little bit less if you go back to 2019. There just was none last year. Things remain pretty tame that way. On the mix benefit, again, certainly got some extra juice from the stimulus. Again, 12 consecutive quarters of Non-Consumables comp growth, and when we're virtually doubling that initiative and putting the best of the best across the chain, we think that continues to help us and again, shrink. That's the benefit not related to the current environment. It's certainly a mix. It's hard to, when you look at Non-Consumables, to untangle what was stimulus and what was just what we did to make that piece of the box more relevant. I'd say we set ourselves up very well in that regard.
Again, I would like to think that the higher carry rates is not something structural. It's more of a supply and demand imbalance that should sort itself out later. One other thing I'll mention that is a wild card that's not in our guidance, and that is what impact the child tax credits will have. While we've not assumed any more stimulus, we've not assumed any more child tax credits, just given the number of potential macro puts and takes, including the child tax credits. Conversely, what happens when some of the enhanced benefits are removed. That's another wild card in the back portion of the year. As you look at the gross margin, I would tell you a big chunk of this is structural, as evidenced by the strong fundamentals driving it and the track record we've delivered.
As we mentioned, there's just some near-term pressures over the next few quarters.
That's very helpful. Could I just clarify one point you made that you're seeing promotions better today than they were in 2019. You're not seeing conventional grocery stores promote more because their sales are on decline as consumers go out to eat more?
Yeah, we watch this very closely, Michael, and I would tell you, John hit it right on the head, and that is, we're seeing a little bit more promotional activity than we did last year because there was absolutely none last year. It is substantially lower than it was in 2019. I would tell you that tame promotional environment that we've been talking about even prior to the pandemic, and through the pandemic, still persists. We have not seen that whatsoever.
Good. Thank you so much. You can go.
Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer & Company. Please proceed with your question.
Good morning. Thanks for taking my question. My first question is with the comp guide. I was curious how you guys are thinking about traffic for the balance of the year.
Yeah, I think the way you think about traffic, we've been talking about this. There's been quite a bit of trip consolidation, people have been coming in a little less frequently. They've been putting a lot more in their basket. Now, what I would tell you, as we looked across recent periods, we've seen the traffic start to pick up. What we would expect as the mobility picks up, the traffic will pick up. The basket will come down somewhat, our goal is to hold as much of that bigger basket that we gained. It's pretty impressive when you look at the two-year stacks on the growing basket on top of basket growth last year. Again, as we position ourselves in that fuller filling trip. What we would expect is that traffic to continue to pick up as people get out more.
Okay, great. Maybe just one follow-up on pOpshelf. Clearly very upbeat commentary in terms of what you guys are seeing so far. I guess, Todd, what has surprised you so far with the concept?
I'm sorry, what was the question?
Yes, on pOpshelf, you guys have seen very strong results so far. I'm just curious, what is surprising you so far with the performance there?
Sorry. Yeah, I would tell you that we're very happy with what we're seeing. I believe that the biggest surprise probably was when you launch a brand from ground zero, you don't normally see the amount of traction and sustained traction that we are seeing, and repeat customers that we're seeing. The other thing that's really a surprise is the customer feedback that we're getting. We're getting promoter scores in the upper 80s and 90% range, which is unheard of. That's what gives us great optimistic that we will continue to be able to grow this beast. Stay tuned. As I mentioned earlier, because of what we're seeing, not only on the sales line, but I think the other nice surprise was on that margin side at 40% margins, and I would tell you the upside to that is great.
Very great, quite frankly, as we scale this. We think that between those two, and you know as well, we'll move fast in store openings once we get another few weeks behind our belt here.
Great. Thank you.
Thank you. Ladies and gentlemen, our final question this morning comes from the line of Scott Mushkin with R5 Capital. Please proceed with your question.
Hey, guys. Thanks for taking my questions, and seeing that pOpshelf, this is an insane format, one of the best I've seen in about 20 years. I look forward to hearing more about it. My actual question is on DGX. You guys didn't mention it. Maybe not as much sizzle as the pOpshelf, but seems like it almost could supplant the normal convenience store. There's about 10,000 7-Elevens, and I look at that store and say, "Gosh, why would I ever go to a 7-Eleven if there was a DGX in the neighborhood?
Hey, Scott, thank you for the question. We are real excited about DGX. Certainly, as we talked before, during the pandemic, as you remember, DGX is situated to locate where you work and play. Certainly during the pandemic, we saw some pullback, obviously, with so much remote and work at home. We feel real good about what we're seeing now. We've talked earlier about how we're seeing the economy kind of open up and folks get out more, and we're seeing that come back nicely in our DGX stores. You're right. We're very excited. You'll recall last conference call, we talked about the opportunity for 1,000 possible DGX locations across the country. Then you know as well, if we find a concept that can work even better and increase that over time, well, we'll certainly try to do that.
Right now, the offering inside the DGX, we also have very high customer satisfaction scores, like the pOpshelf brand as well. We are real pleased with what the customer's saying, and we're also pleased with the opportunity. Stay tuned, that just gives us yet another leg of growth. You got pOpshelf, where we've talked about incremental 3,000 opportunities, DGX, an incremental 1,000 opportunities, then our traditional fleet, where we believe there's 13,000 additional opportunities. 17,000 opportunities in total gives us great confidence that we can continue to grow this great brand across the country. We're real excited about what the future holds there.
If I could have a follow-up. I guess I get a follow-up. On the pricing side, kind of taking that and turning it on its ear a little bit. If you look at what's going on in your business, you obviously talked about gross margin expansion possibilities as well as labor efficiency possibilities, and of course, the limited SKUs you guys offer. Why wouldn't I think that you can use, and we've seen this, our pricing surveys, kind of the gap coming down with Walmart? Why wouldn't we see that continuing? You have a lot of leverage to pull.
Yeah. We watch it very closely. As you know us pretty well, pricing is one of my pet projects here at Dollar General. I'm intimately involved in it because it's so important to our consumer. I would tell you that, and Jeff alluded to it again, we took 2020 and we quietly got in the best position we've ever been in. We took advantage of that dislocation that was out there. That advantage continues today. To your point, we've made inroads, even against all classes of trade, including mass. Also especially even in our class of trade here at discount, we've made extreme moves as well. We're happy with where we are. Hey, we always reserve the right to continue to make sure our customer has the ability to shop what you need.
If that does need to happen, we have the wherewithal to do anything on price that we consider we need to do. Right now, we feel good. As Jeff indicated, even in this environment where we're seeing some price pressure from CPG, like other retailers are, we have a lot of levers at our disposal to make sure that we don't have to pass all that on to the consumer, and that's exactly what you've seen here in Q1 so far.
Terrific, guys. Thanks.
Thank you.
Thank you. Ladies and gentlemen, this concludes our question and answer session, and thus concludes our call today. We thank you for your interest and participation.