Simeon Gutman: Good morning. I wanted to just clarify and then ask the follow-up, all in one. The higher expenses this quarter, parsing it out between inflationary pressures being a little bit higher, or are you spending more than planned or than you thought? And then bigger picture, the $10 in 2026, a long way to get there, gives you flexibility. I don’t think you’ve said it’s ratable in any way. It may not be linear. What happened with expenses show that you’re not afraid to spend back into the business. So, curious where you’re tracking. I’m sure you have your own plan. And where ’24, I know it’s an early look, may land in terms of that run rate of expenses?
Jeff Davis: Great question. And I’m glad that I got this question finally. One of the things that if you take a look at this quarter and the pace that we’re on, we are right on our outlook that we had anticipated with respect to the level of spend in the transformation. And we are actually leveraging against our original forecast, given this strong sales performance. This is also taking into account once again, unfortunately, this accrual adjustment that we just needed to make. So, as we move forward, we continue to be disciplined in our spend. We look, as Rick has said, in some situations, an opportunity to pull forward a few items if we believe that we’re going to be able to get the returns that much sooner. But the rate at which we are investing is according to our original outlook that we were — we said at the beginning of this year.
There are some modest inflationary components, as you can imagine, predominantly in utilities, and it is as a result of the heat dome that we’re seeing on a national basis. The other area we’re seeing a little more inflation would be in fuel, particularly in diesel fuel. And we’ve seen that here most recently and is reflected in — both of these items are reflected in our guidance for the back half of this year.
Operator: Thank you. Our next question today is coming from Kelly Bania from BMO Capital Markets. Your line is now live.
Rick Dreiling: Good morning, Kelly.
Kelly Bania: Good morning. Thanks for taking our questions. I just wanted to go back to the shrink and mix and just be clear about the magnitude that is maybe coming in different or the same versus your expectations, and also how those two factors are planned for the second half? And also just related to the shrink, what kind of margin investment at all do you see necessary to combat the shrink headwind? And is that in your long-term plan?
Jeff Davis: Great. Thank you, Kelly. There’s a few things here. As we think about shrink and mix, it has definitely advanced a little further than what we had anticipated in our guidance that we had given last quarter. Having said that, we believe that there are other more favorable items that are helping to offset against that. One, in our sales momentum. Two, we are seeing additional freight opportunity as it relates from an ocean perspective. But as it relates to shrink and mix, we had mentioned earlier that we had about $0.55 in total expected as an adjustment to our comp — to our earnings, and that was going to be spread pretty evenly between shrink and mix. Of that $0.55, about $0.15 of that was actually incurred in the first quarter.
So that remains — that gives you $0.40 for the back — for Q2 through Q4. In Q2, against our original forecast, shrink and mix advanced another $0.08 on us. All of this is included in our forecast and as we’re thinking about the back half, to the extent that there is any further acceleration, how we’re thinking about offsetting that through other margin opportunities as we think about once again from additional freight favorability and/or other options that we have through the P&L.
Rick Dreiling: And I’d like to add one thing, if I can, Jeff. We are now taking a very defensive approach to shrink. And it’s taken us a quarter, but we have several new shrink formats that we’ll introduce in the back half of the year. And it goes everything from moving certain SKUs to behind the check stand. It has to do with some cases being locked up. And even to the point where we have some stores that can’t keep a certain SKU on the shelf just discontinuing the item. So, we have a lot of things in the works that’s going to roll forward. You had a question about the mix. Is that correct?
Kelly Bania: What’s in the back half assumption?
Jeff Davis: She’s asking specifically what’s in the back half assumption, which I have not provided.
Rick Dreiling: Yes. Okay. Fair enough.
Jeff Davis: So, let me — what I gave was a pretty widespread answer. If you think about the balance of the year, in Q3, what we’ve said and — really in the back half of the year, Q3, sales mix and shrink continues to be a headwind for us. We’ve taken approximately 70% to 75% of our stores and inventories. So, we’ll be through the balance — most of those stores by the end of the third quarter. So, sales mix and shrink continues to be a little bit of a headwind for us. Freight as far as diesel fuel continues to be a little bit of a headwind for us. And then once again, I said from utilities and this heat dome, that — this could be a little bit of a headwind for us. Offsetting that is going to be certain tailwinds. We’ve got sales momentum that we are projecting.
We know that we believe that we have opportunities in additional freight from an ocean freight perspective. And also, we are starting to lap many of the SG&A investments that we started last year. As you go further into the back half of the year, we have less impact of sales mix and shrink, because once again, we’ve taken all of our inventory. Fourth quarter is a much stronger quarter for us from a seasonal perspective, and it’s focus on discretionary. And then, the tailwinds in the back half or the fourth quarter, once again, we have the 53rd week, which we’ll make an adjustment for continued sales momentum in our projection, ocean freight, and then once again, we can further along in lapping those SG&A investments that we started in the back half of last year.
So, as we progress through the quarters, the fourth quarter, we believe, will be one of our strongest quarters, because we have less headwinds from shrink and mix as well as the sales momentum and continued oceanic freight opportunity.
Operator: Thank you. Next question is coming from Chuck Grom from Gordon Haskett. Your line is now live.
Rick Dreiling: Hey, good morning, Chuck.
Chuck Grom: Good morning, Rick. How’s it going, Jeff? My question is on Family Dollar. I was wondering if you could speak to the progress on rolling out the higher shelf heights across the chain? And then just one for Jeff. On that $0.07, which banner was that in? Or was that in the corporate line?
