And we also think about better margin for the business, that’s for operators, and for grocery outlets. We share that with commissions. And so we look forward to introducing a few items, we talked about categories, grocery, and beverage. We’re starting there and then getting into some additional categories, dairy, household, and baking. The value that these items provide. And then lastly, I’d say, another point of differentiation, many of these items, well, they’ll all be unique to us, but many of them will be more unique items, whether in the NOSH space, different formulations, new ads to the shop that create another reason for customers to shop our stores beyond just the value that they provide.
Oliver Chen: Thank you. A follow-up, we know you’ve made a lot of progress on the mobile app. Just any thoughts there in terms of engagement and transactions? And the other question we’ve been getting is around labor costs. And given that we’re in a pretty tight labor market as well. Are there any things we should know in terms of modeling that and/or independent operators and their margins? Thank you.
RJ Sheedy: We successfully completed the rollout to all remaining stores that was back in the middle of the second quarter. It included all of California and Nevada that was the group that was remaining. So that all went well. We’re really pleased with customer adoption and feedback so far. I mentioned over 400,000 downloads and 6% of sales on track with what we expected, and we expect it to continue to grow from here. So the engagement is really strong. And then, of course, as customers continue to use the app on their shopping trips, it will give us valuable data and it will increase engagement further still as we’ll be able to message more specifically to who they are and the items that they’re buying. So we’re off and running there and look forward to all the benefits that we’ll provide.
And then as far as continued cost pressures go with operators, yes, wages operating costs continue. Operators continue to be very resilient and resourceful about how they’re managing this. We manage it in partnership with them. We have been growing the top line. We’ve had some margin pressures here recently. We’ve protected operators from that. So their income has grown year-over-year. And then we continue to prioritize work to help them be more efficient and help them grow their profit, along with how we manage and think about profit growth on our P&L.
Oliver Chen: Thank you. Best regards.
RJ Sheedy: Thanks, Oliver.
Operator: Once again, as a reminder, we ask that you ask one question. Our next question comes from Mark Carden with UBS. Please proceed.
Mark Carden: Good afternoon. Thanks so much for taking the questions. So digging into the store growth acceleration a bit. This is the first time we’ve seen an intra-year tick-up in quite a while. Is it being driven by fewer building headwinds? Are you seeing more opportunistic locations than you might have originally anticipated? Just assuming it’s a bit early for the $0.99-only locations. So just want to dig in a bit more on what drove that decision.
RJ Sheedy: Hi, Mark. For the — yes, for this year, think of it as just management of the process. We’ve been able to get stores opened a little bit earlier than anticipated. On that schedule, the construction team is operating really well. We’ve talked a lot over the past couple of years about some of the challenges and the adjustments that we’ve made. And so I’d say that those things are operating smoothly for how we’ve adapted the resources that we brought in and how we’re managing the process overall. That in parallel with the ongoing work of recruiting and training our operators to be ready, that’s important too, to make sure that they’re ready to take those stores. And so because we are managing the process as well as we are, we’re taking advantage of some of those opportunities and have therefore then increased guidance for the year.
It doesn’t reflect the opportunities that are in front of us. You know, certainly not 99. You know, you think about that as a 2025 opportunity, and we continue to look at other lists as well. And so we love where we’re at in terms of the pipeline, certainly what’s happening this year, pipeline for next year, ’26, ’27, coming together really well. And again, for us, just trying to be mindful of the rate of growth and make sure that we’ve got all the right pieces in place. We’re investing in the infrastructure ahead of growth so that when we do open these stores, we open them successfully.
Mark Carden: Great. Thanks so much. I’ll pass it along.
RJ Sheedy: Thanks, Mark.
Operator: The next question comes from Corey Tarlowe with Jefferies. Please proceed.
Corey Tarlowe: Great. Thank you. RJ, it sounded like in response to a prior question that it was your expectation that you’re returning to a more normalized margin in the back half. Along with that, is it also the expectation that these systems implementation issues should be resolved by the end of the second quarter, or is it that the financial impact from these issues is resolved yet the implementation is still likely to be ongoing? Is there any way to dimensionalize the timing and duration of the remaining tasks that you have left, and as well as the impact of those issues?
RJ Sheedy: Yes, we do believe that the large and notable impact will be in the second quarter for what’s remaining. We — there may be some spillover into the second half of the year. As I mentioned, we are trying to be prudent in our guidance as we think about the progression here from Q2 into Q3 and into Q4. But think about what’s meaningful from a P&L standpoint as being really contained for the most part to the second quarter. The work will continue ongoing, and I say that, we’ll always be enhancing these systems. We will be working beyond the second quarter in terms of operating data visibility, functionality, efficiencies, the things that I talked about previously. And so that will certainly continue through the rest of the year to make them even better and to capture these benefits for part of why we implemented these new systems to begin with.
But not — when you think about the impact on the P&L, as I mentioned, we got this residual cost of the commission program that’s time-bound. So we’ll be through that at the end of the second quarter. And then there may be some minimal impacts into the second half of the year. None of which, that’s all reflected in our guidance. None of which would change any of that in terms of what we know for where we are and the work that’s ahead of us still.
Corey Tarlowe: Thank you. It’s very helpful. I just had one follow-up on the comp. Is there any way to dimensionalize traffic versus ticket for what you saw in the quarter?
Lindsay Gray: Hi, Corey. This is Lindsay. So traffic versus ticket, so traffic was up 7%, ring was down 2.9% year-over-year due to lower units. But we’re really pleased that comps continue to be driven by these strong transactions. Absolute inflation remains high and so the customers are still prioritizing value. So we’re seeing both new and existing customer increases with pretty high satisfaction, minimal system impact to comps. So really encouraged by the strong transactions, yes, ring was down 2.9% due to lower units, both from higher trip frequency and moderating inflation.
Corey Tarlowe: Great. Thank you so much.
RJ Sheedy: Thanks, Corey.
Operator: The next question comes from Joe Feldman with Telsey Advisory. Please proceed.
Joe Feldman: Yes. Hi, good afternoon, guys. Thanks for taking the question. I wanted to ask about SNAP and how that’s impacted your business if at all. If I recall, it’s around 10% of sales. And I know you have a lot of exposure to California, and I think they were the last state to just stop with some of the benefits, that — and how you’re thinking about it for this year ahead? Like, will that have an impact on spending for you guys? Thanks.
Lindsay Gray: Yes. Hi, Joe. This is Lindsay. I’ll take the question. So, yes, so we did see an impact from EBT in Q1, but consistent with our expectations. So we’ve seen that EBT reduction, but it really is just a migration to other tender types. EBT for us is really just a tender type. Our EBT today is back to about pre-COVID levels. So our model, we believe it just really much appeals to that value-minded customer. So even as we’ve seen the EBT benefits drop, it does add cumulative pressure to these consumers to stretch their dollars. So we don’t see them leaving our stores, it’s really just a change out of their tender type. So some of it does have an immediate impact on traffic. Some of it takes time, but we really feel good looking at all the trips we’re driving into the store when you look at our traffic numbers.
Joe Feldman: Got it. Thank you, guys. Good luck with the quarter.
RJ Sheedy: Thanks, Joe.
Lindsay Gray: Thank you.
Operator: The next question comes from John Heinbockel with Guggenheim. Please proceed.
John Heinbockel: Hi, RJ. Two — one quick one, and then one more — one strategic. The impact on the physicals or the way that plays in here is what that relates to a product that is out of code, right? And I guess, has to be thrown away as opposed to shrink. I don’t know if you’re seeing anything with shrink. And then my strategic question, right, is when you think about the role of private brand, right, so 100 items initially, I don’t know if you have an idea where that, where your ultimate target is. And what do you think the interplay of that is with the treasure hunt? If you keep the items separate, there is no impact. And I guess you’ll endeavor to do that. Make sure there is minimal overlap between the two.
RJ Sheedy: Hi, John. On the physical inventories, you think about margin as it relates to store inventory management. So that’s really what gets reflected in the physical inventories that we take. Yes, there is shrink, but also in this case, prior to having the reporting fixed, which was in March, you have some other components to margin markdowns, price adjustments, throwaways, those things as well that show up there. So that’s what would be reflected in this residual cost. And then go forward, we’re on the normal, everything’s recording as properly within the system, and commissions are either full or the regular 50-50 split. And then for your question on private brands and treasure hunt, we think it can enhance the treasure hunt.
