Good morning. Dollar General is one of the retailers that has grappled with “shrink,” an industry term that primarily defines theft from stores. But the company has been undertaking measures to address the issue, and CFO Kelly Dilts says those efforts are starting to produce some bright spots.
“Shrink,” more precisely, is a term retailers use for inventory loss often attributed to theft by shoppers and employees, or damage or errors. It’s estimated that retail businesses typically lose around 1.4% to 1.6% of their annual revenue to shrink.
Dollar General (No. 111 in the Fortune 500), has put forth ongoing efforts—most notably tearing out its self-checkout kiosks—to stem shrink. “The first thing that I’m excited about is both the shrink and damage lines are well in our control,” Dilts said in reference to gross margin during an earnings call on Thursday. She added: “It’s good to see that we have a positive trajectory right now, and we’re really already winning.” Dilts credited the improvement to the company’s Back-to-Basics strategy.
The retailer’s mitigation efforts drove a year-over-year shrink improvement of 68 basis points in Q4, she said. Improvements have continued through the early part of the first quarter, and “we anticipate this benefit should continue throughout 2025,” she noted.
That’s more upbeat than Dilts’ comments on a December 2023 earnings call: “Shrink has been pretty significant for us for a while, and it’s definitely going to carry into 2024.” In March 2024, the company reported that shrink was one of the factors that drove gross profit, as a percentage of net sales, down 138 basis points to 29.5% in Q4 of fiscal year 2023, compared to 30.9% in Q4 of fiscal year 2022.
Stemming shrink
A big part of the strategy to combat shrink was in the checkout aisle. After using an AI solution to analyze hundreds of thousands of purchases at self-checkout, Dollar General determined which stores had the highest levels of theft and mis-scanned items. That determined the company’s decision, led by CEO Todd Vasos, to eliminate the option of self-checkout in the vast majority of its stores.
Vasos announced on an earnings call in March 2024 plans to convert the self-checkout systems in about 9,000 stores to allow for cashiers. Then in May, he said that Dollar General eliminated self-checkout options at 3,000 additional stores, bringing the total to 12,000.
Removing self-checkout was actually an about-face for Dollar General. In 2022, the company expanded self-checkout to a total of more than 11,000 stores as part of a Fast Track initiative. But that was before Vasos returned to the company as CEO in October 2023 to activate a turnaround plan. He was previously CEO from 2015 to 2022. Dilts was promoted to CFO in May 2023.
Overall, to combat shrink, retailers undertake “a data-driven approach to measure the areas where losses are actually occurring,” Jennifer Fagan, EY’s retail partner, writes in a recent Fortune opinion piece. “Doing so enables the deployment of targeted mitigation techniques with the greatest potential impact,” according to Fagan.
Dollar General is attracting bargain shoppers amid an uncertain economy. For the quarter that ended Jan. 31, the company’s net sales increased 4.5% year over year to $10.3 billion, and same-day-store sales increased 1.2%, both beating Wall Street estimates. Its stock price went up 7% closing at $79.95 on Thursday.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
This story was originally featured on Fortune.com
“We have a positive trajectory right now,” Finance chief Kelly Dilts said.
