Thank you and good morning, everyone. On the call with me today are Todd Vasos, our CEO, and Donny Lau, 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 financial guidance, long-term financial framework, strategy, initiatives, plans, goals, priorities, opportunities, 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.
These factors include, but are not limited to, those identified in our earnings release issued this morning, under risk factors in our 2024 Form 10-K filed on March 21st, 2025, and any later filed periodic report, 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 in this call unless required by law. At the end of our prepared remarks, we will open the call up for your questions. To allow us to address as many questions as possible in the queue, please limit yourself to one question. Now, it is my pleasure to turn the call over to Todd.
Thank you, Kevin, and welcome to everyone joining our call. We are pleased with our third-quarter results, including another quarter of balanced sales growth, as well as strong earnings results that significantly exceeded our expectations. I want to thank our team for their ongoing commitment to serving our customers, communities, and each other. Our mission of serving others informs everything we do at Dollar General, and our efforts are resonating with customers as we continue to enhance our value and convenience proposition. For today's call, I'll begin by recapping some of the highlights of our third-quarter performance, as well as sharing our latest observations on the consumer environment. After that, Donny will share the details of our financial performance, as well as our updated financial outlook for fiscal 2025.
I'll then wrap up the call with an update on some of our key growth-driving initiatives, including our real estate plans for 2026. Turning to our third-quarter performance, net sales increased 4.6% to $10.6 billion in Q3, compared to net sales of $10.2 billion in last year's third quarter. We grew market share in both dollars and units in highly consumable product sales once again during the quarter, in addition to growing market share in non-consumable product sales. This market share growth is a testament to our improved execution, compelling offering, and broadening appeal with a wide range of customers. Same-store sales increased 2.5% during the quarter, driven by customer traffic. The average basket size essentially was flat. Within the basket, an increase in average unit retail price per item was offset by fewer items on average.
This traffic and basket composition is consistent with what we have historically observed when our core customer feels more pressured on their spending, as they come in more often but have smaller basket sizes. For the third consecutive quarter, we delivered broad-based category sales growth with positive comp sales in each of our consumables, seasonal, home, and apparel categories. Notably, the comp sales increase in non-consumable sales once again outpaced a solid increase in consumable sales. From a monthly cadence perspective, all three periods were positive, led by August. September was the softest period of the quarter, as we lapped significant hurricane activity in the prior year before rebounding to higher levels in the month of October, and despite the delay in SNAP payments in early November, we are pleased with our strong sales performance to begin quarter four.
Overall, we are pleased with our top-line results in Q3, which we believe demonstrate the important role we play in providing value to customers in our communities. To that end, we're pleased to see growth once again in our total customer count, with this proportion of growth coming from higher-income households. We remain focused on executing our proven playbook to retain a substantial portion of these customers, and with our unique combination of value and convenience, we believe we are well-positioned to increase market share with customers across all income brackets. With that in mind, we continue to be pleased with our pricing position, which remains within our targeted range of three to four percentage points on average for mass retailers.
We also continue to see a substantial offering of more than 2,000 SKUs at or below the $1 price point as an important component of the value offering for our customers. For example, our Value Valley offering, which is comprised of more than 500 rotating SKUs at the $1 price point, was once again our strongest-performing sets in the quarter, with same-store sales growth of 7.6%. With nearly 21,000 stores located within five miles of 75% of the U.S. population, along with a robust and growing digital presence, we are proud of our unique position as America's Neighborhood General Store. We remain committed to serving our customers with low prices they expect on the products they need, and as we help them save time and money every day. Overall, we're proud of our Q3 results and the significant progress we've made this year, improving our operating and financial performance.
As we continue to invest in the growth and development of our teams, we are seeing lower year-over-year turnover in all levels of our in-store positions, which is also contributing to our improved execution and financial results. The progress we've made further supports our confidence in our long-term financial framework, and we are excited about the opportunities ahead. Before I turn the call over for our financial update, I want to take the opportunity to congratulate Emily Taylor on her promotion to Chief Operating Officer. During her time at Dollar General, she has been a strong leader who has consistently enhanced the customer experience both in-store and through our innovative digital offerings. She and her teams have elevated the Dollar General and pOpshelf brands while also improving operational efficiency, and we are excited to expand her responsibilities moving forward.
I'm confident she is the right leader for this position and look forward to working with her in this new role. I'm also excited to welcome Donny Lau as our new CFO. We are thrilled to have him back at Dollar General and look forward to working with him to further accelerate our progress and drive sustainable growth over the long term. With that, I'll now turn the call over to Donny.
Thank you, Todd, and good morning, everyone. After almost two and a half years away, I'm excited to be back at Dollar General, and I look forward to connecting with many of you in the months ahead, and while I've only been back a short time, it's clear there are substantial opportunities for growth and value creation. I'm especially excited about the progress we're making against key initiatives, which is contributing to strong operational and financial results. I look forward to working with the team to advance our strategic priorities as we look to build on our momentum, drive long-term sustainable growth, and deliver strong returns on invested capital. I'll now cover our Q3 results. Since Todd has taken you through the top-line results for the quarter, my comments will cover some of the other 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. For Q3, gross profit as a percentage of sales was 29.9%, an increase of 107 basis points. This increase was primarily attributable to higher inventory markups and lower shrink, partially offset by an increased LIFO provision. Our ongoing efforts to reduce shrink once again contributed to strong operating margin expansion in Q3, as we delivered a 90 basis point improvement in shrink versus prior year. Notably, shrink continues to improve at a much higher and faster rate compared to the expectations contemplated in our long-term financial framework, and we expect continued improvement over time. Turning to SG&A, which is a percentage of sales, was 25.9%, an increase of 25 basis points.
The primary expenses that were a higher percentage of sales in the quarter include incentive compensation, repairs and maintenance, and utilities, partially offset by a decrease in hurricane-related costs. Moving down the income statement, operating profit for the third quarter increased 31.5% to $425.9 million. As a percentage of sales, operating profit increased 82 basis points to 4%. Net interest expense for the quarter decreased to $55.9 million compared to $67.8 million in last year's third quarter. Our effective tax rate for the quarter was 23.6% and compares to 23.2% in the prior year. Finally, EPS for the quarter increased 43.8% to $1.28, which exceeded the high end of our internal expectations. Turning now to our balance sheet and cash flow, we have made significant progress in strengthening our financial position.
Merchandise inventories were $6.7 billion at the end of Q3, a decrease of $465 million or 6.5% compared to prior year, and a decrease of 8.2% on an average per-store basis. The team continues to do a terrific job reducing inventory while driving sales and improving in-stock levels. Overall, we're pleased with our inventory position as we enter this important holiday shopping season. Importantly, we believe there is opportunity to further reduce and optimize our inventory position, and we expect continued progress as we move ahead. Year-to-date through Q3, we generated significant cash flow from operations of $2.8 billion, which represents an increase of 28%. As previously communicated, we redeemed $600 million of senior notes during the quarter, well ahead of their scheduled April 2027 maturity, further strengthening our balance sheet and reducing future interest expense.
We also paid a dividend of $0.59 per common share outstanding during the quarter for a total payment of approximately $130 million. Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in the business, including our existing store base, as well as other high-return growth opportunities such as new store expansion, remodels, and other strategic initiatives. Next, we seek to return cash to shareholders through a quarterly dividend payment and, when appropriate, share repurchase. And while our leverage ratio remains above our goal of less than three times adjusted debt to adjusted EBITDA, we are making significant progress towards reaching our target level in support of our commitment to middle BBB ratings by S&P and Moody's. Moving to an update on our financial outlook for fiscal 2025.
Our update primarily reflects our Q3 outperformance and improved outlook for Q4, while also considering the potential for continued uncertainty, particularly in consumer behavior. With that in mind, we now expect the following for 2025: net sales growth of approximately 4.7%-4.9%, same-store sales growth of approximately 2.5%-2.7%, and EPS in the range of $6.30-$6.50. Our EPS guidance continues to assume an effective tax rate of approximately 23.5% and that we will not repurchase shares under the existing share repurchase program. Now, I want to provide some additional context around our expectations. With regards to gross margin, we anticipate shrink will be a continued tailwind in Q4, though to a much lesser extent than Q3, as we begin to lap the improvements we made toward the end of last year.
We also now expect capital spending to be towards the low end of our previously stated range of $1.3 billion-$1.4 billion. This includes our continued expectations to execute approximately 4,885 real estate projects in 2025, including 575 new store openings in the United States and up to 15 in Mexico, 2,000 Project Renovate remodels, 2,250 Project Elevate remodels, and 45 relocations. Finally, as a result of our strong cash and liquidity position, we plan to redeem an additional $550 million of our senior notes earlier than their November 2027 maturity. Our guidance contemplates about $9 million of incremental expense in Q4 in connection with this repayment. In closing, we are pleased with our third quarter result and updated financial outlook for Fiscal 2025.
While we plan to speak more to our 2026 outlook on our Q4 call in March, we are confident in our long-term financial framework, and we are very pleased to be ahead of schedule in our progress. Importantly, we are working to further strengthen and accelerate where we see opportunity, our path to achieving these goals. We look forward to sharing our continued progress as we move ahead. Overall, we are confident in our business model and remain focused on delivering profitable sales growth, high returns on invested capital, strong operating cash flow, and long-term shareholder value. With that, I'll now turn the call back over to Todd.
Thank you, Donny. I'll take the next few minutes to provide updates on three of our most important initiatives as we look to further advance our progress toward achieving our short and long-term goals. Starting with real estate, where we continue to enhance and extend our unique combination of value and convenience to new communities across the country. These efforts remain focused on driving sales and market share growth by expanding our unique real estate footprint while also enhancing our mature store base. We opened 196 new stores in Q3, primarily in our 8,500 sq ft store format in rural markets. Importantly, we continue to accelerate our efforts and, through the first 10 periods of the year, have substantially completed our planned new store openings for Fiscal 2025.
Outside the U.S., we've opened seven new stores in Mexico this year, bringing us to a total of 15 at the end of Q3. We continue to test and learn in these stores and remain excited about the opportunity to serve these communities. We also continue to make substantial progress with our remodel initiatives. As a reminder, in addition to our traditional remodel program, which we call Project Renovate, we previously introduced a new incremental remodel program called Project Elevate. This initiative is designed to further grow sales and market share in portions of our mature store base that are not yet old enough to be part of our full remodel pipeline. These projects include physical asset investments, as well as merchandising optimization, product adjacency adjustments, and category refreshes, all of which impacts approximately 80% of the total store.
We completed 651 Project Elevate remodels in Q3 and an additional 524 Project Renovate remodels during the quarter. While we have not yet reached the one-year anniversary of the first stores in the program, we are on track to deliver an average first-year annualized sales comp lift of approximately 3% in Project Elevate stores, and we continue to expect comp sales lifts of approximately 6% for Project Renovate stores. Importantly, we continue to see significant improvements in customer satisfaction in these stores upon completion of the remodels. These results have given us confidence to make Project Elevate a key component of our real estate strategy as we move forward. Looking ahead to 2026, we are uniquely positioned to serve an underserved customer rural America, where approximately 80% of our current store base serves towns of 20,000 or fewer people.
We plan to build on that strength in 2026 with plans to execute approximately 4,730 real estate projects in total, including 450 new store openings in the U.S., 2,000 Project Renovate remodels, and 2,250 Project Elevate remodels and 20 relocations. We plan to open approximately 10 additional stores in Mexico. With regards to new stores, as a reminder, we monitor several metrics of our portfolio, including performance against pro forma sales expectations, new store productivity compared to our mature store base, cannibalization, which overall has remained consistent and predictable, cash payback, which we expect in approximately two years, and a new store return, which we expect to be in the range of approximately 16%-17% on average in 2026. Overall, our new store projects continue to deliver healthy returns despite higher occupancy and operating costs.
Importantly, we're committed to mitigating these cost pressures where possible and continue to see significant runway for new store expansion, with approximately 11,000 opportunities for Dollar General stores in the U.S., and while we've always said that for a variety of reasons, we don't expect to capture every opportunity, we're excited about our ability to significantly grow our footprint in the years to come. We anticipate that the majority of our new stores next year will be in one of our 8,500 sq ft formats and will be predominantly in rural communities, and nearly all of our relocations are planned for one of our 8,500- or 9,500-sq ft stores. As a reminder, these larger footprint stores provide additional opportunities to serve our customers, including expanded cooler offerings and more health and beauty products.
While we currently offer fresh produce in approximately 7,000 stores, we anticipate bringing this offering to more than 200 additional stores in 2026. We are excited about our real estate plans for next year and believe these projects will continue to deepen our connection with our current customers while better positioning us to attract new customers as well. Collectively, we believe these projects will further solidify Dollar General as the essential partner in communities rural America, both in our physical store locations as well as with an expanding digital reach, all while strengthening our foundation to drive long-term sustainable growth. The next area I want to discuss is our digital initiative, which serves as an important complement to our expansive store footprint as we continue to deploy and leverage technology to further enhance convenience and access for our customers.
Our digital capabilities include an engaging mobile app and website that continues to be very popular with our customers and have expanded our delivery capabilities while growing our DG Media Network. We have significantly expanded the reach of our delivery options available to customers. Our DoorDash partnership, which now services more than 18,000 stores, continues to drive significant incrementality and sales growth. As a reminder, we partnered with DoorDash to launch our own same-day delivery offering through our Dollar General Digital Solutions late last year. We believe DG Delivery can drive great customer loyalty within our digital platform while ultimately accelerating growth and increasing market share. We significantly increased the penetration of this offering in Q3, and now DG Delivery is available through our app and website in more than 17,000 stores.
Most recently, we entered a partnership with Uber Eats to further expand the reach of our delivery capabilities as we provide value and convenience to customers on their platform. We are now live in more than 17,000 stores with Uber as well. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers, with more than 75% of our orders delivered in one hour or less, while also extending our value offering to a wide range of new customers. We are seeing larger basket sizes than the average in-store transaction and a very strong repeat visit rate from customers on our delivery platform. Looking ahead, we have ample opportunity to further drive incremental sales growth through a variety of customer experience enhancements and increase customer awareness.
As we see continued growth in our digital properties, one of the most significant components of our digital initiative is our DG Media Network, which enables a more personalized experience for our unique customer base while delivering a higher return on ad spend for our partners. We are continuing to drive significant year-over-year growth in retail media volume as partners seek to access our unique customer base. Our digital advertising business continues to see double-digit growth in 2025, driven by new DG Media Network capabilities on our site and within our app, and we believe we are still in the early stages of the potential financial contribution from this initiative. The DG Media Network remains an important contributor to our long-term growth framework, and we're excited about its potential.
Over time, we believe we can leverage our digital initiative to increase market share and drive profitable sales growth while further evolving our relationship with our customers and driving greater customer loyalty within the digital platform. The final initiative I want to discuss is our non-consumable growth strategy. As a reminder, we are focused on a few key drivers in our non-consumable categories over the next three years. These include brand partnerships, a revamped treasure hunt experience, and reallocation of space within our home category. During Q3, we were pleased to deliver positive same-store sales growth in each of our three non-consumable categories for the third consecutive quarter. This growth was led by our two largest non-consumable categories, seasonal and home, each of which delivered comp sales growth of approximately 4% in the quarter. Our pOpshelf stores delivered another quarter of strong same-store sales growth in Q3.
Our new store layout continues to perform well, and we continue to take lessons from pOpshelf and apply them to our non-consumable approach in our Dollar General stores as we further enhance that offering for customers. We believe our non-consumable sales growth, both in Dollar General and pOpshelf stores, continues to benefit from improved execution and a more compelling assortment, as well as from the expanded trade-down shopping we've seen from higher-income customers. These results, including multiple quarters of strong sales performance and market share gain, continue to demonstrate that our treasure hunt approach is resonating with customers. Furthermore, our focus on value continues to guide our efforts and drive our success in these categories.
With approximately 20% of our holiday sets priced at $1 and more than 70% at $3 or below, we are excited about our ability to serve customers across all income brackets during this important time of the year. In turn, we believe we are well-positioned to continue driving sales and market share growth in these categories while also further increasing our gross margin. In closing, I want to reiterate that we're pleased with our performance, proud of our progress, and excited about the opportunities that lie ahead of us at Dollar General. We are laser-focused on furthering these efforts and accelerating our progress toward our goals over the short and long term. As we move through our busy holiday season, I want to again thank our approximately 195,000 employees for their commitment and dedication to fulfilling our mission of serving others.