Thank you, and good morning, everyone. On the call with me today are Todd Vasos, our CEO, and Donny Lau, our CFO. After our prepared remarks, we'll open the call up for your questions, and Emily Taylor, our Chief Operating Officer, will join us for the Q&A session. To allow us to address as many questions as possible in the queue, please limit yourself to one question. 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 21, 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. Now it is my pleasure to turn the call over to Todd.
Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our teams in our stores, distribution centers, private fleet, and our store support center for all their work to serve our customers and each other in 2025. We are proud of these efforts and pleased with our strong operating and financial results for both the fourth quarter and fiscal year 2025. We have not only stabilized our core business, but we've laid the groundwork to drive meaningful growth over both the near and longer term. For today's call, I will begin by recapping some of the highlights of our fourth quarter performance, as well as sharing our latest observations on the consumer environment. After that, Donnie will share the details of our financial performance, financial outlook for fiscal 2026, and updated thoughts on our long-term financial framework.
I will then wrap up the call with an update on our strategy, including our strategic growth pillars. Turning to our fourth quarter performance. Net sales increased 5.9% to $10.9 billion in Q4, compared to net sales of $10.3 billion in last year's fourth 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. Importantly, we believe our continuing growth in sales and market share demonstrate the relevance of our unique combination of value and convenience for our customers. Same-store sales increased 4.3% during the quarter and included healthy growth in customer traffic as well as average basket size.
The growth in average basket was driven by an increase in average unit retail price per item, partially offset by a decrease in average number of items. From a monthly cadence perspective, while January was the strongest period of the quarter and included a benefit from consumer stock-up activity ahead of winter storms, all three periods delivered comp sales growth above 3.5%. For the fourth consecutive quarter, we delivered broad-based category sales growth with positive comp sales in each of our consumables, seasonal, home, and apparel categories. Notably, sales in the combined non-consumable categories outpaced a solid increase in consumable sales also for the fourth consecutive quarter. In addition, we finished 2025 with three consecutive quarters of meaningful growth in customer traffic, reflecting the essential role we play for our customer and communities as we help them save time and money every day.
Customers across all income brackets continue to stress the importance of finding value as they shop, and we are meeting this need as we continue to grow penetration with households of all income levels. While we continue to be pleased with our pricing position against competitors and other classes of trade, we know value is multifaceted, especially for our core customer. As a result, beyond our goal of keeping prices within 3-4 percentage points of mass retailers, we continue to offer compelling value through our extensive offering of more than 2,000 items at or below the $1 price point.
These items are clearly resonating with the customer, as evidenced by the strong performance of our Value Valley offering, which is comprised of more than 500 rotating items, all priced at $1. In fact, during the quarter, this offering delivered a comp sales increase of 17.6%, once again outperforming the chain average. These results represent meaningful acceleration compared to prior quarters, further building on the strong results we've been delivering in this area. In addition, $1 items in our seasonal business for the quarter delivered our highest sell-through rates, reinforcing the value our customers continue to place on this important price point.
Our strong value proposition is complemented by the convenience of nearly 21,000 stores located within five miles of approximately 75% of the U.S. population, and a robust and growing digital presence to serve a wide variety of new and existing customers, all of which has uniquely positioned us as America's neighborhood general store. In summary, we're proud of our Q4 and 2025 results, which were well ahead of our expectations. We are well-positioned to continue driving profitable sales growth and capturing growth opportunities while creating long-term shareholder value. Now let me turn the call over to Donny.
Thank you, Todd, and good morning, everyone. Now that Todd has taken you through the top-line results for the quarter, let me take you through 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 Q4, gross profit as a percentage of sales was 30.4%, an increase of 105 basis points. This increase was primarily attributable to a reduction in shrink, higher inventory markups, and lower inventory damages, partially offset by an increased LIFO provision. Our shrink mitigation efforts once again contributed to strong gross margin expansion in the quarter, as we delivered a 62 basis point improvement in shrink versus prior year, even while lapping a 68 basis point improvement in Q4 2024.
For the full year, gross margin expanded by 107 basis points, driven by an 80 basis point reduction in shrink. Notably, this reduction positions us ahead of the goals embedded in our long-term financial framework, and we expect further improvement over time. Turning to SG&A, which as a percentage of sales was 24.9%, a decrease of 165 basis points. The primary expenses that were a lower percentage of sales in the quarter include impairment charges, primarily due to the store portfolio optimization review completed in 2024 and retail salaries, partially offset by higher incentive compensation. Moving down the income statement. Operating profit for the fourth quarter increased 106% to $606 million. As a percentage of sales, operating profit increased 270 basis points to 5.6%.
As a reminder, our Q4 2024 operating profit includes an approximate $232 million negative impact associated with the impairment charges I just mentioned. Net interest expense for the quarter decreased to $52.3 million compared to $65.9 million in last year's fourth quarter. Our effective tax rate for the quarter was 21.8% and compares to 16.2% in the prior year. Finally, EPS for the quarter increased 122% to $0.93, which exceeded the high end of our expectations. Our Q4 2024 results include an approximate $0.81 per share negative impact associated with the impairment charges I mentioned earlier. Turning now to our balance sheet and cash flow, where we continue to make significant progress in strengthening our financial position.
Merchandise inventories were $6.3 billion at the end of Q4, a decrease of $379 million or 5.7% compared to the prior year, and a decline of 7% on an average per store basis. Importantly, 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 and moving forward, we're focused on growing inventory at a rate below our sales growth. In 2025, we generated significant cash flow from operations of $3.6 billion, which represents an increase of 21.3%. Our strong cash flow generation provides flexibility to reinvest in our business while at the same time further strengthen our balance sheet and liquidity position.
In fact, as previously communicated, we redeemed $550 million of senior notes during the fourth quarter. This is well ahead of their scheduled November 2027 maturity and brings the total level of senior note redemptions in 2025 to $1.7 billion. We also paid a dividend of 59 cents 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 our quarterly dividend payment and when appropriate, share repurchases, all while maintaining our goal of less than three times adjusted debt to adjusted EBITDAR in support of our commitment to middle BBB ratings by S&P and Moody's. Overall, we're pleased with our strong financial results in 2025, which were significantly ahead of our initial expectations for the year. These results are a testament to the strong execution by the team and the ongoing positive impact of key growth initiatives across the business. I'd like to now discuss our financial outlook for 2026. Our current outlook reflects continued progress against our key growth initiatives. It also considers our efforts to mitigate cost inflation and the potential for continued uncertainty, particularly in consumer behavior.
In addition, keep in mind that we entered the year well ahead of schedule on several of the goals initially contemplated in our long-term financial framework, which we introduced on our Q4 2024 earnings call last March. Taking all of this into account, for 2026, we expect net sales growth in the range of 3.7%-4.2%. Same-store sales growth in the range of 2.2%-2.7%, and EPS in the range of $7.10-$7.35. Our EPS guidance assumes an effective tax rate of approximately 25% and includes an anticipated negative impact of about 150 basis points from the expiration of the Work Opportunity Tax Credit on December 31, 2025, resulting in an approximate 13-cent reduction to EPS.
We expect capital spending in the range of $1.4 billion-$1.5 billion, which is aligned with our capital allocation priorities and designed to support ongoing growth. In addition, our board of directors recently approved a quarterly cash dividend payment of 59 cents per share for Q1 2026. While our guidance does not contemplate share repurchases this year, they remain an important part of our broader capital allocation strategy at the appropriate time. Now, let me provide some additional context as it relates to our outlook for 2026. As a result of severe winter storm activity in the first two weeks of February, including periods of temporary store closures, sales results were negatively impacted to begin the year. Since that time, we've been pleased with the solid rebound in top-line performance.
With all of that in mind, we expect Q1 comp sales to be in the low 2% range. For the full year, we expect continued gross margin expansion, though to a much lesser extent than 2025, as we lap the strong performance from prior year. We expect this improvement to be driven by our key growth margin drivers, which Todd and I will discuss in further detail shortly. On the expense side, we expect modest SG&A deleverage in 2026. While we expect to benefit from a more normalized incentive compensation level, this benefit will be partially offset by continued investments in key initiatives, including remodels and IT modernization. Overall, we're excited about our plans for 2026, particularly following our strong 2025 results, and we're confident in our strategy to deliver against our long-term financial framework goals.
With that in mind, I will now provide an update on certain components of our long-term financial framework. I'll start with an update on how we currently see the path towards our 6%-7% operating margin target over the next 3-4 years. Within gross margin, our plans include building on our efforts to further reduce shrink and damages. While we have made significant progress on both fronts, particularly with shrink, we see opportunities for continued improvement as we move ahead. More specifically, we now anticipate shrink and damages combined will contribute approximately 50 basis points of incremental gross margin expansion as we continue to optimize our inventory position, improve in-store execution, and reduce store manager turnover. We're also executing against a combination of other gross margin drivers, including DG Media Network, non-consumables merchandising, supply chain productivity, and category management.
Importantly, many of these initiatives are still early in their maturity curves. In total, over the next 3-4 years, we expect these combined initiatives will contribute at least 120 basis points of gross margin improvement, including approximately 50 basis points from our DG Media Network. With regards to SG&A, we continue to target reductions through initiatives designed to simplify work and drive greater efficiencies, reduce repairs and maintenance expense, and stabilize growth and depreciation and amortization. While the goals in our framework assume a modest degree of SG&A deleverage, we're excited about the potential to deliver savings in these areas while supporting continued growth across the business. Finally, we are pleased to continue to return cash to shareholders through our strong dividend. We are also looking forward to resuming share repurchases at the appropriate time.
Overall, our framework is centered on driving strong top and bottom line growth and improving profitability while continuing to invest in high return growth initiatives and ultimately returning significant cash to shareholders. Importantly, we are working to further strengthen and accelerate where we see opportunity, our path to achieving these goals. In closing, we're pleased with our strong operating and financial results in 2025 and excited about our plans to drive continued growth in 2026 and beyond. We're confident in our business model and our long-term approach to driving sustainable growth while creating long-term shareholder value. With that, I'll now turn the call back over to Todd.
Thank you, Donny. As we look to build on our momentum in 2026, we're focused on four strategic growth pillars, enhancing the customer experience, elevating our brand, driving greater enterprise-wide efficiencies, and extending our reach. I will take the next few minutes to discuss each of these and how we are working to accomplish our goals. First, with the customer at the center of everything we do, we are focused on enhancing the customer experience. We believe we have a tremendous opportunity to gain additional market share with both new and existing customers as we look to drive trips with them both in-store and digitally. In-store, we expect to further enhance the customer experience in 2026 with the introduction of a new store format, and even more relevant merchandising programs, including our non-consumable initiative.
We have reimagined our traditional store format by creating a new layout in response to what customers have told us they want from their shopping trip. This new format is designed to be more open and inviting, resulting in greater browsing and treasure hunt shopping as customers are exposed to more categories as they navigate the store. We tested this new format in a portion of our 2025 remodel projects and are pleased with the incremental sales lift and relative sales outperformance compared to traditional remodels. Ultimately, we believe this format will help drive both increased transactions and ticket as the store provides for an even fuller fill-in trip. As we look to build on our success in 2025 and further increase penetration of non-consumable sales, we have exciting plans to drive growth in our discretionary categories. More specifically, we're continuing to evolve and expand our offering.
Following the highly successful brand expansion in 2025 with brands such as Dolly Parton, Kathy Ireland, and others, we expect to launch at least 15 new brands in non-consumable categories in 2026. In addition, as we look to showcase even more value in non-consumable categories this year, while continuing to drive profitable sales growth, we also plan to capitalize on a number of other exciting opportunities in these areas, including building on our proven closeout buying strategy, launching a loyalty program in key non-consumable categories, and growing non-consumable sales through Shoppable Social marketing. Notably, our goal is to increase non-consumable sales penetration to as high as 20% by 2029. This would represent meaningful gross margin expansion and is an important component of our long-term financial framework.
In addition to the multitude of in-store initiatives in place, we are also advancing our digital initiatives as we seek to further enhance the omni-channel consumer experience at Dollar General. We have established a robust digital ecosystem in recent years with more than 7 million monthly active users on our DG app and a total of more than 100 million marketable customer profiles. Our digital offerings are an important complement to our expansive physical store network and a key driver of incremental value and convenience for our customers. As we look to drive future growth, we are focused on scaling our delivery options, personalizing the experience for our customers, and growing the DG Media Network.
We have significantly expanded the reach of our delivery options available to customers and are now delivering customers through approximately 18,000 stores, and with our own myDG delivery offering, as well as through third-party partners, DoorDash, and Uber Eats. Collectively, these delivery options have significantly enhanced the convenience proposition for our customers with more than 80% of the orders delivered in 1 hour or less, while also extending our value offering to a wide range of new customers who were previously underserved by delivery options in their community. As we continue to see larger basket sizes than an average in-store transaction and very strong repeat visit rates, our rapidly growing delivery platforms are becoming a more meaningful sales driver. In fact, we estimate delivery sales contributed approximately 80 basis points to our comp sales growth of 4.3% in Q4.
Looking ahead, we have ample opportunity to further drive incremental sales growth through customer experience enhancements, increased customer awareness, and expanded loyalty opportunities, including a planned pilot of a subscription program. 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 customers while delivering a higher return on ad spend for our partners. Our DG Media Network strategy is focused on accelerating on-site performance through improved search, sponsored products, and a stronger e-commerce experience while expanding our ability to capture emerging off-site spends across social, connected TV, and video. We're also creating more opportunities for advertisers to participate inside our stores, better connecting digital and physical experiences.
Over time, we believe this approach positions our entire advertising network as a strategic lever to drive profitable sales growth. Enhance the customer experience and strengthen loyalty across our myDG ecosystem. In 2025, as partners continue seeking access to our unique customer base, we delivered approximately $170 million in retail media network volume, which has highly accreted the gross margin. Overall, our digital strategy is an important component of our in-store customer experience and a key driver within our long-term financial framework. Our second strategic pillar is elevating our brand. We believe we can drive significant sales and margin growth in this area through strategically investing in our mature store base while diligently executing on the basics of retail. In turn, we expect to deliver an elevated experience for both our customers and employees.
Our mature store investments will be centered around two established remodel programs, Project Renovate and Project Elevate. As a reminder, Project Renovate is our traditional remodel program, which impacts 100% of the store and includes adding or replacing coolers, as well as upgrading to the latest store format. These projects are focused primarily on stores that are 7 or more years removed from their last touch. In 2025, we introduced an incremental remodel program called Project Elevate, which 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 a full remodel pipeline. These projects include physical asset enhancements, merchandising updates, product adjacency adjustments, and category refreshes, all of which impact up to 80% of the total store.
We continue to target annualized comp sales lift of approximately 6% in Project Renovate stores and approximately 3% in Project Elevate stores. In addition to higher sales, customer surveys indicate that both projects have had a positive impact on customer sentiment, each scoring more than 100 basis points higher post-remodel as compared to the rest of the chain. Our store employees are also excited about the enhancements and the positive impact on their ability to serve our customers. In fact, following project completion, both remodel programs have lower store manager turnover rates compared to the chain average. Importantly, these improvements contributed to an overall reduction of more than 375 basis points in company-wide store manager turnover in 2025.
We have ample opportunity to continue elevating our brand through these projects and continue to expect to execute 2,000 Project Renovate remodels and 2,250 Project Elevate remodels. Our third strategic growth pillar is driving greater enterprise-wide efficiencies. We are actively pursuing a number of opportunities to drive greater efficiencies and lower costs throughout the organization, including increased supply chain productivity, further simplification of our stores, inventory optimization, and increased use of artificial intelligence. Within our supply chain, we are committed to integrating technology that can enable improved execution and drive greater productivity while maintaining operational flexibility. In turn, we expect to see higher levels of employee engagement and lower employee turnover in our supply chain, which will further enhance productivity. Regarding transportation, we continue to leverage our private truck fleet for approximately half of our outbound transportation needs across the network.
A private fleet truck represents savings of approximately 20% compared to the cost of a third-party provider, and we believe continued growth can drive substantial savings in the years ahead. Ultimately, our supply chain initiatives can support greater execution and efficiency while contributing significantly toward the operating margin goal in our framework. These efforts can also support work simplification in our stores, along with a continued focus on case pack fit, which reduces the amount of time spent stocking shelves, as well as SKU rationalization and inventory optimization. Finally, while we are still early in our AI journey, we are building an AI operating system for the enterprise focused on reshaping our workflows to improve productivity and enablement.
We believe that over time, these efforts can improve our customer-facing applications while accelerating our value delivery, decision automation, and continuous process improvement, lowering SG&A per unit of work and driving efficiency in processes throughout the organization. Our final strategic growth pillar is extending our reach. We continue to extend our unique combination of value and convenience to new communities across the country. In 2025, we opened 581 new stores in the U.S., and we plan to open an additional 450 new stores in 2026. Approximately 80% of our stores are in rural communities of 20,000 or fewer people, and we see substantial opportunities to continue growing our store count and serving new customers for many years to come. Importantly, these projects continue to be one of our best uses of capital and are an important part of our growth strategy.