The operator introduces the Dollar Tree Third Quarter 2023 Earnings Call and Webcast, and reminds participants to limit themselves to one question. The Senior Vice President of Investor Relations, Bob LaFleur, introduces the CEO and CFO and reminds listeners that some statements made may be considered forward-looking and subject to risks and uncertainties. He also mentions non-GAAP financial measures and provides a link to the earnings release for more information.

The company is reporting its third quarter results, which were within their expected range. They have taken market share in both segments and believe it reflects their investments and transformation initiatives. Despite some challenges in the retail environment, they have outperformed their peers. They have added new customers and have a loyal customer base.

In the third quarter, Dollar Tree saw a 5.4% increase in net sales, driven by a 3.9% comp growth. The company's price value perception remained strong, but they fell short of their comp expectations due to softening trends, particularly in October. The company's consumable comp was up 11.1% and discretionary was up 1.1%, showing that customers are embracing their value proposition in a strained economic environment. Dollar Tree also gained 30 basis points of consumables market share and saw a 6% increase in unit volume, while the market saw a decline.

The Family Dollar segment saw a 2% increase in comp sales, driven by a 6.2% growth in consumables but a decline in discretionary categories. The company faced challenges such as lower government SNAP benefits and reduced tax refunds, but their focus on value retailing and growth initiatives helped them maintain their momentum. The company remains committed to their transformation journey.

Dollar Tree is making progress on their merchandising, IT, and supply chain initiatives, with their multi-price journey ahead of schedule and their Dollar Tree PLUS and frozen and refrigerated assortments in more stores than originally planned. Customers are responding positively to the expanded multi-price assortment. Family Dollar has completed planogram resets and renovations, with private brand penetration ahead of schedule. They are also on track to add new SKUs to their family wellness product line and convert control brands to private brands. In terms of real estate, they have opened 197 new stores in quarter three and are on track to meet their target for the year.

The company is implementing a streamlined delivery process for stores serviced by their Matthews, North Carolina distribution center using roto-carts and liftgate trailers. They have received positive feedback and plan to have all distribution centers using roto-carts by the end of 2027. The company has made investments in their people and had a successful National Hiring Day, hiring 14,000 part-time associates. They are focused on accelerating sales and growing earnings, but also periodically re-evaluate their store portfolio to address underperforming stores. They have initiated a comprehensive review of their Family Dollar portfolio for this purpose.

In the third quarter, Dollar Tree and Family Dollar saw increased customer traffic, unit volume, and market share. Gross profit dollars also increased by 5%, driven by growth initiatives. Sales mix shifted towards consumables, particularly at Family Dollar where it reached an all-time high of 82%. Net sales increased by 5.4% to $7.3 billion, but operating income declined by 20.9% to $301.7 million. Operating margin compressed by 140 basis points due to a decrease in gross margin and an increase in SG&A rate, driven by higher shrink, product mix, distribution costs, and markdowns from the OTC recall.

The company experienced lower freight costs and mostly in-line shrink results, but SG&A expenses increased due to ongoing labor investments, IT costs, and facility costs. The effective tax rate was favorable due to higher work opportunity tax credits and lower net state taxes. Net income and diluted EPS decreased due to the OTC recall. Dollar Tree's net sales and operating income increased, but operating margin decreased due to higher product costs and shrink. Family Dollar's net sales and operating margin also increased, but operating income declined due to higher shrink and costs related to the OTC recall.

In the third quarter, Dollar Tree saw a decrease in inventory and an increase in capital expenditures. Despite a challenging economic environment, the company's free cash flow improved. They also repurchased shares and implemented new financial programs. At the end of the quarter, their leverage was 2.53 times. The company will provide more information on their sales and earnings expectations for the fourth quarter and the impact on their full-year outlook.

The company expects shrink trends to remain unfavorable in the fourth quarter and predicts that Family Dollar comps will continue to be soft due to the tough macro environment, weak discretionary spending, and high promotional activity. However, they anticipate continued strength at Dollar Tree due to their value proposition and multi-price strategy. Net sales for the fourth quarter are estimated to be between $8.6 billion and $8.8 billion, with a low single-digit increase in comp store sales. For the full fiscal year, the company expects sales in the range of $30.5 billion to $30.7 billion, with a mid-single-digit increase in comp store sales. The company is tightening its full year EPS outlook to a range of $5.81 to $6.01, including a $0.12 legal reserve taken in the first quarter.

The company is expecting selling square footage and new store growth to increase, while also considering factors such as share repurchases, depreciation and amortization, net interest expense, effective tax rate, diluted shares, capital expenditures, and the ongoing optimization review of the Family Dollar portfolio. Despite macro pressures, the company is confident in its market share momentum and progress on transformation initiatives, with a focus on growing traffic, units, and sales per square foot.

The company is taking steps to optimize its Family Dollar portfolio and meet its financial and operational objectives. They want to operate from a position of strength compared to their competition. The CEO thanks their associates for their dedication and support during the holiday season. In response to a question about their long-term earnings guidance and potential earnings for the current year, the CFO addresses the impact of the current economic environment and their confidence in their ability to continue taking market share.

The company believes that their actions will improve their top line and move them towards their longer term outlook. They remain confident in their ability to reach their 2024 EPS goal and are optimistic about their 2026 outlook. The number of initiatives they have implemented in the past year are gaining traction and they are responding to consumer needs.

The speaker discusses the expected impact of new items and price points on the Dollar Tree side of the business, and expresses confidence in the company's growth potential for 2024 and beyond. The next question asks about the core business and freight costs, and the potential for increased margins at Family Dollar.

The speaker is not giving guidance for 2024 yet, but they believe people are focused on the right components to get to a starting point and make assumptions about the company's initiatives. They are confident in the performance of Family Dollar next year, despite pressure on the lower-income consumer. They entered the third quarter with strong comps, but saw them erode throughout the quarter. The speaker is asked about their comp assumptions for the fourth quarter and future years, particularly in terms of traffic, ticket, AUR, and UBT.

The speaker, Jeff Davis, explains that the balance of Dollar Tree's sales has been consistently split between ticket and traffic. Recently, there has been a drop in ticket sales due to customer challenges, and the company is expecting this trend to continue in the fourth quarter. The company is focused on three key metrics: transactions, unit growth, and sales per square foot. The next question, from Edward Kelly, asks about the evolution of Dollar Tree's price points and where the company is gaining market share. The CEO, Rick Dreiling, responds by saying that they are continuing to roll out new price points and that the concept is becoming a strong competitor in the traditional dollar store market. He also mentions that they are gaining market share from other competitors, potentially impacting Family Dollar. The company is also considering the impact of this evolution on their growth strategy and potential locations for new stores.

Dollar Tree CEO Bob Sasser discusses the success of introducing new price points, with a core price point of $1.25 and additional price points offering even more value. This has been well received by consumers, with 40% of SKUs coming from overseas and adding the price point directly on the product. Sasser also mentions that they are considering the balance between opening Family Dollar and Dollar Tree stores in the future.

The Dollar Tree brand has become very profitable and is appealing to a wider demographic. The company is considering expanding into new areas and has recognized the different customer segments for Dollar Tree and Family Dollar. Dollar Tree is attracting higher income customers and gaining new customers. When reviewing Family Dollar, the company will focus on stores with the most potential while being mindful of potential negative impacts on sales.

The speaker is answering a question about the possibility of converting Family Dollar stores to Dollar Tree stores. They mention that the Dollar Tree cooler doors will be implemented within the next couple of years. They also clarify that they are reviewing all options for Family Dollar stores, including relocation, closure, or re-bannering. The speaker emphasizes that they are still committed to growing Family Dollar and are just reallocating assets in order to be more productive. The next question is about the breakdown of mid-single-digit comps at Dollar Tree between traffic and ticket. The speaker also mentions that they cannot disclose the October comp for Family Dollar, but there has been a change in the promotional landscape.

The paragraph discusses the promotional landscape in the retail industry and the performance of Family Dollar during the quarter. The speaker, Rick Dreiling, notes that there has not been any irrational promotions and that there has been a focus on discounted discretionary items. He also mentions that October was a challenging month for Family Dollar, but their initiatives helped them get through the quarter.

The interviewer asks about Dollar Tree's performance and the impact of different income levels on their growth. CEO Rick Dreiling explains that they are seeing a trade down in the lower income customer base, but the growth is coming from higher income customers. CFO Jeff Davis adds that Dollar Tree is performing well in both consumables and discretionary categories, with the lower income customers focusing more on consumables and the higher income customers supporting both categories. The next question is about Family Dollar and how the company plans to address its weaker top line and achieve mid-single-digit growth. The interviewer also asks about Dollar Tree's pricing position compared to its competitors.

The speaker discusses the pricing position of their company and how they measure it. They believe their pricing is good and they have seen strong growth in consumables. They also mention the potential for deflation, which could benefit their margins and allow for more discretionary spending by consumers. They also mention their focus on private brands as a way to provide more value for customers and improve margins.

The speaker discusses the potential for price deflation and how it can lead to providing more value for customers. They also mention an ongoing store optimization process and a potential for gross margin expansion in the fourth quarter due to a mix shift and inventory management.

The speaker believes that there is an opportunity for Family Dollar to improve their gross margin in the fourth quarter due to factors such as freight costs and shrink reduction efforts. They believe that they are still in the early stages of dealing with the shrink issue, but have implemented various strategies such as eliminating certain SKUs and installing anti-sweep OTC panels to prevent theft. They expect to see progress in the future, and do not anticipate having to repeat these efforts in the future.

In this paragraph, the speaker discusses the potential impact of deflation on the company. They believe it could benefit Dollar Tree by enhancing margins, but may affect the top line for Family Dollar. They also mention the potential for customers to have more disposable income, allowing them to make additional discretionary purchases. The speaker also notes that deflation could allow for investments in value for the product. The call then ends with the speaker thanking the participants for their time.

The reader is given permission to end the call and is thanked for their participation.

This summary was generated with AI and may contain some inaccuracies.