The speaker introduces the Dollar Tree Q4 2023 Earnings Call and introduces the company's Chairman and CEO, Rick Dreiling, and CFO, Jeff Davis. He also reminds listeners that some statements made during the call are considered forward-looking and subject to risks and uncertainties. Non-GAAP financial measures will also be discussed and reconciliations to GAAP results will be provided. All comparisons made will be against the fourth quarter of fiscal 2023.

The company has made progress in transforming its core business and is seeing growth in sales per square foot, transactions, and units. The CEO is pleased with the progress and remains focused on delivering against core growth objectives. Steps are being taken to strengthen the Family Dollar brand, including closing approximately 600 underperforming stores in the first half of fiscal 2024.

In addition to the previously announced store closures, approximately 370 more Family Dollar and 30 Dollar Tree stores will be closed at the end of their current lease terms. This is expected to result in a net sales loss of $730 million, but also a gain of $0.30 in annual EPS. The fourth quarter results showed a 12% increase in net sales and a 3% increase in enterprise comp, with Dollar Tree's comps up 6.3%. The consumable comp for Dollar Tree was up 10.8% and the discretionary comp was up 3.1%, an impressive accomplishment given the current retail climate.

Dollar Tree's quarter four performance was impacted by winter storms, but they still gained market share in consumables and attracted new, higher income customers. Their multi-price point strategy, called "More Choices," has been successful in offering a relevant assortment to customers. They have rolled out $3, $4, and $5 frozen and refrigerated items in 6,500 stores and plan to expand this to 8 out of 10 coolers. They will also be introducing $3 and $5 center-store merchandise to more stores and are working on expanding their assortment across a wider range of price points in categories such as food, snacks, beverages, pet care, and personal care.

Dollar Tree plans to expand its multi-price assortment and integrate it into stores, while Family Dollar has seen a decline in sales due to inflation and reduced government benefits for lower-income consumers. Consumables remain strong for Family Dollar, but discretionary items are struggling. The company expects reduced SNAP benefits to continue impacting sales for the first half of FY '24.

The CEO believes that while the current operating environment is challenging, Family Dollar stores have the potential to be successful. They are addressing underperforming stores and have seen market share gains. The company has achieved key milestones in their transformation journey, including opening new stores and implementing rotacart deliveries to improve supply chain efficiency. They plan to focus on opening more Dollar Tree stores in the future.

The implementation of rotacarts has resulted in a decrease in unloading times at stores and the company plans to expand and modernize its trailer fleet. By the end of this year, all distribution centers will be temperature-controlled, which will improve efficiency and productivity. The company is also making progress on revamping its Family Dollar DC and has resolved a situation with the U.S. Department of Justice. The company is also focusing on food and product safety protocols and compliance oversight. In terms of IT, the company has implemented a new warehouse management system and is deploying a transportation and labor management system. Additionally, over 3,800 stores now have improved network infrastructure to support store operations.

The company has been working on implementing new systems and launching mobile apps for both Family Dollar and Dollar Tree. They have also expanded their private brand program and optimized their merchandise assortment, which has already had a positive impact on their results. The efforts of the Chief Merchandising Officer and his team have helped offset the impact of a softer macro environment and weaker discretionary demand.

In the fourth quarter, the company has successfully increased the number of cooler doors in Family Dollar stores and is close to reaching their goal of 30 coolers per store. They are focused on improving their performance and taking market share despite challenges in the retail industry. The company remains optimistic about their future and will continue to face challenges head-on. The CFO will discuss the fourth quarter results, the financial impact of portfolio optimization, and provide an outlook for fiscal 2024 and Q1. The results for the quarter and year include an extra week of operations.

In the fourth quarter, Dollar Tree and Family Dollar saw an increase in traffic, unit volume, and market share despite challenges such as an unfavorable sales mix and reduced SNAP benefits. On a consolidated basis, net sales increased by 12%, adjusted operating income increased by 21%, and adjusted operating margin increased by 70 basis points. This was driven by lower freight costs, occupancy cost leverage, and higher vendor allowances, partially offset by product cost inflation and other factors. Adjusted net income was $556 million, and adjusted EPS was $2.55, including a $0.17 per share negative impact from unfavorable general liability insurance claims. The non-GAAP adjustments in the Q4 results included $594 million in non-cash charges for inventory markdowns and store asset impairments, as well as $4 million in related fees.

In the fourth quarter, Dollar Tree had two non-GAAP adjustments, including a $2 billion charge for Family Dollar and a $27 million charge for the Department of Justice settlement. Outside of these adjustments, there were also $0.17 of net EPS headwinds due to various factors. One of these factors was a $0.07 impact from general liability claims in the second quarter of 2023, and in the fourth quarter, they revisited this issue and took a charge to address the increased volatility of claims. Dollar Tree's net sales increased by 16% to $5 billion.

In the fourth quarter, adjusted operating income and margin increased for the company, driven by lower freight costs and favorable occupancy cost leverage. However, there were some pressures from lower-margin consumables, cost inflation, and elevated shrink. Family Dollar also saw an increase in net sales and adjusted operating income, but also faced challenges with higher shrink and general liability claims. The company's inventory decreased and capital expenditures increased, primarily due to the opening of new stores and investments in renovations, supply chain, and IT.

In the fourth quarter of fiscal 2023, the company's free cash flow decreased by $82 million due to higher capital expenditures. However, for the full year, free cash flow improved by $217 million, mainly due to lower merchandise inventories and timing of accounts payable. The company did not repurchase any shares in the open market during the fourth quarter due to the portfolio review process. In fiscal 2023, 3.9 million shares were repurchased for $504 million, and the company had $1.35 billion remaining under its share repurchase authorization. Cash and cash equivalents totaled $685 million, and the company's leverage was approximately 2.4 times at the end of fiscal 2023. The company's non-GAAP adjusted EPS for the full year was $5.89, which includes costs associated with the portfolio review, impairments, and other discrete items. On a 52-week basis, the company's underlying operating performance contributed approximately $5.83 of EPS in fiscal 2023.

In 2023, lower freight costs and shrink/mix headwinds had a significant impact on the company's EPS. The company expects to see more freight savings in 2024, but also anticipates continued headwinds from shrink and mix. To address the current economic environment, the company will optimize its SG&A and capital expenditures. For fiscal 2024, the company expects net sales to be between $31 billion to $32 billion and diluted EPS to be between $6.70 to $7.30.

For the first quarter of fiscal year 2024, the company expects net sales to be between $7.6 billion and $7.9 billion, with low- to mid-single digit growth in both the enterprise and Dollar Tree segments and flat growth in the Family Dollar segment. Diluted EPS is expected to be between $1.33 and $1.48. The outlook for the full fiscal year does not include any additional costs related to the portfolio review process. The company expects gross margin in the Dollar Tree segment to be between 36% and 36.5%, with reduced freight expenses. In the Family Dollar segment, gross margin is expected to be between 24.5% and 25%, with challenges such as elevated shrink and reduced SNAP benefits in the first half of the year. Lower freight costs are expected to provide a benefit of $0.80 to $0.90 in EPS for the full fiscal year, with the majority of the savings coming in the first half of the year. However, there are also expected headwinds of $0.30 to $0.35 in EPS from unfavorable mix and elevated shrink, which will be absorbed in the first half of the year.

The company expects to see neutral impact from shrink and mixed pressures in the second half of the year and anticipates SG&A expenses to be around 25% of total revenue. The conversion of 3,000 stores into a multi-price format will result in additional one-time reconfiguration costs. The closure of Family Dollar stores is expected to be accretive to EPS in the second half of the year. The first half of the year is expected to account for 38% of the full year EPS, with the remaining 62% in the second half. Depreciation, net interest expense, effective tax rate, and capital expenditures for the year are also outlined. The company has no plans for share repurchases but has remaining authorization for $1.35 billion. CEO Rick Dreiling concludes the call.

The reported earnings of the company included some unexpected items, but overall, the company has performed well in a challenging macro environment. The Dollar Tree segment is exceeding expectations and gaining momentum, while steps are being taken to strengthen the Family Dollar segment. The CEO is proud of the organization and its employees and is confident in the company's strategy and outlook.

The speaker discusses the evolving strategy of the company and how it is focused on creating shareholder value. They mention the success of the Dollar Tree multi-price point strategy and the challenges faced by Family Dollar due to the macro environment. They also mention their belief in reaching a $10 target, but acknowledge that it may be difficult to pinpoint due to current obstacles. The company is currently focused on reaching a $7 target in 2024.

The speaker discusses their positive outlook for the year 2024 and the potential for a strong year in Dollar Tree. They mention the initiatives being put in place and the positive comp they are seeing. They also mention that Family Dollar may face some challenges due to a mix shift and pressure on low-end consumers. They express confidence in their comp outlook and mention an upcoming cycle of SNAP benefits. In response to a question, they discuss traffic trends and market share at Dollar Tree and their confidence in the go-forward Family Dollar store base.

The Dollar Tree CEO, Rick Dreiling, believes there is potential to accelerate unit growth at Dollar Tree due to the store's appeal to higher-income demographics and the increase in variety of products. He also mentions that the optimization of the Family Dollar portfolio will allow them to focus on opening more Dollar Tree stores. The CFO, Jeff Davis, adds that the company is proud of their market share growth at Family Dollar, despite some pressure from their lower-income customer segment.

The company believes that their remaining Family Dollar stores can still generate value through merchandising and operational actions. They also provided a margin guide for Dollar Tree, expecting a margin of 36% to 36.5% due to a combination of factors such as the rollout of multi-price offerings and increased freight costs. The company also mentioned challenges with shrink and overall mix impact across the business.

The company plans to roll out multi-price points gradually, with a goal of reaching 10% penetration. There is a high demand for this initiative from customers.

The speaker discusses the success of a recent initiative and plans to continue expanding it. They also address questions about store closures and potential re-bannering, emphasizing the importance of maintaining the Dollar Tree brand and not disrupting store proximity.

The speaker explains that changing all stores to Dollar Trees and recapturing sales is a complex process, but the company is currently looking into it. They also mention the benefits of their supply chain changes, including reduced unload time and improved in-stock levels in both stores and distribution centers.

The speaker discusses the fourth quarter and how supply chain disruptions affected inventory levels. They mention improvements being made in the supply chain and introduce Mike Kindy, who is in charge of improving the inbound and outbound service rates. The next question is about the average ticket at Dollar Tree and the impact of adding higher-priced items. The speaker also mentions the cash cost of closing 600 Family Dollar stores and asks the other person to address this question.

The speaker explains that the decrease in average ticket at Family Dollar stores is due to an increase in customer frequency. They also mention that having multi-price items in a customer's basket can lead to a larger overall purchase. They then discuss the stores that will be closing and how it will have a neutral to positive impact on cash flow. The next question asks for clarification on the negative impact of SNAP on Family Dollar, and the speaker states that it is a 5% decrease.

The speaker explains that the company's initiatives have worked in every store, but the decision to close certain locations was based on factors such as location, competition, and facility quality. The company hopes to transfer sales from the closed stores to their remaining operating stores. The process of selecting stores to close was thorough.

The speaker discusses the reasons why certain stores did not benefit from initiatives that were successful in other stores. He explains that these stores were operating at a significant loss and would not be able to generate a reasonable return on investment. This is due to factors such as decreasing rents and other external factors. The next speaker is then asked about the consumables category at Family Dollar and he explains that they have adjusted their SKU count and are seeing positive results in terms of sales.

The company has improved its consumable mix and emphasized private brands, leading to a strong pricing position. The market and promotional activity are stable. The company plans to run discounts to clear inventory at stores slated for closure, which is already factored into their guidance. The call has ended.

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