The operator welcomes participants to the Dollar Tree Q1 2024 Earnings Call and introduces the speakers, Bob LaFleur, Rick Dreiling, and Jeff Davis. LaFleur reminds listeners that some statements may be considered forward-looking and subject to risks and uncertainties. He also notes that non-GAAP financial measures will be discussed and provides a disclaimer.

The speaker expresses gratitude to the Dollar Tree community following a tornado in Marietta, Oklahoma. The distribution center was destroyed, but no one was injured. The company is working to minimize store-level disruption and is providing support to affected associates. The speaker thanks everyone for their efforts during this difficult time.

The company is initiating a review of strategic alternatives for the Family Dollar business, including potentially separating it from Dollar Tree. This decision was made after a portfolio review and the closure of underperforming Family Dollar stores. The company will continue to focus on transforming Family Dollar while aggressively growing the Dollar Tree banner through new store openings and acquisitions.

The company is conducting a review of strategic alternatives for Family Dollar in order to support and maximize value for both the Dollar Tree and Family Dollar banners. This includes ensuring the proper operational and ownership structures for each banner. The company's top priority is the well-being of its associates and the communities they serve. The review is still in its early stages and no further updates will be provided until a specific course of action is approved by the Board. The company's first quarter results were in line with expectations, thanks to lower freight costs and careful expense management.

The three key fundamentals in retail, growth in transactions, sales per square foot, and units, continue to improve. Net sales increased 4.2% to $7.6 billion and enterprise comp was 1%. Dollar Tree saw a 1.7% increase in comps due to a 2.8% increase in customer traffic, but a 1.1% decrease in average ticket. The decline in average ticket was due to weaker discretionary demand, particularly for Easter-related items. This was the first discretionary comp decline for Dollar Tree since the first quarter of 2020. The early Easter and unfavorable weather conditions affected Easter sales, which represent a significant portion of Dollar Tree's annual sales.

The recent decline in Easter gatherings and purchases has affected Dollar Tree's seasonal and non-seasonal discretionary categories. This has resulted in a 150 basis point drag on Dollar Tree's first quarter comp. However, Dollar Tree has taken meaningful consumable market share and is expanding their multi-price strategy, which involves adding new items at new price points rather than raising prices on existing items.

The company's multi-price strategy has been successful in increasing sales and complementing their core $1.25 strategy. They have converted 10% of their stores to the new in-line multi-price configuration and plan to convert 2,000 more stores this year. The company is pleased with the customer response to the new offerings, but acknowledges there is a learning curve in this new discipline. Family Dollar's topline performance in quarter one was as expected, with a slight increase in comps and customer traffic. The company's multiple merchandising initiatives and growth strategies have helped improve both traffic and ticket trends.

Family Dollar's discretionary comp has gradually improved, with a slower shift towards consumables and a 1,000 basis point improvement in two-year stack discretionary comp. The negative impact of SNAP headwinds appears to be decreasing, and Family Dollar continues to gain market share in consumables. The company has closed underperforming stores and remains confident in its operating performance and growth initiatives.

In the paragraph, Jeff Davis discusses the first quarter results for the company on a consolidated basis and for each business segment. Net sales increased by 4.2%, but adjusted operating income decreased by 3%. Gross margin improved due to lower freight costs, but was offset by higher SG&A expenses. Dollar Tree's net sales increased by 5.9% and operating income decreased by 3%, while Family Dollar's net sales increased by 2%. Adjusted net income was $312 million and adjusted diluted EPS was $1.43.

Adjusted operating income increased by 32% due to a higher gross margin, offset by product cost increases and an unfavorable sales mix. The balance sheet remains strong with cash and cash equivalents of $618 million and long-term debt of $3.4 billion. The company recorded a $70 million loss for inventory destroyed at a distribution center and a $47 million loss for destroyed property and equipment, but expects to fully recover these losses through insurance. Cash flow from operating activities decreased compared to last year, but the company still generated $224 million in free cash flow. Capital expenditures increased due to new store openings and investments in growth, but the company returned $310 million to shareholders through share repurchases.

The company has $1 billion remaining for share repurchases and expects additional expenses due to the loss of their Marietta DC. They predict a $0.10 EPS impact in Q2 and $0.20 to $0.30 impact for the full year. They believe their exposure to shipping market volatility is limited and expect net sales to be in the range of $7.3 billion to $7.6 billion for the second quarter. Adjusted EPS is expected to be between $1 to $1.10. For the full year, they still expect net sales to be between $31 billion to $32 billion, but are more likely to be in the lower half of that range.

The company expects low-to-mid single digit growth in net sales for the enterprise, mid-single digit growth for Dollar Tree, and low-single digit growth for Family Dollar. They anticipate a decline in net sales for Family Dollar due to store closures. Adjusted EPS for the full year is expected to be between $6.50 and $7. The company is focused on rolling out their next generation of multi-price stores and making necessary changes to position Family Dollar for long-term success. The leadership team is proud of their associates and is ready to take questions.

Rick Dreiling, CEO of Dollar Tree, is confident in the company's mid-single digit comp guidance for the year due to the success of their multi-price point strategy. He believes that the trade-down customers and larger baskets driven by multi-price items will continue to boost sales and drive more store traffic. CFO Jeff Davis adds that the company plans to convert 2,000 more stores to multi-price in the rest of the year, which will provide additional growth.

The company's comps are expected to be softer in the second half of the year compared to the first half, and they are encouraged by the performance of both banners. They believe there is opportunity to drive greater gross margins and profitability through their multi-price offering and improvements in private label, OTC, and HBA. They remain confident in their outlook for the year and have no additional outlook considerations to provide. In case the sale of Family Dollar does not go through, the company does not have a specific plan B. The amount of corporate overhead allocated to Family Dollar and potential dis-synergies from divesting the business are not disclosed.

The speaker thanks the questioner and says it is too soon to discuss potential changes. They mention that the corporate overhead is split evenly and that the different aspects of the business are separate. The next question is about the second quarter comp guidance and the speaker says they are in line with the 2% to 4% guidance. The second question is about the acceleration strategy at Dollar Tree and the speaker mentions an acquisition and potential growth limitations.

The company had a low-to-mid single digit comp in the first quarter, which is expected to continue in the second quarter. The acquisition of 99 Cents reflects their commitment to Dollar Tree and the multi-price format is attracting higher income consumers. The cooler resets have been progressing well and are driving incremental sales in both Dollar Tree and Family Dollar stores.

The company has seen success in selling frozen and refrigerated products at Dollar Tree stores, with 5,700 stores now offering multi-priced options. The CEO is pleased with this trend and believes it reflects where the consumer is heading. The following question asks about the profitability and lease terms of remaining Family Dollar stores, but the company is unable to provide specific details.

The speaker, Rick Dreiling, discusses the profitability and lease obligations of closed stores, as well as the progress of Family Dollar and Dollar Tree. He also mentions the success of multi-price point expansion and the positive consumer response to it.

The speaker believes that the multi-price strategy will be successful and continue to drive sales in the future. They mention plans for a cheaper Christmas tree and lights, and how multi-price is affecting both discretionary and consumables purchases. They also mention that stores with multi-price conversions have a better balance between discretionary and consumables. The speaker is asked about changes in traffic and ticket in these stores, as well as the promotional landscape for the first quarter and the rest of the year.

The company's CEO, Rick Dreiling, discusses the increase in traffic and ticket sales in multi-price stores, attributing it to the company's efforts to build a new muscle. He estimates that 50% of stores are outperforming expectations, 25% are meeting expectations, and 25% have room for improvement. The company's CFO, Jeff Davis, mentions that customers are buying more promotional items, particularly in the CSD category. Dreiling emphasizes the importance of not confusing markdowns with promotions. In response to a question about the transition to the new multi-price model, Dreiling mentions the need for store managers and employees to adapt to the new discipline. Davis also discusses the impact of the resets on SG&A deleverage in the first quarter.

The speaker discusses the challenges of implementing multi-price SKUs and how it affects various aspects of the business, such as training associates and managing inventory. They also mention the three main factors contributing to SG&A margin deleverage: temporary labor, higher depreciation, and lower comp.

The company is experiencing a learning curve with their use of temp labor, but they expect this to improve over time. Shrink has been a headwind, but with mitigation efforts in place, it is stabilizing. Gross margin improvement was limited, possibly due to mix. Shrink trends are improving, but it is still a problem. The company has been proactive in addressing shrink, and their efforts are now being adopted by other companies.

The company has stabilized their self-checkout exposure and is eliminating high shrink SKUs. They have also made investments in the supply chain, including using RotaCarts for store deliveries. Gross margins were impacted by consumable mix and the lack of an Easter complement, but the company is still happy with their overall performance.

The speaker discusses the early benefits of supply chain investments, including improved in-stock availability, reduced damages, and increased associate engagement. They also mention a 100 bps improvement in EBIT margin in the back half of the year, and ask about the top drivers for this improvement.

The company has seen success in their incremental acquisition of 99 Cents stores and there is potential for $10+ EPS power in the future. The company is expecting a neutralization of shrink and mix in the second half of the year, potential tailwinds from SNAP, and improvements from portfolio optimization. There were also some unexpected expenses in the back half of last year that will not be present this year.

The speaker discusses the factors that have contributed to the revenue growth of the company and mentions that some of the softer comparisons, such as shrink and SNAP, have also played a role. They also mention that the footfalls, or number of customers, may have been a one-time occurrence. The speaker then addresses a question about the company's credit rating and states that they aim to maintain their investment-grade rating through their financial policies and capital allocation. The call concludes with the speaker thanking the audience for their time and looking forward to future discussions.

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