DLTR Last 4 Quarters Con Call

Dollar Tree, Inc.
NasdaqGS:DLTR
FQ3 2022 Earnings Call Transcripts
Tuesday, November 23, 2021 2:00 PM GMT
S&P Global Market Intelligence Estimates
-FQ3 2022- -FQ4 2022- -FY 2022- -FY 2023-
CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS CONSENSUS
EPS Normalized 0.95 0.96 1.05 1.75 5.56 6.29
Revenue (mm) 6421.16 6417.70 (0.05 %) 7036.57 26262.57 27513.73

Currency: USD
Consensus as of Nov-23-2021 1:25 PM GMT
- EPS NORMALIZED -
CONSENSUS ACTUAL SURPRISE
FQ4 2021 2.12 2.13 0.47 %
FQ1 2022 1.40 1.60 14.29 %
FQ2 2022 1.02 1.23 20.59 %
FQ3 2022 0.95 0.96 1.05 %
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Contents
Table of Contents
Call Participants .................................................................................. 3

Presentation .................................................................................. 4
Question and Answer .................................................................................. 10
DOLLAR TREE, INC. FQ3 2022 EARNINGS CALL | NOV 23, 2021
Call Participants
EXECUTIVES
Kevin S. Wampler
Chief Financial Officer
Michael A. Witynski
President, CEO & Director
Randy Guiler
Vice President of Investor
Relations
ANALYSTS
Bradley Bingham Thomas

KeyBanc Capital Markets Inc.,
Research Division
Edward Joseph Kelly

Wells Fargo Securities, LLC,
Research Division
John Edward Heinbockel

Guggenheim Securities, LLC,
Research Division
Katharine Amanda McShane

Goldman Sachs Group, Inc.,
Research Division
Matthew Robert Boss

JPMorgan Chase & Co, Research
Division
Michael Lasser
UBS Investment Bank, Research
Division
Michael Efram Kessler

Morgan Stanley, Research Division
Paul Lawrence Lejuez

Citigroup Inc., Research Division
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Presentation
Operator
Good day and welcome to the Dollar Tree Third Quarter 2021 Earnings Conference Call. Today's call is
being recorded.
At this time, I would like to turn the conference over to Randy Guiler. Please go ahead.
Randy Guiler
Vice President of Investor Relations
Thank you, Katie. Good morning and welcome to our call to discuss results for Dollar Tree's Third Fiscal
Quarter 2021. With me on today's call are Mike Witynski and Kevin Wampler.
Before we begin, I would like to remind everyone that various remarks that we will make about our
expectations, plans and prospects for the company constitute forward-looking statements for the purposes
of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements
are subject to risks and uncertainties, and our actual results may differ materially from those indicated
in these forward-looking statements. For information on the risks and uncertainties that could affect
our actual results, please see the Risk Factors, Business and Management's Discussion and Analysis of
Financial Condition and Results of Operations sections in our annual report on Form 10-K filed March 16,
2021, our Form 10-Q for the most recently ended fiscal quarter, our most recent press release and Form
8-K, and other filings we will make from time to time with the Securities and Exchange Commission.
We caution against reliance on these forward-looking statements made today, and we disclaim any
obligation to update or revise these statements except as required by law. Following our prepared
remarks, we will open the call to your questions. [Operator Instructions]
I will now turn the call over to Mike Witynski, Dollar Tree's President and Chief Executive Officer.
Michael A. Witynski
Thank you, Randy. Good morning. Thank you for joining us on today's call. I would first like to take a
moment to recognize our store associates, distribution center staff, our field leadership and our world-
class merchants. Our teams are working around the clock to do everything they can to defend against
the current inflationary environment, keep our shelves stocked and provide customers with undeniable
value and great service and easy-to-shop, close-to-home store locations. Their hard work and dedication
is critical to our company's success, and I'd like to extend sincere thanks for their unwavering commitment
to our customers.
We experienced a strong finish to the third quarter. As shoppers are increasingly focused on value in this
inflationary environment, we continue to see accelerated progress in our key strategic initiatives, including
Dollar Tree Plus!, Combo Stores and our H2 format.
During the past quarter, freight costs were significantly higher than expected. Our fourth quarter outlook,
which Kevin will provide later in the call, reflects the higher cost structure we experienced in the third
quarter. However, our EPS for the third quarter was at the higher end of the range as the performance of
the rest of the business offset these higher freight costs. Freight and supply chain disruptions, of course,
continue to be our biggest challenge in the near term by far, and the impact will continue for a while.
But this challenge is transitory. As we detailed last quarter, our team continues to take robust action to
mitigate the impact of freight costs and supply chain disruptions. We believe that based on the steps that
we have taken, we will benefit meaningfully as these challenges abate.
The Dollar Tree segment delivered a comp sales increase of 60 basis points against its toughest quarterly
compare in nearly 3 years. On a 2-year comp stack basis, this was a sequential improvement of 170 basis
points from the prior quarter.
Discretionary continues to perform well with a 3.2% comp for the quarter. Consumables were impacted
by assortment constraints and past dues. Our $3 and $5-plus assortment continues to resonate well with
our shoppers as we had tremendous sell-through in our Halloween merchandise and fall decor. And for the
year, our multi-price point merchandise will exceed our sales plan. And we will end this fiscal year with
Dollar Tree Plus! in nearly 600 stores, exceeding our previous target of 500 stores by the end of the year.
Family Dollar delivered a positive 2.7% comp against the 6.4% increase a year ago. This represented the
third consecutive quarter that Family Dollar 2-year comp stack has exceeded 9%.
The consumable side of the business comped over 3%, while discretionary was slightly negative as we
cycled stimulus dollars from the prior year. We are extremely pleased with the Family Dollar brand as the
business continues to gain share.
Comps at both banners were driven by an increase in average ticket, partially offset by a decline in
transaction comp. The last month of the quarter, October, represented the strongest comp for both
banners.
Our digital offerings continue to evolve while we are steadfastly focused on best meeting our customers'
changing needs. In October, we announced our expanded partnership with Instacart to now include same-
day delivery from nearly 7,000 Dollar Tree stores. Nearly 100 million U.S. households now have delivery
options from 13,000 of our store locations. We are very pleased with the initial results from the latest
expansion.
Turning to the $1.25 price point. Our leadership team has been planning for the expansion of this initiative
since late summer. As you know, in September, we announced our plans to add price points above $1
to all Dollar Tree stores and on a test-and-learn basis to select legacy Dollar Tree stores. As a result of
the positive customer feedback and store performance during the initial phase, we have introduced the
initiative to nearly 200 additional legacy Dollar Tree stores.
In today's press release, we announced for the first time in Dollar Tree's 35-year history we are lifting
the $1 price point cap at all Dollar Tree stores on the majority of our assortment. The $1.25 price point
enhances our ability to materially expand assortments, introduce new products and sizes and provide
families with more of their daily essentials. We will have greater flexibility to continue providing incredible
value and help customers get the everyday items they need and celebratory and seasonal products that
Dollar Tree is best known for.
Additionally, we are now reintroducing many customer favorites and key traffic driving domestic and
consumable products that Dollar Tree had previously discontinued due to the constraints of a $1 price
point. The new price point will also enable us to mitigate historically high merchandising cost increases,
including freight and distribution costs as well as higher operating costs such as wage increased.
Our teams are focused on speed, execution and customer research, and our shoppers are responding
favorably. When surveyed, the majority of our customers indicated they were already aware of the
previously announced new price point. And not surprisingly, many have also indicated they are seeing
price increases across the market and that Dollar Tree is still providing the products they need at
undeniable value. We are extremely focused on flawless execution and are providing our leadership team
out in the field with tools to support a seamless transition.
Actions include: providing teams with a conversion checklist to ensure consistently exceed across markets
and stores; dedicate adequate store hours to complete the preparation tasks, including removing the
signage and display elements referring to the Everything's a Dollar; implementing the new signage
regarding the $1.25 price point on displays, end caps and shelf strips throughout the store, posting clear
communications to customers in entry ways and at the checkout; and we are equipping our store teams
with messaging for responding to customer inquiries.
We have closely monitored the performance of the test stores and shopper reaction through extensive
customer intercepts and third-party surveys since our initial test began. We will continue to gather
our feedback throughout the process to ensure we remain fiercely committed to our brand promise of
providing customers with extreme value every day, along with more thrills, more fun and more new items
every week.
For 35 years, we've been able to manage through inflationary periods to maintain the Everything for $1
philosophy that distinguished Dollar Tree and made it one of the most successful retail concepts for 3
decades. However, we strongly believe this is the appropriate time to shift away from the constraints of
the $1 price point in order to continue offering extreme value to our customers.
The independent surveys of shoppers across the U.S. have indicated that 77% of the shoppers were
almost immediately aware of the price point change. And of those 77%, 31% already knew before they
visited the store and 17% became immediately aware upon entering the store, while 29% were aware
within minutes of entering the store. Critically, 91% of those surveyed indicated they would shop with the
same or increased frequency. We will continue to monitor the success of these initiatives, and we believe
we will see improvement in the survey results since now we have the ability to further expand the product
offering and reintroduce key traffic-driving items.
Upon validating the store execution, customer reception and the performance results were as anticipated.
We expanded the program to nearly 200 additional stores across 3 major markets, and we are pleased to
say the results have been relatively consistent. As expected, we are seeing lifts in comp sales, partially
offset by a smaller decline in unit sales. We are seeing an initial lift to product margins that will normalize
over time as our merchant teams evolve our assortments.
Importantly, we expect this initiative will enable us to mitigate the higher freight other inflationary
costs in order to return to our historical gross margin of 35% to 36% in fiscal 2022 while improving the
merchandising we're providing for our customers.
All the steps I mentioned have set a solid foundation to streamline the execution of this important
milestone in our company's history. We have been working hard to prepare this for this key strategic
initiative to ensure that we are providing customers with great products while unlocking long-term
shareholder value. We are focused on aggressively executing our plan to roll out the new price point
across the entire footprint of legacy Dollar Tree stores.
Our teams will be introducing the new price point in more than 2,000 additional legacy Dollar Tree
stores in December and complete the rollout to all stores by the end of the first quarter in fiscal 2022.
Concurrently, our company's merchants are working to continually enhance the offerings to drive traffic,
capture market share and further grow customer loyalty. We are working with our suppliers, and we
have already begun introducing new items every week, including seasonal, crafts, party supplies, food
essentials and more.
Beyond the changes at our legacy Dollar Tree stores, we are also continuing to expand the availability of
a $3 and $5-plus assortment. As I noted a few moments ago, we will exceed our previous goal of now
adding the Plus! concept to nearly 600 stores by the end of the year. We plan to add the Plus! assortment
to another 1,500 stores in fiscal 2022 and complete at least 5,000 stores in total by the end of fiscal 2024.
We are enthusiastic about the opportunity and improve performance of Dollar Tree by continuing to deliver
extreme value to our customers at the new $1.25 price point, driving comp sales and improving store
productivity, enhancing flexibility to better manage the overall business in an inflationary environment and
as previously mentioned, returning Dollar Tree gross margins back to the change historical 35% to 36%
annual range in fiscal 2022.
I will now hand the call over to Kevin to provide details on Q3 performance and our outlook.
Kevin S. Wampler
Thanks, Mike, and good morning. Our third quarter EPS of $0.96 per share was near the high end of our
$0.88 to $0.98 guidance range. Consolidated net sales increased 3.9% to $6.42 billion, comprised of
$3.42 billion at Dollar Tree and $3 billion at Family Dollar. Enterprise same-store sales increased 1.6% as
we cycled a 5.1% increase from a year ago, representing a 6.7% increase on a 2-year stacked basis.
Comps for the Dollar Tree segment increased 0.6%. Family Dollar same-store sales increased 2.7%,
cycling a strong 6.4% increase from last year. On a 2-year stacked basis, Dollar Tree comps increased
4.6%, which was a 170 basis point improvement from Q2, and Family Dollar increased 9.1%.
Dollar Tree's comp was comprised of a 1.8% increase in average ticket, partially offset by a 1.1% decline
in traffic. Family Dollar experienced a 5.8% increase in average ticket, partially offset by a 3% decline in
traffic.
Gross profit was $1.76 billion for the quarter. Gross margin was 27.5% compared to 31.2% in the prior
year's quarter. Gross profit margin for Dollar Tree segment declined 470 basis points to 30.2% when
compared to the prior year's quarter. Factors impacting the segment's gross margin performance included
merchandise costs, including freight, increased 475 basis points driven by higher freight costs and lower
initial mark-on, partially offset by favorable mix from increased sales of higher-margin discretionary
merchandise.
Occupancy costs increased 10 basis points as a result of loss of leverage due to a lower comparable store
net sales increase and higher real estate tax expense. Distribution costs increased 10 basis points from
higher depreciation costs related to 2 new distribution centers and higher hourly wages, partially offset
by lower COVID-19-related expenses. And shrink improved 25 basis points related to favorable inventory
results and a decrease in the shrink accrual rate.
Gross profit margin for the Family Dollar segment declined 240 basis points to 24.4% in the third quarter.
The year-over-year delta included the following. Merchandise costs, including freight, increased 220 basis
points related to higher freight costs. Distribution costs increased 20 basis points compared to the prior
year quarter due to higher wages, partially offset by lower COVID-19-related expenses. Markdown costs
increased 20 basis points, primarily due to higher clearance markdowns. Occupancy costs increased 5
basis points, primarily due to higher real estate taxes, and shrink improved 30 basis points related to
favorable inventory results and a decrease in the shrink accrual rate.
Consolidated selling, general and administrative expenses improved 100 basis points to 22.7% of total
revenue compared to 23.7% in Q3 last year. We cycled $35.3 million in COVID-19-related costs or 57
basis points in the prior year's quarter. For the third quarter, the SG&A rate for the Dollar Tree segment
as a percentage of total revenue improved 50 basis points to 21.7% when compared to the prior year's
quarter. Payroll costs improved 30 basis points, primarily due to lower COVID-19-related store payroll
costs and lower incentive compensation expenses, partially offset by minimum wage increases and
higher health insurance costs. And other SG&A decreased by 25 basis points, resulting from the benefit
associated with the settlement of a contractual dispute and the realization of certain tax credits.
For Family Dollar, the third quarter SG&A rate as a percentage of total revenue improved 80 basis points
to 21.4% compared to 22.2% in the prior year's quarter. Payroll costs decreased 65 basis points, primarily
due to lower COVID-19-related store payroll costs and lower incentive compensation expenses, partially
offset by minimum wage increases. Store facility costs decreased 30 basis points, primarily due to lower
repair and maintenance expenses and lower telecommunication expenses. Depreciation and amortization
expense increased 5 basis points due to expenditures associated with the store optimization program.
And other SG&A expense increased 20 basis points, primarily due to increases in advertising and travel
expenses and an increase in insurance costs related to general liability claims.
Corporate support and other expenses as a percentage of total revenue decreased approximately 30
basis points compared to the prior year quarter, primarily due to lower incentive compensation. Operating
income was $310.5 million or 4.8% of total revenue in the third quarter. Our nonoperating expenses
totaled $33.6 million, comprised primarily of net interest expense. Our effective tax rate was 21.7%
compared to 22.8% in the prior year quarter.
Company had net income of $216.8 million or $0.96 per diluted share as compared to net earnings of
$330 million or $1.39 per diluted share in the prior year's quarter. Combined cash and cash equivalents at
quarter end totaled $701.4 million compared to $1.42 billion at the end of fiscal 2020. Outstanding debt
as of October 30 were $3.25 billion. The company did not repurchase shares during the quarter as it was
preparing for the announcement and launch of its $1.25 price point initiative across the Dollar Tree stores.
We currently have $2.5 billion remaining on our share repurchase authorization.
Inventory for Dollar Tree at quarter end increased 15.2% from the same time last year, consisting
primarily of a significant increase in goods on the water year-over-year. Comp store inventories are down
6.4% compared to a year ago when they were down 7.4%. Inventory for Family Dollar at quarter end
increased 12.4% from the same period last year. Comp store inventories are up 7.2% after being down
13.2% in 2020.
Capital expenditures were $295.6 million in the third quarter versus $238.7 million in Q3 last year.
For fiscal 2021, we expect the consolidated CapEx will be approximately $1.1 billion. Depreciation and
amortization totaled $178.5 million for Q3 compared to $170.1 million in the third quarter last year. For
fiscal 2021, we now expect consolidated depreciation and amortization to be approximately $715 million.
Our outlook for the remainder of 2021 includes the following assumptions. We have forecasted continued
pressure on wages due to the current shortage of workers available for our stores and distribution centers.
We expect shrink will continue to be a tailwind but not at the same rate as we are cycling improved results
from the prior year. Higher sales, lower store inventory levels, technology and better processes continue
to drive better results. Net interest expense is expected to be approximately $33.6 million in Q4 and
approximately $133 million for fiscal 2021.
We estimate consolidated net sales for the fourth quarter will range from $7.02 billion to $7.18 billion
based on a low single-digit increase in same-store sales for the combined enterprise. Diluted earnings per
share are estimated to be in the range of $1.69 to $1.79. As Mike mentioned earlier, freight costs were
significantly higher than expected in the third quarter. Our fourth quarter outlook reflects the expectation
of higher transportation costs. These costs will be offset by the benefit of the Dollar Tree stores that are
transitioned to the $1.25 price point net of onetime costs to implement that change.
Consolidated net sales for full fiscal year 2021 are expected to range from $26.25 billion to $26.41 billion
based on a low single-digit increase in same-store sales and 3.3% square footage growth. The company
now estimates diluted earnings per share will range from $5.48 to $5.58. Freight costs for fiscal 2021 are
now expected to be approximately $2 higher than fiscal 2020 expressed in terms of the impact on diluted
earnings per share.
While much of the focus has been on transpacific ocean container rates, we are being impacted by all
aspects of freight, including higher cost for inland transportation by truck and rail and higher diesel costs.
Additionally, in the third quarter, we moved more containers than originally planned, which required
utilizing the spot market at rates higher than forecasted. To echo Mike's comments, freight continues to
be our biggest challenge in the near term. We believe the majority of the freight challenges are transitory.
The rest of the business is performing much better in the near term.
Our outlook assumes a tax rate of 22.1% for the fourth quarter and 22.7% for fiscal 2021. Weighted
average diluted share counts are assumed to be 225.9 million shares for Q4 and 228.9 million shares for
the full year. Our outlook does not include any share repurchases. We have $2.5 billion remaining on our
existing share repurchase authorization.
And I'll now turn the call back over to Mike.

Michael A. Witynski
Thanks, Kevin. As I mentioned earlier on the call, we ended the third quarter with momentum in the
business, and that has certainly continued in both segments. Through the end of last week quarter-
to-date, our comps were running at a 4.9% increase at Family Dollar and a 3% increase at Dollar
Tree, and we are seeing positive trends as customers are planning to gather in person with family and
friends to celebrate the holidays this year. The combination of shoppers seeking value in the inflationary
environment, along with the acceleration of the company's initiatives, including Combo Stores and Dollar
Tree Plus!, bode well for the continued traction and store productivity. In 2022, we plan implementing the
$3 and $5-plus assortment into 1,500 more Dollar Tree stores. We will also be adding 400 Combo Stores
through new or renovated stores, and we plan to renovate 800 legacy Family Dollar stores into the H2
format.
Additionally, lifting the $1 constraint represents a monumental step for our organization, and we are
enthusiastic about the opportunity to meaningfully improve our shoppers' experience and unlock value for
our stakeholders. We will be relentless in our commitment to offer our customers the best value possible,
albeit at a different price point, while guided by Dollar Tree's same founding principles.
We are extremely excited and confident about the opportunities in 2022 and beyond. We are very focused
on the acceleration of the initiatives that are working for us and are operating with clarity, focus and
speed. As I previously mentioned, we do expect Dollar Tree banner to return to its historical annual range
of 35% to 36% gross margin in fiscal 2022.
Before we go into Q&A, I would like to make a brief statement. We appreciate that many of you are
focused on the Form 13D filed by Mantle Ridge 2 Fridays ago. So we will make a short statement about
that, but we'll not entertain any questions on the topic. We believe Mantle Ridge has made a very smart
investment. As we said, Dollar Tree's Board of Directors and management team are always open to listen
to input and engaging with our shareholders, and we evaluate any ideas for constructive value creation
with the best interest of all shareholders and stakeholders in mind.
In keeping with our practice not to comment publicly on our private discussions with individual
investors, we will not take any questions regarding Mantle Ridge. We appreciate your understanding and
cooperation.
Operator, we are now ready to take questions.
Question and Answer

Operator
[Operator Instructions] Our first question will come from Matthew Boss with JPMorgan.
Matthew Robert Boss
JPMorgan Chase & Co, Research Division
So maybe first, the Dollar Tree banner. 2-year stacked comps back to mid-single digits in the third quarter,
November holding the momentum despite supply-side constraints still remaining. I guess, could you just
help speak to drivers of the stabilization? What's your confidence also in that 35% to 36% gross margin
for next year? Meaning, do we need a material reset in freight? Or is the driver of this the pricing change
across the fleet that you outlined today?
Michael A. Witynski
Thanks for the question. I would say the main driver of that is, as Kevin said, inside that forecast for next
year, we are anticipating freight to pretty much look like it did this year. So the major change would be
the $1.25 price point as the key enabler to mitigate that. And it's also going to give us the opportunity to
bring in new items and a new assortment that will drive traffic in Dollar Tree and -- that will help offset
where we've lost traffic this year historically.
Matthew Robert Boss
And then, Mike, as a follow-up on Family Dollar, what do you believe the concept takes from this
pandemic? Meaning, are you seeing new customers? What initiatives do you have to retain some of the
new footsteps that you're seeing? And on the -- as we think about kind of where we go from here, what
do you think the sustainable comp for the Family Dollar concept multiyear is from here as we exit the
pandemic?
Michael A. Witynski
Yes. Thanks, Matt. So on the Family Dollar side, we believe that based on the fundamental changes our
merchants have made in our price points and in our assortment on discretionary side, along with the
continued growth we see on the consumables side, we believe that we will sustain our growth beyond the
pandemic as we exit it.
And it's evident in our 3 quarters in a row over a 9% 2-year stack of comp sales. And we're seeing our
customers really gravitate to our assortment. You heard us say our consumables side is comping well, and
they're buying more of the discretionary side as we get it in our stores. And we believe that long term, we
can sustain that low single-digit growth. And it's really evident in our Combo Stores and our H2 format.
So we're going to exceed our 1,250 H2 renovations, and we continue to see a 10% increase when we
renovate those stores.
But more importantly is that Combo Store, that bringing these 2 great companies together allow us to
drive a great format in rural America. And there's 3,000 towns that we've identified, and we're going
to grow that store count by more than 400. And as we shared on the last quarter, and I think we have
it posted on our website, our Combo Stores deliver 17% more than our pro forma than our new store
expected. They grow 23% more when we renovate them. And when we relocate them, it's a 40%
increase.
So those things are really driving not only top line, but our margin is stronger and it's translating into a
more productive store. So I think our initiatives -- I think the foundational things that we fixed at Family
Dollar and then with our key initiatives going forward will enable us to continue to grow single store comp.
Operator
Our next question comes from John Heinbockel with Guggenheim.
Guggenheim Securities, LLC, Research Division
So Mike, let me start with -- you think the $1.25 price point will -- you said majority, but what do you
think that will apply to in terms of the assortment, number one?
And then number two, tied to that, I know you're getting a lift on price. Is there any way to -- what you've
seen on impact to volume on those items specifically and then also the store as a whole? Other than
they're down, you must have a sense of how much they're down.
Michael A. Witynski
Yes. Thanks. So on the majority of the stores will be at the $1.25 price point. Just like as today where
Dollar Tree has Everything's for $1, but there are categories in food, in candy bars up at the front register,
in our greeting cards and in some poster board where they're lower than $1. So if you can imagine,
everything is just bringing in reset in that same footprint at the $1.25, and then those categories and
items will be -- remain at the dollar price point.
So it's the majority of the footprint inside of our store. And we will share -- as we continue to roll this out,
we will share more details about the comp lift and the margin. But we see enough evidence that the comp
-- between the comp lift and the margin expansion will help mitigate this burden of freight that we're
experiencing this year and get us back to that historic 35% to 36% gross profit range.
And then maybe just as a follow-up to that, how do you guys think about marketing the $1.25, right? You
want people to experience it naturally, right? I don't think you want to call attention to it duly. So is that
-- is basically just, I'll see it when I come in the store? Otherwise, you're not going to really do a lot of TV,
radio print around the strategy? Or how do you attack that?
Michael A. Witynski
Yes. Historically, Dollar Tree did not do a lot of external marketing. Everything was in the store and the
excitement and the value of the product. And it's really driven because our assortment is always moving
and never flowing. So we want to talk more about the great value that we can bring at that $1.25 price
point, and they'll see that assortment that they see when they're in our store.
And our customers gave us -- they gave us credit for that when we did our customer research and
customer intercepts. They were telling us that even at the $1.25, there's still great value and they're going
to continue shopping here.
And then we could tell in some of the unit decline in some of the categories where our intuition we knew
that we needed to improve some of our assortment and value in certain categories. So our merchants
are working extremely hard at identifying those and getting those products flowing. And I would say new
products and new product mix will be flowing through certainly the first half of the year as they change
their mix and get everything aligned to the new $1.25 price point.
Operator
Our next question comes from Michael Lasser with UBS.
Michael Lasser
UBS Investment Bank, Research Division
So you in-tested Dollar Trees Plus! for a couple of years. You've been in planning process for the move
to $1.25 price points since the end of the summer. The move to the full rollout is faster than the move
to Dollar Tree Plus!. Obviously, you're seeing a lot of inflation. So this is probably pushing the issue. How
do you manage the risk that consumers are going to push back? They've become accustomed to expect
$1 price point, and so you're going to have to manage around the cannibalization. At the same time, you
do have a lot of going on into next year. How do you ensure that you're going to get consistency in your
execution as you're implementing more initiatives than you have had in quite some time?
Michael A. Witynski
Yes. Well, the $1.25 is -- our team has been very focused to bring clarity to it. We've got a very detailed
plan for our operation teams. And the key to it is going and in cleansing the store. So we've got a team
that is -- are doing that. Then we come in and we clearly sign it, and we're putting signage throughout the
entire store so that customer understands the $1.25.
And then at the same time, our merchants are working hard today, and they have been working actually.
On their last buy trip, it was with the intent of the $1.25 price point. So our assortment is better than ever,
and we're so excited on the hard work that our merchant team is doing. In fact, they've already looked at
and reviewed over 7,000 of our core items. It's almost 7,500 of our core items. They put them on a table.
They've done a comp shop, so they bring in product from other competitors to make sure that at $1.25,
this product still has unbelievable value for our customers and it resonates well with them. And then the
ones that don't, we're working hard on and we're attacking, and we're bringing in those new items.
And then beside that, we're bringing in additional items that we had to discontinue in the past. So now
those items will be coming in. The customers responded to very favorably in the past, and we believe that
will drive traffic. And most of those items are in your consumable side of the business, where we've seen
softness over this year, where we've been limited to the $1 price point. We've lost some items. And we'll
be able to bring meaningful value at $1.25 in our frozen section and in our food section. So we're really
excited about our plan.
And then the -- in our Dollar Tree Plus!, the way we think about it, we -- that's sitting in about over 600
of our stores. And it's about 10% to 12% of the space in our stores, 200 linear feet. And the team is very
good at -- they've been delivering that all year. So next year, we are just going to deliver an expansion
of that, so just grow, same exact product assortment, different seasonal items, of course, but the same
categories, the same square footage that we've done to 600 stores this year. So it's something we've
already done. We already know what it takes to get it done. And our stores are executing it very well.
And our customers understand it in a store. It will be a $1.25 now, a $3 and $5 that's clearly marked, and
they're responding very, very well to the $3 and $5 items.
And then if you think about that's in 2022. And then in 2023 for our Dollar Tree Plus!, the growth will be
twofold. We will grow more store count, but then also our merchants next year, while we're rolling out the
same footprint to 1,500 stores next year, behind the scenes, at the same time, the merchants are going
to be working really hard at more categories, more assortment. Can you go from a 10% of your store to
20% of your store? What kind of items can we really bring in at that $3 and $5 that will really drive more
business to the stores?
So our lift is 6%, as we've -- and it's still hovering around at 6%. We think it can be more as we grow this
going forward. So the $1.25, we got a great answer on. We're going to go with clarity and focus and speed
from a marketing in-store execution, and then our merchants are working hard at analyzing every item to
make sure it's got that great value. And then we're going to grow the Dollar Tree Plus! as we did the 600
stores with focus.
Michael Lasser
Understood. My follow-up question is on your expectation to get to a 35% to 36% gross margin in your
Dollar Tree business banner next year. It seems like that will drive a mid-teen increase at least in your
gross profit dollars. So based on that, what type of EBIT improvement would you be looking for because
you're probably going to see significant fixed cost leverage? And if you're going to roll out $1.25 price
point and the freight pressure potentially rolls over, would you actually let your gross profit margin for the
Dollar Tree banner rise above 36%, if all of this comes together at the same time? Or would you look to
reinvest the upside back into the business?
Kevin S. Wampler
Yes. Michael, I think the way we think about it, obviously, is we are investing back into that product. We're
always going to live by the rule that we've -- was the mainstay of Dollar Tree, which is the product has to
be an unbelievable value in the marketplace. And that's what the company was built upon, and that's what
it will continue to be built upon, just the price point has changed.
So to your question about the margin, obviously, it's a little early at this point to talk about next year. And
obviously, we'll have a lot more information to share when we talk again on March 3 for end of the year,
and we'll be able to give a better direction. A lot of moving pieces right now. We want to make sure we
capture them all and give everybody the true picture of all those moving pieces. But we do obviously see a
clear path to the 35% to 36% margin -- gross margin for Dollar Tree next year. So I think that's the most
important thing that we can give you today, obviously, with more details to come as to all those moving
pieces.
Michael A. Witynski
Yes. And I'd just reiterate with the unlocking and moving to the $1.25 gives us the flexibility that we need
to be able to manage and mitigate the high cost of, as you saw, 400 basis points in margin at Dollar Tree,
and at the same time, really bring more value, greater items and a better assortment that will drive traffic
and top line sales for our customers that they're so used to a Dollar Tree.
So as Kevin stated, we're going to be more focused on getting the assortment right and driving traffic and
long-term growth, and we can do that and confidently think we can get to the 35% to 36% range.
Operator
[Operator Instructions] Our next question comes from Edward Kelly with Wells Fargo.
Edward Joseph Kelly
Wells Fargo Securities, LLC, Research Division
I was hoping you could talk a little bit more about the testing process on the $1.25 price point so far.
The initial release that you put out had $1.25 and $1.50 in the release. I was curious as to what that
was about. When you did the test, were all of the tests just taking most of the assortment to $1.25 or
there's some variation there? And then could you help us understand what the impact of elasticity is on
the volumes are looking like?
Michael A. Witynski
Yes. Thanks. So we -- yes, we closely monitored it. The majority of the stores are at the $1.25, and that's
what our focus is because that's really the price that we need to really bring great value and a meaningful
differentiation in our assortment in the consumable side of the business that will drive traffic. So we
are very focused on that. And we've been watching the sensitivity and the sales and the units and the
response from the customer every week in every store and every market. And as we shared, that's been
consistent across stores and markets.
And where we see the unit decline, it's where we expected it to be, and that's where the merchants are
working really, really hard bringing in that new assortment. And that new assortment will be layering in,
as I said, over time. So it's going to be over the next 6 months to bring in the assortment on those side to
drive the traffic.
And then while we are working the results of the stores and monitoring units and margin and comp, at the
same time, we were doing in-depth consumer research and listening to our customers and doing customer
intercepts and one-on-one surveys with the customers and hearing their response. And they have a lot
of trust in Dollar Tree, and they believe that at $1.25, it's still going to be an undeniable value because of
what they're seeing out in the marketplace. And they know that Dollar Tree hasn't raised its price in 35
years, so they've given us credit. And now that we -- our buyers are going to take that trust and make
sure they deliver undeniable and a great assortment at that new price point. And we'll monitor that as we
do our -- as we did at $1 and help drive the business, bring new items in, discontinue items and manage
the business accordingly.
Edward Joseph Kelly
And just a quick follow-up on that. How powerful is it to be able to bring items back you've discontinued
over time or to be able to introduce new items? And then just getting back to the $1.50 because it was
in your prior release, is that a price point that might make sense as you start introducing new items next
year?
Michael A. Witynski
Well, right now, we can bring in very meaningful items that we discontinued at $1.25. And they are on the
food and consumable side where you get a repeat customer and more frequency, so it's important to us.
And when we announced, we just wanted to have -- we had flexibility out there that we gave examples
of $1.25 and $1.50 and our $3 and $5. We didn't say specifically that we would use those. So right now,
we're -- we feel confident in the $1.25, the $3 and $5. And as we've said that on our Dollar Tree Plus!,
we're accelerating the 1,500. But by 2024, we'll have 5,000 stores that will be at $1.25, $3 and $5 that
will be able to deliver a meaningful assortment. And it gives us the flexibility that we need to manage and
mitigate these costs and deliver great products and drive our business.
Operator
Our next question comes from Kate McShane with Goldman Sachs.
Goldman Sachs Group, Inc., Research Division
Just a question with regards to any kind of activity you saw from more inflationary headwinds and
customers trading down and how you anticipate that to look in the fourth quarter relative to what you saw
in the third quarter.
Michael A. Witynski
Yes. Well, definitely, the customers are feeling the inflation. It's twofold right now. I mean our customers
are benefiting from child tax credit stimulus. In October, they had a huge increase of SNAP benefits,
and they're experiencing increase in hourly wages that you're seeing across the industry. So I think our
customers are in a pretty good position, but they are also feeling a lot of pressure on other costs, the gas
and fuel prices and energy for their homes.
So I think right now, more than ever, they are going to be relying on great value. And that's why I think
Dollar Tree and Family Dollar are in a great position to be able to offer that to them in 15,000 locations
that are conveniently located.
As far as trading down, we're still not seeing a lot of trade down. There's not a lot of promotion out there
in national brands. Private brands are about as steady as they were throughout the first half of the year.
So it's -- we haven't seen a big shift right now from the customer.
Operator
Our next question comes from Brad Thomas with KeyBanc Capital Markets.
KeyBanc Capital Markets Inc., Research Division
I was hoping to ask about labor a little bit more and hoping, Mike, you could talk a little bit about how
you're dealing with getting good people now and any seasonal staff you've brought on board. And then
just to continue to talk about the Dollar Tree side of the business, how you all are planning for some of
that incremental complexity as you roll out the $1.25 price point from a labor perspective.
Michael A. Witynski
Thanks, Brad. So yes, there are still pressures, and it's market-driven both in our distribution centers.
We've had to increase our hourly wages in our DCs and have done so, and that's embedded in our fourth
quarter outlook, and we've made movements there. And I'd say we're seeing the same thing in our stores
in markets we followed where we had to, to increase our labor rates to attract associates in our stores.
And as you've seen across retail, people are still sitting on the sidelines and not working. So we are
working hard at driving benefits, and we're raising our hourly wage where we need to and being a
convenient place to work through other things of -- having their schedule on their phones, having a
program called DailyPay, where they can get their pay. They don't have to wait for their paycheck, and our
associates are liking that a lot, and there's a high use of that. So we're doing a lot of things to attract the
hourly work out there in our stores to operate our stores effectively. But yes, it still is a tough environment
out there.
And we have seen a little bit of a slip in our store manager turnover where last year during the pandemic,
we hit our lowest turnover ever in store manager. And now there's -- I think there's a little bit of fatigue
and it's creeped up a little bit on us, but our teams are working hard at filling those roles and attracting
the talent we need.
Regarding managing the $1.25, there is -- as Kevin said, in our fourth quarter, there will be onetime costs
of cleansing the store and then remarketing and resigning the store. But once that is set aside, it's really
running the same play. They unload the truck, they put it up on the shelf. It's clearly marked already. So
there really isn't any additional labor hours needed.
And then on our Dollar Tree Plus!, as we've rolled that out to 600 stores, we have not had to add any
additional labor in those stores because the majority of those products are coming in pre-priced, the
sections in the store are clearly marked $3 and $5 items, and now they'll be $1.25, $3 and $5. So there
really isn't any additional labor needed in those stores either.
Operator
Our next question comes from Simeon Gutman with Morgan Stanley.
This is Michael Kessler on for Simeon. I wanted to ask, not to beat a broken drum here with the price
point. If I could squeeze in one more. Curious, why not be more diverse with the price point? It sounds
like you're really sticking to the $1.25. You could perhaps be even more precise with price points and
manage to different SKUs and categories. So I'm curious kind of what went into that decision process?
And am I interpreting, I guess, the strategy with the price point correctly in that regard?
And then bigger picture on that, is there an even longer-term vision of perhaps price points going up
across the store and then you have a separate initiative with Plus! at even higher price points and perhaps
even melding these initiatives together, expanding Plus! even more of the store? Just I guess the longer-
term vision would be interested to hear about as well.
Michael A. Witynski

Yes. Thanks for the question. So first of all, moving off the $1 price point gives us the flexibility to manage
our business and really drive the assortment that our customers are used to and bring value and simplicity
to them. So the reason we moved to the $1.25 is, it allows us to do all 3 of those things.
Our merchants are, I believe, the best in the industry, and they've been able to defend and get great
product at $1. And we know the type of product we can get at that $1.25, and we'll be able to bring in
exciting, great product that will drive the business and drive traffic into our stores and enable us to get
back to that 35% to 36% margin. And it gives us the flexibility to manage our business going forward.
And it really brings simplicity. Simplicity's still very important to us as it's a single price point, our
customers understand it and our shoppers, our customers and our associates understand it. So we'll
manage this going forward. I think at first, we're going to go to $1.25, and then we'll be carrying that
$1.25 into our Combo Stores as well. So our Combo Stores' baseline will be at $1.25 going forward, and
it will be wrapped around that Dollar Tree brand and then have the great products at the Family Dollar on
that side of the business as well. So moving off the $1 gives us the flexibility to make changes we need to,
going into the future.
Okay. Great. And a quick follow-up on traffic. I think you guys said it was down at both banners. I guess,
has that -- has it surprised you at all that we haven't seen more of a rebound in traffic relative to last
year? Is it of any concern or it's not because tripping of ticket is up basically more than offsetting the
traffic declines? And going forward, especially with higher price points at core Dollar Tree, is it -- would
it be a fair expectation that traffic could remain down but being more than offset by ticket, how you're
thinking about that?
Michael A. Witynski
We think traffic is going to come back at Dollar Tree. Keep in mind, as Kevin said, with our -- we still have
past dues that are 4.5x greater than what we normally have at Dollar Tree. So there is inventory that we
wish we had that would drive that excitement in sales and traffic inside our Dollar Tree.
And then we have had some items we've had to discontinue that would be traffic-driving that -- where
we were limited at the dollar price point. So we think looking forward, going to the $1.25, bringing in new
assortment and then once we move beyond this transitory freight logistics issues that we have, getting
that assortment that we want inside our store, the combination of those 2 things will get back to driving
traffic at our Dollar Tree format.
Operator
Our final question comes from Paul Lejuez with Citi.
Curious, as you bring back some of these discontinued items, do you expect the total SKU count to grow?
Or will those be replacing existing SKUs? And then separately, can you just talk about your average ticket
Dollar Tree and how consistent that has been over time? And as you move to this $1.25 price point, what
are your expectations for that average ticket?
Michael A. Witynski
Yes. On the assortment, that's the beautiful thing about Dollar Trees, we do not have planograms. Our
merchants go out and get the very best product at the $1.25 price point. We surprise and delight our
customers. We bring different products in depending on the seasons, and the front end of our store
changes like the leaves on the tree. So we will continue to use that flexibility and drive the assortment we
need that will be meaningful to our customers and in the key categories that drive traffic and then where
they can celebrate their lives and live their lives and decorate their homes. So those are the -- that's how
we manage the business before, and that's how we'll manage it going forward.
And I'll let Kevin talk about the average ticket. But since the pandemic, our average ticket at Dollar Tree
has been elevated, and it's been consistently elevated throughout. And we think that this $1.25 will help
with that.
Kevin S. Wampler
Yes. I think just as a point of reference, pre-pandemic, the Dollar Tree price point has hovered right
around that $8.50 range. And since the pandemic, it's been closer to the $10 mark. I think as we go
forward with the $1.25 price point, I think it will remain elevated. So the question has always been, as
traffic returned, would we see the average ticket come down? And to this point, we haven't really seen
that aspect. But -- so overall, I think, in general, that the price -- the average ticket will remain elevated
as we go forward.
Operator
This concludes today's Q&A. I would now like to turn the call back over to Randy Guiler for closing
remarks.
Randy Guiler
Thank you, Katie, and thank you for joining us on today's call. Our next earnings conference call to discuss
Q4 and year-end results is tentatively scheduled for Wednesday March 2, 2022. Thank you and have a
good day.
Operator
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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Dollar Tree, Inc. NasdaqGS:DLTR
Thursday, August 26, 2021 1:00 PM GMT
-FQ2 2022- -FQ3 2022- -FY 2022- -FY 2023-
EPS Normalized 1.02 1.23 20.59 1.24 5.98 6.77
Revenue (mm) 6458.69 6340.00 (1.84 %) 6439.84 26431.32 27742.76

Currency: USD
Consensus as of Aug-26-2021 1:25 PM GMT
- EPS NORMALIZED -
FQ3 2021 1.16 1.39 19.83 %
FQ4 2021 2.12 2.13 0.47 %
FQ1 2022 1.40 1.60 14.29 %
FQ2 2022 1.02 1.23 20.59 %
Contents
Table of Contents

Presentation .................................................................................. 4
DOLLAR TREE, INC. FQ2 2022 EARNINGS CALL | AUG 26, 2021
Call Participants
EXECUTIVES
Kevin S. Wampler
Michael A. Witynski
Randy Guiler
Relations
ANALYSTS

KeyBanc Capital Markets Inc.,
Research Division
Charles P. Grom
Gordon Haskett Research Advisors

Research Division
Joseph Isaac Feldman

Telsey Advisory Group LLC

Goldman Sachs Group, Inc.,
Research Division
Matthew Robert Boss

Division
Michael Lasser
Division

Presentation
Operator
Good day, and welcome to the Dollar Tree, Inc. 2Q 2021 Earnings Conference Call. Today's call is being
recorded. [Operator Instructions]
At this time, I would like to turn the conference over to Randy Guiler, Vice President of Investor Relations.
Please go ahead.
Randy Guiler
Thank you, Madison. Good morning, and welcome to our call to discuss the results for Dollar Tree's Second
Fiscal Quarter 2021. With me on today's call are Mike Witynski and Kevin Wampler.
Before we begin, I would like to remind everyone that various remarks that we will make about our
of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements
are subject to risks and uncertainties, and our actual results may differ materially from those indicated
in these forward-looking statements. For informations on the risks and uncertainties that could affect our
actual results, please see the risk factors, business and Management's Discussion and Analysis of Financial
Condition and Results of Operations sections in our annual report on Form 10-K filed March 16, 2021. Our
Form 10-Q for the most recently ended fiscal quarter, our most recent press release and Form 8-K, and
other filings we make from time to time with the Securities and Exchange Commission. We caution against
reliance on these forward-looking statements made today, and we disclaim any obligation to update or
revise these statements except as may be required by law. [Operator Instructions]
I'll now turn the call over to Mike Witynski, Dollar Tree's President and Chief Executive Officer.
Michael A. Witynski
Thank you, Randy, and good morning, everyone. On this morning's call, we're going to discuss our strong
operating performance, talk through some of the headwinds facing our industry and share details on
the robust and accelerated strategic initiatives we have underway to drive short- and long-term value
creation.
I am proud of our team's continuing efforts, especially in our stores and distribution centers, to adapt and
react in this dynamic environment to serve customers and deliver improvements in both operating margin
and earnings. Our second quarter earnings per share of $1.23, represented a year-over-year quarterly
increase of 12% and 62% when compared to Q2 of 2019. We continue to see strong performance in the
discretionary side of the business and our key initiatives, including H2, Dollar Tree Plus! and the new
Combo stores are delivering compelling results. All 3 concepts have performed very well, and we are
significantly accelerating these initiatives in 2022 and beyond.
Regarding the continuing and well-publicized challenges in the global supply chain as well as higher freight
costs and other inflationary pressures, our teams are working hard to navigate these issues while staying
focused, as always, on delivering the value and convenience our shoppers expect. I want to share more
details on these challenges, how they affect our business and the actions we are taking to best manage
and mitigate the impacts.
In recent quarters, we have spoken about the freight cost environment, both international and domestic.
As you have certainly seen in the media and elsewhere, freight costs have reached unprecedented levels
as a result of increased demand, limited capacity and shipping delays. For context, 3 months ago, the
Shanghai Containerized Freight Index, which reflects spot rates on ocean freight from China, was already
at an all-time high, up more than 280% year-over-year and more than 400% since 2019. Now these rates
have continued to rise and have increased more than 20% since we last reported on May 27.
According to the recent Journal of Commerce annual ranking of the top 100 importers, Dollar Tree ranked
as the fifth largest among retailers. Dollar Tree brings in nearly 90,000 40-foot containers per year,
predominantly for the Dollar Tree banner. As you can see in the slide deck on the Investor Relations
portion of our website at dollartreeinfo.com, we believe the Dollar Tree banner imports more containers
per $100 million in sales than other large retailers. And combined with our low $1 price point, we have an
outsized impact from freight costs.
After the first quarter of 2021, our updated freight outlook assume that our regular ocean carriers would
fulfill only 85% of their contractual commitments and assume -- we also assume the higher spot market
rates. However, we now project that our regular carriers will fulfill only 60% to 65% of their commitments,
and the spot market rates will be much higher than previously estimated. This shortfall is caused by a
variety of factors such as equipment shortages, equipment situated in wrong location, significant backlogs
and delays in both China and U.S. ports, outbreaks of COVID causing labor shortages or closure of entire
terminals and the lingering effects of the Suez Canal blockage.
To give you a real-life example of the kinds of challenges we're seeing, one of our dedicated charters was
recently denied entry into China because a crew member tested positive for COVID, forcing the vessel
return to Indonesia to change the entire crew before continuing. Overall, the voyage was delayed by 2
months. With the current pressure on carriers, once disruptions in the supply chain occur, there is not
enough capacity to make it up. During a recent transportation webinar, a San Francisco-based freight
forwarder stated the transit times from Shanghai to Chicago that more than doubled to 73 days from 35
days. Another transportation executive from a carrier recently estimated that voyages are now taking 30
days longer than in previous years due to port congestion, container handling delays and other factors.
The Dollar Tree banner is more sensitive to freight cost than others in the industry. Our products have
lower price points than other retail importers. And as a result, our freight costs are a higher percentage
of our gross mark -- merchandise margin. The good news is our initial product margin, which exclude
freight, have been improving as evidenced by our most recent overseas product purchases included from
manufacturers in more than 2 dozen countries. Even in this inflationary environment, we continue to
meet or exceed our desired initial product margins at values attractive to our customers. As freight costs
moderate in the future, we are confident when paired with our team's significant efforts to enhance our
supply chain. This will become a material tailwind, contributing to a better product margins.
Industry experts expect the ocean shipping capacity will normalize no later than 2023 when many new
ships come online. We are not counting on material improvements in 2022, especially in the first portion of
the year. As a result, we are working proactively to reduce the freight cost impact and otherwise improve
gross margin merchandise. Examples of steps we are taking include: using dedicated space on chartered
vessels for the first time, including 1 large vessel contracted for a 3-year term, which is scheduled to make
its first voyage within weeks. We are expecting to add more charters this year. We're adding alternative
sources of supply, both domestic and international that do not rely on transpacific shipping. We expect
some of this shift could become permanent. As an example, Dollar Tree and Family Dollar were well
prepared for back-to-school season with alternatively sourced domestic product. We're taking a fresh
look at which SKUs should be prioritized for import and which should be alternatively sourced, prioritizing
containers based on seasonality, the margin impact and our overall inventory needs.
We will be continuing to pull forward seasonal purchases by 30 days. We're optimizing which China and
U.S. ports we use to take advantage of the shipping availability. And our operations team is delivering
shrink improvements through technology, enhanced processes and disciplined execution. We are confident
that our teams will allow us to navigate through this period of global supply chain challenges.
In addition to the supply chain channels, we are also being impacted by labor shortages in our distribution
centers and stores. Steps we are taking to combat these trends include: hosting national hiring events;
paying sign-on bonuses; offering enhanced wages in select markets; paying tuition reimbursement; and
more, all designed to be more competitive in a tight market for talent. We're continuing to optimize our
DC network by reducing stem miles, partnering with suppliers to optimize and minimize length of haul for
inbound freight, testing, validating and expanding self-checkout in our stores, and developing and utilizing
more efficient processes, both in our stores and DCs.
Despite these challenges affecting our industry, I'm very pleased with the team's performance to deliver a
62% improvement in EPS in Q2 when compared to 2019.
Now let's talk about the exciting path forward. I'd like to highlight some of the key initiatives we have in
place, especially Dollar Tree Plus! and our Combo stores, which are helping to position our company for
the future. We are incredibly excited about the results we are seeing. As we have discussed in the past,
we are well positioned to serve customers across all types of markets, urban, suburban and rural.
The Family Dollar H2 continues to perform very well. In Q2, we renovated 435 stores into the H2 format,
and now have a total of approximately 3,300 H2 stores. Importantly, we are accelerating the expansion
of Dollar Tree Plus! initiative and the rollout of Combo stores to better serve customers' need and
drive sustainable long-term value. We have been carefully improving and calibrating our Dollar Tree
Plus! initiative with a better understanding of the multi-price offerings and greater values. Customers
are increasingly embracing the Dollar Tree Plus! concept, which provides extraordinary value in the
discretionary categories they most desire while enhancing store productivity. As we have refined the Dollar
Tree Plus! concept, the operating metrics have achieved strong results and have provided us valuable
insights that are enabling accelerated expansion.
On average, stores with Dollar Tree Plus! are experiencing an overall sales lift of approximately 6% with
a similar lift in gross profit, improved contribution of approximately 13%, and a payback on investment
of less than a year. For obvious reasons, we have focused first on large stores, and we are already seeing
similar positive results as we are now implementing into smaller stores.
We currently have the multi-price assortment in about 340 stores, and we expect to be at 500 stores by
year-end. Building on this continued success, we are planning to add Dollar Tree Plus! to an additional
1,500 stores in fiscal '22. And we aim to have at least 5,000 Dollar Tree Plus! stores by the end of fiscal
2024. Many of our new stores will also be opening up as Dollar Tree Plus! stores.
This past March, we announced our newest store format, the Combo store, leveraging the strengths of
both banners under 1 roof, to provide shoppers with extreme value and merchandise excitement. These
stores represent another way to introduce the multi-price assortment to Dollar Tree shoppers and the $1
assortment to Family Dollar shoppers, a major benefit from the Dollar Tree and Family Dollar combination.
We currently have 105 combo stores, and I believe we can reach 3,000 of these stores in rural markets
alone.
Demonstrating our great confidence in combo stores as a strategic format, more than 85% of our
new Family Dollar stores will be Combo stores in fiscal 2022. We anticipate 400 new renovated or
relocated combo stores next year. We are also in the process of validating Combo store concept and other
demographic markets and are excited about the possibilities.
Our larger Combo stores, on average, are delivering 23% more sales, 31% more gross margin dollars,
approximately 120% more cash contribution dollars and are reducing payback time by approximately
30%. New combo stores compared to similar size stores are showing sales increases of 17%. And even
more encouraging, our renovated or relocated Combo stores are delivering greater than 40% more sales
when compared to Family Dollar stores that have not been renovated or relocated. Details about our
Combo stores are available at www.familydollar.com/combostores.
I will now hand the call over to Kevin to provide details on Q2 performance and our outlook.
Kevin S. Wampler
Thanks, Mike, and good morning. Our second quarter EPS of $1.23 per share is an increase of 12%
from the prior year's quarter and 62% compared to the second quarter of 2019. Consolidated net sales
increased 1% to $6.34 billion comprised of $3.26 billion at Dollar Tree and $3.08 billion at Family Dollar.
Enterprise same-store sales decreased 1.2% as we cycled a strong 7.2% from a year ago, representing
a 6% increase on a 2-year stacked basis. Comps for the Dollar Tree segment decreased 0.2%. Family
Dollar same-store sales decreased 2.1%, cycling a very strong 11.6% increase from last year. On a 2-year
stacked basis, Dollar Tree comps increased 2.9%, and Family Dollar increased 9.5%.
Dollar Tree's comps was comprised of a 1.1% increase in traffic offset by a decline in average ticket.
Family Dollar experienced a 3.5% decline in traffic, partially offset by an increase in average ticket. We do
believe that Dollar Tree's traffic has continued to be hindered by a lack of shopper mobility as more than
half of the workforce continues to work remote.
Gross profit was $1.86 billion for the quarter. Gross margin was 29.4% compared to 30.5% in the prior
year's quarter. Gross profit margin for the Dollar Tree segment declined 130 basis points to 32.4% when
compared to the prior year's quarter. Factors impacting the segment's gross margin performance included
merchandise costs, including freight, increased 175 basis points driven by increased freight costs, which
was partially offset by favorable mix net of mark-on. Occupancy costs increased 10 basis points as a result
of loss of leverage due to the comparable store sales decline.
Shrink improved 55 basis points related to favorable inventory results and a decrease in the shrink accrual
rate. And distribution costs decreased 5 basis points, cycling COVID-19-related expenses in the prior year.
Gross profit margin for the Family Dollar segment declined 110 basis points to 26.1% in the second
quarter. Year-over-year delta included the following: merchandise costs, including freight, increased 175
basis points related to higher freight costs and increased sales of lower-margin consumable merchandise.
Occupancy costs increased 35 basis points as a result of the comparable store sales decrease. Shrink
improved 50 basis points related to favorable inventory results and a decrease in the shrink accrual rate;
distribution costs improved 20 basis points compared to the prior year quarter due to the lower COVID-19
related costs; and markdown costs decreased 25 basis points compared to last year based on civil unrest
costs incurred a year ago.
Consolidated selling, general and administrative expenses improved 150 basis points to 23% of total
revenue compared to 24.5% in Q2 last year. For the second quarter, the SG&A rate for the Dollar Tree
segment as a percentage of total revenue improved 170 basis points to 22.3% when compared to the
prior year's quarter. Payroll costs improved 155 basis points, primarily due to decreased COVID-19-
related store payroll costs. Other SG&A decreased by 20 basis points, resulting from lower general liability
insurance costs, primarily offset by increased debit and credit card fees. Store facility costs decreased 5
basis points due to lower repairs and maintenance costs.
And for the Family Dollar, the second quarter SG&A rate as a percentage of total revenue was 21%
compared to 21.9% in the prior year's quarter.
Payroll costs decreased 95 basis points, primarily due to decreased COVID-19-related store payroll and
incentive comp costs, partially offset by deleverage related to the comp store sales decline.
Store facility costs decreased 30 basis points driven mainly by lower repairs and maintenance costs
due to expense incurred from civil unrest in the prior year's quarter. Other SG&A expense increased 35
basis points primarily due to increased advertising and travel expense compared to the prior year, and
depreciation and amortization expense increased 10 basis points due to deleverage on the comp sales.
Corporate and support expenses as a percent of total revenue decreased 20 basis points compared to the
prior year's quarter, primarily due to lower incentive and equity compensation.
Operating income increased 7.3% to $402.2 million compared with $374.9 million in the same period last
year, and operating income margin was 6.3% in the second quarter compared to 6% in the prior year
quarter. The second quarter of 2021 included total incremental operating costs of $3 million for COVID-19-
related expenses compared to $134.9 million in the second quarter of 2020.
Nonoperating expenses totaled $33 million comprised of net interest expense, and our effective tax rate
was 23.5% compared to 23.1% in the prior year's second quarter. Company had net income of $282.4
million or $1.23 per diluted share, and this compared to net earnings of $261.5 million or $1.10 per share
in the prior year's quarter.
Combined cash and cash equivalents at quarter end totaled $720.8 million compared to $1.42 billion
at the end of fiscal 2020. Outstanding debt as of July 31 was $3.25 billion. In Q2, we repurchased
approximately 7 million shares of our common stock for $700 million. We currently have $1.45 billion
remaining on our share repurchase authorization.
Inventory for Dollar Tree at quarter end increased 13.1% from the same time last year, while selling
square footage increased 3.7%. Inventory per selling square foot increased 9%.
Inventory for Family Dollar at quarter end increased 10.9% from the same period last year, while selling
square footage increased 2.1%. Inventory per selling square foot increased 8.6%. Both banners store
inventory levels are below 2019 levels at quarter end.
Capital expenditures were $229.1 million in the second quarter versus $232.5 million in Q2 last year. For
fiscal 2021, we now expect that consolidated capital expenditures will be approximately $1.1 billion.
Depreciation and amortization totaled $176.1 million for Q2 compared to $168.1 million in the second
quarter of last year. And for fiscal 2021, we expect consolidated depreciation and amortization to be
approximately $720 million.
Our outlook for the remainder of 2021 includes the following assumptions: we expect continued pressure
on wages due to the current shortage of workers available for our distribution centers and stores. Spec
shrink will continue to be a tailwind as we go through the back half of the year but not at the same
rate as we begin cycling improved results from the prior year. Net interest expense is expected to be
approximately $34 million in Q3 and approximately $134 million for fiscal 2021. We estimate consolidated
net sales for the third quarter will range from $6.4 billion to $6.52 billion based on a low single-digit
increase in same-store sales for the combined enterprise. Diluted earnings per share are estimated to
be in the range of $0.88 to $0.98. Consolidated net sales for full fiscal 2021 are expected to range from
$26.19 billion to $26.44 billion, based on a low single-digit increase in same-store sales and 3.4% square
footage growth. The company now estimates diluted earnings per share will range from $5.40 to $5.60.
Freight costs for fiscal 2021 are now expected to be $1.50 to $1.60 higher than fiscal 2020, expressed
in terms of the impact on diluted earnings per share. The updated outlook includes $0.60 to $0.65 per
diluted share or $185 million to $200 million of additional freight costs since our prior guidance on May
27, 2021. As Mike noted earlier, the market conditions for freight have continued to deteriorate since our
update in May. These changes include the significant difficulties our regular contract carriers are having
in meeting their original commitments as well as continuing increases in the spot market rate. These
disruptions have affected the timing of inventory receipts and have affected sales and mix.
Our outlook assumes a tax rate of 22.7% for the third quarter and 23% for fiscal 2021. Weighted average
diluted share counts are assumed to be 225.9 million shares for Q3 and 228.9 million shares for the full
year. Our outlook does not include any additional share repurchases, although as I said before, we still
have $1.45 billion remaining on our existing share repurchase authorization.
And I'll now turn the call back to Mike.

Michael A. Witynski
Thank you, Kevin. Our core business is strong. As Kevin stated, our updated outlook for fiscal 2021 is
$5.40 to $5.60 per share. It's unfortunate that the global supply chain is in the condition it is, which is
expected to result in a year-over-year drag to our business of $1.50 to $1.60 per share. If freight costs
this year were similar to what we were just a year ago, we estimate that our earnings per share would be
in the range of $6.90 to $7.20 for this fiscal 2021.
The work of our teams has been remarkable. Our store and distribution center teams continue to
demonstrate their commitment to serving our shoppers each and every day. Our customer satisfaction
survey scores have never been higher. We have been -- we have seen improvements across the board for
store cleanliness, assortment, service and speed of checkout.
The merchants are delivering greater values to our customers that are meeting or exceeding our initial
merchandise margin targets. Our buyers are disciplined, nimble and committed. While it represents a
smaller part of our overall business, our digital team saw a 70% increase in sales versus the first half of
2021. We're also pleased with the solid performance of our local delivery program through Instacart.
Our initiatives are driving improved results. Customers are responding to Dollar Tree Plus!, the H2 format
and our new Combo stores. We are pleased to accelerate both these initiatives in fiscal 2022. The supply
chain issues, which we are confident are transitory in nature, will take some time until the global demand
and supply for equipment is rebalanced. Importantly, we believe the foundation of our business is stronger
than ever. We believe we are in the process of materially improving the long-term earnings power of our
business for years to come.
Before we get into questions, there's another topic I want to quickly touch on because it's important
to all of us here at Dollar Tree. Recently, Morning Consult reported that the public views Dollar Tree as
1 of the 10 most trusted retail brands in America. We see this as a validation of our core mission of
delivering value and convenience to our customers, but it also reflects our commitment to the broader
communities we serve. As I wrote in our 2021 corporate sustainability report, Dollar Tree strives to be the
best corporate citizen for all stakeholders and the thousands of neighborhoods, towns and rural markets
where our stores are located. And that means taking concrete actions to implement our sustainable vision.
One recent step I can share, we are executing on our climate goals by pursuing 2 new solar projects for
our stores and distribution centers. These will provide up to 6 megawatts of renewable power, taking that
usage off the carbon grid for years to come. These and other efficiency projects show that our efforts to
build out the infrastructure for sustainable growth are now taking root.
Additionally, our executive leadership team has leaned in on commitment to fostering an inclusive work
environment where the individual differences are understood, respected and appreciated as a valuable
source to strengthen our company. This strategy is designed to evolve our culture and sustain momentum
through the guidance of our executive counsel that ensures leadership accountability to our very important
DEI objectives.
We constantly seek to improve all aspects of our business, and that includes areas like store safety,
healthier product offerings and many others that are so important to our associates, our customers, our
neighbors and our shareholders. You should know that we always strive to be transparent on these topics.
I look forward to providing future updates on the strides we are making.
In summary, there's a lot of inspiring news at Dollar Tree. We are excited that our strategic store formats,
our accelerated growth plans and many key sales and traffic-driving initiatives, along with our robust
balance sheet and commitment to sustainable growth will enable us to deliver long-term value for our
stakeholders.
Question and Answer

Operator
[Operator Instructions] We'll go ahead and take our first question from Matthew Boss with JPMorgan.
Matthew Robert Boss
Great. So Mike, maybe overall, how do you feel about the health of the Dollar Tree banner today? Any
factors to consider that impacted the second quarter? Should we expect similar comp performance in 3Q?
And just overall, how do you see Dollar Tree concept relative to 2% to 3% sustainable comps looking back
as we look forward?
Michael A. Witynski
Yes, Matt. Yes, we feel very good about Dollar Tree looking forward, especially in the inflationary times
where the $1 price point will mean more to customers than ever and our ability to continue to procure the
product at the margins we expect. The second quarter, there was still some trip consolidation going on due
to the COVID implications out there. And we saw that in the summer, of course, everybody in the country
went on vacation twice to make up for last year. And there's the -- between that and -- and there's not
really any huge holidays during the summer that Dollar Tree does so well on.
What I do like and what I'm really encouraged about is our average ticket is continuing on a 2-year stack
to be at 20% to 21%. That's amazing growth over 2019. And if we can get the Dollar Tree traffic going
along with that basket size, I really believe we're going to like the results.
And especially as we look ahead of us, we've got back-to-school, fall, Halloween, Thanksgiving and
Christmas. And with schools opening back up and offices hopefully opening back up and traffic moving
around and the trips aren't so consolidated, I believe there's upside for us. And we saw a little bit of it.
While we weren't happy with the traffic in Q2, it was positive for the first time in 4 quarters. So we're very
confident that Dollar Tree is going to have sustainable growth in that low single-digit comps.
Matthew Robert Boss
Great. And then maybe just a follow-up maybe for Kevin and maybe also, Mike, at the end. Just outside
of freight, your underlying core business guidance this year, and you kind of walked through this in your
opening remarks, actually increased by $0.20, I think, at the midpoint. So maybe just any way to speak
to the factors it drove the increased outlook outside of freight this year. And I guess my second part of
that question is, as we look forward, are there any impediments preventing the acceleration of the Dollar
Tree Plus! concept that you announced today from being accretive to the bottom line profile as we think
multiyear?
Kevin S. Wampler
Sure, Matt. I'll start. So obviously, the outlook we gave today, really, the message there is that the freight
is the change in the guidance for the most part, basically. I think the other thing you got there is a little
bit of benefit in the back half from the shares we repurchased in Q2. So I think, otherwise, we look at the
business as much like we did in Q2, all pieces outside of freight. So very stable and feel good about where
we're at from that perspective. We've done a good job controlling our SG&A costs, and everybody is very
on top of those and doing a good job. So we feel good about that. And so now it's about driving that top
line and working through the supply chain issues that we documented for everybody today. So I think a lot
of good opportunity.
Your question as it relates to Dollar Tree Plus! and being additive, yes, I mean that is the whole reason to
do that. It was -- if it's not additive to the bottom line, we don't want to spend our resources necessarily
doing that. So that is the expectation. And with the mix change from the initial version that was very
consumable driven to one that is now very discretionary driven. That obviously plays well. It's part of
what we are known for, our customers embracing it, and it allows us to drive that bottom line. And then,
obviously, the top line does help us leverage some of the fixed costs.
Michael A. Witynski
Yes. And just to add, finalize that. We see nothing that's going to be a barrier against us to continue to
drive the things that you said top line growth and margin dollars in our stores.
Operator
[Operator Instructions] We can go ahead and take our next question from Kate McShane with Goldman
Sachs.
Goldman Sachs Group, Inc., Research Division
I wondered with regards to the issues with freight, and thank you for all the detail, how are you balancing
the prioritization of the cost of freight versus getting the inventory on the shelf. Is airfreight ever an option
or something that you're using increasingly more? And how much were you able to make up by shifting to
some of the domestic solutions you highlighted in your prepared comments?
Michael A. Witynski
Yes, Kate. At the dollar price point, unfortunately, air freight just is cost prohibitive, and there really isn't
that much of it available out there. So our teams, our global supply team, we've got a sourcing team
that's over there working with our merchants and working with the logistics team. Those 3 are working
hard to pick the right source and prioritize the right product based on inventory needs, margin and
seasonality. And just as an example on the switching to different sources domestically. Our team saw this
problem and we wanted to be right for back-to-school. So we very quickly shifted both the Family Dollar
and Dollar Tree to procure product for the back-to-school season here domestically so that we could have
it on the shelves and drive that important season for us.
Operator
We can go ahead and take our next question from John Heinbockel with Guggenheim Partners.
Mike, I just wanted to start. Do you have any color on -- by brand, right here, some color on cadence and
consumable versus discretionary other than discretionary was strong. Do you have some color on that,
seeing how the quarter unfolded?
Michael A. Witynski
Yes. So geographically, we pretty much saw consistent across geographies other than weather events.
But normally, it's -- they're both behaving similarly across the geography. What -- on the Family Dollar
side, what we like -- what we're seeing is we are seeing consumable sale, our consumable market share
continues to gain market share. And it's -- the addressable market opportunity is so large. So we really
focus on continuing to drive that market share. And Family Dollar has been doing a great job at continually
quarter after quarter to have a year-over-year look in enhancing our market share on the consumables
side. And then on the discretionary side, as you called out, remember, the team did such a great job with
apparel and toys and home and seasonal, and we are maintaining that 2-year stack of high double-digit
market share in the teens. It is really helping our business.
Okay. And then maybe as a follow-up, when you think about Dollar Tree Plus!, 2 issues there. So it sounds
like it's probably as a penetration, right, mid-single-digit penetration of baskets, right? So I think the
basket, right, is 2x with the Dollar Tree Plus! item. Where do you see that going, right, when you think
about adding more items to the mix or more SKU intensity? And then what's the bottleneck on? I know
you're going to do 1,500 next year. Can you do more? And what's the bottleneck to doing more next year
in '23?
Michael A. Witynski
Yes. Well, we're really excited about doing the 1,500 because of the impact it has on a 6% sales lift. And
I would say as we -- the beautiful thing about this is it gives us the flexibility to do what we need to,
to grow our overall productivity of the store. And I'm referring to your do you grow the categories and/
or assortment inside the multi-price. We will watch this. And over time, we will make great decisions to
keep an eye on our overall margin dollars and top line sales and ebb and flow as we did with Dollar Tree
product and categories. Just like we did with our Snack Zone, we used that to drive, so we increased our
assortment in there and space allocated to it. And then on our Crafters Square, we did the same thing
there. So I see this as the -- we keep doing the same ability to ebb and flow based on whatever our
customer's responding to and whatever is driving our top line and improving our margin dollars.
Operator
We'll go ahead and take our next question from Joe Feldman with Telsey Advisory Group.
I guess on the freight side of things, I guess, the big question is what gives you confidence at this point
that you've properly forecasted the impact of these increases. I guess were we conservative? Or were we
-- were you conservative with the forecast for the second half? Was it based just on what's happened to
date? I guess I'm trying to understand why we're not going to have another quarter like this where we
hear another, well, we had to take numbers down again because freight was more expensive.
Kevin S. Wampler
Yes, Joe, this is Kevin. So obviously, as always, when we give a forecast, we use the best information we
have and what we know about our business. In this case, what we know about the external factors and
the changes. And again, it's very dynamic as anybody would tell you. And again, but I don't know that we
can with 100% certainty say that it won't change. There could be another COVID outbreak. There could be
a lot of different things that could affect it. I just think you have to think about the fact that it is probably
the most dynamic thing we may have ever seen as it relates to that marketplace.
And again, we always put it together with the idea of what do we know, how we're thinking about it. And
do we -- and this is our best estimate at this point in time. And I'm hoping in the sense that we have it
tight this time, but there are never any guarantees in this type of thing.
Got it. And I guess a follow-up kind of related to it is if you guys are assuming now it will -- your receipts
will be more like 60% to 65% of what you had previously thought, I guess how -- what gives you
confidence that you'll get to the low single-digit comp guidance that you've given? Because if you don't
have the inventory, will you be able to -- how do you sell it?
Michael A. Witynski
Yes. Let me -- that's a great question because I do want to bring clarity to that. The 60% to 65% is
the contractual agreement that we have at the lower freight rate. We have a contract that's 100%. We
forecasted it first that, well, they're going to at least meet 85% of that. And where I said they're not even
meeting that, we think it's going to be 60% to 65%. What that means is the other 30% to 35% then
will be at the market rate at a higher rate, and all those rates are calculated into our freight that Kevin
described going forward.
Operator
And we'll go ahead and take our next question from Paul Lejuez with Citi.
You made a comment about favorable product merch margin and pricing that you're seeing. Just curious
what's driving that. Are you adjusting pack sizes? Are you actually seeing declines in like product? And
then on the Dollar Tree Plus! store rollout next year, how are you thinking about that geographically? Are
you taking a regional approach? Or are you going to look -- will you open a bunch of Dollar Tree Plus!
stores in 1 region at a time? Or are you looking to have a Dollar Tree Plus! presence across a broad range
of your markets?
Michael A. Witynski
Yes. And your first question was the question about our initial markup, the margin that we're able to get
with all the inflationary pressures going on? What was that your question?
Yes. Correct. And what's driving that?
Michael A. Witynski
Yes. Yes. Thanks for the question because I want to brag about our merchants and the great job that they
do. When you sell everything for a dollar, there are, as you've read about, there's inflationary pressures
all over the board. And we've got a very experienced and knowledgeable team of merchants. And then
they're supported by a best-in-class global sourcing team that worked really hard. And they're not just
negotiating the end product you see on the shelf.
Our merchants absolutely understand all the components that drive the cost of the product as well as the
value that they need out in the marketplace to sell it. So they know the main commodity of the product,
whether it's resin or cotton or paper or copper. So they go in very knowledgable on the cost and the
components. They know the cost of a handle or a lid or stitching or the weight of the paper.
And as they build that product and understand that, that's how they come up with. They know the margin
they need. They know what the retail is at a dollar, and they know the sales that they have to obtain to
drive the mix. So on this most recent trip, in our July trip, where they were just wrapping up a couple of
weeks ago, we bought $1.8 billion in receipts. And they were able to obtain the margin, the initial markup
and actually beat it by a little bit, and it's higher than 2019.
So that's why with all the pressures they have and with that $1 price point, our merchants are able to
navigate and manage that and look at all the components. So it's not only what's making that product, but
it's the packaging, it's the plastic, it's the -- it's how do we pack it in the case. They're very knowledgeable
and negotiable because pennies matter when you're selling things for $1. And I couldn't be more proud of
the work that they do.
And when they read out and shared the products. And they -- it gets down to the detail of how many
pedals are on that road? What size of the pedal? What size does the market have? Does that value look
great? And then they produce this great product at the cost that they need to hit the margins we want at
the dollar price point, and they did it over and over again. Because on this last trip, I think it was 70% to
73% of the items on that $1.8 billion buy had problems with inflation, the things that we had to solve for,
and they did it. They worked at it. They did it. And the presentations were spectacular, and I'm so excited
about the value and product we're having at $1. And I know it's hard to understand. That's why a lot of
retailers can't do it, but we do it. We've been doing it for 30 years, and they just did it in July.
And that's why I said, if you think about the components of our margin, we have the initial markup that
we're very excited about that I just described how we got to it. You heard it from Kevin that our shrink is
very favorable. Our markdowns are in line, and then you have freight. So if you take the freight and set it
to a more normalized, we feel really good about the future of Dollar Tree.
And then to answer the second part of your -- the Dollar Tree Plus! rollout, we're doing it probably
regionally and by distribution center. So as we put the product into DC, then we're going to look at the
available stores around that DC network and then we'll grow it that way. So it's going to be probably a
distribution center geographically driven. The good news is, is that...
[ And which regions would be ] first stop on that?
Michael A. Witynski
Well, right now, we're in the -- we started out in the Southeast and then -- or the Southwest, I'm sorry.
And then I shared that we're moving into the Mid-Atlantic, and we're going to -- we'll be rolling out from
there.
Operator
And we'll take our next question from Brad Thomas with KeyBanc Capital Markets.
I wanted to ask a question about the third quarter. First of all, your guidance implies total sales and comps
to accelerate for 3Q. And I was just curious if that's something that you're seeing so far to date? What
gives you confidence in that, and if you're seeing that in both banners?
Michael A. Witynski
Yes. You're right. We gave -- we're back to giving guidance for the first time in well over a year, and we
guided low single digits at the $6.40 billion to the $6.52 billion. And I can share that both banners are
positive comps now, and they're aligned with the guidance that we've given.
Really helpful. And then a quick follow-up on the Dollar Tree Plus! financial commentary that you shared
today, very encouraging. As we think about that flow through, should we think about the 6% sales lift and
the 6% gross profit lift as adding close to that to total operating margin for the Dollar Tree banner? How
should we think about the flow-through of those gross profit dollars?
Kevin S. Wampler
Yes. And I think that's exactly. It's pretty in line with the other data point we gave, which was basically a
13% lift in increase in contribution. So yes, it's somewhat additive there, the 6% and 6% kind of gets you
to that same point.
Operator
We'll go ahead and take our next question from Chuck Grom with Gordon Haskett.
Charles P. Grom
When you look at the Tree business, and I know you just said that August is a little bit better, but when
you think about the backdrop and all the money that's flowing out there and only delivering at flat comp, I
guess I'm curious when you dissect why that is, I guess, how would you unpack it for us?
Michael A. Witynski
So in this -- are you referring to look forward or the -- for the Family Dollar?
Charles P. Grom
Well, just looking at the second quarter -- just the second quarter and the flat comp, given all the stimulus
and child tax credit money that's out there.
Michael A. Witynski
Yes. Well, Family Dollar responds to stimulus dollars, a lot better than the Dollar Tree comp. And I've
already shared the comments on the -- we think that there's still some trip consolidation. There wasn't
any -- there is no big holidays you saw and right about everybody went on vacation and then the Delta
variant kind of hit towards the end of the quarter and kind of slowed things down a little bit. So I think it's
more of that. I'm really excited about looking forward with what we have ahead of us.
But I think you bring up a great point on the opportunity ahead with the SNAP benefits out there. Our
enterprise has increased the SNAP benefits in our -- as a retailer by almost double since 2019. And why
that's important is right now as an enterprise, we are the sixth largest SNAP retailer. And that's really
important to us. And we're just behind the Walmart, Kroger, Ahold and Albertsons. So we are the #1
largest retailer of SNAP benefits in the dollar channel.
And think about the benefits, as you know, that they announced that they're going to increase them in
October significantly. And in Family Dollar, what we really like about that is we've doubled it since 2019
inside Family Dollar. But then inside that basket of SNAP, 42% of that customer buys a discretionary item.
So if you think about all the work we've done on the discretionary side in that mix and looking forward and
the basket, we think there's a big upside for us when the SNAP benefits continue to increase in October
and then our capabilities that the merchants have been on the discretionary side and our customer willing
to add that to the basket when they're in their store.
Charles P. Grom
That's great. And my second question is on the Combo stores. They look great. And moving to 85% of the
new family dollars in that format is pretty exciting. I'm curious what you do with the existing Family Dollar
stores. Is there an opportunity to remodel some of them to convert in certain markets? I guess, how does
that play out?
Michael A. Witynski
Absolutely. So there's 2 things. I mean we also -- we're not slowing down. We've got 800 H2 renovations
that we're going to continue to do, and we like the results and the lift we're getting on those. And then
to your point, in those 3,000 towns that we've identified, we're attacking the new ones, but we're also in
1,000 of them already. So our team and our real estate team is diligently going through there, how long is
that lease? Can we expand it where we're at? Can we relocate it? Or is it big enough already? So those are
the things that we're going through on the 1,000 existing of the 3,000 opportunities. So we're -- we've got
a team effort going against both of those new and then the relocated and new -- and then our existing will
be focused on the H2 renovations.
Operator
All right. Unfortunately, we are getting close to the end of the call, and I only have time for 1 more
question. We will take our last question from Michael Lasser with UBS.
Michael Lasser
Dollar Tree comp negative at a time when many other retailers are really experiencing robust trends. This
comes on the heels of challenges from tariffs, now transportation costs and Family Dollar issues before
that. So is it just too difficult to manage this business in an environment where inflation is going to be
structurally higher than it's been? And all of this is translating to your earnings expectation for 2021, being
on par with where your earnings were in 2018. At what point do you think you're going to be able to be
in a position to start to resume growth in earnings that will be more consistent with what the market's
accustomed to from Dollar Tree in the past?
Michael A. Witynski
Yes. I can't reiterate more about my confidence in Dollar Tree's ability to grow and our ability to manage
through these inflationary times. You set this freight aside, and we would be delivering exactly what you're
describing. And I'm excited about the market opportunity out there. And the beautiful thing is, is we've
got these strategic initiatives that will grow well into the future. And more importantly, with everything
you described, we still got a strong balance sheet. We make a lot of cash flow. And with our cash flow, we
have the ability to keep growing this company, growing the infrastructure of the company and buying back
shares to drive total shareholder wealth. So I like our opportunity going forward for both Dollar Tree and
Family Dollar.
Michael Lasser
Okay. Mike, the biggest source of pushback we've gotten from folks today is just on the core Dollar Tree
comp being negative when everyone else is seeing robust trends. Putting aside Dollar Tree and putting
aside some of the questions around traffic, what gives you the confidence that you can see the core of
that business continue to improve independent of what's going to happen in the external environment?
And as a quick follow-up, Kevin, could you walk us through the path for how freight costs are going to
unfold beyond this year? Your comments were it's not going to see relief in fiscal '22. You're saying if you
add this back, you could earn close to $7. So when is it realistic for the market to expect you to earn this
$7 target?
Michael A. Witynski
Yes. I can't reiterate enough how confident I am in the Dollar Tree format, especially with the Dollar Tree
Plus! initiative that we're going to be driving to 5,000 stores in just a short few years. And then what I
just described on what our merchants are able to do with a great value in the dollar price point. And keep
in mind, this dollar price point is going to be more important than ever as other retailers are driving their
comps by raising prices. That dollar price point is going to look good, and I'm confident going into the back
half with our seasons, with our product that we have and what our merchants are delivering, we're going
to continue to be able to drive this organization forward.
Kevin S. Wampler
And Michael, as to your second part of your question as it relates to the freight. So obviously, the
marketplace, in general, there's an expectation that it does not get better necessarily in the first half. And
the other piece of what you have to remember is cost -- some of the costs that we'll incur this year in
freight at the end of the year are attached to those goods that then gets sold in the next year. So a certain
amount of freight gets capitalized in the inventory as it comes in. So as your inventory turns is when you
burn that off. So anything along the lines that we've been incurring will fall -- there's a piece of that, that
falls into next year. So that's how you have to remember that.
As far as $7, listen, obviously, we know what we know today. A lot of things are going to change in the
next 6 months, and we'll know more then. And when we give guidance in March of 2022 for the year,
we'll, again, be in a point where we'll put our best foot forward on what we know at that point in time. So
beyond that, it's -- there's nothing to speculate at this point.
Operator
All right. Mr. Guiler, I'd like to turn the conference back to you for any additional closing remarks.
Randy Guiler
Great. Thank you. Thank you for joining us for today's call. Our next earnings conference call to discuss
Q3 results is tentatively scheduled for Tuesday, November 23, 2021. Thank you, and have a good day.
Operator
This concludes today's call. Thank you all for your participation. You may now disconnect.
Shareholder/Analyst Call
Thursday, June 10, 2021 1:00 PM GMT
Contents
Table of Contents
Presentation .................................................................................. 4
DOLLAR TREE, INC. SHAREHOLDER/ANALYST CALL | JUN 10, 2021
Call Participants
EXECUTIVES
Bobby L. Sasser
Executive Chairman
Michael A. Witynski
Randy Guiler
Relations
William A. Old
Chief Legal Officer, General
Counsel & Corporate Secretary
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Dollar Tree, Inc. Annual Meeting.
I would now like to hand the conference over to your speaker today, Bob Sasser, Executive Chairman of
the Board. Please go ahead.
Bobby L. Sasser
Executive Chairman
Thank you. Ladies and gentlemen, I'd like to call this meeting to order. I'm Bob Sasser, Executive
Chairman of the Board of Directors. Good morning, and welcome to Dollar Tree's 2021 Annual Meeting of
Shareholders.
This year, we're hosting a virtual annual meeting in light of the ongoing public health impact of the
COVID-19 pandemic. The health and well-being of our shareholders and employees remain our top
priority. And we thank you for joining us on this live webcast of the annual meeting.
Before we turn to the formal items of business, I'd like to introduce the members of the Board: Beginning
with Mike Witynski, our President and Chief Executive Officer; Greg Bridgeford; Lead Independent Director
and Chair of the Compensation Committee; Stephanie Stahl, Chair of our Nominating, Governance and
Sustainability Committee; Jeff Naylor, Chair of the Audit Committee; Director Arnold Barron; Director
Thomas Dickson; Director Lem Lewis; Director Winnie Park; Director Carrie Wheeler; and Director Tom
Whiddon.
I would also like to recognize board members Tom Saunders and Carl Zeithaml, whose terms are expiring
at this meeting. Mr. Saunders and Dr. Zeithaml have served as directors of the company since 1993 and
2007, respectively, and their contributions have been instrumental to Dollar Tree's success over the years.
On behalf of the entire Board, I want to thank Mr. Saunders and Dr. Zeithaml for their valued service and
tireless effort to best serve the interest of Dollar Tree's shareholders. We wish them all of the best in their
retirement.
I would also like to recognize and welcome representatives from Williams Mullen, our Legal Counsel;
KPMG, our independent accountants; and Dollar Tree's management and associates. The representatives
of KPMG will be available during the question-and-answer session after the meeting to respond to
appropriate questions. In addition, the company has appointed Broadridge Financial Services to act as our
Inspector of Election. A representative from Broadridge is available by phone today and has taken the oath
of Inspector of Election on behalf of Broadridge.
Please note that today's meeting will be governed by our rules of conduct and procedures which can be
found on the web portal for this meeting. We ask that you review these rules and procedures at this time if
you've not already done so.
I now turn to the formal business of the meeting. First, the matters to be voted on at the meeting will be
presented, and the shareholders will be given an opportunity to vote or change their vote, then the voting
results will be announced. After the formal business of the meeting, Mike Witynski will give a presentation
on Dollar Tree's progress and our new initiatives.
As is our custom, we will answer general questions from shareholders unrelated to the formal business
of the meeting at the end of that presentation. Shareholders may submit questions during the meeting
using the text box on the web portal. Please refer to our rules of conduct and procedures for additional
information on submitting questions or comments.
The 2021 Annual Meeting has been called by the Board of Directors for the purpose of voting on the 4
proposals, including -- included in our proxy statement. An affidavit has been delivered attesting that
a notice of Internet availability of the proxy materials was mailed on or about April 23, 2021, to all
shareholders of the record -- as of the record date. The shareholder list is available on the web portal to
shareholders who have logged into the meeting with an authenticated control number. These items and
the final voting results will be included in the minutes of the meeting.
As of the record date, there were 234,009,610 shares of common stock outstanding and entitled to
vote at the meeting. The Inspector of Election has advised the company that a majority of such shares
are present at the meeting in person or by proxy. Therefore a quorum is present and the meeting is
authorized to transact business. The polls are now open.
The proposal being voted on are as follows: Proposal 1, the election of each of the 11 directors named in
our proxy statement; Proposal 2, an advisory vote to approve the compensation of our named executive
officers; Proposal 3, the ratification of KPMG as our independent registered public accounting firm; and
Proposal 4, a proposal to approve the company's 2021 Omnibus Incentive Plan.
The Board of Directors has recommended that shareholders vote for proposals 1, 2, 3 and 4. Any
shareholders who haven't yet voted or wishes to change their vote may do so by clicking on the voting
button on the web portal and following the instructions. Shareholders who have sent in proxies or voted
by telephone or Internet and do not want to change their vote do not need to take further action. We will
pause for a moment to permit shareholders to vote.
[Voting]
Bobby L. Sasser
Executive Chairman
Now that everyone has had the opportunity to vote, polls are now closed. Since all the votes have been
cast, will our Will Old, our Corporate Secretary and Chief Legal Officer, will now deliver the Inspector of
Election's preliminary report of the voting results.
William A. Old
Chief Legal Officer, General Counsel & Corporate Secretary
Thank you, Mr. Chairman. Proposal 1, election of directors. Each nominee for director has received a
majority of the votes cast at the meeting. Accordingly, all nominees have been duly elected.
Proposal 2, approve on an advisory basis the compensation of the company's named executive officers.
The proposal passed and received a majority of the votes cast at this meeting.
Proposal 3, ratify the selection of KPMG as the company's independent registered public accounting firm.
The proposal passed and received a majority of the votes cast.
Proposal 4, approve the company's 2021 Omnibus Incentive Plan. The proposal passed and received the
majority of the votes cast.
Bobby L. Sasser
Executive Chairman
Thank you, Mr. Old. Since there are no other matters before the annual meeting, we have concluded the
formal business, and I hereby declare this Annual Meeting of Shareholders adjourned.
I will now turn the floor over to Randy Guiler, our VP of Investor Relations, for an introductory remark; and
to Mike Witynski, our President and Chief Executive Officer, for his presentation.
Randy Guiler
Good morning, and welcome to Dollar Tree's 2021 Annual Meeting of Shareholders. My name is Randy
Guiler, Vice President of Investor Relations.
Before we begin, I would like to remind everyone that remarks made in today's presentation about
expectations, plans or prospects for the company may contain forward-looking statements for the
purposes of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks,
uncertainties, and our actual results may differ materially from those indicated in these forward-looking
statements. For information on the risk and uncertainties that could affect our actual results, please refer
to the Risk Factors, Business and Management's Discussion and Analysis of Financial Condition and Results
of Operations sections in our annual report on Form 10-K filed March 16, 2021; our Form 10-Q for the
most recently ended fiscal quarter; and other filings we make from time to time with the Securities and
Exchange Commission. We caution against reliance on these forward-looking statements made today. We
disclaim any obligation to update or revise these statements, except as may be required by law.
I will now turn the presentation over to Michael Witynski, Dollar Tree's President and Chief Executive
Officer.
Michael A. Witynski
Good morning, everyone. Thank you for joining us for Dollar Tree's 26th Annual Meeting of Shareholders.
My hope is that each of you and your loved ones are safe and doing well.
2020 presented numerous unique challenges, not just to retail, but the lives of millions in the communities
we serve across North America. By providing customers with home and essential products at great value,
especially during times of need and uncertainty, we are emerging from this pandemic with a stronger
company and brands. Our teams are focused on value, convenience and safety, and we will continue to be
relentless in our efforts to help protect one another until this pandemic is well behind us.
We have come a long way since going public in 1995. Fiscal 2020 was another important year for the
company as we transitioned to an aggressive approach under one aligned leadership team, dedicating our
major efforts to customer-facing initiatives with clarity, focus and speed. We have a unique, resilient and
diversified business model, which provides us financial flexibility and compelling growth opportunities. I
am extremely proud of our Dollar Tree and Family Dollar teams and what we have accomplished as one
growing company. And I'm especially proud of our people and the management team who makes all of this
possible.
Our more than 200,000 associates at the stores, out on the field and the distribution centers and at the
store support center are the heart of our company. I'm overwhelmed by their ongoing commitment to the
communities we serve, and their dedication and hard work is truly inspirational. I've had the pleasure of
reading hundreds of customer letters and comments regarding how our associates have gone above and
beyond to serve their customers and neighbors. Their efforts contributed to our company's successes in
2020.
As an essential retailer in the value segment, we have been and will continue to be part of the solution for
millions of households seeking great value and a convenient, safe and clean shopping location. Thank you
to our heroes for their extraordinary efforts every day. You have made a difference in the lives of so many
customers, neighbors, friends and family. Excellent work.
I am also incredibly proud of the company's proactive response throughout the pandemic. Our COVID task
force, comprised of key business partners from each department, took on the crucial role of implementing
and managing processes to help mitigate COVID-related risks. Within a few weeks of the onset of
pandemic in the U.S. and Canada, our teams were successfully able to: Employ enhanced cleaning
protocols at the stores, distribution centers and store support centers as recommended by the CDC;
encourage proper social distancing measures with signage and audio messaging; modify store hours
to provide adequate time for associates to clean and restock shelves; dedicate the stores' daily first
operational hour to elderly customers; provide personal protective equipment; implement associate health
screening procedures; install Plexiglass shields at cash registers in more than 15,000 stores; and facilitate
contactless payment options at checkout through Tap to Pay with Visa, Mastercard, Apple Pay and Google
Pay; and hire more than 25,000 new associates to keep up with increased demand.
In 2020, the company also paid more than $200 million in premium pay to our frontline workers, and we
also adjusted our benefits to better support associates through the challenging and often confusing times.
These actions all help mitigate the spread of COVID while all stores remained open so customers could
purchase their home products and essentials at great value in convenient, easy-to-stop store locations.
Thank you to all the teams that made this possible.
Now turning to last year's financial performance. In 2020, we exceeded $25 billion in annual sales for
the first time in our company's history. We drove an enterprise same-store sales increase of 6.1% on top
of a 1.8% increase in 2019; grew gross profit by more than $740 million, a 70 basis point improvement
from the prior year, despite incurring $36.3 million of COVID-related costs. We leveraged SG&A expenses
by 140 basis points despite incurring $242.8 million in COVID-related costs. We improved enterprise
operating profit margin to 7.4%, a 210 basis point improvement from fiscal 2019. And we delivered annual
diluted earnings per share of $5.65.
Also in fiscal 2020, we opened 497 new stores and operated 15,685 stores at year-end. We renovated
approximately 770 Family Dollar stores, expanded upon our sales and traffic-driving initiatives, which
I will discuss in more detail momentarily. We continued to generate strong cash flow and repurchased
approximately 4 million shares of common stock for $400 million. Additionally, in 2020, Family Dollar
achieved the banner's best annual store manager turnover numbers in a decade, and Dollar Tree achieved
the banner's best annual store manager turnover numbers since the acquisition.
Increasing store productivity at Family Dollar has been a critical component of the turnaround, and the
banner is now gaining market share, especially in the discretionary categories, due to its compelling
offerings and great value. Our Family Dollar team delivered a 10.5% same-store sales increase and a 610
basis point improvement in operating margin in fiscal 2020. Since consolidating our support teams into
one location and aligning our merchandising and operations leadership in 2019, we have enhanced and
aligned communications, strategies, processes, workflows and accountability throughout the enterprise.
The progress we have made at Family Dollar in the past year has been remarkable. Our shoppers are
responding to the new merchandising offerings and improved operational execution in our stores. And we
are seeing a considerable lift in our customer satisfaction survey scores, highlighting 4 key categories:
Store cleanliness, product assortment, customer service and speed of checkout.
Contributors to this success have been the new and renovated H2 stores, where we continue to see
same-store sales lift of greater than 10% in the first year; improved merchandising offerings, including
a large variety of $1 price point products; an enhanced brand standards program which clearly conveys
expectations to the store teams; and as I mentioned before, the banner's lowest annual store manager
turnover rate in a decade.
We are in a growth mode. Through 2020 and into 2021, we have demonstrated great momentum in our
business. I believe this is attributable to all the work in developing great strategic store formats, refining
our assortments and accelerating many key sales and traffic-driving initiatives. The goal is to have various
store formats that offer the best of Dollar Tree and Family Dollar brands to serve customers in all types of
geographic markets.
Our newest strategic format, the Combination or Combo Store, builds off of the success of H2's. We
continue to experience a 20-plus percent comp lift in the year 1 in renovating Combo Stores, and new
stores are exceeding their pro forma. The Combo Store leverages both the Dollar Tree and Family Dollar
brands to serve small towns across the country with more than 3,000 markets identified for future growth.
In the city and urban markets, we continue to evolve and grow the H2 store format with a focus on
expanded home, seasonal and other discretionary categories. We are capturing market share with our
compelling offerings that shoppers love at great value. Both the Combo and H2 format are part of Family
Dollar's new store and renovation strategy.
Throughout last year, we continued to modify and expand the Dollar TreePlus! initiative, and we actually
exceeded our sales plan for the 2020 holiday season as we experienced great sell-through on seasonal
products, toys and household consumables. Initial feedback from shoppers on the compelling offering
has been extremely well received and very favorable. In fact, when multi-price items are included in the
basket, the average transaction value is approximately twice the size. Additionally, the program captures
great buying synergies since many of the $3 and $5 items are also now being offered at Family Dollar
stores. We plan to provide more details about the expansion of this exciting initiative later this year.
With our ability to act with more speed, clarity and focus, we are able to aggressively develop our
initiatives that help expand our customers reached and grow market share. This past year, we launched
familydollar.com's selling website, providing shoppers the ability to shop our great brand deals online,
giving them the option to minimize their potential exposure to COVID. In late 2020, we announced our
new national partnership with Instacart, providing customers with same-day delivery options from more
than 6,000 Family Dollar stores. The results have exceeded our expectation, and these transactions have a
materially higher average ticket.
And more recently, we introduced our new retail media network, Chesapeake Media Group. This platform
provides our shoppers with compelling content never seen before on Family Dollar digital space. We
serve 95 million weekly digital impressions and have approximately 14 million subscribers to our digital
Smart Coupons program. We currently have commitments from our largest CPG brands for more than
40 campaigns. These engagements are coming to life through ad placement on Family Dollar app,
familydollar.com, e-mail and social media, influencing purchase decisions in real-time. We believe
Chesapeake Media Group will enhance the opportunity to further drive loyalty and store traffic for Family
Dollar while increasing brand partner awareness and product sales.
We have also begun testing the additional fresh produce and frozen meats to select Family Dollar stores
geared towards markets where shoppers have fewer local grocery options. We want to provide these
customers with convenient access to basic produce items as well as beef, poultry and pork. The new
offerings are being well received in these markets, and we plan to expand this initiative in 2021 and
beyond.
Building on the success of our craft department, we completed the rollout of Crafter's Square to all U.S.
Dollar Tree stores in late fiscal 2020. Inspiring the creativity of our customers is at the core of Dollar
Tree brand, and our merchandising team is focused on providing an even broader home and seasonal
assortment. Customers have been loving all the new offerings, especially since it provides fantastic value
for the DIY home projects and decor, crafts for the entire family, school and church projects, seasonal
decorations and handmade gifts. This assortment drives traffic to our stores, and it is additive to the
basket. I am very excited about the expanded Crafter's Square assortments that will be hitting our store
shelves just in time for back-to-school and the busy holiday season.
We are committed to responsible corporate governance that deliver sustainable, long-term value to our
shareholders. Our Board, led by our Executive Chairman, Lead Independent Director and committee
chairpersons, is active and engaged in setting the strategic direction of our business. We value honesty,
integrity and transparency in all aspects of our business. These values are reflected in the strength
of our financial controls and in the relationships with our customers, vendor partners, associates and
shareholders. We again achieved a clean bill of health in 2020 from our external auditors with no material
control weaknesses noted in the assessment, underscoring that our accounting and reporting processes
are compliant with the intentions and requirements of Sarbanes-Oxley legislation.
We continue to generate free cash flow in excess of our investment needs, which we have used to pay
down more than $5 billion of debt and repurchase approximately $850 million worth of shares since
completing the acquisition of Family Dollar business in July 2015. The best use of capital in our view is to
support the continued growth of our business at a sustainable pace.
Our Board values diversity in its broadest sense, reflecting, but not limited to, ethnicity, gender, geography
and life experience and is committed to a policy of inclusiveness.
Our Board and our management team recognizes the importance of assessing, planning for and disclosing
the potential impact of environmental, social and governance, or ESG, risks to our business. The Board's
Nominating, Governance and Sustainability Committee has the lead role in overseeing our risks and
reporting related to the ESG matters and sustainability, with the Compensation Committee having the lead
role in human capital management and diversity, equity and inclusion, or DEI, oversight.
Among other initiatives, has directed the creation of the following corporate policies to provide enhanced
ESG transparency and guidance to our stakeholders: Environmental policy, human rights policy, health
and safety policy, code of vendor conduct and political contribution and expenditure policy. It is our strong
belief that safeguarding shareholder value requires that the company carefully assess and address the
risks inherent in our business. In particular, our Board and management recognizes the importance of
planning for the potential impact of climate change and other sustainable risks. And we take -- we are
taking action to evaluate how our long-term business strategy may be adapted to address these potential
challenges.
In April of this year, we issued our expanded Corporate Sustainability Report regarding our recent findings
and identified opportunities. I encourage you to review our 2021 CSR, which is available at the homepage
on our website at dollartree.com.
I am proud of the team's progress related to our ESG programs in fiscal 2020. Accomplishments included,
that we conducted a detailed assessment of our impact on the environment and measured our greenhouse
gas emissions and energy to establish an initial baseline. We developed our first generation of climate
goals aimed at reducing emissions and increasing use of renewable energy. We partnered with ADT
Commercial for comprehensive and innovative security solutions, formed our DEI Executive Council, which
I will discus in a minute, and launched our inaugural Choose to Give workplace giving campaign.
Additionally, to evaluate our progress in eliminating chemicals of high concern and to be part of an
industry-wide solution, we began participating in the Clean Production Action's Chemical Footprint Project
in 2019. By participating in the survey, we can help establish industry benchmarks for moving away from
the chemicals of high concern and towards safer alternatives. I am pleased to announce that this year will
be our third year participating in the Chemical Footprint Project.
We maintain an open dialogue with shareholders on governance and sustainability practices, which reflect
the input and best interest of our shareholders. Our organization has a cascading impact on all of the
communities we serve, from our associates and their families, to vendors, suppliers, and the millions of
households who are relying on our convenient store locations to get the products they need at a great
value. With the support of our newly created DEI Executive Council, we are focused on embracing our
differences, ensuring fair treatment and providing equal access to opportunities and resources.
Our company is firmly committed to creating a positive and professional work environment where all
associates demonstrate courtesy, dignity and respect to others. We are committed to fostering an inclusive
environment where the individual differences among us are understood, respected and appreciated as a
valuable source to strengthen our company. These principles are supported by our commitment to being
an equal opportunity employer with anti-harassment, nondiscrimination and non-retaliation policies. In
2021, we will be publishing our enhanced allyship guide to be a reference and help train associates on our
mission of fostering a culture of inclusion where every individual feels included and valued. I stand in unity
with our associates. And together, we can drive an inclusive culture that continuously strives for better and
equal outcomes for every life we touch.
Along with providing great product at fantastic value as well as employment opportunities with numerous
career growth potential, the company gives back to our communities by supporting a diverse group of
local, national and global organizations that contribute to a variety of causes and populations, including
medical research, the arts, underrepresented youths and active military members and veterans.
We pride ourselves on our active and ongoing commitment to philanthropic partners, and last year
was no exception. Along with financial contributions from associates through our inaugural Choose to
Give workplace giving campaign, the company donated $2.7 million in 2020 to our 3 largest charitable
partnerships: Boys & Girls Club of America, Operation Homefront and United Way of South Hampton
Roads. Additionally, vendor partners and customers donated millions of dollars throughout the year to the
charitable partners.
Along with supporting the communities around our stores, we also focus on the areas where our
distribution centers are located. In 2020, more than $130,000 was donated by our distribution centers'
associates, including a company match, to local charities and communities where the facilities operate,
including various chapters of Make-A-Wish, The Ronald McDonald House, children's hospitals in Memphis
and Chicago and Meals on Wheels in South Carolina. The company's other charitable partners include
Access College Foundation, American Cancer Society, American Diabetes Association, Business Consortium
of the Arts, Chesapeake Cares Clinic, Chrysler Museum of Art, Elizabeth River Project, 4KIDS, Junior
Achievement, Lynnhaven River NOW and the Virginia Foundation of Independent Colleges' Brighter Futures
Scholarship Program. Our goal is to help the communities we serve be happier, healthier and prosperous.
Across our stores, districts and regions, there is no higher form of recognition to honor their
accomplishments than our Top Gun and Great Race awards. These awards go to the best of the best, the
highest achievers in the company. To be a Top Gun or a Great Race Champion is to be a winner. Every
year, there is a tremendous competition, and 2020 was definitely no exception. [ Alexandra Torres ]
led Dollar Tree's Region 22 for the Top Gun Award and [ Chuck Till ] with the Family Dollar's Region
55 received the Great Race Award. It's been a tradition to honor the winners at our Annual Meeting of
Shareholders. We look forward to celebrating with them and their teams in person once it is safe to do so.
Congratulations, Alexandra and Chuck, on a superb job for 2020.
Our future is bright, and we are focused on aggressive growth. Since many of the integration priorities
are behind us, we now have the ability to act with more speed, clarity and focus on our sales and traffic-
driving initiatives. As an organization with strong cash flow and a healthy balance sheet, we are in great
position to plan aggressively and drive innovation in 2021 and beyond.
Thank you for your interest in Dollar Tree. And now we will take questions that have been electronically
submitted.
Question and Answer

Randy Guiler
This is Randy Guiler. We have received a number of questions submitted in advance of and during this
morning's meeting. Several of the submitted questions related to Dollar Tree's multi-price initiative or to
the company's business strategy which were addressed in Mike's presentation.
Mike, we received the following comment and question from Jose Bravo, the National Campaign
Coordinator for the Campaign for Healthier Solutions.
Mr. Bravo indicated, he is glad that Dollar Tree has set a good example for the discount retail sector with
its transparency in communication, and that the company is moving forward with developing a sound
chemical policy. And he applauds the company's participation in the Chemical Footprint Project.
His question: Has Dollar Tree taken any additional steps to identify specific priority chemicals to add to
its restricted substance list as part of the long-term strategy to eliminate PFAS in food and direct-contact
packaging materials? Would Dollar Tree consider supplying [ bulk corn ] as a safer consumer choice?
Michael A. Witynski
Well, first of all, thank you for the feedback, Jose. I'm very proud of the work that we've done to date, and
we appreciate the productive dialogue with the company over the past year. And to answer your question,
yes, Dollar Tree has taken additional steps to identify specific priority chemicals to add to our restricted
substance list. And in fact, we notified our vendors earlier this week regarding restrictions on phthalates
and PFAS chemicals. Additionally, in the coming weeks, we do plan to release an updated list addressing
the additional elements.
Randy Guiler
The next questions relate to whether Dollar Tree has plans to initiate a dividend program.
Michael A. Witynski
Yes. Thanks for the question. And the good news is we're coming from a position of strength with our
balance sheet. And periodically, our Board evaluates capital allocation priorities and alternatives. Share
repurchases and dividends are always a component of these discussions.
First and foremost, Dollar Tree is a growth company, where we believe it is in our best interest of the
shareholders to continue growing our company and infrastructure to support that growth. Historically, we
have been proponents of buybacks, but we will consider alternatives, including dividends programs, in the
future.
Randy Guiler
We've received a number of questions from partners of the Campaign for Healthier Solutions related to
the company's progress on ESG initiatives and sustainability efforts. These questions refer to topics such
as product safety, including lead asbestos and BPA; participation in the Chemical Footprint Project as a
disclosure leader; and a commitment to eliminate the use of pesticides.
Michael A. Witynski
Well, thank you for the questions on this important topic. I'm very proud of the team's efforts and the
progress we've made on sustainability, especially over the past year. In fact, Dollar Tree recently published
our enhanced and updated Corporate Sustainability Report. Our CSR report is available on the home page
on our website at dollartree.com.
And then accomplishments related to our ESG program, fiscal 2020, include that we've conducted a
detailed assessment of our environmental impact and measured our carbon footprint, establishing a
baseline for us. We developed our climate goals designed to reduce emissions and increase usage of
renewable energy. We participated in the Chemical Footprint Project for the second consecutive year in
2020. We've partnered with ADT Commercial for comprehensive and innovative security solutions. And
we've formed our diversity, equity and inclusion executive council. And lastly, we launched our inaugural
Choose to Give workplace giving campaign.
While we've accomplished many things, we will remain steadfastly committed to improvement, especially
as related to our ESG goals and initiatives designed to minimize corporate sustainability risks while
reducing costs and driving efficiency for our organization.
Randy Guiler
This concludes the question-and-answer portion of the meeting. I will now turn the meeting back to our
Executive Chairman, Bob Sasser.
Bobby L. Sasser
Executive Chairman
Thank you, Randy. Since the time for our meeting has now expired, this will conclude our webcast. Thank
you for attending this year's annual meeting.
Operator
Ladies and gentlemen, this concludes today's program. Thank you for participating. You may now
disconnect.
Thursday, May 27, 2021 1:00 PM GMT
-FQ1 2022- -FQ2 2022- -FY 2022- -FY 2023-
EPS Normalized 1.40 1.60 14.29 1.13 6.15 6.97
Revenue (mm) 6430.07 6476.80 0.73 6412.00 26331.00 27598.88

Currency: USD
Consensus as of May-27-2021 1:54 PM GMT
- EPS NORMALIZED -
FQ2 2021 0.94 1.10 17.02 %
FQ3 2021 1.16 1.39 19.83 %
FQ4 2021 2.12 2.13 0.47 %
FQ1 2022 1.40 1.60 14.29 %
Contents
Table of Contents

Presentation .................................................................................. 4
DOLLAR TREE, INC. FQ1 2022 EARNINGS CALL | MAY 27, 2021
Call Participants
EXECUTIVES
Kevin S. Wampler
Michael A. Witynski
Randy Guiler
Relations
ANALYSTS
Charles P. Grom
Edward Joseph Kelly

Wells Fargo Securities, LLC,
Research Division

Research Division
Karen Fiona Short

Barclays Bank PLC, Research
Division
Matthew Robert Boss

Division
Michael Lasser
Division
Peter Jacob Keith

Piper Sandler & Co., Research
Division
Robert Scot Ciccarelli

RBC Capital Markets, Research
Division
Presentation
Operator
Good day, and welcome to the Dollar Tree, Inc. First Quarter Earnings Conference Call. Today's conference
is being recorded. At this time, I'd like to turn the conference over to Mr. Randy Guiler, VP Investor
Relations. Please go ahead.
Randy Guiler
Thank you, Stephanie. Good morning, and welcome to our call to discuss Dollar Tree's first fiscal quarter
2021. With me on today's call will be our President and CEO, Mike Witynski; and our CFO, Kevin Wampler.
Before we begin, I would like to remind everyone that various remarks that we will make about
of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Results may differ
materially from those indicated by these forward-looking statements as a result of various important
factors, included in our most recent press release, most recent 8-K, 10-Q and annual reports, which are
on file with the SEC. We have no obligation to update forward-looking statements, and you should not
expect us to do so.
Following our prepared remarks, we will open the call to your questions. [Operator Instructions]
Michael A. Witynski
Thank you, Randy. Good morning, everyone. Our record first quarter performance reflects the progress we
continue to make on numerous initiatives to provide even greater value and convenience to our shoppers.
Dollar Tree delivered its strongest quarterly same-store sales since 2017, while improving its operating
margin by 290 basis points. Family Dollar effectively cycled a 15.5% comp sales increase from the prior
year by driving its best post-merger quarterly operating profit. Combined, the enterprise produced positive
same-store sales against a tough 2020 comparison and a 220 basis point improvement in operating
margin driven by higher gross margins and better expense leverage. Overall, a very solid start to the year.
During the initial post-merger years, much of the company's energy and focus was dedicated to
integration-related projects such as stabilizing and restructuring the organization; improving store
maintenance; harmonizing our technology; designing and testing store formats, optimizing our real estate
portfolio; elevating the operational execution in our stores; offering improved assortments and value;
and ultimately, consolidating our store support centers. These priorities were critical as we prepared the
combined business for long-term profitable growth.
Now over the last 18 months, we have transitioned to an aggressive approach under one aligned
leadership team, dedicating our major efforts to customer focus initiatives with clarity, focus and speed.
Examples of the innovation efforts are: our brick-and-mortar initiatives include refining and growing
our Dollar Tree Plus! multi-price initiative; continuing to evolve and improve the H2 store format with
expanded home, seasonal and other discretionary categories; introducing the new combo stores for
rural markets; testing fresh produce and frozen meat products in select stores; initiating self-checkout in
smaller number of stores.
And on our digital and omnichannel initiatives, they include: launching familydollar.com as a selling site;
partnering with Instacart for same-store delivery, which expands our customer reach; and creating our
new retail media network, the Chesapeake Media Group. I'm enthusiastic about the long-term impact of
these actions designed to drive shopper satisfaction and loyalty, giving us the ability to meet the evolving
needs of our shoppers better than any other company can, especially inside the Beltway and in rural
America.
I will share more details -- more detailed update on these exciting initiatives later on in the call. But for
now, for the quarter, our Dollar Tree segment delivered its best quarterly same-store sales since Q3 of
2017. The 4.7% comp increase was comprised of a 9.5% increase in ticket, partially offset by a 4.4%
decline in traffic. Notably, we saw a double-digit increase in traffic in April, which represented our best
monthly comp traffic increase in years.
From a cadence perspective, March was the strongest comp month with stronger pre-Easter sales
compared to the prior year, followed by April. February was slightly negative as we lost more than 2,500
store days due to closures related to storms through Texas and Central U.S. Gross margin improved
180 basis points from the prior year as we saw record sell-through on seasonal merchandise, including
Valentine's Day, Easter and Easter Candy.
Compared to the prior year's quarter, the discretionary mix as a percentage of net sales increased 710
basis points to 52.3%. Categories performing well, included, crafts, party, our Easter seasonal, toys and
floral. Our inventory turn improved 22 basis points for the quarter.
Our merchant team continues to source great products that provide wonderful value at the margins we
need. With the product already purchased for the back half of the year, I am thrilled with the discretionary
back-to-school, crafts, holiday and seasonal assortments that will be hitting store shelves within the next
few months. As COVID restrictions ease and customers continue to gather with friends and family for
celebrations, we plan to fulfill that need with our compelling mix with even more exciting discretionary
items at the dollar price point that our shoppers love.
Family Dollar highlights for the quarter include its best post-merger quarterly operating profit at $211.4
million. Let me repeat that: Family Dollar achieved its best post-merger quarterly operating profit at
$211.4 million, cycling a very strong 15.5% comp from the prior year. Same-store sales came in at a
decline of 2.8%, equating to a positive 12.7% on a 2-year stack. Average ticket was up over 11%. And
traffic, cycling the initial pandemic-related demand for the consumables from a year ago, was down nearly
13% for the quarter.
The Family Dollar merchants continue to do a terrific job refining the assortment to deliver meaningful
value that is resonating with our shoppers. The discretionary side of the business saw a 14.7% comp
increase. Consumable comp, again, cycling unprecedented demand from last year, was down 7.7%.
Regarding Family Dollar's comp cadence through the quarter, February was the strongest comp followed
by April. March was cycling a 20-plus comp from the prior year. From a category perspective, the strong
performers were primarily on the discretionary side of the business, including party, apparel, home decor,
beauty care and floral. We continue to see encouraging results for stores that added fresh produce and
frozen meats to their assortment in late 2020. We are seeing materially higher average tickets when a
basket contains produce or meats. I am excited to share that we will continue to expand on this initiative
in 2021 and beyond, as we are focused on meeting the needs of shoppers in all markets.
On the previous earnings call, I spoke to the fact that Family Dollar customer satisfaction survey scores
had improved 3 consecutive quarters across each of the 4 key categories: store cleanliness; product
assortment; customer service; and speed of checkout. Credit to our field leadership and our merchant and
operations teams, each of those scores improved again for the first quarter, making it 4 quarters in a row.
Increasing store productivity at Family Dollar has been a critical component of the turnaround. In addition
to all the sales and traffic-driving initiatives that have been increasing average sales per store, we believe
Family Dollar is squarely positioned to continue serving more customers and gaining market share with
its compelling discretionary mix, especially as Family Dollar shoppers are benefiting from stimulus dollars,
increased SNAP participation, child tax credits and earning higher wages.
Now regarding Dollar Tree Canada, the team had a strong quarter 1. From an operating income
standpoint, the Canada team exceeded their budget despite challenges to sales in April related to
increased COVID restrictions. From a real estate perspective, we completed 575 projects, including: 106
new stores; 36 relocations; 414 Family Dollar H2 renovations; 19 store closures. We ended the quarter
with 15,772 stores.
Before I hand it over to Kevin, I want to let you know that in April, we released our updated corporate
sustainability report. The report is available on the homepage at our website, dollartree.com. I am very
proud of the team's progress related to our ESG program in fiscal 2020. Accomplishments included that
we conducted a detailed assessment of our impact on the environment and measured our carbon footprint
to establish an initial baseline.
We developed our first-generation of climate goals aimed to reducing emissions and increase the use of
renewable energy. We participated in the chemical footprint project for the second consecutive year. We
partnered with ADT Commercial for comprehensive and innovative security solutions. And we formed
our Diversity Equity Inclusion Executive Counsel. And lastly, we launched our inaugural Choose to Give
workplace-giving campaign. We will remain steadfastly committed to improvement, especially as related
to our ESG goals and initiatives designed to minimize corporate sustainability risks while reducing cost and
driving efficiencies.
I will go into more detail on several initiatives after Kevin speaks to the Q1 performance and our outlook.
Kevin?
Kevin S. Wampler
Thanks, Mike, and good morning. For the first quarter, consolidated net sales increased 3% to $6.48
billion, comprised of $3.32 billion at Dollar Tree and $3.16 billion at Family Dollar. Our enterprise same-
store sales increased 0.8%, or 0.9% when adjusted for Canadian currency fluctuations. Comps for the
Dollar Tree segment increased 4.7% or 4.8% when adjusted for the Canadian currency fluctuations.
Family Dollar same-store sales decreased 2.8%, cycling the very strong 15.5% increase in the prior year's
first quarter.
Overall, gross profit for the enterprise increased 9.4% to $1.96 billion. Gross margin improved 180
basis points to 30.3%. Gross profit margin for the Dollar Tree segment improved 180 basis points to
33.7% when compared to the prior year's quarter. The factors impacting the segment's gross margin
performance included: merchandise costs, including freight, improved 85 basis points. Improvements in
merchandise mix were partially offset by increased freight costs and slightly lower mark on, a 50 basis
point improvement in shrink resulting from favorable inventories and a decrease in the shrink accrual rate;
a 30 basis point improvement in markdown related to improved sell-through of Easter-related products
compared to the pandemic affected prior year; and 25 basis points of leverage on occupancy costs from
the stronger comp sales.
These improvements were partially offset by distribution costs, which increased 10 basis points, primarily
due to higher payroll and depreciation costs. Gross profit margin for the Family Dollar segment improved
140 basis points to 26.8% in the first quarter. The year-over-year improvement was due to the following:
merchandise costs, including freight, improved 85 basis points related to merchandise mix and initial mark
on, which were partially offset by higher freight costs. Shrink improved 60 basis points based on favorable
inventory results. Distribution costs improved 20 basis points compared to the prior year quarter. These
improvements were partially offset by deleverage on occupancy costs based on the comparable store sales
decline in the first quarter.
Consolidated selling, general and administrative expenses improved 40 basis points to 22.3% of total
revenue compared to 22.7% in Q1 last year. For the first quarter, the SG&A rate for the Dollar Tree
segment as a percentage of total revenue improved 110 basis points to 21.6% when compared to the
prior year's quarter. Payroll costs improved 110 basis points, primarily due to decreased COVID-19-related
store payroll costs and leverage related to the comp store sales increase. Other SG&A decreased by 5
basis points, resulting from lower store supply expense, partially offset by increased inventory service
expense. Store facility costs increased 10 basis points due to higher repairs and maintenance costs.
Family Dollar, the first quarter SG&A rate as a percentage of total revenue was 20.2% compared to
19.9% in the prior year's quarter. Store facility costs increased 25 basis points, driven mainly by higher
snow removal costs. Other SG&A expenses increased 20 basis points, and depreciation and amortization
expense increased 5 basis points both due to deleverage on the comp sales.
Payroll costs decreased 25 basis points, primarily due to decreased COVID-19-related store payroll costs,
partially offset by deleverage related to the comp store sales decline.
Corporate and support expenses as a percentage of total revenue were essentially flat compared to the
prior year's quarter.
Operating income increased 42.1% to $519.9 million compared with $365.9 million in the same period
last year, and operating income margin was 8% in the first quarter compared to 5.8% in the prior year's
quarter. The first quarter of 2021 included total incremental operating costs of $7.4 million for COVID-19-
related expenses compared to $73.2 million in the first quarter of 2020.
Nonoperating expenses totaled $33 million, which was comprised of net interest expense. Our effective tax
rate was 23.1% compared to 23.9% in the prior year's first quarter. Company had net income of $374.5
million or $1.60 per diluted share. This compared to net earnings of $247.6 million or $1.04 per share in
the prior year's quarter.
Our combined cash and cash equivalents at quarter end totaled $1.47 billion compared to $1.42 billion
at the end of fiscal 2020. Outstanding debt as of May 1 was $3.25 billion. In Q1, we repurchased
approximately 2.15 million shares for $250 million. We currently have $2.15 billion remaining on our share
repurchase authorization.
Inventory for Dollar Tree at quarter end increased 13.5% from the same time last year, while selling
square footage increased 4.1%. Inventory per selling square foot increased 9%. This includes a significant
increase in goods and transit year-over-year. Excluding this increase, inventory per selling quare -- per
square foot would be down 1.7%.
Inventory for Family Dollar at quarter end increased 11.9% from the same period last year, while selling
square footage increased 1.9%. Inventory per selling square foot increased 9.8%. Capital expenditures
were $224.9 million in the first quarter versus $235.8 million in Q1 of last year. For fiscal 2021, we expect
that consolidated capital expenditures will be approximately $1.2 billion, consistent with our initial 2021
outlook.
Depreciation and amortization totaled $172.7 million for Q1 compared to $165.5 million in the first quarter
of last year. And for fiscal 2021, we continue to expect consolidated depreciation and amortization to
range from $720 million to $730 million.
Our outlook for the remainder of 2021 includes the following assumptions: we are forecasting a low single-
digit consolidated comparable sales increase for the year. We expect the COVID expense run rate for Q2
through Q4 to be consistent with Q1 at approximately $7.5 million per quarter. As noted in our March
earnings call, minimum wage increases in states and localities will increase store payroll by $45 million
to $50 million for the year. And additionally, we expect pressure on wages due to the current shortage of
workers available for our stores and distribution centers.
With regards to freight, the market conditions have continued to deteriorate since our update in March. We
are now expecting costs to be significantly higher than originally projected that are led by import freight
due to the continued disruption in the global supply chain from equipment shortages and capacity issues.
Freight costs in the remaining 3 quarters of fiscal 2021 are projected to be $0.70 to $0.80 per diluted
share higher than the comparable period in 2020. These additional costs will have the biggest effects on
Q2 and Q3. These disruptions affect the timing of inventory receipts that could affect sales and mix.
We expect shrink will continue to be a tailwind as we go through the year. Higher sales, lower store
inventory levels and better processes continue to drive better results.
Net interest expense is expected to be approximately $34 million in Q2 and approximately $137 million for
fiscal 2021.
For fiscal '21, we expect net income per diluted share will range between $5.80 and $6.05. Our outlook
assumes a tax rate of 23.7% for the second quarter and 23.4% for fiscal 2021. And weighted average
diluted share counts are assumed to be 232.9 million shares for Q2 and 233.3 million shares for the full
year. Our outlook does not include any additional share repurchases.
I'll now turn the call back over to Mike.

Michael A. Witynski
Thanks, Kevin. Through 2020 and into 2021, we have demonstrated great momentum in our business.
I believe this is attributed to all the work in developing great strategic store formats, finding our
assortments and accelerating many key sales and traffic-driving initiatives. We have a resilient business
model. And we are and what I believe is the most attractive sector in retail. Value and convenience is
more important to the customer now than ever before.
And like most retailers, we are currently faced with higher freight costs, both international and domestic,
worker shortages and uncertainty related to inflation. These are issues -- these issues are rising as COVID
abates, and they are not systemic to Dollar Tree and not expected to be permanent. In fact, we believe
we've increased the long-term earnings potential for both banners. As always, we are working hard to
adapt and react and navigate the business based on the current environment. I have great confidence in
our team, and I'm extremely proud of their commitment, dedication and focus.
Now I'd like to provide an update on several of our key initiatives. We incorporated the Dollar Tree Plus!
a multi-price assortment, into an additional 128 Dollar Tree stores in Q1, bringing the total to more than
240 store locations by quarter end, and the offering is currently in just over 280 stores. Feedback from
shoppers on a compelling offering has been extremely well received and very favorable. The Dollar Tree
Plus! assortment has expanded into select stores in Colorado as well as states in the southeast such as
Georgia, Alabama, Louisiana and the Carolinas.
The newest iteration is seeing sales lift of more than double prior versions, which is why it's been so
important for us to evolve and refine before a larger rollout. We are committed to reaching our 500 store
target. However, the timing may shift beyond August due to the stronger-than-forecasted sell-through and
inventory availability. We will definitely continue to expand Dollar Tree Plus! in fiscal 2022. More details
about the expansion will be provided later this year.
Last quarter, we introduced our newest strategic store format, our Combination or Combo Store. We
continue to be extremely pleased with the performance of these stores. At quarter end, we had 61 combo
stores in rural communities, of which 34 are new stores, 19 are renovated stores and 8 are relocation
or expansions. We continue to experience a 20% comp lift in renovated combo stores. The new stores
are exceeding their pro forma. The combo store leverages both Dollar Tree and Family Dollar brands to
serve small talents across the country. The store combines Family Dollar's great value and assortment with
Dollar Tree's Thrill-of-the-Hunt at a dollar price point, creating a new store format targeted for populations
ranging from 3,000 to 4,000 people. Remember, these are markets where we would traditionally not open
a Dollar Tree store alone.
We will open more than 100 combo stores this year and are in the process of building a strong pipeline for
fiscal 2022 and beyond. You can get more information at familydollar.com/combostores.
We continue to be very pleased with our partnership with Instacart. We are offering Instacart in more than
6,000 Family Dollar stores across 47 markets. During the quarter, approximately 5,500 of these stores had
at least 1 order, and 96% of those stores had multiple orders. We are seeing a materially higher average
ticket as well as higher gross margin on these transactions. With sales continued at a healthy pace on a
weekly basis, as expected, we've seen a softening in the growth trajectory as vaccinations are on the rise
and more shoppers are comfortable visiting all our retail store locations.
Last month, we introduced our new retail network, the Chesapeake Media Group. This new platform
provides our shoppers with compelling content never seen before on Family Dollar digital space. We
serve 95 million weekly digital impressions and have approximately 14 million subscribers to our digital
smart coupon program. We currently have commitments from our largest CPG brands for more than
40 campaigns. These engagements are coming to life through ad placement on the Family Dollar app,
familydollar.com, e-mail and social media, influencing purchase decisions in real time. We believe the
Chesapeake Media Group will enhance the opportunity to further drive loyalty and store traffic for Family
Dollar, while increasing brand partner awareness and product sales, ultimately driving market share gains
for Family Dollar.
These are just a few examples of our ability to act with more speed, clarity and focus on initiatives since
many of the integration priorities are now behind us. I could not be more excited about the opportunities
ahead of us, especially the H2 combo store formats and our Dollar Tree Plus! initiative. As an organization,
we are certainly in a much better position to be aggressive and drive innovation.
Looking forward, we believe our strategic store formats, our store growth plans, Dollar Tree Plus! and
many key sales and traffic-driving initiatives, along with our robust balance sheet, will enable us to drive
long-term value for our stakeholders.
Question and Answer

Operator
[Operator Instructions] Our first question comes from Matthew Boss with JPMorgan.
Matthew Robert Boss
So maybe to start off, Mike, could you just speak to the cadence of performance at the Dollar Tree
concept, maybe particularly around events such as Easter and how has performance continued in May?
And then just with that, as we think about the remainder of the year, how are you planning receipts
around events as we think about your discretionary side and the party opportunity for the remainder of
the year?
Michael A. Witynski
Yes. Thanks, Matt. So we -- our Dollar Tree cadence of sales, we had a great Easter with record sell-
through. Our receipts came in on-time to the plan, and our sell-through is the strongest we've ever seen.
The challenge that Dollar Tree had to their comp was in February when we had that huge snow storm. And
that equated to well over 1%. So if you think about it, Dollar Tree, the 4.7%, if it wasn't for that storm,
could have came in at a 5.7% or plus comp.
Meat has been on plan. And to your point, we are seeing strong sales in party as people are having
gatherings again, and our receipts are flowing to meet our needs for graduation. Our graduation receipts
are in place and through into the stores. And then we are of course, prioritizing any of the seasonal
events. And we believe that the receipts will come in according to our plan throughout the summer. And
then certainly, as we approach the back-to-school in Halloween and fall selling time.
Matthew Robert Boss
Great. And then maybe a follow-up for Kevin. Could you just help us break down the drivers second
quarter and back half gross margins at the core Dollar Tree banner? Clearly, there's an impact from
freight. But does this change your margin profile multi-year in your view?
And I think in the prepared remarks, you mentioned comments regarding higher long-term operating
margin targets than maybe you initially would have thought by brand. If you could just elaborate on that,
I think that would be really, really helpful.
Kevin S. Wampler
Sure. Thanks, Matt. As we look at it, obviously, one significant headwind this year in the sense of freight,
which we've tried to lay out for everybody to help them understand, we obviously don't believe it's
permanent. But obviously, the global supply chain issues that are out there that everybody is working
through and go through that.
I would tell you this, Matt, I think, obviously, the big question that you and others continue to ask is, as
we've said, we do believe Dollar Tree can return to that 35% to 36% range from a gross profit standpoint,
which is an important aspect. If we take the freight out of the picture this year, I think we would be right
there on the cusp of that.
So I think that just gives the indication that, obviously, our mix of product continues to be good, as
Mike spoke to in many of the discretionary categories. We've seen some great progress in our shrink.
And obviously, we have more work to do, but we have made some great progress and do expect that to
continue to be a tailwind as we go through the year.
And I think then as we go down the -- look at the rest of things, I think as the sales go, it helps leverage
things. I don't think our leverage point, as it relates to SG&A, has really changed all that much. It's
traditionally been in that 2% range. And I don't think that's really changed.
So I think all those things go into it. I think we have a great foundation built and as the -- this unusual
event in the supply chain abates, I think that will give us the ability to flow that through.
Michael A. Witynski
Yes, Matt, I think some of the key components, just to reiterate what Kevin is saying, is we can control our
margin through the product we carry. Our teams just finished an April buy trip. We're getting great value
at the margins we need and that discretionary mix we're driving. And just like with our Crafter's Square,
we -- last year, we finished rolling it out to all stores. And now this year, we're actually expanding it and
expanding the seasonal part of our craft.
So we can manage our mix. We can -- we're controlling our shrink, which is a component of margin. And
if you think about -- what I really like about the first quarter, of course, we beat last year by 710 basis
points and hit a 52.3%. But if you go back to 2019, for the first quarter, our discretionary mix was 49.4%.
And we liked our mix back then, and we grew it above a normal baseline of 2019. So those are the levers
we can pull so that we can hit that 35% to 36% margin.
Operator
Our next question comes from Scot Ciccarelli with RBC Capital Markets.
RBC Capital Markets, Research Division
I want to ask about the sales performance for Dollar Tree. And I know you guys had a 4.7% comp. But to
be fair, we are seeing extremely strong results across so many retailers on a stack basis. And yet, Dollar
Tree is saying they're at just under 4%, which is well below within your own Family Dollar operations.
So I guess the question is, do you think there's any headwinds impacting that business? Is it maybe a
function of trip consolidation versus a low price point model? Or any other colors or thoughts would be
great.
Michael A. Witynski
Yes, Scot, thanks for the question. As I said, no, we don't see anything structurally wrong with the Dollar
Tree's capability of delivering that low single-digit comp store growth quarter after quarter.
And we agree. With the 4.7%, if it wasn't for that snowstorm, we'd be sitting at a 5.7% to 6%, and we
probably wouldn't be having a conversation. But Dollar Tree is doing great. Customers are responding,
and they're responding to the categories of party and seasonal and crafts. So no, I don't see anything
structurally in the way of Dollar Tree continuing to grow the comp.
RBC Capital Markets, Research Division
So just more of a -- we're hoping to get on a steady kind of low single-digit kind of comp cadence and
regardless of what the economic environment is?
Michael A. Witynski
Absolutely.
Operator
Our next question comes from John Heinbockel with Guggenheim.
So a quick follow-up on freight, right? So it looks like the full year impact, and it might be 80 or 90 bps.
When you think about trying to gauge how much of that might be structural, is it -- 0% in your mind, how
long do you think your best guess this kind of takes to play out?
And then what are you doing to mitigate? And I assume the numbers you gave us are net of mitigation to
mitigate that, right, on any level, including pricing.
Kevin S. Wampler
Yes. Let me start, John, and then I'll let Mike add anything that he'd like to add. I'm just going to try to
give you some better color, I guess, in general, around freight to begin with.
So obviously, as we went through Q1, and again, we finalized our import contracts in late April, that's well
known, we've talked about that in the past. But I think what we've seen out there is a capacity constraint.
And we've seen a dislocation between what we would call the contract -- contracted rates in the spot
market.
And so really, where we're seeing from where we were at the beginning of the year to where we are now,
the biggest drivers of the increased freight is really import freight and really just seeing higher rates to
move product due to the capacity constraints as well as looking at the spot market because we will use the
spot market as well based upon all things. So that's by far the biggest category.
I think the next thing we've seen that has tightened as we went through the Q1 is related to domestic
freight inbound and outbound and just a pressure from lack of drivers as well as just trying -- everybody is
trying to move freight across the country right now. And so it's putting pressure on drivers as well as you
may not be paying surge rates to get goods moved.
And then the third thing I would tell you that's up from the beginning of the year is the fuel prices have
come up above where our assumptions were at the beginning of the year. Obviously, we saw that spike
during the quarter with a couple of events that took place out there. So those are some of the things just
in general that are driving the rate itself.
And again, as we work through the year, our expectation right now is that the global supply chain will take
pretty much the full year to work through this. And it's -- and that's really within our assumptions as to
what those costs related to that are. If for some reason it breaks loose earlier, that could be a benefit to
us. But that will be -- yet to be seen.
Structurally, I don't know that we believe that there's anything structurally there, specifically for our
business. I think we obviously have to look at the capacity and try to think through that and how we
continue to get ahead of that in our planning.
Michael A. Witynski
Yes. John, just to tail Kevin, I don't believe it's structural at all. I believe it's the downstream implications
of COVID. And then the huge demand and that the industry right now is upside down where the
equipment is. And the delay is still at the ports out on the West Coast and the East Coast. The time that it
takes to unload the ships, the amount of ships that are backed up and the equipment is in the wrong place
and then just the high demand as stores open up that were closed last year and are bringing product in.
So clearly, this is a bubble. It's not structural for us. And we're doing -- we're looking at, like every other
retailer, looking at all other SG&A items. And as you heard Kevin speak to, our shrink is a tailwind, and
that's offsetting these high costs.
We don't have the $289 million in COVID costs from last year. So that's going to offset some of these
costs. And then our teams are navigating the challenge of this, the inflationary challenges and pressures
that we have. And the teams look at the cost of goods and negotiate that. And as you mentioned on the
prices, we will absolutely -- we're going to monitor and maintain the needed price gaps by market. And
we'll keep in mind our customers and our shareholders.
And then just lastly quick. You talked about Dollar Tree Plus!, right, the new iteration driving 2x the sales
lift. Is that more items that you're merchandising? Is it more customers actually buying that product?
What's the driver of the 2x?
Michael A. Witynski
Yes. It's a little bit of both. It's the -- we organized around it, as I shared. We've got a team dedicated to
this. They're driving great value and exciting products. And it is in a few more expanded categories.
And we're bringing it all together. We're just bringing all the things that we've learned through the
iterations as we roll it out. So the sales are strong. The basket is still twice the size. And we've done a lot
of customer intercepts, and it is all very, very favorable and positive. So we like what we're seeing in the
Family Dollar plus -- or Dollar Tree Plus!.
Operator
[Operator Instructions] Our next question comes from Chuck Grom with Gordon Haskett.
Charles P. Grom
Can you guys talk about rising input costs outside of freight? Clearly, concerned with rising inflationary
pressures out there in the market. Over the past 15 years, you guys have done a really good job
managing through those periods. Just wondering if today's different in any way?
Michael A. Witynski
Yes. No, I mean, it's -- we see inflationary cost more than 15, 35 years. Dollar Tree's held a $1 retail price
point over 35 years of inflation. And they've been able to manage it. We've seen oil at $185 a barrel. And
our model gives us great flexibility to change the item, change the mix, drop an item.
And I would say, after 35 years, being the only retailer in 35 years of inflation that hasn't raised the price.
And in those 35 years, you walk our store now, we've got a better product mix. We've got a better value
for our customers and at better margins.
So yes, we're used to managing through these inflations. And we've got all kinds of different levers that
we can pull to do that effectively. And I'm confident in our team. And again, we just finished a great buy,
and we're getting the margins we need. And then you pull the other leverages of markdowns and shrink
and manage it all together.
Charles P. Grom
Okay. Good answer. And then on Family Dollar margin rate, I believe, it was 6.7%. I think that's the best
since you've acquired the company. Just when we look ahead, how sustainable do you think those margin
rates could be, given that you seem to have the arms around the business?
Michael A. Witynski
Yes. I'll let Kevin speak to that after this. But directionally, we absolutely believe we can continue to
expand that bottom line margin at Family Dollar. And it's these initiatives, it's the great strategic format
that we have. We've got the H2 that continues to drive a 10% lift. We got that combo store that drives a
20% lift. So getting more sales per square foot in these stores is important.
Our merchant team is going to keep refining that assortment, better price points, more value. And
expanding that discretionary business is key for us. And that's why -- what's so exciting about Family
Dollar, what they've been able to do, is it's now -- Family Dollar is now a top 10 retailer in discretionary in
the United States. And we've doubled our discretionary share of market in the U.S.
So -- and the team is going to continue to refine this. And yet, we still have a lot of growth on the
seasonal part of it. So yes, we just had the record Valentine's and a record Easter sales at Family Dollar
and the best sell-through ever, but we've got tons of upside. So we absolutely believe that driving our
sales per square foot, driving our store count and our renovations of the H2s will keep the top line going.
Our merchants are absolutely going to keep this mix and margin improvement. And then with the
Chesapeake Media Group that we have going, we'll be able to have stickiness, making real-time offerings
to our customers. So yes, we've got a lot of great initiatives aligned to keep that top line going and then
leveraging it to a better bottom line.
Kevin S. Wampler
And Chuck, just from the, I guess, the absolute numbers side of it, we do believe that these numbers are
sticky, right? And that's our expectation, so as our expectation to continue to improve over time. We have
the headwind of the freight this year, but I mean, all other things are going in a very positive direction,
which gives us the confidence that we can continue to grow our Family Dollar business in a very profitable
way. And with the way we've been moving the discretionary business, which is an important piece of it,
that's what gives us that confidence.
Operator
Our next question comes from Michael Lasser with UBS.
Michael Lasser
The #1 piece of feedback that we've heard this morning is your transportation cost assumption went from
$80 million 90 days ago to something in the range of $210 million to $240 million. Now it's essentially
tripled, recognizing that the gas prices have gone up, the markets remain tight.
But what has changed or what caught you off guard to have such a substantial impact on your profitability
that you didn't anticipate 90 days ago? And as you mentioned, you signed those contracts in April that
kicked in, in May. And now is it that you have to wait until the following May to see those costs come off,
and so your profitability can be impacted by this for a while?
I think what investors want to hear is whether or not 2022 profitability can get -- can be substantially
higher as the imbalance between the demand for transportation and the supply level of the transportation
comes back more imbalanced.
Kevin S. Wampler
Yes. Michael, it's Kevin. From the standpoint, I gave some color, I would tell you that from a contractual
basis, we do sign annual contracts. We do have some multiyear contracts as well. And then the other
piece, to your point, what's different compared to where we were 3 months ago, and as I said, by far, the
biggest component is the import piece of this.
And it's really related to capacity as well as then how much of the spot market we will need to move
product. And the spot market is very dislocated from what contractual rates are at this point in time based
upon demand out there. So that is where we really probably got a little more surprised than maybe we
expected, obviously.
But again, it's -- that will take care of itself over time. Our contracts are our contracts. They do go through
April of next year. But -- so that is the way to think about it. So this will continue a little bit in the first
quarter, but we have higher costs already in Q1 this year. So we'll see. That's a long ways away. And a lot
of things will change between now and then.
Michael Lasser
Okay. My follow-up question is on Dollar Tree Plus! and the combo stores. The combo stores, the way
you've spoken about them with a lot of enthusiasm and also alluding to some financial parameters around
the store that you're seeing big lift to sales and profits on the store. Whereas you're alluding to more
unique financial characteristics around the Dollar Tree Plus! test, where it's just providing a little bit of a lift
or seemingly a bit of a lift to those Dollar Tree Plus! items and providing less of a lift or at least talking less
about a lift to the entire store.
So can you characterize why you're talking about these in different ways? And does it suggest anything
about the long-term potential of Dollar Tree Plus! Because this could presumably be in all of the Dollar
Tree stores, whereas you might only have a few hundred combo stores over time.
Kevin S. Wampler
Yes. So the difference is there are 2 totally different strategic formats. We'll start with the combo store is
going after small town rural America. We've identified -- these are towns of about 3,000 to 4,000 people
that Family Dollar would go into, and we would do okay.
And what we thought is these are towns that Family Dollar wouldn't normally go in. So here we have 2
powerful brands. What if we brought them together into a small town that would meet that customer
needs? And by doing so, we absolutely are getting customers very enthusiastic about it. Our sales are
higher than if it was just a Family Dollar.
So now we're in a small town. There's 3,000 of them. We're going to get to over 100 this year, and we're
going to continue to grow this. And we have the seed points identified on a map. And we're going to keep
growing this rural format. And yes, it's got a better sales per square foot, more productive store. It's a
better margin because you've got Dollar Tree items in there, leading off with what they're known for, on
the seasonal, the party, the celebration, the greeting cards and the home.
And then offset by everyday needs that the customer needs to live their life in rural America with the
discretionary side, decorating their home, dressing up their children and their kids and feeding the family.
So it's a great format. And we're going to continue to grow that in rural America.
Now separate that from DT Plus! which is a Dollar tree format. And what we're trying to do is, we will
always defend that $1 price point. It's the most defensible retail strategy in America. Nobody has been
able to hold a dollar price point for 35 years over all those inflations. And we've got a great assortment
and great excitement. There's great brand recognition.
What we're trying to do is bring in now -- what if we take that same passion and value at $1 and give the
offering of a $3 and $5 item to those customers in home, in party, in seasonal and certainly in the crafting
area, and we're bringing those items to the customer, and they're responding widely. They enjoy it. They
appreciate the value. They recognize it, and it's lifting our sales.
So they're 2 totally different strategies, and they're getting great responses from the customer for
different reasons. And we will continue to grow the Dollar Tree Plus! as we refine and roll this out.
Operator
Our next question comes from Karen Short with Barclays.
Karen Fiona Short

Barclays Bank PLC, Research Division
I just wanted to clarify one thing and then I had a bigger picture question. When you said May was on
plan, can you just clarify what you mean by that at each respective banner? And then I had a bigger
picture question.
Kevin S. Wampler
Yes. May is on plan from how we look at our sales and everything happening in the marketplace. And on a
consolidated basis, we're hitting where we're expecting.
Karen Fiona Short
Okay. And then I guess what I wanted to -- sorry, go on.
Kevin S. Wampler
Yes. I'm sorry. I didn't know was there 2 questions in there, Karen?
Karen Fiona Short
Well, I mean, I guess I'm wondering if you could just give us what plan was specifically at each banner, for
May.
Kevin S. Wampler
Yes. No, we don't -- in the middle of the quarter, we don't share where we're at.
Michael A. Witynski
Karen, we gave -- obviously, our outlook for the consolidated comp sales for the full year. We don't break
it down by quarter at this point.
Karen Fiona Short
Okay. And then I guess what I'm wondering is in terms of the Dollar Tree Plus! banner, it sounds like
maybe you're pushing out -- there may be a little bit of delay in reaching that 500. Probably -- I'm
assuming that's more of a permitting issue.
But I guess the question is what would it take to accelerate Dollar Tree Plus! not necessarily this year, but
increase the number meaningfully in 2022?
Kevin S. Wampler
Well, there's nothing structurally that's going to hold it. Yes, there's nothing structurally that will hold us
back rolling out DT Plus!. What we are going to continue to manage it against is all the projects we have.
We've got 600 new stores, 1,250 H2 renovations, Dollar Tree Plus! and our other various initiatives. So we
will look at this and balance it.
But Karen, there's nothing that -- there's nothing structurally that can hold us back at rolling this out at
the pace that we want.
Regarding this year, really, the delay is more in just the great pull-through. It is selling double our
expectations. So as I shared on March 3, we had already -- in January at our buy trip, we had already
bought for this year. And we're potentially -- we potentially could sell what we bought in 300 stores
instead of rolling out to the 500. So we're just managing that.
And our buyers, our merchants are working hard at chasing product and bringing it in. And we're going
to open these right. I don't want to keep opening stores and not have the great inventory to satisfy that
customer demand. So that's the thing that's kind of driving our cadence right now. But we're absolutely
committed to getting to the 500. We're going to keep buying and chasing the product to feed these
correctly. But we're going to make sure that when we open one, we have the inventory to keep feeding it
and meet that great demand from the customer.
Karen Fiona Short
But sorry, can I just follow-up on that. But presumably, by this -- the end of this year, you will have had 4
buying trips as you look to 2022. So I guess what I'm asking is if you're in -- looking at 2022, what would
internally be the decision factor to not reallocate resources to opening more of the dollar -- or expanding
the Dollar Tree Plus! as opposed to some of the other projects?
Kevin S. Wampler
Yes. Again, just looking at the return. And what return we get on it, what the lift is, what the resources
take. So it would -- as we manage through this year, we'll look at all those things.
Operator
[Operator Instructions] Our next question comes from Peter Keith with Piper Sandler.
Peter Jacob Keith
Piper Sandler & Co., Research Division
I guess I'll just ask a quick follow-up on the last comment. With the Dollar Tree Plus! stores seeing double
the sales lift, what's the total comp lift today versus non-Dollar Tree Plus! stores in a comparable market?
Kevin S. Wampler
Yes. Peter, thanks for the question and clarification. It's not double the lift, it's double the sales we thought
it would do in the $3 and $5 items. It's -- that's why this cadence thing is as it's selling the $3 and $5
multi-price items faster than what we expected. So that's the clarity. And we still see the double the
basket size when this is in there.
The other thing I would share that what we are able to do is now that we've got a broader geographic
view, we're seeing the results from customers at every household economic sector. So we measure our
stores and what the demographics and the household, the salary is in the household income in those
stores.
And it is getting the same response in $30,000 and under $50,000 to $60,000, $70,000 to $80,000 and
even $100,000 and over, we're seeing the same results. So our customers recognize that great value at $3
and $5, and it's working across all geographies right now. So that's really what we can share of.
Basket size is great. It's working across all geographies. And it's doing better than what we thought in the
$3 and $5 items.
Operator
Your next question comes from Edward Kelly with Wells Fargo.
Edward Joseph Kelly
I just wanted to follow-up on freight just one more time. So can you just talk a bit more about how much
of the freight impact you think may ultimately be transitory? And I ask this issue -- this question because
it looks like you expect to earn $6.50 to $6.80 this year in EPS, excluding freight.
If you normalize -- if this is normalized and you see some growth on top of that, I mean, you obviously
have share repo as well. I mean, it's not hard to get your earnings well into the $7 range in '22. So maybe
a better way I said, has your internal thinking on 2022 changed at all on the freight headwind that you've
seen to date? And what's the variable, like the key variable, to there being a flaw in the logic that I just
laid out?
Kevin S. Wampler
Thanks for the question, Ed. I think it's a good question. One of the reasons, obviously, we've returned
to giving guidance for the full year with this release today. And we also obviously gave the information on
what we believe the freight costs are -- what that will be this year. And really, that's to dimensionalize it
for you and all of our shareholders, basically, in the sense of helping them understand.
Again, we don't think it's structural. Again, will there be a piece of it that sticks through next year as well?
We don't know that yet. Obviously, we'll come to those conclusions as we work. But the point being is
we do believe that we've set this great foundation and that the earnings power of both banners and the
company in total is significantly better than what we'll be able to post this year, given this, what we would
call a temporary headwind of this freight.
So again, that was really the way we wanted to frame it for you all, give you that kind of a viewpoint. And
to your point, if it all went away next year, I would not foresee a reason why we couldn't get to $7 as I sit
here today. Obviously, knowing that a lot of things will change between now and next March. But that's
the way we think about it, and that's the way we kind of want to frame it up.
Michael A. Witynski
Yes. And I'd just reiterate what Kevin said. I -- that's why we are very excited about the initiatives that we
have going. We're driving our top line. We're getting great margins. And that's why I stated, I absolutely
believe we've increased the long-term earnings potential for both of these banners to drive that EPS
growth.
And that this -- that freight is -- it's temporary, it's not permanent, and it's due to the tailwinds of COVID
and just the world and container. The ocean freight is just upside down right now, but it will not last
forever.
Edward Joseph Kelly
Mike, can I just ask one follow-up then. So as it pertains to your store growth, you have a lot of irons in
the fire here, multiple formats, opportunities, a lot going on between combo, H2 Plus, core, Canada, et
cetera. Why couldn't you grow stores faster over time? And is that something that's possible when things
settle down and you have more confidence in the outlook of all of this?
Michael A. Witynski
Yes. Absolutely. And remember, the combo store is store growth. I mean when we open a new store, that
will be a combo store in rural America. And as I've shared on March 3, that we have 1,250 H2 remodels
this year. We believe next year, we have about another 1,250. And then we'll pretty much be done with
remodeling the current fleet of Family Dollar.
And then we'll take that capital and all that energy and all of our resources to top line total store growth.
And this year, it's 600. It could go to 700, 750, 800. I mean, absolutely. But right now, we have -- there's
only -- there's over 5,000 projects we have going, but you're right. We move our resources where we
need them. But ultimately, when the remodels get done, we will absolutely point that to total store new
store growth. And the great thing is our balance sheet allows us to do that.
Operator
This concludes today's Q&A session. I would like to now turn the conference back to Mr. Randy Guiler for
closing remarks.
Randy Guiler
Thank you, Stephanie, and thank you for joining us for today's call. Our next earnings conference call to
discuss Q2 results is tentatively scheduled for Thursday, August 26. Thank you, and have a good day.
Operator
Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.
Wednesday, March 03, 2021 2:00 PM GMT
-FQ4 2021- -FQ1 2022- -FY 2021- -FY 2022-
CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS ACTUAL SURPRISE CONSENSUS
EPS
2.12 2.13 0.47 1.35 5.66 5.65 (0.18 %) 6.24
Normalized
Revenue
6783.55 6767.90 (0.23 %) 6375.62 25571.12 25509.30 (0.24 %) 26319.23
(mm)
Currency: USD
Consensus as of Mar-03-2021 1:37 PM GMT
- EPS NORMALIZED -
FQ1 2021 0.84 1.04 23.81 %
FQ2 2021 0.94 1.10 17.02 %
FQ3 2021 1.16 1.39 19.83 %
FQ4 2021 2.12 2.13 0.47 %
Contents
Table of Contents

Presentation .................................................................................. 4
DOLLAR TREE, INC. FQ4 2021 EARNINGS CALL | MAR 03, 2021
Call Participants
EXECUTIVES
Kevin S. Wampler
Michael A. Witynski
Randy Guiler
Relations
ANALYSTS

Research Division

Kelly Ann Bania

BMO Capital Markets Equity
Research
Matthew Robert Boss

Division
Michael Lasser
Division
Paul Trussell
Deutsche Bank AG, Research
Division
Presentation
Operator
Good day and welcome to the Dollar Tree, Inc. fourth quarter earnings conference call. Today's conference
is being recorded.
At this time, I'd like to turn the conference over to Randy Guiler, VP of Investor Relations. Please go
ahead.
Randy Guiler
Thank you, Jordan. Good morning and welcome to our call to discuss Dollar Tree's fourth fiscal quarter and
fiscal year 2020. With me on today's call will be our President and CEO, Mike Witynski; and our CFO, Kevin
Wampler.
Before we begin, I would like to remind everyone that various remarks that we will make about
of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Results might differ
materially from those indicated by these forward-looking statements as a result of various factors included
in our most recent press release, most recent 8-K, 10-Q and annual report, which are on file with the SEC.
We have no obligation to update forward-looking statements, and you should not expect us to do so.
Following our prepared remarks, we will open the call to your questions. [Operator Instructions]
Michael A. Witynski
Thank you, Randy. Good morning, everyone. Thank you for joining me today. What a year. I believe that
from now -- that years from now, many of us will reflect upon 2020 as being one of the most unique,
unpredictable and challenging business environments of our career. My sincerest gratitude goes out
to our 195,000 plus associates working in more than 15,600 Dollar Tree and Family Dollar stores and
in 26 distribution centers and to our field leadership teams as well as our store support team here in
Chesapeake, Virginia. Your commitment and dedication to protect and serve our customers is critical to
our company's success. As an essential retailer in the value segment, we will continue to be part of the
solution for millions of households across North America.
Additionally, I would like to recognize our business partners, both supply chain and suppliers, for their
efforts to support our business throughout the year. In 2020, we exceeded $25 billion in annual sales for
the first time, and we have a long runway of growth ahead of us. As our business grows, so does the need
and support from each of our business partners. We appreciate your continued support.
The recent trends have been encouraging. COVID cases are on the decline, and vaccinations are on the
rise. However, we will continue to be relentless in our efforts to protect each other until this pandemic is
behind us.
I am very pleased with the team's operating performance for the fourth quarter, highlighted by solid
same-store sales increase, improved gross margin and expense leverage. The team delivered EPS increase
of 310% compared to the prior year's quarters or 19% when adjusted for discrete charges in the prior
year. Our results included a 4.9% enterprise comp increase, an 80 basis point improvement in gross profit
margin and a 90 base increase in operating profit margin when compared to the prior year's adjusted
numbers.
Our Dollar Tree segment delivered another quarter of positive same-store sales with a 2.4% increase.
January was the strongest month of the quarter, followed by November. In fact, January was our strongest
monthly comp since April of 2019. December was slightly negative as store traffic was impacted by
an escalation in COVID cases, resulting in expanded lockdowns and significantly fewer holiday social
gatherings among families, companies, churches and schools. As we have seen in the onset of the
pandemic, sales were again driven by average ticket, which increased 17.9% as shoppers continue to
consolidate trips. Comp transaction count declined 13.1%.
We delivered a 36.1% gross margin, and Dollar Tree's operating margin, which included $13.8 million
in COVID-related costs, came in at 16% operating income. Categories performing well included crafts,
seasonal, household products, floral, kitchenware and beauty and eyewear. Building on the continued
success of craft assortment, we completed the rollout of Crafter's Square to all U.S. Dollar Tree stores
in January. Inspiring the creativity of our customers is at the core of Dollar Tree, and we are thrilled
to provide an even broader assortment of art and crafts supplies at tremendous values. With our $1
fixed price point and more than 7,500 U.S. store locations, Crafter's Square presents customers with an
unlimited solutions for current learn-from-home and work-from-home environment.
Additionally, terrific opportunity exist for DIY home projects and decor, crafts for the entire family,
seasonal decorations and handmade gifts. Our shoppers love the expanded assortment, which is validated
by the excitement Crafter's Square is generating across social media platforms, including YouTube and
Instagram.
Regarding our Dollar Tree Plus!, our shoppers love the values, and we exceeded our initial sales plan
for the fourth quarter. We had great sell-through on our seasonal products, on our toys and household
consumables. We are on schedule to kick off the previously announced expansion of Dollar Tree Plus!
this month. We are expanding multi-price assortment from the current base of 120 stores to a total of
500 stores and will be completed by August. Additionally, we are capturing great buying synergies as the
majority of the $3 and $5 merchandise for the DT Plus! will be offered in both banners.
Family Dollar sales highlights for the quarter included an 8.1% comp increase, comprised of a 21.9%
expansion in average ticket, partially offset by 11.3% decline in transaction count. This is similar to the
ticket traffic trip consolidation dynamic we have seen since Q1 of 2020.
Regarding the cadence of comps, all 3 months were positive, with January being the strongest month. As
a reminder, all Family Dollar stores were closed on Christmas Day in 2020, which has impacted December
comp results as approximately 5,600 stores were open for business the previous year.
January was Family Dollar's strongest monthly comp since May of last year. We saw solid sales across
many of the discretionary categories that we have been focused on improving, including home decor,
apparel, household cleaning, lawn and garden, party, beauty care and seasonal.
The consumables side of the business delivered another positive quarterly comp at 6.2%, and the
discretionary comp was a strong 13.5% comp. In Q4, discretionary as a percent of net sales at Family
Dollar increased 120 basis points to 26.2% of sales. Similar to recent quarters, based on third-party
data, our market share in discretionary grew 2x faster than the remaining market in Q4. Late in 2020,
we launched our initial test for produce and frozen needs at select Family Dollar stores, targeting markets
where shoppers have fewer local grocery options. We want to provide shoppers with convenient access to
basic produce items as well as beef, poultry and pork. We plan to expand our test in 2021.
We recently announced the expansion of our new partnership with Instacart platform across the U.S.
Same-day delivery is another example of meeting the evolving needs of Family Dollar shoppers. The initial
results have exceeded our expectations, and we continue to receive very positive feedback from shoppers.
These transactions have materially higher average ticket, and we believe the Instacart platform is enabling
us to broaden our dollar -- our Family Dollar customer base. Interestingly, in the first 3 weeks of the
national rollout, more than 80% of Family Dollar stores had 1 or more Instacart transactions.
As always, our most important scorecards come from our shoppers. We are seeing considerable
improvements in our customer satisfaction survey scores. For Q4, we saw record numbers across each of
the 4 key categories: store cleanliness, product assortment, customer service and speed of checkout. In
fact, each of these categories have shown improvement for 3 consecutive quarters. Contributors to these
-- this success is an enhanced Family Dollar brand strategy program that clearly conveys expectations
and examples to our store teams. And the chains' annual store manager turnover are at the best in over
a decade. The improved customer satisfaction results gives us confidence that we will be able to retain
shoppers that discovered or reengage with Family Dollar during the pandemic.
Regarding Dollar Tree Canada, the team delivered another solid quarter, exceeding its plan for sales, gross
margin and operating income. From a real estate perspective, we completed more than 280 projects,
including 124 new stores, 11 relocations, 106 Family Dollar renovations and 45 store closings. We ended
the year with 15,685 stores.
We accomplished a great deal in 2020. Much of this was made possible by our 2019 initiatives that
really set the stage to gain traction and momentum in 2020 and beyond. To quickly recap, in 2019, we
consolidated our Dollar Tree and Family Dollar store support centers into 1 campus, greatly improving
efficiencies through enhanced communication, collaboration and support. We made tremendous progress
on Family Dollar store optimization initiatives by rebannering 200 stores, closing more than 400 stores and
doubling the pace of our renovation program to more than 1,000 per year.
We also launched our initial test for Dollar Tree Plus!, and we realigned our leadership team to enhance
and align the consistency of communication, strategies, process and workflows. For example, Dollar Tree
and Family Dollar merchants went through 2020 in complete unison for buying calendars, buying trip
meetings, planning dates and category performance reviews. This strength in alignment was very evident
in the success of our recent virtual buying trip in January, which is our biggest buying trip of the year.
These initiatives help build the foundation for 2020 performance.
The progress we have made at Family Dollar in the past despite the pandemic has been remarkable. We
are benefiting from improved store conditions and better execution on initiatives, resulting in market share
gains. We have also seen improved customer satisfaction scores, store turnover and shrink improvements.
I am convinced that Family Dollar will exit the pandemic as a much stronger organization. This progress is
why I'm more enthusiastic about the opportunities in 2021 and beyond, including the expansion of Dollar
Tree Plus! and the growth of our new Combination Stores into small towns across America.
I will go into more detail on our plans for 2021 after Kevin speaks to the Q4 performance and our outlook.
Kevin?
Kevin S. Wampler
Thank you, Mike, and good morning. For the fourth quarter, consolidated net sales increased 7.2% to
$6.77 billion, comprised of $3.71 billion of Dollar Tree and $3.06 billion of Family Dollar. Enterprise same-
store sales increased 4.9% or 5% when adjusted for Canadian currency fluctuations. Comps for Family
Dollar increased 8.1% and Dollar Tree segment increased 2.4%.
Overall, gross profit for the enterprise increased 9.8% to $2.15 billion, and gross margin improved 80
basis points to 31.8%. The gross profit margin for the Dollar Tree segment decreased 10 basis points
to 36.1% when compared to the prior year's quarter. The factors impacting the segment's gross margin
performance include distribution costs increased 40 basis points primarily due to higher payroll costs and
depreciation. This includes the continued ramp-up of the 2 new distribution centers as well as $4.4 million
or 10 basis points of COVID-related expenses primarily premium pay and bonuses. These higher DC costs
as a percentage of net sales were partially offset by a 20 basis point improvement in markdowns and a
5 basis point improvement in shrink. Merchandise costs, including freight, also improved 5 basis points.
Improvements in merchandise mix and markdown were mostly offset by increased freight costs.
Gross profit margin for the Family Dollar segment improved 200 basis points to 26.6% in the fourth
quarter. The year-over-year improvement was due to the following: markdown expense improved 100
basis points due to lower promotional activity and improved sell-through of seasonal merchandise and
apparel; occupancy costs decreased approximately 50 basis points from leverage on the 8.1% comp sales
increase; shrink improved 35 basis points on improved inventory results; distribution costs improved
approximately 15 basis points compared to the prior year quarter; the current year quarter included
approximately $3.2 million or 10 basis points of COVID-related expenses, primarily premium paying
bonuses; and regarding merchandise costs, including freight, improvements in merchandise mix and
markdown were essentially offset by increased freight costs during the quarter.
Consolidated selling, general and administrative expenses improved 540 basis points to 21.7% of net sales
compared to 27.1% in Q4 a year ago. The prior year's quarter included a $313 million noncash pretax
and after-tax goodwill impairment charge, an $18 million charge to the litigation reserve. Excluding these
items from the prior year's quarter, SG&A expenses improved 20 basis points from an adjusted 21.9% of
net sales.
For the fourth quarter, the SG&A rate for the Dollar Tree segment as a percentage of net sales improved
slightly to 20.1% of net sales when compared to the prior year's quarter. Payroll costs improved
approximately 30 basis points and is comprised of the following: payroll expenses increased approximately
$7.2 million or 20 basis points for costs associated with COVID-19-related payroll and bonuses.
Additionally, increased incentive compensation was partially offset by lower health insurance benefits.
Other selling, general and administrative expenses decreased approximately 20 basis points primarily from
reduced travel and lower legal and professional fees. The depreciation cost decreased 10 basis points.
Excluding goodwill impairment and litigation reserve charges from the prior year's quarter, the SG&A rate
for the Family Dollar segment improved approximately 80 basis points to 20.6% compared to an adjusted
21.4% for the fourth quarter of 2019.
Depreciation improved 30 basis points, primarily from leverage on strong comp sales increase. Other
selling, general and administrative expenses decreased by approximately 30 basis points primarily due
to lower advertising and travel costs as a percentage of net sales. Payroll-related expenses improved
approximately 15 basis points, and store facility costs improved approximately 5 basis points, primarily
from leverage on comp sales and lower electricity costs. Corporate and support expenses increased 20
basis points primarily related to higher incentive comp and stock compensation expense compared to the
prior year's quarter.
Operating income improved 173% to $681.6 million compared with $249.4 million in the same period last
year, and operating income margin was 10.1% in the fourth quarter compared to 3.9% in the prior year's
quarter. Excluding the $313 million goodwill impairment and $18 million litigation reserve from the prior
year's quarter, operating income margin improved 90 basis points from the adjusted 9.2%.
Q4 of 2020 included total incremental operating costs of $24.8 million for COVID-19-related expenses.
These incremental costs by segment were $13.8 million for Dollar Tree, $10.6 million for Family Dollar and
$0.4 million for Corporate, Support and Other. Nonoperating expenses totaled $34.2 million, comprised of
net interest expense.
Our effective tax rate was 22.3% compared to 41.3% in the prior year's fourth quarter. The prior year rate
was affected by the noncash goodwill impairment charge that was not tax deductible. Without the goodwill
impairment charge, the tax rate was -- for Q4 2019 would have been 16.6%, which included a reduction
in tax expense of $24.6 million for the reversal of our valuation allowance related to the company's foreign
net operating loss carryforwards.
Company net income of $502.8 million or $2.13 per diluted share, which included $0.08 per diluted share
for COVID-19-related expenses. This compares to a net earnings of $123 million or $0.52 per share in the
prior year's quarter and an adjusted earnings per share of $1.79.
Combined cash and cash equivalents at year-end totaled $1.42 billion compared to $539.2 million at the
end of fiscal 2019. The company paid off the $300 million legacy Family Dollar note during the quarter.
Outstanding debt as of January 30, 2021, was $3.25 billion.
During the quarter, we repurchased approximately 1.83 million shares for $200 million. With the Board
action announced this morning, we now have $2.4 billion authorized for share repurchases. We will
continue to invest in our business and will provide postquarter updates on share repurchase activity.
Inventory for Dollar Tree at year-end declined 5.9% from the same time last year, while selling square
footage increased 3.7%. Inventory per selling square foot decreased 9.2%. Inventory for Family Dollar
at year-end increased 0.5% from the same period last year, while selling square footage increased 1.8%.
Inventory per selling square foot decreased 11.3%. Our inventory levels improved in Q4 and will continue
to be more productive with lower inventory, significantly increasing our inventory turns.
Capital expenditures were $191.8 million in the fourth quarter versus $252.5 million in Q4 last year.
For fiscal 2021, we are planning for consolidated capital expenditures to be approximately $1.2 billion.
Capital expenditures will be focused on 600 new stores and 1,250 Family Dollar H2 renovations. The new
stores will be 400 Dollar Tree stores and 200 Family Dollar stores, including both H2 and combo stores,
formats, based on market locations. The addition of frozen and refrigerated capability to select Dollar
Tree and Family Dollar stores, IT system enhancements and projects, development of our Chesapeake
campus, installation of LED lighting and HVAC and flooring replacements in select stores and the ongoing
construction for the second phase of our new distribution center in Ocala, Florida.
Depreciation and amortization totaled $182.9 million for Q4 compared to $179.1 million in the fourth
quarter last year. And for the year, depreciation expense totaled $686.6 million. For fiscal 2021, we expect
consolidated depreciation and amortization to range from $720 million to $730 million.
Due to a number of variables and uncertainties, we're not providing specific sales and EPS guidance.
These variables include unknowns related to the COVID pandemic and its impact to customer shopping
patterns, timing and magnitude of government stimulus and potential for the timing of changes with
federal minimum wage.
I do want to share some points to assist your modeling for 2021. The February storms have brought snow
and freezing temperatures through Texas and much of the central part of the states, resulting in more
than 5,500 lost store days for closures of Dollar Tree and Family Dollar stores in the areas most impacted.
Stores are now back open and operating, but Q1 sales will be impacted from these closures.
We will be cycling the 2020 onset of the COVID pandemic in 20 -- in Q1. Our business segments were
impacted in different ways a year ago. At Dollar Tree, both sales and gross margin were negatively
impacted by losing discretionary Easter-related seasonal sales. As a result, in Q1 of 2020, the Dollar Tree
segment had a 0.9% comp decrease and a 31.9% gross margin. At Family Dollar, for Q1, we'll be cycling a
15.5% comp increase in the prior year, which will be our toughest quarterly compare for 2021.
We face headwinds for minimum wage and freight costs in 2021. The minimum wage has increased in
certain states and localities and may increase nationally depending on the outcome of future legislation.
The currently scheduled minimum wage increases are estimated to increase store payroll by $45 million to
$50 million in 2021.
We're experiencing some delays in receiving import merchandise as a result of worldwide equipment
shortages and issues with port congestion. As a result of current market conditions, we're seeing
significant increases in cost of import freight and moderate pressure on domestic freight. We currently
project $80 million to $100 million of additional costs in fiscal 2021 as a result of these market conditions.
These costs primarily affect the first 3 quarters of the year as currently projected.
We believe these headwinds will be more than offset by productivity and cost savings initiatives, such as
Crafter's Square, H2 and combo stores, continued focus in shrink and reduced COVID-related costs.
We incurred COVID-related costs of $279 million in 2020 to support our associates, stores and customers.
We will continue to incur costs for COVID activities in 2021 but, we believe, at a materially reduced level.
We've got tailwinds as well. COVID relief checks are anticipated to provide a significant lift. We also expect
that the COVID -- the base customer traffic could return to more normalized levels.
Net interest expense is expected to be approximately $34 million in Q1, approximately $135 million for
fiscal 2021. Our outlook assumes a tax rate of 23.5% for the first quarter and 23.2% for fiscal 2021.
Weighted average diluted share counts are assumed to be 234.5 million shares for Q1 and 234.8 million
shares for the full year. Our outlook does not include any share repurchases. But as noted, we increased
our share repurchase authorization to $2.4 billion.
Over the past several years, the company has reduced its debt from the acquisition by over $5 billion,
returning to a solid investment-grade rating. With our strong flexible balance sheet, we'll be able to
increase store growth and return to share repurchases as an important part of capital allocation going
forward. We'd expect to complete the $2.4 billion share repurchase authorization over the next 2 years or
so.
And I'll now turn the call back over to Mike.

Michael A. Witynski
Thanks, Kevin. Again, I'm extremely proud of the team's efforts for fiscal 2020. For the year, our customer
satisfaction scores are improving, and we are experiencing our lowest store manager turnover rates in
many years.
The team delivered an enterprise comp increase of 6.1%. Gross profit increased by more than $740
million, a 70 basis point improvement. We delivered our SG&A costs, which were flat year-over-year, as a
percent of net sales despite incurring $279 million or 110 basis points in COVID-related costs.
Enterprise operating profit margin improved 70 basis points to 7.4%. The company repurchased 400
million shares and ended the year with more than $1.4 billion in cash on the balance sheet. And we
delivered annual diluted EPS of $5.65.
This morning, we announced our newest and tested concept that is working remarkably well in rural
markets. What we refer to is our combination or combo store format. As I have said in the past, we will
continue to refine strategic store formats designed to serve more customers in all types of geographic
markets while improving store productivity, margins and returns. The Combination Store leverages both
Dollar Tree and Family Dollar brands to serve small towns across the country. The store combines Family
Dollar's great value and assortment with Dollar Tree's thrill of the hunt and $1 price point, creating a
new format targeted for populations ranging from 3,000 to 4,000 people. These are markets where we
traditionally do not open a Dollar Tree store alone.
We opened the first test Combination Store in late 2019, followed by 2 additional test stores in early
2020. Closely analyzing the store performance and customer feedback and utilizing learnings, we refined
the concept. Between July 2020 and calendar year-end, we opened or renovated 32 additional stores.
And currently, we have nearly 50 new stores in small towns like Linden, Alabama, Hogansville, Georgia,
Bovina, New York and dozens of others. Compared to other small market Family Dollar stores, these
Combination Stores are delivering same-store sales lift of greater than 20% on average. Combination
Stores are more productive, delivering higher gross margins and are better leveraging store costs. Our
successful H2 stores and Combination Stores will both be part of the Family Dollar and new store and
renovation strategy moving forward.
We are extremely pleased with our customers' response to the new Combination Store concept. Our goal
is to have formats that leverage the best of Dollar Tree and Family Dollar brands to serve customers in all
types of geographic markets. We believe we can continue to change, evolve and improve.
To really share why we are very excited to introduce this new format, we are providing a 3-minute video,
along with photos, introducing the new Combination Stores at FamilyDollar.com/ComboStores. Please go
check it out.
Our teams worked incredibly hard throughout fiscal 2020. I could not be more proud of our team's
commitment, dedication and focus. We believe our proven strategic store formats and accelerated store
growth plan, 1,250 planned store renovations for the year, several key sales and traffic-driven initiatives,
along with a robust balance sheet, will enable us to deliver long-term value for each of our stakeholders,
our customers, associates, suppliers and shareholders.
Question and Answer

Operator
[Operator Instructions] It looks like we have our first question on the line from Kelly Bania from BMO
Capital.
Kelly Ann Bania
BMO Capital Markets Equity Research
Wanted to ask just first about payroll and the freight costs that you called out. And just if you could help
us understand at a greater level of detail how you're getting to that $45 million to $50 million impact from
payroll and $80 million to $100 million on freight. And I think the comment was that these pressures are
expected to be more than offset by other factors. So just want to make sure I'm understanding -- are you
suggesting that you are expecting EBIT growth in 2021? Or maybe you can just elaborate on that.
Kevin S. Wampler
Sure, Kelly. It's Kevin. Yes. So we wanted to give some color, obviously, as to what's going on. Obviously,
not giving specific guidance given the many variables that are out there right now. The $45 million to $50
million that we spoke to in regards to payroll is very specific. Our operations, labor department looks at
that by state. We know there's approximately 30 states affected this year. We know our labor pool in those
states. We know how many hourly people we have, and we go through a calculation on that.
Now that's no different than any other year. This is just really the first time we've given you a number as
to what it relates to. We have done -- we have faced these same type of increases over the last couple of
years. But this time, we were just trying to put some graphics around it to help people understand the size
of that.
As it relates the freight costs, again, our current projection is roughly $80 million to $100 million, really
fairly comparable across both banners. It is much more import related than domestic related so it's been
probably 75-25, 80-20 as far as import related at this point in time. And that is just based upon current
market conditions that we currently face. As many of you know, we go to market with our freight contract
or import freight contracts in the spring here. These are negotiated in March and April and -- to go live
then in May. So really, a lot has been talked about in the marketplace in general. So I don't think there
should be a lot of surprise around it. And again, we're just trying to give an idea of the size of that.
And then obviously, if we look at the offsets, so obviously, COVID costs in and of themselves last year as
we talked about were $279 million. If we -- even if we said we spent at the same rate we did in Q4, which
is roughly $25 million, we'll spend, obviously, significantly less going into the new year. So I'll let you guys
do the math on that at the end of the day, but those are the puts and takes.
And obviously, it goes beyond that. Obviously, driving sales -- I think we obviously talked this morning
about how we'll continue to drive sales. But also there's other items. When you look at shrink as a
potential good item after maybe a second year in a row after having an upswing a couple of years prior to
that. So some good progress being made there. We're still not where we think we can get to, but really
proud of the teams, the operations teams and the asset protection teams that have been working hard to
mitigate the issue that we've faced there.
Kelly Ann Bania
BMO Capital Markets Equity Research
That's very helpful. And then just wanted to ask, on the Combination Stores, any color you can give us
on the new store economic model, the cost of the stores, the size and sales per square foot and how the
returns maybe compare to the H2s.
Kevin S. Wampler

Yes. So right now, the stores are about 10,500 square feet. So they're slightly bigger than what a normal
Dollar Tree would be. And the -- we like the economics. Our sales are exceeding utilized share -- the comp
sales are 20% or greater on average. And when we're going into a new market, they're performing better
than our expectation of when it was just a Family Dollar as a stand-alone store.
And you can imagine the margins are enhanced because now you've got the mix of Dollar Tree product
in there at $1 price point and in the categories that normally are higher margins. And you're leveraging it
with 1 store manager and 1 store team and delivering 2 brands to a customer and to a small town. And
we like the results.
Operator
[Operator Instructions] We'll take our next question from Joe Feldman with Telsey Advisory Group.
Great. I wanted to ask on freight again. Kevin, as you mentioned, you guys do renegotiate freight every
spring. And I guess, I'm a little confused why you'd be seeing so much pressure, at least in the fourth
quarter. I guess are they allowed to put surcharges on your negotiated rates? Or -- and I understand,
I guess, you're assuming it will be just higher pressure for this year. But maybe you could share a little
more color on that.
Kevin S. Wampler
Sure, Joe. As you look at it, we contract for a certain volume of containers. It's been a big year from
an import standpoint, obviously. And so at some point, if you exceed your volume, you do pay more
potentially based upon on the marketplace. The spot market, and you guys see all the same information
we see, has been up significantly in general. And again, then a part of it is supply and demand. There is
a backup in China, in Asia. And to get goods move in some instances, people are paying more. And it's
not just us. You've heard other retailers over the last 2 weeks speak to it as well. So it's not a Dollar Tree-
specific issue. It's an industry issue.
And our team is working through that and moving our goods. We've been able to keep our seasonal goods
coming in, and feel good about that. But in general, based on where the marketplace is projected to be,
that is our best projection as we sit here today.
Got it. And then a follow-up question. As you think about '21, and I know you're not giving too much detail
on guidance. But I guess, how should we think about the profitability of the 2 different brands? Family
Dollar has been much better. We've seen a lot of improvement there. Should we expect continued greater
improvement within the Family Dollar profitability versus kind of stable at the Dollar Tree business?
Kevin S. Wampler
Well, Joe, I think as we think about it, I mean, we obviously always think there's opportunity in both. Even
if we've made a big leap this year with the Family Dollar operating income going in the right direction, it's
still not where we want it to be ultimately. We've made big strides. And we do believe, obviously, as we
began 2020, we spoke a lot about discretionary business and building that side of the house and us being
a more important player in building that kind of muscle. And obviously, the pandemic helped with that,
but we do believe that we've made strides. And again, I think Mike, in his comments, talked about the fact
that are just -- we're growing twice the market in that piece of business. So that's a great opportunity to
continue to go.
But that doesn't mean we don't think there's other opportunities as well. You look at the -- as we talk
about the combo store, we think that's a great opportunity. We believe there's, at a minimum, 3,000
locations out there where we can play an important role in our customers' lives on a day-to-day basis and
be their place to shop for many, many things. They may not live close to a large metropolitan area. And so
it's a big opportunity as we think about it. So a lot of opportunity there.
I think on the Dollar Tree side, I think, again, we always believe there's opportunity. And Dollar Tree has
evolved over the years, as you well know, in the sense of we always reinvent ourselves. Most recently,
we've talked about Snack Zone. We've talked about our Crafter's Square initiative. And again, some of
these initiatives are traffic driving. Some of these are really margin driving and -- but it's always relevant
to the consumer, and the $1 fixed price point does not go out of style. People love the value it provides.
And now we can add upon that, obviously, taking the Dollar Tree Plus! opportunity, expanding into 500
stores, continuing to learn and build upon that and really be able to take that and benefit both banners by
taking that $3 and $5 product.
Michael A. Witynski
Yes. Joe, this is Mike. I agree with Kevin. I am so excited about 2021. And I absolutely believe there's
growth for both banners. And Kevin hit on them. I'll start with Family Dollar. We are absolutely going to
come out stronger on the backside of the pandemic than on the front side for a lot of reasons. And I think
about what Kevin was speaking to on March 4 of last year, our comp sales in consumables were strong
low single-digit quarter after quarter. And where we needed to focus our energy was on our discretionary
side. And it was a year ago in December that Rick McNeely was assigned to be the lead merchant for both
banners and really leverage synergies where possible and bring disciplines and capabilities to the Family
Dollar team.
So during this pandemic, we didn't just survive through it. We thrived through it and changed our
disciplines and strategies. And we looked at -- in our merchandising, we looked at our basic assortment of
what we're carrying by sharper price points. We got better values. And we're not going to go back to the
old way. We're going to improve upon that. And the pandemic really accelerated our inventory from the
past and really flushed that through last year. And then our new receipts coming in on all the disciplines
that I just got done describing are really selling it at a great mix, stronger sell-throughs, less markdowns
and better turns.
The second thing is our stores. You heard us talk about our customer satisfaction scores across the board
for 3 quarters are improving. We've invested a lot in getting better initiatives and execution in our stores,
and our customers are responding. And we'll have that carrying forward compared to going into the
pandemic.
The fourth thing, as Kevin said, is we've got clear direction now on a format strategy. We've got H2 format
that is continuing to produce 10% comps when we go in and renovate them, and we're going to renovate
another 1,250 of them this year. And then this wonderful new store of a combo store in small towns
that is producing a 20% comp, and so another thing that we didn't have prior to last year going into the
pandemic.
And then our balance sheet as Kevin spoke about. We generate a lot of cash flow. And we've got $1.4
billion on our balance sheet, and that enables us to be very flexible and grow this company like we haven't
grown before because we don't have to pay $1 billion to $1.2 billion every year to pay down the debt. We
can use it flexible to grow this company and grow shareholder value.
And then the last thing I would say on Family Dollar's side is -- and we haven't even been in the digital
and omnichannel business. And you heard us just now dipping our toes into Instagram and we're -- or
Instacart. And the Instacart is just getting a huge response for our customers and it give us a broader --
able to serve a broader segment of this customer with Instacart. So there's another upside with our digital
and omnichannel.
And then you've heard us about Dollar Tree Plus!. We will always grow that business, and we'll find those
categories. And now we have our Crafter's Square in all Dollar Tree -- we just got it done in January. We're
going on a goal this entire year with Crafter's Square. And you've heard us talk about Dollar Tree Plus!. So
we're going to drive that Dollar Tree Plus.
And then Dollar Tree didn't perform that well because of those COVID related -- if you look at our fourth
quarter, our November comps in Dollar Tree were spectacular, and our January was the best in 2 years.
What happened was December lockdown, because of -- the COVID cases increased and spiked at the
highest levels across the country. And you all saw that. And the states, because of that, increased the
lockdowns. People did not go around. And what happens is there wasn't any celebrations. The Dollar Tree
feeds those celebrations in the schools, in the churches, at-home/at-work parties, and all of our party
categories flourish during the first 10 days before Christmas. And it just didn't happen because of COVID.
Outside of that, we had a great quarter with 2.4% comp, which was better than the fourth quarter in
2019, and we had a COVID problem. So we delivered 36 plus margin and a 16% op income at Family
Dollar, and I believe we can beat that next year. So yes, to answer your question, I believe we're going to
have a successful year at both banners for those reasons.
Operator
And we'll take our next question from Paul Trussell with Deutsche Bank.
Paul Trussell
Deutsche Bank AG, Research Division
I guess I wanted to maybe just follow up your comments with maybe some bigger picture questions then
looking beyond 2021. Just curious on -- obviously, 2020 was a pretty unique year, to say the least. So
just curious, as you kind of move and turn the corner here, if you can give some comments on long-term
margin potential as we think about the Dollar Tree and Family Dollar banner, given what's transpiring on
the merchandise front and with all the new formats. What would be the timetable do you think to be able
to navigate all the headwinds and perhaps return to some of the levels we've seen in prior years?
Kevin S. Wampler
Yes. Paul, this is Kevin. I'll start, and I'll let Mike chime in if he has anything. But I guess, I think about it
in a couple of ways. One, one of the words you guys have all heard me use before, and I think it's very
true within our company, is continuous improvement. We go into every year expecting to improve in all
aspects of our business, and whether that's driving sales, reducing costs, being a more efficient company.
And so that's just the way our mindset is. And so while I don't know that I have a timetable to give you
in a sense of certain milestones, as I sit here today, and again, part of that is, obviously, the uncertainty
of what's going on out there in the world with the pandemic. And -- but we would expect continuous
improvement. And I think Mike has shared a lot of that with all of you this morning and the idea.
So we entered the year. The expectation is we're going to improve our operating income for both banners
when we think about it. Whether we can do it with some of the things going on in the world, that's yet to
be seen. But there's a great opportunity. And I think that's the most important thing, is the way we always
want to improve.
Michael A. Witynski
Yes. Paul, I agree with Kevin that we will continuously improve and drive our path on Family Dollar's side.
As you've heard me, we have not arrived yet, and there is upside because we just cycled through our first
year, and we are -- continue to look at our assortment, our allocations and improve upon the products that
we have and price points.
And I think on the Dollar Tree side, we have things ahead of us, just like the tariffs. Once we got it in front
of us, we know how to manage around it. And I would say the short term, the freight thing, once we're
aware of it, we're going to figure out how to mitigate it and grow the margins and grow Dollar Tree. Dollar
Tree, for 14 years, has had a quarter-after-quarter of kind of positive comp store sales growth, except for
first quarter last year, and here we are cycling that right now this year. So yes, I feel very strong that we
can continue to grow both sides.
Paul Trussell
Deutsche Bank AG, Research Division
And this year, you're opening up maybe 600 stores and remodeling like 1,250 Family Dollars or so. Is that,
in your mind, kind of a good go-forward run rate? Or do you see a scenario where you guys may actually
want to accelerate in the future given the different formats and opportunities that you have? And just any
updates on long-term store count potential?
Michael A. Witynski
Yes. I'll comment on it and then flip over to Kevin to add. But from my perspective, we will absolutely --
we're going to continue -- we have 1,250 renovations this year. Next year, we believe there's going to
be another 1,250. But then the great thing about our balance sheet, our capital structure, it enables to
feed the growth as -- and accelerate the growth. So as we wind down the renovations after -- we'll have
about this year and next year, then we can shift to total store growth. And then we've got these formats
ahead of us that we feel very confident in growing. So yes, I would see the -- an acceleration in new store
growth as we wound up or ramp up our 1,250 renovations for the next 2 years, then we'll shift to new
store growth.
Kevin S. Wampler
Yes. Paul, I think to your point, total number of stores, I know the -- I think the most recent numbers
we've given is Dollar Tree, about 10,000 stores and Family Dollar, roughly 15,000 stores. And again, I
think we haven't updated those recently to the Street. It's something that we're looking at. I think part of
what plays into that and will be something we can maybe update in the future is the idea that as stores
continue to evolve, it changes the way we think about what that potential is, right. So as we talk today
about the new combo store, we have to relook at the marketplaces. And as we've said, we think that's
3,000 stores at a minimum at this point in time. And so at some point in the future, we would update that.
But it's a great opportunity. To Mike's point, the balance sheet helps support us in all things growing. And
we're in a great place where obviously there are some retail space being vacated. That second-hand space
has always been a big opportunity for us. And so that's another opportunity that allows us to grow at a
good clip going forward.
Operator
Looks like we have a question on the line from John Heinbockel with Guggenheim Securities.
Mike, why don't we start with sort of strategic impact for the combo, right? So one, do you think it allows
you, given the margin mix, to get sharper if you need to on Family Dollar pricing, number one. And then
secondly, can you take learnings from the combo and put them into nonrural stores that may not overlap
with Dollar Tree? Or are you pretty sensitive to that?
Michael A. Witynski
Like I said, we're continuing to learn and refine on all our formats and do whatever it makes sense to
get the most productive and improve our margins and profitability of the banners that we have. What
I'm really excited about is -- on this format is that these are small towns that we would not go into the
town with a Dollar Tree because the economics just don't support that. And we would go in with a Family
Dollar and what we said is, well, let's go in with the great part of Dollar Tree and bring in the seasonal and
the party and the stationery and the Crafter's Square and all the things that small-town America needs
to celebrate their lives. And then on the Family Dollar side, it helps them live their lives and feed their
families. So this Combination Store is really hitting on all cylinders from us because of the great mix and
the great margin that provides and the overall productivity of the store.
And to your earlier comment, we will continue to look at the categories that do well. And don't forget
that in our H2s, we already have about 20 categories that have the $1 items that we brought into those
categories from the Dollar Tree banner that really helped bring that value program into those stores and
are helping drive the H2 format as well. So we will continue to look at that, John.
And then maybe one follow-up to that, right, because I know you sourced that product. What's the
thought now, right, on the supply chain? And does this push the idea of hybrid DCs versus the one you
now have? Does that accelerate that process?
Michael A. Witynski
Well, we will always -- we are absolutely in a parallel path. To your point, we've got a great DC network,
and we are evolving that with trying to decide which -- what kind of format in our DC we're -- we have a
lot of trucks going by all these towns. So we're going to leverage stem miles and leverage our distribution
network to make sure we're driving the most efficiencies as we feed these formats across the country. But
you're right, that would lend well to Dollar Tree and Family Dollar product riding on the same truck to drive
those efficiencies.
Operator
And we'll take another question from Matthew Boss with JPMorgan.
Matthew Robert Boss
Great. So Mike, at the Dollar Tree banner, fourth quarter, low single-digit comps overall, basically matched
the concept's historical run rate, despite I know there was some volatility in there with December and
January. So as we think about the first quarter relative to the 2% to 3% comp in the fourth quarter, I
guess, overall, any puts and takes to consider? And similarly, for the full year, is any impediments to
driving low single-digit comps in your view for the year at Dollar Tree?
Michael A. Witynski
Yes. Overall, we don't see any structural or counter impediments. I -- last year, at Dollar Tree, Easter, as
you know, did not happen just because it was at the peak of the beginning of COVID. And it did 2 things.
It really impacted our first quarter sales at Dollar Tree and our margin at Dollar Tree because we didn't sell
the high-margin Easter goods.
And then as you look throughout the year, I believe that as the country opens up and people get back to
their routines and occasions start to begin to increase inside the churches and schools and families and
weddings and all those things that are great for Family Dollar business, I see some upside throughout the
year. And then as you just heard, at Christmas, the 10 days or 2 weeks leading to Christmas, because of
COVID, completely shut down in traffic. So yes, I believe there's upside this year for Dollar Tree.
Matthew Robert Boss
That's great. And then just a follow-up on gross margin at the Dollar Tree banner. I guess when we put
together the anniversary of the first quarter headwind, I think you were down 250 basis points plus, and
then we consider the freight headwind that you walked through, how should we think about Dollar Tree
banner gross margin this year versus that 35% to 36% target range?
Kevin S. Wampler
Yes. I think a lot of puts and takes, as always, Matt. And I think, yes, as we've stated the last couple of
quarters that we believe we can return to that 35- to 36-point range.
I think the one development that probably hinders that a little bit here as we go into 2021 is change in
freight that is really a pretty new item to the -- size of that, I guess, is where I will speak to. So again,
I think overall, I think there are things that -- I think our mix continues to be good. I think markdown
will continue to be good. I think, obviously, freight will be the big bad guy there. I think shrink could be
helpful. And I think after a couple of years of distribution costs rising, I think that maybe that could flatten
out just a little bit.
So there's many, many puts and takes, but I don't necessarily see it's getting back to that above 35% in
2021 right now with the freight headwind. That doesn't mean we can't get there, but it's a little bit of an
uphill climb.
Michael A. Witynski
Yes. Matt, this is Mike. What Kevin said is -- what I'm encouraged about is we just finished our January
trip, which is our largest trip that we buy for the back half of the year. And our buyers did it remotely, but
the value of the product, the excitement of the new product coming in for the back half of the year and
the initial markup we're seeing on that product is exactly ahead our expectation.
And then as Kevin said, there's going to be some headwinds, but we'll figure out how to manage that. Just
like we did with tariffs, as long as they're ahead of us and we know what it is, we will manage around that.
And our mix is going to be favorable, too, at Dollar Tree as we -- the Crafter's Square and as we grow
the discretionary side of the business this year, as the country begins to open up, that's the side that will
benefit the most from this. And that's why I'm really excited about it.
As the shrink -- as you know, the last 3 years, shrink has been a headwind at Dollar Tree and Family
Dollar. And last year, we improved it, but we see some continued improvement as that -- in that area as
well to help offset some other pressures.
Matthew Robert Boss
That's great color. So interpretation is just under 35% this year, but you have visibility, given the sourcing
trips and the IMU, that you're seeing to be back in that 35% to 36%, just given the lead times and as the
freight dissipates. Is that kind of the best way to think about it?
Kevin S. Wampler
I guess the way to think about it, Matt, I think we've tried to describe the puts and takes the best we can
at this point in time. It's obviously very fluid, and we'll continue to update you on -- we've tried to be very
transparent this morning on all of these items affecting us, and we'll update you as we go forward.
Operator
And it looks like we have time for one more question from Michael Lasser with UBS.
Michael Lasser
So can you frame out the math a little bit that you provided? That was very helpful. So $279 million of
COVID costs are going to roll off. You'll have $100 million that are going to be ongoing from the $25
million run rate that you provided for the fourth quarter. So that's a net $179 million benefit at the
midpoint of the incremental pressure you're feeling from wages and freight, that $137.5 million. So all
else equal, nothing else happens, your sales are flat, you should have $41 million of additional operating
income simply from a mix of those 2 factors. And as part of that, can we then just kind of model out how
we think sales are going to be and operating income would grow with sales, putting aside that other math?
Kevin S. Wampler
Well, I mean, obviously, the puts and the takes that you talked to there, Michael, those are the numbers.
And again, those are the big ones. There's obviously many things that happen in any given year. We're not
giving specific guidance. I think I've helped as much as I can this morning in every way possible.
But again, I think you're right. The big items, I think -- we think we can offset. Again, there's plenty of
other puts and takes at the end of the day. But we feel relative -- we feel good about our business. We
feel good about where we're going to be in 2021 and the opportunities ahead of us. And I don't know that
I can give you a whole lot more guidance beyond that.
Michael Lasser
Okay. I literally just got several messages that, I guess, to make a counterargument to that math, which
is all of that's true except for Family Dollar is going to be down potentially in the year ahead and will have
to lap some unique benefits. So can you put any frame or reference around how we should think about --
what was unique to Family Dollar in 2019 that's really just not going to repeat? I know that's a big point of
uncertainty, but that seems to be where it lies right now. And then I have one last follow-up on Dollar Tree
Plus!.
Kevin S. Wampler
I mean Family Dollar, I mean, you heard us talk this morning about our initiatives. You heard us talk about
the opportunities that we have with the H2 and the combo stores. You've heard us talk about how we
believe we are truly making a difference in building out our discretionary business and that it's a big -- it's
not just big for sales, it's big for margin. It's big for customer satisfaction, return trips and all the things
that go with that. So I think those are the things that we're working on hard day in and day out.
I don't think anybody can truly project stimulus, how fast the economy will bounce back and all those
things that are going to go into it at the end of the day. So we feel good about where we're at. That's
where we stand today.
Michael A. Witynski
Yes. Mike, well, I just want to reiterate the enthusiasm I have for both banners and where we're at with
our formats, with the strategy that our merchants are working on was cycling last year's pandemic. And
again, our capital structure, we are in the best position we've been in, in 5 years, and we've got a bright
future. And our merchants are going to continue to do the things they do every day and get better, and
we're going to keep growing the company.
Michael Lasser
Yes. And these reasons, very clear from the messaging you're providing. So that's helpful. And then
my last follow-up is on the Dollar Tree Plus! concept. You stated that it's exceeding your plan. What's
holding you back from rolling this out faster than the 500 locations that you're currently in the process
of deploying to? And how does the overall financial performance of the Dollar Tree stores look in terms of
sales, operating income dollars and margin?
Michael A. Witynski

Yes. And again, we're going to -- that's why we're rolling it out to another 500, it's to continue this
test. We had 120 stores, and we bought seasonal items and items for the back half of the year, and we
exceeded the sales that we expected. So our customers are responding favorably. And what I've shared
in the past is we will continue to look at the overall store sales, the overall margin and the profitability of
those stores. And those, we want to see improve.
And the tough thing is, with everything going on last year, with everything I just described with COVID,
it was really hard to lift our head up and say, did the 10% of the store in the DT Plus! really drive those
things that I just described. So we're going to keep testing and refining and rolling this out, but we like
the results we're seeing so far.
Operator
All right. And that concludes today's question-and-answer session. Mr. Randy Guiler, I'd like to turn the
conference back to you for any additional or closing remarks.
Randy Guiler
Okay. Thank you, Jordan, and thank you for joining us for today's call and for your continued interest
in Dollar Tree and Family Dollar. Our next earnings conference call to discuss Q1 results is tentatively
scheduled for Thursday, May 27, 2021. Thank you, and have a good day.
Operator
And this does conclude today's call. Thank you for your participation. You may now disconnect.

DLTR Last 4 Quarters Con Call

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Dollar Tree, Inc.

CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS CONSENSUS

EPS Normalized 0.95 0.96 1.05 1.75 5.56 6.29

Revenue (mm) 6421.16 6417.70 (0.05 %) 7036.57 26262.57 27513.73

CONSENSUS ACTUAL SURPRISE

FQ4 2021 2.12 2.13 0.47 %

FQ1 2022 1.40 1.60 14.29 %

FQ2 2022 1.02 1.23 20.59 %

FQ3 2022 0.95 0.96 1.05 %

Call Participants .................................................................................. 3

Bradley Bingham Thomas

Edward Joseph Kelly

John Edward Heinbockel

Katharine Amanda McShane

Matthew Robert Boss

Michael Efram Kessler

Paul Lawrence Lejuez

And I'll now turn the call back over to Mike.

Question and Answer

President, CEO & Director

CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS CONSENSUS

EPS Normalized 1.02 1.23 20.59 1.24 5.98 6.77

Revenue (mm) 6458.69 6340.00 (1.84 %) 6439.84 26431.32 27742.76

CONSENSUS ACTUAL SURPRISE

FQ3 2021 1.16 1.39 19.83 %

FQ4 2021 2.12 2.13 0.47 %

FQ1 2022 1.40 1.60 14.29 %

FQ2 2022 1.02 1.23 20.59 %

Call Participants .................................................................................. 3

Bradley Bingham Thomas

John Edward Heinbockel

Joseph Isaac Feldman

Katharine Amanda McShane

Matthew Robert Boss

Paul Lawrence Lejuez

And I'll now turn the call back to Mike.

Question and Answer

Call Participants .................................................................................. 3

Question and Answer .................................................................................. 11

Question and Answer

CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS CONSENSUS

EPS Normalized 1.40 1.60 14.29 1.13 6.15 6.97

Revenue (mm) 6430.07 6476.80 0.73 6412.00 26331.00 27598.88

CONSENSUS ACTUAL SURPRISE

FQ2 2021 0.94 1.10 17.02 %

FQ3 2021 1.16 1.39 19.83 %

FQ4 2021 2.12 2.13 0.47 %

FQ1 2022 1.40 1.60 14.29 %

Call Participants .................................................................................. 3

Edward Joseph Kelly

John Edward Heinbockel

Karen Fiona Short

Matthew Robert Boss

Peter Jacob Keith

Robert Scot Ciccarelli

I'll now turn the call back over to Mike.

Question and Answer

Karen Fiona Short

CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS ACTUAL SURPRISE CONSENSUS

CONSENSUS ACTUAL SURPRISE

FQ1 2021 0.84 1.04 23.81 %

FQ2 2021 0.94 1.10 17.02 %

FQ3 2021 1.16 1.39 19.83 %