Dollar Tree, Inc. — 2023 Q4

Yes. Great question. And hey, I'd like to throw on the table, Jeff and I talked a little longer than normal. And for those of you that are interested, we'll go past the 9:00 straight up, and give you a little more time for questions.

This is Zach on for Simeon Gutman. Can you provide any additional color on how you're thinking about the comp outlook in '24? Specifically, what are your assumptions for the progression of ticket and traffic throughout the year?

Yes. I mean obviously, our guidance -- we're looking for a strong year, particularly on the Dollar Tree side. And I think as we get into quarter 4, that is our big time of the year in terms of discretionary in Dollar Tree. We believe the initiatives that we're putting in place in Dollar Tree are definitely delivering very positive comp.

Yes. Dollar Tree, the fastest-growing demographic is north of $125,000 a year in income, which brings a lot more firepower to the store, to be honest with you. And I think, quite honestly, I think that attraction is the multi-price point, and the fact that we've been able to increase the variety of product in the store. And I think the interesting thing about Dollar Tree, the lift is pretty universal across all the operating markets. It's not like the Northeast is strong and the West is weak, it's where -- that boat is lifting pretty even all the way up.

If I may add just one additional point. If you think about the Family Dollar segment, one of the things that we're really proud of is that we continue to take market share across units, dollars, traffic. So what we're doing there within this banner is working for us. We have found that we are under a little more pressure with our particular higher penetration in lower income customer segment. But we believe the other merchandising and operating actions that we're taking will allow us to further unlock the value of this remaining portfolio of stores that we have within the Family Dollar brand.

Can you take the first one?

Yes. So on Dollar Tree, for example, on the margin, we're guiding to 36% to 36.5%. That's a combination of a couple of things. One, as we continue to roll out the multi-price offering, that is going to place a little bit of pressure on us from a margin rate perspective, but you're really going to like the dollars that's going to be driving with units.

And the only thing I'd add to that, Chuck, especially on the Dollar Tree side. When input cost goes down, the fact that we have fixed price points allows the Dollar Tree team to reengineer the product and bring a greater value to the table. And that's how that franchise has been built over the years. And so it's $1.25, it might stay $1.25, but it brings more value to the table, to the consumer.

Yes. Great questions. First thing I'll say to you, John, is we will stagger the rollout. I like to spread an initiative over time. That way, it turns into a gift that keeps on giving. So that's kind of our first plan on that.

And then I believe that the last part of the question, if I'm hearing it correctly, is about the timing of doing the replanograming, if you will, of the Plus section. First of all, we don't planogram. So that's an easier part to look at this. But as we think about doing some reconfiguration of the store to bring in the multi-price in line with other products, we're starting to do that this year, and that's the 3,000 stores that we expect to deliver this year.

And our goal, John, is get the multi-price point in the aisle where it belongs rather than being in the center of the store. We think it's more shoppable and the consumer will trade up.

Two great questions. As far as rebannering, we've already looked at a modest number of stores that we intend to do that in. And as we move through the portfolio, we will continue to research that.

Yes, recapturing the sales. I think we feel pretty bullish about that. A lot of these stores that were rationalizing out of the system were built on top of another store. And there is the opportunity for us to take back some cannibalization. And I think it's a matter of time. And of course, we're going to continue to build new stores next year.

I mean, I'll speak to half that question, and let Jeff do the hard part.

Yes. So from a supply chain basis, one of the things we've been very focused on this past year is, not only in stock in the stores, but how we get in stock in the DCs. So working with our supplier partners to make sure that we're getting the merchandise at a timely basis according to the POs that we've placed. We've actually seen some good improvement in that area, which has benefited us ultimately in having our inventories in store at the time that we need to.

And Kate, if I -- I'd like to call out, Mike Kindy, who's been with me for years, he's driving the supply chain now. And again, you raised a very good question.

the inbound service rate, which is getting the right inventory here at the right time; and then the outbound service rate, which is shipping what the stores are drawing. And we've had trouble with that, to be frank, over the years. But again, it's another example of improvements we're making.

I'll let you manage the second part, which is the hard part. The -- what we're seeing is the reason our average ticket is down, I think it's because we're seeing more trips. People are coming more often. I think eventually, that will probably shake itself out, but it's all driven by the frequency of which the customer is coming in.

Just to top that off also, what we've seen is that when a customer has a multi-price item in their basket, their basket many times is as much as 2x the average basket. So as it relates to the variety that we're asked that we're providing, it's definitely giving us a larger basket. But as Rick has said, the additional traffic, people are coming more often and their basket is just on average, lower.

Yes. The way we're looking at this, once again, it depends on the -- your assumption on the penetration of our customer. But as we take a look at what that SNAP customer means for us and how we've been looking at the sort of contribution on a year-over-year basis, that's how we derive the 5%.

Yes. Another really good question. I would look at you and say the initiatives have worked in every store. The problem is the magnitude of the lift. And I think also as we looked at these stores, it was their location, the competitive environment, the quality of the facility, the proximity to the competition. There was many, many, many factors.

Yes. And just to add back, I think actually, Paul had a portion of his question I didn't answer that was on this very topic. Many of these stores were operating unfortunately at a level that the operating loss of these stores was pretty substantial. And even with the lift of some of the initiatives, while we're starting to mute the level of loss, we were still significantly below what we consider to have a reasonable return. Especially when we think about the additional investments that we would want to make in these stores as it relates to store standards, as it relates to just a number of other things, that it just wouldn't be able to carry a return on the additional investment for these stores.

Yes. On the consumables side and Family Dollar, as we have gotten our mix right inside the store in terms of the SKU count, remember, we discontinued 1,000 and added 2,000 for a net of 1,900 and change. We're very pleased with what we're seeing in terms of movement. We've made the consumable mix more relevant. And add to that, the emphasis that we have placed on private brands. And now you have a national brand equivalent item that the consumer can purchase. And I think our consumable mix, to be honest, is the best it's been in Family Dollar, hearkens back to my old days as a grocer.

This is Josh Young on for Scott. Could you guys just clarify what are you going to do with the inventory at the stores slated for closure? So in other words, are there discounts which may boost sales and hurt margins? Or will inventory just be shifted to other stores? And is that all captured in your guidance?

Yes. So first of all, it is captured in our guidance. And the way that we'll do this is, given the announcement of the timing of the store closure, we'll run a series of different discounts to help move through the inventory. Also, as part of the impairment that we've taken, we've also already accounted for an impairment of that value of inventory at some level in order to ultimately realize the sale.

Thank you all very much for your time today, and looking forward to talking to you again in the near future.