Dollar Tree, Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Hello, and welcome to the Dollar Tree Q1 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
Good morning, and thank you for joining us today to discuss Dollar Tree's First Quarter fiscal 2024 results. With me today are Dollar Tree's Chairman and CEO, Rick Dreiling; and CFO, Jeff Davis.
Thanks, Bob. Good morning, and thank you for joining us on our call today. I'd like to begin my remarks today by extending my heartfelt gratitude to members of our Dollar Tree community following the devastating tornado in Marietta, Oklahoma. While the tornado destroyed our Dollar Tree distribution center there, I'm especially thankful that no one was injured in our facility. I am also extremely proud of the resilience displayed by our team members in the aftermath of this tragic event.
Thank you, Rick, and good morning. I will start by discussing our first quarter results, after which I'll provide comments on our Q2 and fiscal 2024 outlook. Where applicable, I will focus on our adjusted results. A reconciliation of non-GAAP adjusted results is provided in our earnings release.
we expect to incur additional operating expenses related to the loss of our Marietta DC. The EPS impact of incremental transportation and other costs is estimated to be approximately $0.10 in Q2 and approximately $0.20 to $0.30 on a full year basis. As more information on the costs associated with this disruption becomes available, we may revisit this outlook in subsequent quarters. The expected impact of freight, shrink, mix, and SNAP on our full year adjusted EPS outlook remains consistent with the expectations we outlined last quarter.
Thanks, Jeff. We are pleased that we delivered first quarter adjusted EPS results towards the high end of our outlook range. At Dollar Tree, we overcame some Easter softness and remain focused on rapidly rolling out our next generation of multi-price stores. At Family Dollar, we are taking the difficult but necessary steps to position the business for long-term prosperity. Change is never easy, and I couldn't be prouder of our 200,000 associates across Dollar Tree and Family Dollar for their ongoing commitment to their communities and the customers that they serve. I am truly honored to lead and be part of 1 of the best teams in retail.
[Operator Instructions] Our first question today is coming from the line of Edward Kelly from Wells Fargo.
So I wanted to start with Dollar Tree. You've maintained the mid-single-digit comp guidance for the year. Q1 was obviously a little bit softer. Can you just help us what underpins the confidence around that?
Yes, sir. I'll take the first part and you can add the second part. The confidence I have in Dollar Tree as we move through the year is the impact of multi-price point. We continue to see trade down customers into that brand. I love the traffic -- and the multi-price stores, Ed, are out-comping the stores that have no multi-price in them, and they're outcomping the stores that have the valley of multi-price.
Just to maybe add a couple more points on the multi-price before going into longer-term profitability. On the multi-price, we mentioned that we had roughly 10% of the stores that have been converted to the in-line conversion. That happened over the course of the first quarter those stores are still ramping up. We will still continue to roll that out for another 2,000 stores in the rest of the year that ramp-up will give us some additional sort of tailwind, if you will.
Our next question is coming from Michael Lasser from UBS.
My question is a 2 parter on the strategic process. If you are not able to sell Family Dollar what is the plan B? And as a way to help us frame what the ongoing earnings power of the business could look like, can you give us a sense of how much the corporate overhead is allocated to Family Dollar and what the dissynergies might be if you were to divest the Family Dollar business.
Michael, thank you for the question. It's too soon in the process for me to say what's going to happen or exactly what all the alternatives are. So I'd like to stay away from that and come back to my original comment that I promised to keep you all updated. In terms of how the corporate overhead is basically, I think in terms of 50-50. I would also look at you and say that the business, the supply chain, merchandising and retail are all pretty much separate. There is some legal, HR, the basic functions are a little intertwined, but the most important pieces are not. Jeff, I don't know if you have anything you want to add to that?
I think that covers it.
Your next question today is coming from Matthew Boss from JPMorgan.
So a couple of questions, 1 near-term, 1 multiyear. So at the Dollar Tree banner, near-term, just thinking about the 2% to 4% comp guidance for the second quarter, what trends have you seen post Easter? Maybe if you can comment on quarter-to-date just to provide some confidence around the 2% to 4% relative to the first quarter.
Yes. A couple of great questions there. Do you want me to take the first question?
Yes, I'll let the first one, I'll take the second one.
So Matt, the guidance that we gave of 2% to 4% comp for the Dollar Tree banner coming out of Q1, we're in line with that guidance that's the reason why we've provided it. As we came out of that Easter period, and we had mentioned in our prepared remarks that in the absence of 8 to 10 day period, we actually pretty much through the course of the quarter, had a comp that was pretty reflective of a mid-single-digit comp -- I'm sorry, a low to mid-single-digit comps. So I think we're still in line with that as we move into Q2.
And in regards to the long-term future of the company, you look at $0.99, the acquisition there totally reflects Matt our commitment to the Dollar Tree franchise and the fact that we think that there are opportunities there to grow the business even more.
Next question is coming from John Heinbockel from Guggenheim Securities.
This is actually Anders Meyer on for John. So I just wanted to touch on the cooler resets. So overall, how have they been progressing? What has been the overall impact to comps? And upon completion, how do you size the sales opportunity with this product?
Yes. I mean the cooler work we're doing is basically on both franchises incredibly pleased with what's going on in the Family Dollar banner. We're pooling the number of cooler doors up to approximately 30. And it is driving incremental sales into the store overall.
Our next question is coming from Simeon Gutman from Morgan Stanley.
I want to ask about Family Dollar, but be respectful if you can't answer, I'll put a second question about Dollar Tree in as well. I wanted to ask if the EBIT that we see in the P&L, I think it's going to get a little bit better. You're going to run rate a little bit better from what the leftover stores look like.
Let's see if I can take a few pieces of that.
And then I'll take the couple.
Some of this, of course, we aren't in a position to share, but I can tell you that as you look at the remaining portfolio of stores, you still have a sort of a distribution of profitability across those stores at a much higher level than what you would have had before we closed the nonperforming stores.
And the 1 thing I would say as you reflect on this announcement is the fact that we have not lost faith in Family Dollar and the progress it's making. The team has done a great job of implementing many initiatives that are designed to drive the long-term growth. What we're wrestling with and trying to figure out is we have 2 different brands at 2 different stages of where they're at in their development.
Next question today is coming from Rupesh Parikh from Oppenheimer.
So just going back to your commentary on multi-price point expansion. We've been in some of your newer locations with the new product. Just any surprises in consumer behavior that you're seeing in store, what type of consumer feedback are you guys seeing with those -- with that expansion?
Yes. A couple of great questions. Our biggest problem with multi-price right now is we can't keep it on the shelf. The consumer is responding to it. The consumer likes it. And I think it's going to be -- I don't think, I believe, truly believe it is going to be a very powerful piece in our ongoing future.
I had just 1 other point. with multi-price, as we're looking at those stores that have had this in-line conversion, the mix of discretionary and consumables is more in line with what we would have seen historically with a heavier balance on discretionary than consumables. So we like that balance in that the multi-price is not only driving consumables, but it's also lifting the discretionary basket also.
Your next question today is coming from Paul Lejuez from Citigroup.
Just a follow-up on that last comment. What is the change that you see in terms of traffic versus ticket in the multi-price converted stores. That's my first follow-up. .
So with -- the first part of the question is, we see traffic increase in the multi-price stores to the tune of about approximately 3%, and we also see the ticket goes up about 55 bps. And again, it's soon. Again, I want to come back to, we're building a new muscle. I would look at you and say, off the top of my head, I'm guessing the old retailer in me. 50% of the stores are probably outperforming our expectation, maybe 25% are right on it and 25% have opportunities.
And look, we're definitely seeing the customer right now buying a little bit more on promotion. And it's not that there is more promotional activity, but what the customer is actually buying is items on promotion.
And I think what's important on the promotion thing is that Jeff is in my office every Monday asking me what's going on in the promotional landscape, we have seen nothing irrational at this time. And I think that's really important.
Next question today is coming from Chuck Grom from Gordon Haskett.
So Rick, on the new multi-price rollout, can you talk about the transition once the third-party specialists have actually done the reset? In other words, what's the risk and you talked about the new discipline that store managers and employees are going to need to acquire post those specialists doing the initial reset.
Yes. Chuck, again, a couple of great questions. First one, I'll take. We have grown up in an environment in this company where everything is the same price point, so it doesn't matter where it goes, and it doesn't matter what the customer does with the product if they decide they don't want it.
And then, Chuck, with respect to the SG&A, margin deleverage, if you will. This is really 3 components. You called out the temporary labor was absolutely the largest component. The second component was higher depreciation and the third component was just sort of deleverage as a result of the lower comp. The 1 thing to recognize with the temp labor in the first stores that we opened up. There's a learning curve as to the -- how to go about it the number of crews that were actually allocated, how working with the store leadership teams.
Our next question today is coming from Seth Sigman from Barclays.
I want to talk about shrink. It hasn't come up a ton. It was a headwind this quarter, but I think that was expected. Just curious how that played out with some of the mitigation efforts, any signs of stabilization given that you didn't change the guidance for that?
Yes, I'll take the shrink question, if that's okay. I think the efforts we've put in place for the first time, I can honestly say the shrink trends that we have, why they still are not good they're not getting away from us anymore. We're definitely tracking in the right direction. But I want to reinforce, shrink is still a problem, but it's not deteriorating like it was last year. We feel very good with the initiatives we've put in place. I also think it's fair to say that we were ahead on the shrink curve that we were calling it out and we were taking steps that people now are taking around us.
Yes, just to put maybe a little bit of finer point on it. Our expectation for the first half of the year was that we were going to have about $0.30 to $0.35 of headwind across shrink and mix and that was predominantly going to be on mix. What we're seeing is that our performance is in line with that. We're actually seeing some slight improvement against it, but we're still early in the year. So as Rick has said, the investments that we were making -- and we did a lot of that on the Family Dollar side. First is a proof of concept and now growing some of those self-help opportunities across the Dollar Tree banner also.
Our next question today is coming from Krisztina Katai from Deutsche Bank.
So I wanted to ask you about the supply chain. You've been making a lot of investments there. You have rotacarts that are making store deliveries now as part of your fleet. Can you talk about what are some of the early benefits that you're seeing so far regarding in-stock availability, inventory turns is it helping reduce shrink and transportation damages? And just how best to think about the overall labor hour savings that you're able to take from the supply chain investments and then reallocate the store hours?
Yes. There's a lot there. Let me see if I can distill it down to just a couple of elements. The first DC that we rolled out was Matthews, North Carolina. It was a Family Dollar DC -- it's 1 in which previously they were delivering to the store off of pallets. So now we're doing it off of rotacarts.
Our next question is coming from Michael Montani from Evercore ISI.
I just wanted to ask kind of 2-part thing. One was there's an improvement implied in the back half for EBIT margin of 100 bps plus versus potentially flattish in the front half. So just wanted to see the top couple of drivers of that, that gives you the conviction for that.
So I'll let you handle the first part of the question. The second part of the question, it's too soon to know that. I'd like to stay away from that for now, if that's appropriate. Go ahead.
And Michael, as we think about sort of the phasing of our overall EPS for the year, I appreciate your question. It really kind of can get bucketed into a couple of areas. From a top line perspective, we talked about multi-pricing the acceleration of that as we continue to roll out the in-line conversions.
Our final question today is coming from Priya Ohri-Gupta from Barclays.
I know it's a bit early in the process, but I was just hoping that perhaps you could talk to us a little bit about how you're thinking about sort of your credit rating with regard possible considerations for Family Dollar? Would the expectation be to try to maintain your existing rating as you consider these various alternatives? Or would it be to at least maintain investment grade.
Yes. So our investment-grade rating is an important element of our overall sort of financial policy, if you will. We believe that it's too early to get out ahead of ourselves as to what a structure may be or the ultimate outcome of the strategic review. But we believe that given the underlying business, the power of the cash flows generated by this business, the growth -- and quite honestly, how we basically execute our capital allocation is all in line with keeping us in an investment-grade level.
We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.
Thank you all for taking your time to talk to us today and look forward to catching up down the road.
Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.