Q1 2020 Earnings Call

We dedicated the first hour each morning to serve at-risk customers.

We continue to provide store teams with hand sanitizer and cleaning and cleaning supplies for high frequency and handsome cleaning protocols. We close stores at 8 a.m. To provide Associates adequate time for cleaning the store and restocking shelves with the central high demand products. We Supply personal protective equipment including medical face masks and gloves or Associates to wear during their shifts.

We have implemented associate Health screenings to ensure that we are minimizing the potential for exposure. We've installed plexiglass guards at the checklane and all stores our system protecting Shoppers and our cashiers stores are now equipped with contactless payment through tap to pay with Visa Mastercard Apple pay and we are committed to meeting or exceeding all relevant local and state requirements by taking these steps. We have been able to keep all stores open as long Central Business.

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For March we announce our plans 225,000 new Associates a Target, which we have exceeded our stores play a valuable role in the communities we serve and we are dedicated to bulbs customers and being an employee of choice, especially in these critical time of need now to our first quarter performance sales rep 8.2% to 6.2 dollars billion dollars Consolidated same-store sales increased 7% and we delivered in ups at $1.04 a month.

What are the Dollar Tree segments are 90 basis point decline in sales was materially impacted by weakness and party candy and Easter seasonal categories month. We were well prepared for the Easter season with products in stores and set during February following are strong Valentine season has stated in our March 31st visits update Thousand Dollar Tree had a 7.1 cop increase for the first eight weeks of key one that was beginning to see a material or drop off due to traffic and the initial shelters employees as we approached the Easter.

In March seating in the overnight. There was a hyper focus on stocking up. The consumers have concern spread schools church services weddings and birthdays or cancel and widespread stayed home orders were mandated. We saw the material decline of the man from any of the seasonal and discretionary product related to celebrations and charge Gatherings as Gary mentioned the combination of parting category and Easter seasonal product negatively impacted Dollar Tree's q1 comps by approximately 4 a.m. Basis points.

For the quarter the consumables deliver positive 9%, and the discretionary side of the business was down nearly 9%

Prior to the slow down our Valentine's seasonal category, four percent of a strong self categories are performed. Well included household consumables food personal care and crafts. We continue to see great Traction in our stores with the new cracker Square program. We ended the crackers for assortment to more than two thousand five hundred Dollar Tree stores in quarter one. Our customers are responding to the new offerings and the great values.

For the quarter Dollar Tree. Stop transaction was down 11.7% while, average ticket increased 12.2% as consumers in general shopping list, but by more a trend that has been seen across weeks ago.

Interesting our consumables versus the discussion remix through Easter. It was 55% consumables for the period following Easter can quarter-end off balance. And for the first four weeks of cute, too. We've seen the ship to 55% discretionary.

Regarding Family Dollar seven sales highlights for the first quarter of include the team delivered a 15.5% same-store sales increase on top of a 1.9% calm and Q 1 a year ago. This is comprised of a 17.1% increase in average ticket partially offset by a 1.4% decline transaction, The signal strength was brought across geography each Zone delivering a cop increase of 13 to 19% regarding came to the quarter February was slightly positive and having extremely strong large with customers stocking up on consumers as provided in our business update off. All the time was 14.4% through the first eight weeks of the quarter.

The to deliver great results in April with strength and many of our discretionary categories the consumer decided business delivered a 17 + percent, and Direction very top is just under 9%

We continue to be very pleased with the performance over h two stores with cops continue to outperform the chain average by 10 + percent wage state for the Enterprise during the quarter. We completed more than 350 projects including ninety-nine Cent Stores 21 relocations 820 Family Dollar H to Renovations early in the quarter and 14 store closes primarily at the end of the Eastern. We ended the quarter with 15370 stores are very proud of our leaders throughout the organization including our store and field leadership teams are emerging teams are distribution center and supply-chain teams and our store support center. I will now turn it to Kelly to provide more detail on our first quarter performance dead.

Thank you and good morning. Sales for the first quarter increased 8.2% 260.29 dollars billion dollar price of 3.21 billion and $500 and 3.08 Billion Dollar Tree and the price changed our sales increased 7% on a segment basis of a line for you to 15.5% Dollar Tree decreased 5.9% overall goes profits increased 3.9% 1.7. Nine billion dollar gross. Margin is twenty 25% to 29.7% in q1 2019.

Gross profit margin for the Dollar Tree segment increased to Thirty 1.9% compared to 34.5% in the prior quarter factors impacting the segments for a smart TV merchandise cost including sprays increase approximately 140 basis points Dollar Tree saw a 4.2% shift in mixed to lower-margin assumable from higher-margin discretionary emerging values related to the soft Easter selling season and pandemic demand higher costs from the impact of making $18,000 a pair of cost and how your freight costs were partially offset by approved mark on my account cost increased approximately 40 basis points resulting from increased Eagle mark down to the Lower East yourself.

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Cost increased approximately 30 basis points primarily due to higher payroll costs and depreciation DC General cost included approximately 3.5 million dollars or ten basis points an hourly premium pay for both the associates four hours work since March eighth and guaranteed sales promises occupancy costs increased by Thirty basis points. He lost his leverage on the top sales increase in the quarter off the trunk increased from 25.3 to 100 in the car is open an increase in

Profit margin for the Dollar Tree segment improve the sixty basis points to 25.4% during the first quarter year-over-year Improvement would be the following decrease 2105 basis points of Leverage from the top sales increases and the increased expense in the prior-year relates to the acceleration and amortization of right and use a different store closures off and shrimp decreased. Approximately 30 basis points is only increasing to the pro-rated prior-year quarter an improvement or results in the current year.

The benefits were partially offset by merchandising cost including Freight and increased approximately 55 basis points primarily due to 1.6% mix shift to lower-margin consumable. Merchandise is a result of endemic demand and higher freight costs partially offset by. Mitchell mark on distribution cost increase to five fifteen basis points to increase payroll costs. It costs include approximately two point seven million dollars or ten days before it's related to the hourly premium pay for all our ATC Associates for all hours work since March eighth guaranteed. God.

Consolidated selling General and administrative expenses and 4:40 basis points to 22.7% internet sales for the first quarter. The sg&a rate for the Dodge resentment is a percentage of wage increase to 23.7% compared to 21.2% in q1 2019.

This is primarily due to approximately 145 days of points and payroll costs comprise of the Powell store our like payroll increase approximately 120 basis points to the store. I paid for all our Associates in March 8th. The premium paid $30 for the quarter to manage the payroll increase to five fifteen basis points to the loss of Leverage from the decrease in comparable-store that stale and $800,000 Advantage Plus is paid in store sales tax expense increased the price for 10 days this point as a result of two point seven million dollars is guaranteed payout App Store Supply costs increased approximately 10 basis points as a result of the installation of buttons flash cards and incremental costs for p p e z expenses decreased approximately 10 basis points to the postponement of inventory for March 15th through the end of the quarter.

Yes, being a rate for the Family Dollar segment improve the broccoli.

This point the 19.9% compared to twenty 1.6% for the first quarter of 2019 Improvement was primarily due to the leverage. I'm stronger same-store sales rep. They're all expensive improve 65 basis points given by letter from the strong call store. Our premium pays over twenty two point two million dollars in guaranteed bonuses total of 1.6 million months. I can I keep asking for 55 days before its operating expenses decreased by approximately 40 basis points are going primarily from reduced advertising and traveling home sales rep.

depreciation and amortization expense decreased possible ten basis points

this link corporate and support you had service experience with the percentage of sales improved twenty basis points primarily related to leverage on stronger sales in the current year and cycling store support said television cost from the prior-year.

Operating income was $365 for a $9 compared to $385 million in the same period last year operating income and plus 5.8% compared to 6.6% in last year's quarter off the currently recording through the 73.2 million covid-19 related expenses.

Not already expensive point seven million dollars can probably primarily interest expense and our effective tax rate was 23.9% compared with 22.1% in the prior month.

Company had net income of 247.6 million dollars at $1.04 per diluted share which included 73.23 cents per diluted share of incremental operating cost.

Covid-19 related expenses this compares to any other names of 267.9 million dollars for $1.12 per share in the prior quarter.

Buy cash and cash equivalents of quarter-end total 1.7 dollars billion dollar compared to 539.2 million at the end of fiscal 2019 outstanding debt of $24 approximately 4.3 billion which included $759 drawn on our revolving line of credit.

Recorded and increase 4% from the same time last year while selling square footage increased 7.2% decrease 3% off managing the midst of inventory to rebuild the central bills are controlling categories such as party. It's like increase in demand in the first quarter inventory for Family Dollar for and decreased 10.6% of the same period last year, my son's birth would decrease 3.9% based on store closures in the prior-year inventory for selling for 7% off reflect higher than normal out of stock. Once you're in categories are Merchants supply chain and vendors are working diligently to improve our conditions to meet increasing product demand going forward.

Manager or 235.8 million the first quarter vs. 209.2 million Q one last year for fiscal 2020. We ran out Panic or Consolidated Capital expenditures would be approximately $5 compared to original guidance of 1.2 billion.

Changes to our capital expenditure plan. Are we now accept open $500 compared to our original plan of $550?

It would be comprised of $325 and $175 which includes a reduction of twenty-five plants towards the repair due to the covid-19 related suspension of our life to renovation program. We are now planning $750 for fiscal 2020 compared to our original plan of 1250 additionally machine a reduction me flight duration of projects for the year.

Appreciation and navigation so the 165 point five million for q1 compared to one hundred fifty one point two million in the first quarter last year for fiscal 2020. We now expect Consolidated depreciation amortization the range of 670 billion to 680 million while we are not providing sales guys. I do want to provide a few data points for your modeling and Thursday is expected to be approximately $39 million and Q2 and 160 million for fiscal 3020. The tax rate is expected to be 23.2% for the second quarter back two point seven per-cent purchased a 2020.

We'd have to insure accounts or seem to be 238 million share for Q2 and 237.9 million share for the full year.

I reported on March business updated company was due prior to one assistance needed to continue uncertainties. We have limited visibility for a future business Trends which results in a wide range of outcomes were 24 financial performance. We're in a strong financial position or remain confident in our business and ability to drive long-term shareholder value after me a call back. Okay. Thank you Kevin. The current background apartment was obviously not contemplating and playing or business for fiscal 2025 performance in q1 validate that Dollar Tree and family life are important to Shoppers in terms of needs, especially for their daily Essentials.

With more than thirty-eight million Americans filing unemployment claims in just the past nine weeks. We believe families need value and convenience more now than ever before.

We have a resilient business model a very strong balance sheet and experienced leadership team and a tremendous opportunity to consume serving customers with those values inconveniences. I cannot say enough about our store and distribution center teams. They have been up to the challenge and being Nimble and agile and they quit changing work environment off and committed to running a business through an unprecedented time to recognize your efforts will be rewarded are are least or wage premiums going back to March 18th for Frontline Associates and told approximately $95 million dollars to this point $63 billion occurred in the first quarter. They were also like to walk and more than 25,000 new Associates to the organization during the quarter.

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On the books. We finish the quarter strong momentum has carried into our second quarter.

What we are still less than four weeks into the quarter. I am pleased to say at this point at Dollar Tree. We have seen an improvement on the discretionary side of business office. In fact with the exception of the party pay for all this Christian categories are copying positive into two categories performing. Well include crabs kitchenware lawn and garden Hardware toys all performing. Well, we had a strong Mother's Day in school graduation sales crafter Square Lake discuss continues to gain momentum and now he's more and more than three thousand Dollar Tree stores.

And the balloon Britain's which was entered in 2019 by the helium shortage has gone back nicely the car performance at this early stage in the quarter has returned to a level of customer seeing from Dollar Tree and Family Dollar. We believe the current environment with family staying close to home has provided us an opportunity to showcase improvements. You've been working very hard on them recent years for investment in the Family Dollar Store base with our age to Renovations and a key drivers in to accelerate as our Renovations a year ago now with customers and communities leaving us more than ever. We're being introduced into a former. There's a better shopping experience when they need it most

I'm also pleased with the work of emergency in the traction. We are seeing on the discretionary side of the business where customers have moved from all things are essential to more prone to support their at home and Outdoor Living.

Discretionary momentum that we sell late in q1 certainly consumed into the second quarter as well to to is off to a very good start in Family Dollar that said we do expect it to continue to be in extremely volatile consumer environment.

Factors impacting retail will continue to be revolution that the macroeconomic factors including unemployment rates.

Where your ability and vendor Supply chains being able to new product demands?

Well and consumerism and related to the crisis the value and timing of government stimulus the duration degree in Geographic breadth of during birth employees mandates.

Revolving competitive landscape across retail and restaurants and our incremental costs that you're managing the business during the program prices.

We continued focus on making meaningful progress to grow and improve our business for both brings. We believe we are well-positioned to the most attractive sector of retail to deliver them to grow and increase value for our shareholders the combination of more than $15,300 tree and Pentagon stores provides us the opportunity to serve more customers in all types of markets.

Operator we're not ready to take questions.

Thank you. Ladies and gentlemen, if you'd like to signal for a question, please do so by pressing the star key followed by the digit one month to allow your signal to reach our equipment. We ask my questions be limited to one question and one follow-up if necessary so that we may accommodate as many colors as possible.

Don't take our first question from Edward Kelly of Wells Fargo.

Hi guys, good morning. I wanted to ask you about the cop Cadence. Could you talk a little bit more about the trends that you saw on April both leading up in the Easter eggs after Easter? And then what we have seen so far each Banner in the you know, you provided some qualitative commentary curious. If you could provide some more specific color on May and and what you had seen today from a from a calm perspective.

Yeah, this is Gary. Let me characterize at this one. Obviously you on the Dollar Tree sign Easter was the first week of April. So we really saw a fact of the shelter-in-place mandates going in traffic dropped and all the Easter was not on anyone's mind going into the holiday. So the bigger signal impact the Dollar Tree was you know, the Easter eggs all day basically evaporating but most of Easter, you know, traffic will negative moderated and maybe more importantly what we saw people buying also changed too long from the boarding of the centrioles move to some of the other elements of what people were buying around stay-at-home which my children were in school. So it more stationary more back to school towards for kids.

Yeah Family Dollar was maybe a slightly a little different not as big of a holiday effort at for Easter and Family Dollar at least around here East off at the things that impacted the Family Dollar and things like when people grow out is a family celebration. It's a Peril probably describe it the exact same way closed Easter holiday. We saw folks get back into buying more of what they needed around now home living and outdoor celebration that would call it off and with more Folks at home. Obviously, we're experiencing the essentials spiking of both banners. So is it going to mail a while we see, you know some traffic down we see basketball show up and we see the breadth of what folks are buying being expanded Beyond clearly beyond the essentials. So, you know, we like what we see going into a job.

End of April and it's carrying on into May.

Maybe just a follow-up from you know, the margin perspective particularly around the core Dollar Tree Business. This has been a thirty-five thirty-six percent gross margin business for a very long time. You've had some headwinds recently A lot of it seems like it could just be transitory. Is there any reason that they could can't get back to that range? And can you get back there soon meaning wage to Q3, you know at some point this year.

Well, I don't have a crystal ball. It says what's going to happen exactly the macro-environment. There's no reason going through can't get back to 3306 with what we see on how we're selling a short moment even now. I'd like the mixes occurring it at Dollar Tree. The impact said we're experiencing from Coby everything on the supply chain and everything from Holly. It needs to run on the priorities of getting key vendors into the DVDs and not the stores. We're spending extra money buying those value Essentials big huge value that impacts the cost of Afraid coming in and out of our margin as well. And obviously the thing that the current wage wage premiums long-term, there's no reason I don't know that I see it than Q2 or you know in the back half of the year. I I dare make a guess on how the retail will be dead.

Well, what were buying in the value for Dollar Tree? It was great as ever might call down craft and hear the category that really even living Dollar Tree off last year did any extent and you know our customers that welcomed it wildly in the stores that we put it in and that's the nature of Dollar Tree. We we find something we build it off or on the the new thing and that's really the underpinnings of what's going to drive. Margin the things that we got a handle on the expense side. You know, I've always said giving up time will share around the Rocks, but the key to Dollar Tree's magic is keeping the magic of incredible value in front of our customer on the product was selling

Great. Thank you and good luck going forward.

Our next question will come from Goldman Sachs.

I thank you. This is John Ramsey. This is Keith mcshea name. Did you guys talk a little bit more about in terms of you know, sort of them talk to improve for you both feature like, you know, has that continued because he when he starting to have your we're also hearing from you know some customers and I totally suck. Some customers are only getting payments right now. So could you talk about how you're seeing similar from back to business and then is it a parallel to be drawn with chalk talk about it. So do you see you know that kind of thing in terms of you know duration vs. Actually fun. Thank you.

All right.

I'm trying to get you where you're getting a lot of echo on your first question.

Was it around our we're seeing the customers with the stimulus check?

Yes, that is correct. So basically my question is is there a pattern between stimulus checks and tax refunds?

Yes, so yes, we are seeing something back as the stimulus gets released into the market and the tax refunds especially on the Family Dollar side and it's very discouraging some nice momentum in our discretionary side of the business with our home and really and and cold. So we we can see a correlation a stimulus dollars being released and an increase in our basket size.

Got it, and then if I could get a phone number.

I'm sorry, go ahead.

Yeah, we were just wondering what your follow your your second question was. Yes. So in terms of your Global Supply Chain in light of the disruption this year we seen and then you know, which artists just to your are there any efforts to kind of realign sourcing globally? Thank you ma'am started in Asia and then was moved to the US on and so initially when we saw the disruption in each of you know, that was off the short-term effect Factory strike down right after Chinese new I would say, you know that rebounded fairly quickly to the point of being measured a few weeks later on some shipments. That was something that moderated in valve is is not an issue for us on the domestic.

Dog, however spike in demand on domestic Essentials in something that all retailers are chasing and you know varies by lender very wage and anything that's related to cleaning toilet paper paper towels, you know while they're all getting better and we're selling record amount. It's just something that we're probably going to be chasing I think in Virginia and that would guess maybe July with some vendors but it's getting better week by week and we see in our sales office but someone shifted more to the discretionary side now some of the things that folks are buying but our Imports were having to go back and take a look at orders on the inbound and update. So it's a changing shift and dynamic from Brendan started seeing all the way back to the impact to China supply chain birth.

Inevitably and now what people are buying and so I think about it almost moved three stages.

You know how we run our business from where the priorities are.

Great. Thank you so much.

Next question welcome from Michael. Good morning led to questions. The first was on the town of Front. I think initially I'm a discussion of nine $45 million plus of impact in the first half of this year. So I wanted to see if twenty to twenty-five million is probably about right for two q and then on the Kolb expense side, you know, you called out some of the initial labor cost to expect and critique you was hoping to understand if there's additional kind of pp&e safety equipment Runway, you know that we should be factoring in here, you know x one more time going that would be

Cabin, is it relates to the terrorists again to your point? We came here with the fact that terrorists were an incremental forty-seven million dollars this year primarily on the Dollar Tree Side Again part of it is an utilization of lists three at 25% and then obviously wage was four as well and was it called out twenty-five million at that point. I'm being there was a 25mm q one is actually an annualized, you know about 23 million dollars $18 at Dollar thirty-five million dollars in Family Dollar if we look at Q2 again, we do expect roughly. I think it's a little less than what we probably initially expected. It really expected to be around twenty million dollars. I think it may be closer to 15 million part of that is just due to some timing as we continue to work with supply chain and dead.

What comes in when but I do believe it'll be about $15 roughly in in Q2 as it relates to coded and the cost down there again, obviously, we did have significant costs in q1 as we ramped up PPE supplies. And again, we also get off cuz Gary mentioned 60,000 plexiglass shields in our stores, which is probably a bigger cost in the supplies at the end of the day and a very rapid wage order as we go forward. We are expecting again to incur additional Supply costs. If you continue to make sure that our stores have the Samsung TV either need pass gloves and accordingly of to keep them safe and as mandated in many areas as well as additional

Hand sanitizer in our store additional cleaner to for the enhanced cleaning protocols we have on a daily basis in our stores again. It's it's hard to predict what what it will be for Q2, but it will continue forward. And again, that's one of those unknowns and one of the reasons why we can't give guidance going forward cycle on just you know, the biggest Lion's Share of that. Once you get past the initial expenses is obviously the wage premium. Our folks are on a life cycle in advance of each one. We give them our announcement that it's continued right now or we are out to mid-june with our Associates on wage premium package. I can plan around that too. So that's where we are right now.

Thank you.

The next question will come from Paul Trussell, Georgia Bank.

And good execution in a volatile and challenging market place first questions on Family Dollars. Maybe just touch with more detail on what you're seeing there. Should we think that two Q is more or less in line with one Q results. Also. What's the feedback then from Samsung S8 return to the format potentially for some for the first time in a few years and and how you plan to keep those customers. They're all just curious on any updates on the H2 front and how you feel about your inventory and overall merchandise assortment, especially on the discretionary side, which you were planning to kind of change open shoe. Thank you.

Turn on some of the categories, you know, I think Family Dollar's responded maybe even back then we might have got going into what we didn't know what was ahead of us in our customers came in and shouted the store hard because it's when you think about it, it's convenience of dog. Are you in with the early in quick work? We did I think we also got cracked would be unsafe place to shock with all of our protocols installing. I think we are recognized for that month that we saw I think we also sell more folks sign up for our Family Dollar app, which was a very good signal that we've gained some new phone not the first time into the store. So I think early on we got, you know, we folks needed us. I think it is rude to some recognition birth.

Even some of the early work we've done on assortment in having in stocks. Now, I will tell you our supply chain. We're pretty capable on supply chain around the world, but we are stressed out the magic supply chain, like what other folks are Central's and we we send the the essentials to stores every week. They used to last about two hours. I would tell you now. It's probably lasting between a day and a half to 4 days depending on who's getting what amounts but as much as any maybe are folks that have risen to the occasion in their neighborhoods and communities and you know, we can when I just see the amount of the profile thank you said come into our stores. It's anecdotal, but I can only tell you a fact I really cared on the family dog dinner during this time. I think what's interesting are some of the categories sells a lot of like give you some color on that Garry described it as dead.

Oh, you know what first was a huge demand and it was first three weeks. It was very weighted heavily towards the consumer both side and the cleaning.

Products and paper products and Post Easter it shifted until at home or apparel business is very strong soft of housewares home decor toys and hardware and the good news is you ask about our inventory position going into the year. We were very strong in a position and add those categories. So we were able to maintain the good in in stock position for the back half of the first wage order and now we're now we're as very same the good news is we're replenishing those videos. And as you heard from you and on March 4th talk about half a $3. Those are the categories that were going to work really hard on to turn over on our discretionary business with basic products with sharper price points off.

And trying to get it into our stores in in our sets in our age too. And and that's what we're replenishing with now so we built sold through our inventory what we're buying off the changes of our replenishment as you heard from the area to sell and just as fast as we are bring it in so it did losses were chasing that product and it's turning fast and the product that we are both disciplines is turning into customers are reacting to it. I would say one other piece of the pie that we didn't plan on but it's starting to talk show up as in the close of business. We believe there's going to be a lot of value that Family Dollar and Dollar Tree for close-ups going into the the next month of March and the pandemic of fact, but I would say this as we got closed Easter continue to have a dog

Even during this time and it's interesting that you get into the April timeframe. Kosice or are were all age too where we have the most of them out pays the urban location entirely surprising when you think about some of the hotspots affected the urban locations more than so. We're still pleased with the H2. I think just in time, you know, I think back to the 2018 has different prices, but that's about the time Dollar Tree is Dead games u r prototype the way we wanted it. I don't think that's just similar to you know, 1,500 that we have out there that are hoping to travel business now.

That's really helpful color. Thank you. My follow-up is just to give any other comments that you can provide as a relates to our guidance. I know that you're not giving anything specifically but anything else that we should keep in mind as of relates to to Cuba or south of the year on some of the items you've mentioned. We're impact in the first quarter things like the merchandising calls or markdowns and and other pressures.

Yep.

Call Kevin and I think if we think about it, you know, we Gary comments. He he, you know, alluded to the fact that the Dollar Tree Business Knicks have become no recall more normalized. And so obviously I do believe that as we look at you to that can be a positive compared to q1. I think another item to continue to think about is if you look at diesel fuel costs for q1. They were down on average about 12% year-over-year, you know, they started the beginning of Q2 down 25% now for a small piece of of the overall Freight rates, and that's helpful. The other thing I would mention is we began the year with the expectation that we would see increases in our in our import Freight and contractor begins in may we do see the increase may be dead.

I need to see if I think there's a little benefit in the back half related to that as we go forward. So a lot of moving pieces I think you know distribution costs. I think if you look at that, I think they're going to continue to pressure on a building that we group is very high right now as you can imagine if we try to get our inventory as far as essential inventory caught up and along with the normal business. So I think if it could be a little pressure of the Continuum there I think companies working on a lot of things and as always, you know, I think we did a good job of controlling expenses in general in q1, and I think we'll always have a huge Focus to continue to do that as we get to the nearest and yelling year and try to keep that up to your neck Road at a very reasonable point.

Thank you, my best.

And ladies and gentlemen, once again to ask a question, please. Press * 1 month will take the next question from Peter Piper Sandler.

Hi, thanks so much. Everyone commented that Dollar Tree is now running I guess in May and at a level you're accustomed to seeing so the two questions on that is that's kind of an upload single-digit runway for the quarter and then secondly, just thinking about the exposure sort of party and celebrations is Dollar Tree being negatively impacted at this point because they're still fewer get-togethers and potentially fewer celebrations.

Let me answer the second one first Thursday of our customer in just the creativeness that we've seen out. There was a drive-through birthday parties with the Federation. We actually dropped on graduation balloons last month, which I thought was just remarkable for our business. Now the category for us we we put it into you know, our celebration and papers in a celebration is actually doing quite well right now party papers, we called out before the piece dragging on the other hand crafts, you know a category that we didn't talk about a year ago is now a significant category in dollars. The cam is something that customers have responded to and I think it's dead.

Speak to you know families are trying to figure out how to entertain themselves.

With the magic of part that you can buy for a dollar a Dollar Tree and even a Family Dollar employees and some of the humming Central's there to anything kitchen bathroom bedroom Outdoor Living. I mean, I like to put into those pumpkins so, you know, that's how I think about it and then you know, we're really into the quarter. I think what we want to call out on what we see in Dollar Tree was you know, it doesn't seem normal, but it certainly at least in terms of the categories that we are seeing respond wage was a lot more than courting used to, you know, we don't have any huge category that remaining celebrations all of these until they get into the back cap. One leg we go from you know off the outdoor grilling to back to school, whatever that's going to count to be there early fall after restore. You know, we like what we see. We're not dead.

The same kind of impact on the C of my side that we had all focused on one week in April Easter. So I think that also lets her sort of spread our opportunity out there in the store and what we merchandise and what we put on display and I think we're encouraged with is the things that our customers needed them both stores and of body of elevated levels now really Family Dollar starting with the April timeframe, and now it seems like they're dead batteries being back to the normal Cadence.

Okay, thank you for that. I want to ask a separate question maybe asking you and the team to put your Economist have on which I know can be a little bit dangerous but it's on the the federal unemployment benefits fifteen paid out right now of $600 per week that at present time is set to expire at the end of July and obviously no one can predict will happen. But if that were to expire you do that as a little negative to the business and maybe to the spending power of your call customer or or conversely. Does it allow you to pick up some share with your value offering month?

Hey, this is Mike. We think about it as that goes away. We will be in a great position as a value retailer people are unemployed, and they don't have that sort of income. They will need valuable than ever and we should be in a great position to provide that for them. Yeah, it's not it's not 2008 obvious reasons and it's what our customer has right now is money in their pocket. That's that's obviously until 1 for anybody that has bought a 2008 Volkswagen jobs, too, and they needed us and they found those and I think we're paying for is we take over into our crystal ball here at Cafe year and the 21

Okay, sounds great. Thanks a lot and good luck.

Our next question will come from Michael Lasser of UBS.

Good morning, I think about taking my question here what percent of dollars in sales relate to Gathering presumably party is a big piece of it extends all the way across Regional and discretionary as well. Did you say 10% to 20% higher than that?

I could telephone. I mean I would just put on sort of what we see is that we've seen, you know, we just take a look at Easter what was in packages obviously the dog along with that party and Candy was the 490 basis points impact for that holiday. I think it's it's spreads a little more out. Once you get off. I think you know party is where we obviously made it one of our key categories and it's located in to what people can buy right now or something birthday parties are still going on there. Just happening in a different way graduations are still going on is it's happening in a virtual environment gets over there. Now. We're trying to see selling close to the same way through Saturday for the party papers all different like during the to some dead.

And some other things that I think they'll catch up over time. It's just a slower burn like that. It's you know, just take a category like stationary, you know that it means kids are home. It was trying to teach virtually or online and they need school supplies. And so like I mentioned crap but you get in the discretionary line people are still buying now, I think our normal Cadence of like the the new to me that they were saying normal shop Insurance. You know, what we're seeing is they're coming in shopping with intent to buy a soft drink and Candy Bar Lounge they're coming in because they have a need and right now Dollar Tree in Family Dollar and filled up voting for them.

Thank you. And my follow-up is on the Family Dollar gross margin up here earlier, but against the really easy comparison particularly on a two-year basis. So how should we think about the trajectory of the gross? Margin is Family Dollar understanding that next model had some issues in the first quarter of what you're going to take to be able to get this business Acura $26 27% sales. Margin and how how quickly is it realistic to accept like em to happen if you

I think as far as the timeline that part of part of the equation there, I think obviously we're very happy with them, you know where we're headed now to the age to Renovations or a big part of that and just the overall work at the merchant team is doing on the discretionary side of the business also plays a big role in the and again, you know, I think our opportunity here is to get more people in the store show than the assortment of the reabsorbed and you know, get them excited about their Family Dollar store, but they shop and I think so the opportunity is there I think again not a bulb increase volume always helps but I think you know changing our trajectory of mix potentially plays a bigger role. I don't know where all bases. What's no more consumer.

We obviously won't be discretionary category play a bigger role and then there's other things that we have to do a better job like, you know, we've talked about a shrink the last couple of years and it's not where we wanted to be in our Family Dollar stores and we have off work because the team is working hard but it's there's more work to be done there. Even though we saw some improvement in q1. I think if you look at other line items in there, you know, obviously markdowns has been heavy the last couple of years. I think we feel better about that as we get to this year. We talked about in q1 being more markdowns originally when we went into the plan because of the fact that we'd be looking out of discretionary reassortment, but I think we've moved through that, you know the with the sales that we've seen so I think what we have this opportunity and I think the team is working hard to you know, make that consumer realize that it is a new assortment of new mix and I think it would suck.

So I can do that. Can I just clarify one thing one of your competitors reported this morning? And you know that they've seen a moderation in their top trends in recent days off.

I don't think that's something that we do comment on Michael. Thank you very much and good luck to you as soon.

The final question will come from a city.

Hey, thanks guys. I'm curious about Family Dollars. If you have any idea about the number of new customers that may have come in to the network or the past several months and then second just to go back to the Dollar Tree gross. Margin curious. If we take Nick's out of the equation if maybe you can talk about the gross margin within categories relatives themselves on the public places where you're seeing increases and decreases nice.

You got it mentioned, you know any girl ABC from our folks in the field that just tells, you know, they're seeing new customers coming in and coming back and and they get point we do track is on customer feedback that we see both see like that by themselves as new customer and then we can retail basis. We see the number of folks that actually sign up for the first time using the Family Dollar after Spike on these people are looking for a central so, you know that that's doctors in on the game. She wants that we had an opportunity here to showcase our age to start the author just Improvement. We have stored base of dollars. So that's a positive for Dollar Tree on the margin mix. You know, what you think about that. I mean, I guess you are start there. I mean that was the that was the name.

Point of us losing, you know that amount of business on a key holiday in the discretionary business and we're getting that back to normal now and Thursday, if you're asking a question around, you know, like a mix and and mark on well Mark on just fine, you know, we took a look at categories like crap now that are copying outside the box that's going to be at home. So you get back to a more normal mix the markdowns is falling and then the settings point the things down the line that needs attention. We do have to do better on training, you know, we're willing to spend morning on these these right now to get Essentials to our stores. That's probably going to be looking through all these few months to the past and you know, when you're bringing in Essentials that does have an effect on the site that you're paying, you know, basically the same price on Lower value Trail Club.

So wait or paper towels or whatever. It is compared to the normal mix. Those are the sort of near-term in short-term things that like I'm thinking of a different place on mix right now, and we would expect Dollar Tree's close margin to get the help from that. I called down to thank you. Goodnight.

Turn the conference back over to Randy Geisler for any additional or closing remarks.

Thank you, Shannon. Thank you for joining us for today's call especially for your continued interest in Dollar Tree and Family Dollar our next quarterly earnings conference call to discuss Q2 results Thursday schedule for Thursday, August 27th, 2020.

That does conclude you a teleconference. Thank you all for your participation disconnect service.

Yeah.

Yep.