Q2 2020 Dollar Tree Inc Earnings Call

Thank you for calling the conference center. May I?

Thank you, sir. May I have your name, please?

Thank you. And may I have your company name or affiliation?

Thank you. I'll place you in now. Your line will be in a listen-only mode Club teams have done a remarkable job of serving customers through an incredibly Dynamic time in retail.

Their continued efforts to ensure. We are providing a clean safe shopping experience along with great value and convenience our stores offer contributed to our solid operating performance package quarter.

Our team delivered in earnings per share increase of 44.7% compared to Prior Year's quarter these results for the Enterprise will comprise a 7.2% same-store sales increase 180 basis points Improvement and gross profit margin and 130 basis point increase and operating profit margin.

same-store sales increased 11.6% at Family Dollar and 3.1% at Dollar Tree

It's a new day at Family Dollar, you know in early March on our Q4 earnings call and and following our December leadership realignment. I spoke about the challenge and opportunity to turn around discretionary side of the business at Family Dollar. Our focus is on greater values and sharp a price points with an enhanced focus on getting the basic needs of our customers. It's all about sourcing more of the items customers want to buy our team's efforts are paying off as Family Dollar delivery a record 28.9% same-store sales increase in discretionary for the quarter.

Or realign and focus merchandising team is demonstrating how they can be nimble and opportunistic to drive sales loyalty and repeat visits have Family Dollar off examples of this included following on the success. We experience at Dollar Tree we have now completed the rollout of Hallmark branded greeting cards to all Family Dollar stores.

We are capitalizing on great brand name clothes out opportunities, which is relatively new approach at Family Dollar.

We introduced what could be the top toy of the Year baby Yoda and sold tens of thousands in a matter of days.

As of quarter progressed, we saw a shift from kitchenware and tabletop into more home decor and soft home as customers are investing in their homes and spending more time.

Anything related to staying at home such as lawn and garden and an outdoor grilling continues to perform very well.

And I'll let her Peril side. We have had strong sell-through of our spring and summer apparel with a focus on our at-home items like loungewear sleepwear slippers off at leisure children's clothing as well as newborn and onesies.

Family Dollar's 11.6%, reflected the continuation of momentum that we saw in q1 as customers are being on Family Dollar as a convenient safe local office with great values and food Essentials household products cleaning supplies home decor and much much more.

The strong performance and discretionary contributed 390 basis points Improvement in gross margin and operating income margin for Family Dollar in Q2 increased 470 basis points to 5.3%

other Family Dollar sales highlights for the second quarter included the 11.6% same-store sales increase was on top of a 2.4% count in Q2 a year ago.

This was comprised of 25.9% increase in average ticket, which was partially offset by an 11.3% decline in transaction count as customers continue to consolidate shopping trips.

The sales strength was broad-based geographically with each Zone during comp increases between 9 1/2 and 13 and a half percent also both rural and urban fashion stores deliver double-digit comp increases with rural slightly outpacing Urban.

Regarding the kings of cops. Each month increase was greater than 8.5% with May which had the greatest benefits of stimulus being the strongest month of May and June was slightly stronger than July.

While it's still early in Q3 Family Dollars delivering very solid same-store sales despite less government assistance being available than during the prior quarter.

The consumer will side of the business delivered another positive quote of the cop at 6.3% while as previously mentioned. The discretionary cop was a record 28.9% off.

We saw more than a quarter million new signups in our smart coupon program during the quarter bringing a total enrollment to twelve point eight billion customers.

Rh2 stores continue to perform very well delivering you and countless greater than 10% when compared to non renovated stores.

For fiscal 2020 as previously stated we plan to renovate 750 Family Dollar stores while new stores are also being open in the H to format.

Where the Dollar Tree segment Dollar Tree bounced back with a 3.1% same-store sales increase for Q2 following a quarter or Easter Seattle performance was maturely impacted by covid-19 gross margin, which was down 260 basis points year-over-year in q1 was down ten voices basis points for the second quarter. This supposed to Improvement was primarily due to the rebound on the discretionary side of the business following Easter.

Geographically top sales were relatively balanced with increases by Zone ranging from 1.2% to 4.25%

for the quarter discretionary delivered a positive 9% comp and consumables were down approximately 3%

the cop sales for every line of business at Dollar Tree improved from quarter-to-quarter to with the exception of the food category.

Factors impacting food include reduced availability of protein products from periodic plant shutdowns slowed sales of impulse snacks as traffic has declined wage and some vendors are focusing more on larger pack sizes based on demand and their production capacity.

Categories perform well in the quarter include crafts kitchen where household products party celebrations and beauty and I wear off the correct or Square program is a tremendous hit with our customers and is driving repeat visits to our stores our timing with the rolled out of more than 2,400 stores in q1 wage and not have been better the improved performance and the basic craft assortment is also contributing to a lift our seasonal craft business as well.

Before the quarter Dollar Tree's transaction count was down 15.9% while average ticket increased 22.6% as consumers in general have been shopping less than buying more.

Has gotten off to a good start at Dollar Tree as well.

Regarding upcoming Seasons like back to school fall Harvest and Halloween. We are seeing more volatility than usual on the timing of back-to-school sales, but the good news is these are in nine categories and there is minimal markdown risk associated with these items. I view this as similar as the graduation category. The timing of the sales were disrupted but overall category performed very well for us consumers are adapting to their current environment and are still celebrating albeit in smaller groups or celebrating in different ways.

In March, the merchant team took action to make adjustments and Halloween buys and de-risk the category much less focus on traditional trick-or-treating and large Gatherings off and more focused on decorations and costumes. We are seeing very nice Trends regarding the early sales related to fall Harvest and Halloween.

Now regarding Dollar Tree plus our focus on selling Great Value merchandise at price points of $5 and Below. We are continue to analyze learn and make adjustments wage to the program earlier this year. We transition from the initial consumable dominate assortment to more of a wild-type discretionary products that Dollar Tree is known for months.

We recently added Benz to our larger test or through some hot one-time item sells sales these discretionary products and remain strong with good sell-through as customers are responding favorably. We are exciting about the many new multi price discretionary products that we already have on the store shelves for this fall selling season.

We remain encouraged about the potential $4 Plus.

Inventory levels and both are segments were impacted during the quarter as it relates to higher turn consumable categories current environment and related in stock levels on domestic items are approving but the continuation of high customer demand especially on items such as paper towels and cleaning supplies is still outpacing both vendor production capacity off the supply.

In stock levels on certain items are constrained but we do expect to see continued Improvement as we move through the quarter.

Throughout the quarter. We were rewarded are dedicated hourly store and distribution center Associates with premium pay this was in recognition for their extraordinary efforts to protect and serve our customers effectively with enhanced cleaning protocols and other safety measures. We believe these efforts contributed to our solid top-line sales performance during the quarter off the value of convenience of our stores offer is desired and the current environment my customers who are looking to save money while shopping close to home the covid-19 related costs incurred for wage premiums for the front line Associates are guaranteed sales bonuses for field management and the supplies needed for keeping our customers Associates and Facilities Safeco totaled nearly $135 million for the quarter.

Surveys indicate that customers want to shop where they feel comfortable and safe. We have invested in our Associates. I believe this is contributing to enhance loyalty attendance while reducing turnover in our stores.

Overtime lower turnover can lead to improve shuttle experience more efficient store operations and reduce shrink during the quarter went through they rank Dollar Tree and Family Dollar 1st and aggregate of strongly trusted or somewhat trusted ratings of all retailers enforcing safety messages for Shoppers.

additional

as many of you have seen in the news reports more 100 of our stores were impacted in certain communities during the recent periods of civil unrest

yeah, we occurred nearly Seventeen million in cost during the quarter related to store damages repairs and lost inventory.

The majority of the impacted stores have been reopened.

With already our supply chain, we continue to support plan growth and infrastructure and distribution capacity ahead of the need. We recently began shipping from our newest Distribution Center in Rosenberg, Texas and Ocala Florida. These facilities will provide increased capacity and improve efficiencies to support continued profitable store growth and both South Western and Southwestern States. We completed more than 250 real estate projects in the quarter including 131 new stores twenty to age relocations 76 Family Dollar H to Renovations and 26th or closings.

We ended the quarter with 15,000 479 stores. I am very proud of the work our leaders throughout the organization including our store operations and field leadership teams are merchandising group our supply chain teams and our store support center team.

I'll toss it over to Kevin now to provide more detail for the performance.

Thanks, Mike and good morning for the second quarter Consolidated net sales increased 9.4% to 6.28 billion dollars comprised of three point one eight billion dollars in a tree and 3.10 billion at Family Dollar Enterprise. Same-store sales increased 7.2% on a segment basis for Family Dollar increase 11.6% and 4 volt increased 3.1%

Overall gross profit increased 16.2% to 1.9% billion dollars gross margin improved 180 basis points to 30.5% compared to twenty eight point seven. Thank you to have 2019 gross profit. Margin for the Dollar Tree segment decreased approximately 10 basis points to 33.7% when compared to the prior-year quarter wage factors impacting the segments gross margin performance included distribution costs increased 70 basis points primarily due to higher payroll costs and depreciation. This includes start-up expenses of the two new distribution centers that Mike mentioned as well as approximately 6.7 million dollars or Twenty basis points of covid-19 to dispense has primarily premium pay bonuses health screening costs.

Drink increased approximately 15 basis points based on inventory results in an increase in the accrual rate.

Cost increases were partially offset by improved merchandise costs including Freight which improved by approximately 65 basis points Dollar Tree saw an improvement in merchandise mix over freight cost a percentage of sales and improved mark on partially offset by an incremental eight point two million dollars of tariff costs.

I can cost decreased fifteen basis points do to leverage on the cob sales increase in the quarter.

Gross profit margin for the Family Dollar segment improved 390 basis points to 27.2% in the second quarter. The year-over-year Improvement was due to the following merchandising cost including Freight and prove 190 basis points primarily due to improved merchandise mix discretionary sales driven by government assistance and improved assortment comped up 28.9% for the quarter increasing total discretionary sales to 26.2% of the business from 22.9% last year, but additionally the Family Dollar segment had improved markedly lower freight costs as a percentage of net sales partially offset by two point six million dollars of incremental terrorists occupancy cost decreased approximately 95 basis points as a result of leveraging sales increase

Mark down expense improved approximately 85 basis points as we cycled a store optimization markdowns in higher clearance sales from the prior Year's quarter and lower promotional activity in the office by seven million dollars down cost for stores affected by one rest.

Drake decreased approximately 40 basis points based on improved inventory results in the current year and in increasing the accrual rate during the prior-year these benefits were partially offset by wage costs which increased approximately 25 basis points do to increase payroll costs at the these these costs included approximately four point seven million dollars or fifteen basis points of covid-19 has primarily premium paid bonuses and health screening costs.

Consolidated selling General and administrative expenses increased fifty basis points to 24.5% of net sales compared to 24% in Q2 a year ago off for the second quarter. The sg&a rate for the Dollar Tree segment is the percentage of net sales increased to 24% compared to 22.4% in Q2 of 2019 payroll costs increased approximately 175 basis points comprised of the following here will expenses increased approximately $66 or approximately 210 basis points for costs associated with covid-19 and paying bonuses. This increase was partially offset by decreases in workers compensation and benefit costs as well as leverage from the cop sales increase

Other selling General and administrative expenses increased approximately 5 basis points, the company incurred covered costs of 3.5 million dollars or approximately 10 basis points for PPE and cleaning supplies a display general liability claim expense increased based on development partially offset by lower legal and travel costs.

Because decreased approximately 10 basis points primarily do to leverage of the stronger same-store sales and a lower electric costs.

Yes Ian a rate for the Family Dollar segment improved approximately 85 basis points to 21.9% compared to 22.7% for the second quarter of 2019.

operating expenses decreased by approximately 90 basis points primarily due to higher costs in the prior-year related to the disposal of fixed Assets in connection with the store optimization plan and reduce advertising and travel as a permanent sales in the current year as well as leverage from the comparable-store sales increase to our facility costs and improved approximately 25 basis points primarily from Leverage on our sales and lower electric costs and depreciation improved five basis points primarily from Leverage on the cob sales increase

These benefits were partially offset by payroll expenses which increased approximately 40 basis points driven by covid-19 costs of 48.2 million or 155 basis points for premium paying jobs and increased incentive compensation based on a performance.

These increases or partially offset by decreases workers compensation benefit costs and temporary health and letters from Cops sales operating income increased 39.4% to 374.9 million dollars compared with 268.9 million in the same period last year and operating income margin improved 130 basis points to 6% compared to last year second quarter the current year quarter included 134.9 million in covid-19 related expenses and sixteen point eight million dollars in civil unrest cost.

Not operating expenses totaled thirty-five million dollars comprised primarily of net interest expense.

Effective tax rate was 23.1% compared to 21.1% in the prior year second quarter.

The company had net income of 261.5 million dollars or $1.10 per diluted share which included 134.9 million or 44 cents per diluted share of incremental costs for covid-19 related expenses and 16.8 million or five cents per diluted share for civil unrest costs this compared to a net earnings of 180.3 million dollars or 76 are in the prior-year quarter by cash and cash equivalents of quarter-end totaled 1.75 billion dollars compared to 539.2 million at the end of fiscal 2016 company paid down $250 on its revolver during the quarter outstanding debt, as of August 1st, 2020 was approximately four point 1 billion dollars which includes a 100 million dollars drawn on our revolving line of credit.

Inventory for Dollar Tree at quarter-end declined 4.2% from the same time last year while selling square footage increased 4.9% inventory for selling square foot decrease 8.7% The team is actively managing the mix of inventory to build food and essential Goods categories inventory for family dollar quarter and decreased 7% of the same period last year when selling footage increased 6% inventory for selling square foot decreased 7.6% our Family Dollar inventory reflects higher than normal out of stocks and certain care of our Merchants supply chain and vendors continue to work improve our position to meet increased product demands.

Expenditures were two hundred thirty two point five million in the second quarter vs. 293.3 million in Q2 of last year and for fiscal 2020. We continue to expect Consolidated Capital expenditures to be approximately 1 billion dollars depreciation amortization total 168.1 million for Q2 compared to 155.1 million in the second quarter last year off till 2020. We expect Consolidated depreciation and amortization to range from $675 billion to six hundred and eighty million dollars.

Or we are not providing sales and EPS guidance. I do want to provide a few data points for your modeling that interest expense is expected to be approximately $38 in Q3 and $152,000 for fiscal 2020. The tax rate is expected to be 22.4% for the third quarter and 22.6% for fiscal 2020 and weighted average diluted change accounts are soon-to-be 238.3 million shares for Q3 and 238.1 million shares for the full year.

As demonstrated by the significant business Trend changes between q1 and Q2 the environment remains volatile. We have always valued the flexibility of our business model and we continue to adapt as necessary during these uncertain. We have a strong balance sheet and continue to grow the company by investing in new and renovated stores our supply chain and Technology to improve the customer experience remain confident in our business and our building Drive long-term shareholder value not alter the call back over to Mike.

Thanks, Kevin. I could not be more proud of the overall team's performance for the second quarter.

As I stated earlier, it is the new day in Family Dollar Family Dollar delivered a 13.6%, for the first half of the year and operating margin has improved 350 basis points from the first half a year ago. We have seen nice momentum thus far in Q3.

Dollar Tree had a good quarter with sequential Improvement in both sales and margin following a very challenging Q one aside from the food category. We saw a cop Improvement in every line of business in the second quarter.

I believe we are the right spot at the right time. We have a business teams Consolidated into one store support center. Our leadership teams are aligned foam and energized. Our support teams are receiving consistent Direction and are acting with enhanced clarity focus and speed are Merchants teams are doing a tremendous job of adapting and reacting to evolving customer Trends and our store operators are focused on running. Great Clean safe stores.

A Dollar Tree and Family Dollar have a tremendous opportunity to drive sales enhanced gross margins and leverage our cost structure each contributing to operate margin improvements over time.

Are a growth company and the most attractive sector and Retail opening more stores renovating stores and proving our efficiencies generating significant thousand cash flow focusing on our customers and running great businesses. I truly believe the best is still head of us.

Before we go into Q&A. I would like to just share that our thoughts are with all of our families and communities and our Associates that have being with them in are being impacted by Hurricane Laura that is passing through the Louisiana and Texas area right now.

Operator we are now ready to take questions. If you would like to ask them. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to asking one question and one follow-up question again, press * 1 to ask a question to pause for just a moment to allow everyone an opportunity to signal for questions wrong.

first question from Matthew boss with JPMorgan

Great. Thanks, Mike and congrats on the new role. Maybe while early any change in the key areas of focus as we think about Dollar Tree and the Family Dollar banners and Mom specifically, how were you thinking about multi price points at Dollar Tree Where Do We Stand today? And what key metrics are you looking forward to potentially scale this initiative?

Hey Matt, thanks for your interest regarding the multi price point at Dollar Tree. We are very interested in exciting about the opportunity. We're going to especially as we moved into the more discretionary and wow factor that Dollar Trees known for overseeing good response from our customers off as we provide exciting products for them. And we're going to continue to watch it and aren't the key metrics that we're watching going to continue to watch our our our customers responding to a favorably long are we getting more productivity out of that for wall box? So we want sales per square foot to go up and we want to enhance our margins. I mean, those are the three things that will be looked at to determine if it's successful as we continue to enhance it.

I'm I'm ready Family Dollar side. We will continue we think that that 11.7%, is just confirms that our our customers are appreciating the investment were making in rh2, they're responding favorably and Rick in the merchant teams to the eighteen months ago. We took a lot on rolling out the age too on the last six months with with Rick in charge. He's really working on refining that the H2 assortment as you always have continuous Improvement. We're looking at adjacencies SKU count. How do you expand and discretionary side? So while we're rolling out that age to the merchants are working on that continuing Improvement that will get us more sales per square foot and more margin by getting our discretionary mixed stronger.

Right and then Kevin at the Dollar Tree Banner, what's the best way to think about the gross margin headwinds vs. Tailwinds in the back half of the year, maybe relative to the second quarter and then if you think about the 35 to 36% Banner gross margins long-term, but I think you are still very confident with any constraints to getting to that level next Thursday sure that we should think about

thanks for the question that you know, I think if we think about it, obviously we saw, you know things that once out in cute to a little bit and again we saw some nice improvements in our overall Martin again discretionary mix grew in in to and and and balance things back out from where we were in q1 as we looked back back half of the year. You know, I believe we're set up for a a strong discretionary run. I think is Mike mentioned off early on we're seeing, you know, good sales and fall Harvest of Halloween, which we've goes well and will continue to build the build the categories back up on the page on the food essential side, but I look at it in general, you know, I think as we talked about maybe our biggest headwind is we go to the back half as our distribution costs we talked.

Being up 70 basis points in Q2. And again, what we did have in there is start-up costs for two new buildings, which is you know, the first time in a long long time many many years. We've had two buildings opening up with the same time. So there are a lot of start-up costs that go into that and add to that. But again, I think that's that's where the pressure is, you know, shrink is continued to be a little bit stubborn. Um, but you know, I do believe we can get get our arms around that and but so I think really is as I look at it, we if we can draw additional sales. Some more leverage, we feel pretty good about the natural product margin side that commodity side of the business still feel like been pretty good place. You know, our our Buyers Club completed the you know, their July trip in a sense from here in the States, but feel good about the way that trip went and how that will affect us as we continue to age.

Forward so so I think that's kind of how I'm thinking about the the second half and the Dollar Tree segment.

Hey man, just to give you a little color to on your question, but getting to the $35 36% We we absolutely believe we can get to that range that we historically have is Kevin said you liked the mix the can drive us there. And if you really look at our initial mark on from the product and mix perspective. We're in great shape. Our pressure is from the shrink and the DC costs money, you know where it is, and we're going to get after those areas.

Great best of luck.

And we'll take our next question from Michael Lasser with UBS.

Good morning. Thanks a lot for taking my question on a Family Dollar side. First. Why do you think the spread between Family Dollar and its largest competitor in terms of, expanded this quarter versus where it had been in the last several quarters and it's part of that your considerable business was very good at drove gross margin expansion. You could give some of that back and and this is not a realistic gross margin to expect that. We should be modeling moving forward.

Hey Michael, thanks. Thanks for the question. We were very proud of and like our 11.7% growth and especially a record 28.95% growth on the discretionary side. We're seeing that you know on the Family Dollar Side based on the information that we're getting from third parties and internal the week. We captured 15% new customers during the quarter.

Our discretionary market share gains were three times what the market was under discretionary side of the business and with our 250,000 a new signups on our smart coupons. We are getting new customers engaged. So we like our cops sales growth and all the things that are merchants and the Rick Rick mcnealy and the team focus on are the right things. They're responding and that Focus through sharper price points basic items and having with the customers need when they're in our store I think is working.

Okay. Am I follow up is you provided some comments around what you've been seeing early in the third quarter, which is important because there's still a lot of folks who are out of service and you guys provide great value to them, but yet they're unemployed insurance has for their hands benefits of worn out. So you mentioned that Dollar Tree is off to a good start as a cool. If we assume that that business is accelerated from where it was last quarter. Just given that the the you've addressed some of the out of stocks and other issues in the same mobile categories, and should we also assume that Family Dollar is seeing similar Trends to what you report in July. Thank you.

Yeah, we We believe We we'd like the third quarter and we think the third quarter is starting just like we ended the second quarter. We've got strong cop store sales. We like the mix on both sides of the business is Kevin said, you know early indicators on fall and Halloween are strong and we think we're well-positioned for that. We think they should go ahead they they based on what we're seeing on the from the customer since they're spending more time at home. They want to decorate their homes and and invest in their homes more. So Monday, we're seeing those categories. So Halloween may be different but with them spending more time at home, they're going to decorate that home since they're there.

and we're seeing that in our

sales

Okay. Thank you very much and good luck.

Thank you.

We'll take our next question from John with Guggenheim. Let me start with your thoughts on Dollar Tree right in the discretionary business over the next I don't know six six to nine months because you did see an acceleration on trading down as the as the recession took effect. You know, what's what's your outlook when you talk about Dollar Tree in the next couple of quarters and our the merchants doing anything differently in anticipation of some trading down benefits.

Yeah, thanks John for the question. And you know, I think we're well-positioned on with our everybody staying at home right now. Our craft are squared off that are that we rolled out the first quarter of the 2400 stores now and more than three thousand stores. Our customers are responded very very well. So our our Merchants are dead are continuing to read by that and fulfill the the drive and the demand and that category and on the consumable side. We see, you know, every every week in each. We may see the replacement side getting better as a vendor start to drive capacity. So we're we we like the mix of sales going forward and I think we're going to be in a good position in the back of the year and going into next year. Especially when the customers are going to need us most what the unemployment the the extra benefits going away and the unemployment rate where it is dead.

We believe we're in a great position as we were and over eight or nine or ten.

All right, maybe secondly you're talking about the two DCS Dollar Trees. Maybe you thought on where we are in commingling distribution right between the two banners and may I assume those two are going to be Dollar Tree's eccentric only but where do we are? We moving closer to more commingling to try to get distribution costs down or is that a ways away?

Yeah, that's that's a great question as you've seen our costs are are outpacing where we want them to be. So part of that is we we do have a longer-term strategy to leverage. OWN Network. Currently we are we have one cold Banner DC in our st. George Utah, but keep in mind the last two two and a half years every DC that we've said we're opening at with systems and the capability of coal bantering just as we have these two so we are starting out these two because that's where the growth historically is back on the Dollar Tree Side. So we've been feeding that growth but down in the Ocala business and the taxes they are going to be capable of Coban and in that long-term plan, we will be moving to that.

Thank you.

We'll take our next question from Scott ciccarelli with RBC Capital markets.

Good morning, guys got Chuck. Reilly. Can you provide some more color? Just regarding some of the the supply shortages you highlighted especially on that the Dollar Tree side and how you think that inventory flow will change as we get, you know, kind of further through the back half.

Yeah, Scott. Thanks and I would say on both sides. It's on the consumable side. It's really anything to do with paper and cleaning. So specifically paper towels wage people continue to enhance their protocols at home or wherever they're at with cleaning any chemical with a kill claim any hand sanitizer off there is still a lot of pressure on meeting the needs of the customer but we do see, you know, the bath tissue for instance that is starting to improve and Thursday. We can have that tissue on on the shelf for more than just a couple of days. So I I would say throughout the the the back half of the year. We will see improvement in our in stocks and those highly consumable items but we are we have been communicated from vendors that this is a longer-term. There will be pressure on the back half dead.

Year from our manufacturers

like do you guys have an I'm sorry, I'll go ahead I was going to say do you guys have an estimate for what the the potential sales impact was or headwind that you faced during the fourth quarter from these supply shortages?

Yeah, no, we not a top of my head. We we do not.

Okay, great. Thanks a lot guys.

We'll take our next question from Robbie Holmes with Bank of America.

Oh, hey, thanks for taking my question Mike. I was hoping you could give a little more color on you know Dollar Tree and kind of what's going. You know, what what you're seeing there. So the you know, my question would be just you know, the stimulus impact, you know with some things rolling off, you know at the end of the quarter and into this quarter. I know Dollar Tree is a much broader wage income demographics and Family Dollar any anything you're seeing in the type of customer and how they're you know responding is are you seeing some impacts on the stimulus side with the lower-income customers, you know buying less and then you know, the other question is just can you help us, you know for yourselves and for the industry think about this, you know big decline. I think I said 16% decline in transactions at Dollar Tree. Like how are you guys thinking about the transaction comp, you know playing out in the back half and how should we think about that? Thanks God.

Yeah, thanks for your question Robbie. So in Dollar Tree, you know, we we believe that the first half of the quarter and may as we stated was supported by the stimulus and the wage benefit dollars out there, but the great news is as those went away and its customers needed value and convenience and safety. They continue to shop at Dollar Tree Home and Family Dollar. So we we feel good about our cops towards the end of the quarter and going into the third quarter and from the basket and transaction size. We're we are still seeing they are shopping with with a purpose when they come in they are shopping and getting a definitely driven a higher wage. So we we think that will continue as we go into the fall as people, you know, continue to practice social distancing in the safety protocols as they should

In in Micah's other stores, you know came back online cuz you guys obviously were a necessity retailer that's been open. But any any changes I've had to make from a marketing standpoint or any any pressures you've seen on either Family Dollar or Dollar Tree, you know related to to some of these other stores coming back online.

Yeah, we have not seen any noticeable difference as I stated it at Family Dollar are discretionary business as customers came over other competitors opened up. We the market grew and on the discretionary side, but Family Dollar grew three times that so we're we're seeing that as computers are opening up and more stores are opening. We did not see a noticeable difference in our traffic and or basket.

That's great. Thanks so much for that color.

We'll take our next question from with Gordon.

Hey, thanks. My congrats on the new position my questions on Family Dollar. You talked about 15% new customer acquisition. I believe in the quarter. Just wondering if you could just give us that metric for for the 4th quarter and then looking ahead. I'm curious what steps you're taking to retain those Shoppers and cultivate those relationships over the next few quarters and even at the next year.

Yeah, thanks Chuck. I do not have that number for the first quarter. I think we can grab that and Randy can get back to you regarding what we're doing to retain them is a provide a great shopping experience now more than ever all the surveys and what we hear from. Our own customers is safety cleanliness and convenience of getting in and out is very important to them providing them. What our strategy is on that on the consumable side. We want to have the products that are looking for on the shelf and on the discretionary side. Our teams are continuing to work on those Charles price points with great value on basic needs and we think doing those things and providing that when they're in our store will keep retaining them and then along with we like wage the increase of a quarter of a million people signing up for our smart coupons. We think we're going to be able to enable us to speak to those code for those customers and watch what they're buying and and yep.

driving basket size with them

Purchased them at all four years ago. It's been a little bit of a struggle over the past few years, you know, just curious what you think needs to get done not near term, but just bigger picture to fix Family Dollar business to narrow the Gap with with Dollar General to improve margins. Just what what what do you think needs to get done? Thanks.

I think it's a new day in Family Dollar and I think the direction that this team is focused on right now under Rick McNeely and the merchants they are bringing Clarity focused on the right things get in the right products. And I and I think it's evident by retaining more customers and driving and 11.7% count and a 28.9%, discretionary business. So I think those are the right things and I think structurally in our organization we are all in one building now under one leader wage and and and I and I think we've got the right leaders in place that can drive this strategy. So it's it's not only what is your focus in your strategy, but having the right people in place that can drive in a cute that and I'm more confident than ever that we've got the right team on the merchandising and the operations side to execute what we need and I also dead.

at some point and then, you know just bigger picture like, you know, the Dollar Tree Guys.

I think you know as we you know, the two companies coming together the discipline that dollar tree has and buying that wow and and driving that cost of bringing that value in the product. So so embedded in our culture. We've also moved some people so as we look at our structure, we have cross-pollinated some leaders. So we've got a great leader driving our discretionary side of the business that had many many years of experience in Dollar Tree. So it's a combination of all being in one building having a great strategy that our customers are responding to and they're getting the right people in the chairs to execute the work.

expect to look

and we'll take our next question from Paul Trussell with Deutsche Bank.

Good morning. Thank you for taking our question. Wanted to go back to the discussion around even margins. You know, this Courtney has a came with some elevated expenses R. I particularly on the Dollar Tree Side related to labor and and other issues with the stores. If you are comping in the in the three-plus percent range going forward Kevin, how should we think about the ability to leverage overall expenses in the third quarter and second half and just thinking about how to think about that go for it out of the business and ability to really flow down to the bottom line.

Okay. Thanks Paul. Yeah, I think obviously to your point if you you know, obviously we have invested in our Associates around safety package and premium pay and you know, obviously from the standpoint we do believe it's it's made a difference between as as Mike mentioned in his comments attendance office over various things that we think helps help us run a a better store and you know, hopefully keep people coming back even though you know traffic doesn't really show off your, you know, it was really pretty stubborn in that 15% negative on the Dollar Tree Side Sansa costs. Obviously operating income would have been up it would have been up as we go into Q3, you know, we put an 8K out a few weeks ago that premium pay would wage.

you for the

For four weeks of all, I guess just cost of about 18 million dollars and you know, basically that's you know less than it was so we haven't lowered What premium package it is in our 10-q that was filed this morning. We noted that that premium pay will continue additional four weeks. And you know, I think realistically for a modeling you you should assume that it would be in place for the 13 weeks of the quarter of Q3.

You know it again they were going to also continue also have expenses like anybody else for me and and cleaning and sanitizing supplies. So that being said it will be a headwind wage. It will be hard for you know, I don't necessarily expect that Dollar Tree will show a prudent year-over-year in operating income or eat it in Q3 because of that. So, you know, we made that decision as a company that it makes all the sense in the world to reward these front-line workers and and go through that now it will not last forever. And so these costs at some time at some point in time will fall away get into next year, you know, you can expect these costs. I would think to fall away to a certain degree maybe not a hundred percent because I'm sure we're going to still have a cleaning protocols and very dead.

But because of that that'll be that'll be the head but I think if you look at the other operating lines, I mean I think sg&a has been well-controlled. Otherwise, I think we're on the right track with getting our gross profit, you know back to levels that we believe are where we should be and driving that back to that thirty five or 36% range. So I think long-term the prognosis is is very very good. But obviously we have these one-time cost currently and realistically, you know, what we don't know another thing that's going to happen to Q3. I would expect there's going to be coughing related to the hurricane at the end of the day that we can't, you know, put our arms around today, but obviously we'd have many stores in the path of that storm and I would expect that they'll be some damage and some dollars that will affect your life as well that we you know, we can't speak to you know beyond the fact that they'll be so when we when we report in November

Thank you, and just wanted to also ask about your cash priorities and involved process. You know, you do have an elevated amount of cash on the balance sheet today versus usual levels this time of the year, you know, although some of that is related to what's drawn, you know on the revolver. Just just help us think about you know, what how you thinking about leverage, you know store openings and remodels and you know share repurchases, which I think has bought out a year since you've been engaged in that.

Yes, so obviously it's your point. We did preemptively draw on the revolver of in q1 with the uncertainty of of the pandemic. We've paid back of that 750 million draw, you know, so at some point in time will will pay that five hundred million dollars back as well. The other thing we had to uh, February 1st of June twenty Twenty-One, the three hundred million dollar Legacy Family Dollar notes come to So the plan would be to extinguish those notes at that point in time. That being said. We'll see if she's still, you know, have a nice cash position even with that. Obviously, we always want to support our growth and to continue to grow the growth through the new stores Renovations month supply chain technology like spoke to so those those things will continue. We do have a share repurchase plan authorization out there. We have eight hundred million dollars authorized outstanding as we sit here. Obviously we've yep.

Put the brakes on that with the pandemic but as we as you know things settle they got there's obviously some uncertainty as we go to the back path. Will there be a rebound in off in the pandemic is we can get into the fall and the and the flu season that comes with winter so we can keep our eye on those type of things and make some decisions as we as Thursday through the new year.

expensive lot

And we'll take our next question from Kelley Benya with BMO capital.

Hi, good morning. Thanks for fitting me in to the questions one or two just to go back a little bit to H to remodels that sounds like from a top-line perspective. They continue to perform. Well wondering if you could expand a little bit more on the margin performance. You're seeing their relative to the to the other stores. And is there any opportunity to kind of re accelerate the car models there or is there any logistical headwinds in in in accelerating that maybe you can just touch on that a little bit? Thank you.

Yeah, Kelly. Thanks. I'll throw it to Kevin for the margin but from a perspective accelerating. So we're we're trying to do as many as we can given the the current environment of travel restrictions and coal-bed restrictions in the state. So we've we're going to do 750 but absolutely is as soon as the states opened up in the locations and it's 6 and we can get our third parties and our teams in there to do the remodels. We will absolutely open that back up and accelerate that it's bigger to the margins of life, you know, obviously as you look at the H to model this in various components, right? So you have additional freezers and coolers, which is lower. Margin Goods more impulse slash media consumption, which is a little bit higher margin and then obviously an emphasis on season one of the things, you know, Mike spoke to Jeff.

Team really looking and continuing to improve that overall model looking at the space. We dedicated to discretionary and how do we you know provide a probably even better off Canary assortment and relevant assortment within that box, but we like overall obviously get a nice sales lift. We get a nice overall drive that you know driving more profit dollars at the end of the day and obviously it is Our intention to drive a higher overall rate of profitability out of those stores. And and we obviously are seeing Thursday. We think there's even more we can do with it.

Next question and we'll take our last question from Karen short with Barclays.

Hi, thanks very much. Just a couple of questions on so you did call out that 18 million that will continue that we should assume continues for the whole quarter am wondering if that also applies to the 4.5 million and manager bonuses. Should we assume that that's in place with a quarter and then wondering if you could give the split between the Dollar Tree and the Family Dollar Banner on those two components.

And then I had one other follow-up. Okay, you know from an overall standpoint from a banner perspective the Dollar Tree down payment incurred seventy six point six million dollars in cute too and Family Dollar incurred 57.1 and again the vast majority of that being off payroll costs at the end and between and and mainly stores but obviously there's a component there DC's which we broke out within the detail we gave you earlier today. So you have that piece of it as far as the four point five million dollars of manager bonuses that does not continue necessarily directly those were way above and beyond and as we go forward that is probably not take place, but it's very fluid situation. So it's it's always open for Thursday.

Change but at this point we do not expect that to necessarily continue.

But take the 18 million and allocate at the same way between a 76 and the 57.1 that we saw three of them. Yeah, I think that's reasonable because what you have to remember is we just we have an a larger hourly Workforce wage population in the Dollar Tree Banner. Then the Family Dollar banner and then I guess I'm still not totally clear what the message would be on the take-away on family life in the current quarter. I know you said it's still solid. So should we assume that they are continuing at the level that we saw for the entire quarter in 2 Q or too soon to tell or I mean just curious if you can be a little more clear on I think Karen's you think about it. So I think within the prepared remarks we spoke a little bit about the Cadence of, for Family Dollar and the fact that the lowest order or excuse me the lowest month within the core birth.

Was roughly eight and a half percent.

And and the easiest way to think about it is there's been you know little degradation from that Trend coming out of the line.

Okay, that's helpful. Thank you very much.

This concludes today's question answer session. I would now like to turn the call back over to Randy Geisler for closing remarks. Thank you, and thank you for joining us on today's call and especially for your own interest in Dollar Tree and Family Dollar our next quarterly earnings conference call to discuss a few three performances tentatively scheduled for Tuesday, November 24th 2020. Thank you. Have a good day.

This concludes today's call. Thank you for your participation. You may now disconnect.

Thursday