Q2 2021 Dollar Tree Inc Earnings Call
[music].
Good day and welcome to the dollar Tree, Inc. Two Q2021 earnings conference call today's call is being recorded.
After today's prepared remarks, we will have a question and answer session. We kindly ask all participants to limit yourself to one question and one follow up question if necessary at this time I would like to turn the conference over to Randy Giler, Vice President of Investor Relations. Please go ahead.
Thank you Madison good morning.
And welcome to our call to discuss the results per dollar tree second fiscal quarter of 2021 with me on today's call are Mike <unk> and Kevin Wampler before we begin I would like to remind everyone that various remarks that we will make about our expectations plans and prospects for the company constitute forward looking.
Statements for the purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1095.
These statements are subject to risks and uncertainties and our actual results may differ materially from those indicated in these forward looking statements for information on the risks and uncertain.
Uncertainties that could affect our actual results. Please see the risk factors business and managements discussion and analysis of financial condition and results of operations sections in our annual report on Form 10-K filed March 16, 2021, our Form 10-Q for the most.
We ended fiscal quarter, our most recent press release and form 8-K, and other filings we make from time to time with the Securities and Exchange Commission, we caution against reliance on these forward looking statements made today and we disclaim any obligation to update or revise these statements except as.
May be required by law.
Growing our prepared remarks, we will open the call to your questions. Please limit your questions to one and one related follow up if necessary.
Now I'll turn the call over to Mike with Henske dollar Tree's, President and Chief Executive Officer.
Thank you Randy and good morning, everyone on this morning's call.
We're going to discuss our strong operating performance.
Through some of the headwinds facing our industry and share details on the robust and accelerated strategic initiatives, we have underway to drive short and long term value creation.
I am proud of our team's continuing efforts, especially.
In our stores and distribution centers to adapt and react in this dynamic environment to serve customers and deliver improvements in both operating margin and earnings.
Our second quarter earnings per share of $1.23 represented a year over year quarterly increase of 12%.
60.
62% when compared to Q2 of 2019.
We continue to see strong performance in discretionary side of the business and our key initiatives, including <unk> to dollar tree plus and the new combo stores are delivering compelling results.
All three concepts.
<unk> performed very well and we are significantly accelerating these initiatives in 2022 and beyond.
Regarding the continuing and well publicized challenges in the global supply chain as well as higher freight costs and other inflationary pressures.
Our teams are working hard to navigate these issues.
While staying focused as always on delivering the value and convenience our shoppers expect.
I wanted to share more details on these challenges how they affect our business and the actions we are taking to best manage and mitigate the impacts.
In recent quarters, we've spoken.
And about the freight cost environment, both international and domestic.
As you have certainly seen in the media and elsewhere freight costs have reached unprecedented levels. As a result of increased demand limited capacity and shipping delays.
For context, three months ago, the Shanghai container.
<unk> freight index, which reflects spot rates on ocean freight from China was already an all time high up more than 280% year over year and more than 400% since 2019.
Now these rates have continued to rise and have increased more than 20%.
Since we lap.
Imported on May 27th.
According to the recent journal of Commerce annual ranking of the top 100 importers.
<unk> ranked as the fifth largest among retailers.
Dollar tree brings in Euro 90, 40 foot containers per year predominantly for the dollar tree banner.
As you can see in the slide deck on the Investor relations portion of our website.
At dollar tree and <unk> Dot Com, we believe the dollar tree banner imports more containers per $100 million in sales than other large retailers and combined with our low $1 price point, we have an outsized.
Size impact from freight cost.
After the first quarter of 2021, our updated freight outlook assumed that our regular ocean carriers would fulfill only 85% of their contractual commitments.
<unk> assumed we also assume the higher spark the spot market rates.
However, we are now project that our regular carriers will fulfill only 60% to 65% of their commitments and the spot market rates will be much higher than previously estimated.
This shortfall is caused by a variety of factors such as equipment shortages equipment situated.
Weighted in wrong location <unk>.
Significant backlogs and delays in both China and U S ports.
It breaks of Covid, causing labor shortages or closure of entire terminals and the lingering effects of the Suez Canal blockage.
To give you a real life example of the kinds of challenges we are seeing.
One of our dedicated charters was recently denied entry into China because of crew member tested positive for Covid.
Forcing the vessel returned to Indonesia to change the entire crew before continuing overall the voyage was delayed by two months.
With the current pressure on carriers once.
<unk> and the supply chain occur there is not enough capacity to meet it up.
During a recent transportation webinar, a San Francisco based freight Forwarder stated the transit times from Shanghai to Chicago that more than doubled to 73 days from 35 days.
Another.
Transportation executive from a carrier recently estimated that voyages are now taking 30 days longer than in previous years due to port congestion container handling delays and other factors.
The dollar tree banner is more sensitive to freight costs than others in the industry.
Our products have lower.
Price points than other retail importers and as a result, our freight costs are a higher percentage of our gross margin merchandise margin.
The good news is our initial product margin.
Which exclude freight have been improving as evidenced by our most recent overseas product purchases.
Suited for manufacturers and more than two dozen countries.
Even in this inflationary environment, we continue to meet or exceed our desired initial product margins at values are attractive to our customers.
As freight costs moderate in the future we are confident when paired with our team significantly.
And birds to enhance our supply chain this will become a material tailwind contributing to a better product margins.
Industry experts expect the ocean shipping capacity will normalize no later than 2023, when many new ships come online.
We are not counting on material.
Serial improvements in 2022, especially in the first portion of the year.
As a result, we are working proactively to reduce the freight cost impact and otherwise improved gross margin merchandise.
Examples of steps we are taking include using dedicated space on charter.
The vessels for the first time, including one large vessel contracted for three year term, which is scheduled to make its first voyage within weeks.
We're expecting to add more charters this year.
Granted alternative sources of supply both domestic and international that do not rely on trans Pacific.
Okay.
We expect some of this shift could become permanent as an example, dollar tree and family dollar, we're well prepared for back to school season, with Alternatively source domestic product.
We're taking a fresh look at which skus should be prioritized for import and which should be alternatively stores.
<unk>.
Prioritizing containers based on seasonality the margin impact and our overall inventory needs.
We will be continuing to pull forward seasonal purchases by 30 days.
We're optimizing which China and U S ports, we use to take advantage of the shipping availability.
And our operations team is delivering shrink improvements through technology enhanced processes and disciplined execution.
We are confident that our teams will allow us to navigate through this period of global supply chain challenges.
In addition to the supply chain challenges.
We are also being impacted by labor shortages in our distribution centers and stores.
Steps were taken to combat. These trends include hosting national hiring events paying sign on bonuses offering enhanced wages and select markets paying tuition reimbursement and more all.
<unk> bank to be more competitive in a tight market for talent.
We're continuing to optimize our DC network by reducing stem miles partnering with suppliers to optimize and minimized length of haul for inbound freight.
Testing, validating and expanding self checkout and our stores.
All design developing and utilizing more efficient processes, both in our stores and Dcs.
Despite these challenges affecting our industry I am very pleased with the team's performance to deliver a 62% improvement in EPS in Q2, when compared to 2019.
And now let's talk about the exciting path forward.
I'd like to highlight some of the key initiatives, we have in place, especially dollar tree plus in our combo stores, which are helping to position our company for the future.
We are incredibly excited about the results we're seeing.
As we have discussed.
<unk> in the past, we are well positioned to serve customers across all types of markets urban suburban and rural.
The family dollar <unk> continues to perform very well.
In Q2, we renovated 435 stores into the <unk> format and now have a total of approximately 3000.
382 stores.
Importantly, we are accelerating the expansion of dollar tree plus initiative and the rollout of combo stores to better serve customers' needs and drive sustainable long term value.
We have been carefully improving in calibrating, our dollar tree plus initiative.
With a better understanding of the multi price offerings and greater values customers are increasingly embracing the dollar tree plus concept, which provides extraordinary value in the discretionary categories may most desire, while enhancing store productivity.
As we have refined the dollar tree plus.
Plus concept the operating metrics have achieved strong results and have provided us valuable insights that are enabling accelerated expansion on average stores with dollar tree plus are experiencing an overall sales lift of approximately 6% with a similar lift in gross profit improved.
Contribution of approximately 13%.
And a payback on investment of less than a year.
For obvious reasons, we are focused first on large stores and we are already seeing similar positive results as we are now implementing into smaller stores.
We currently have the multi price assortment in about 340 stores and we expect to be at 500 stores by year end.
Building on this continued success, we are planning to add dollar tree plus to an addition of 1500 stores in fiscal 'twenty to 'twenty two.
And we aim to have at.
Hi, dollar tree plus stores by the end of fiscal 2024.
Many of our new stores will also be opening up as dollar tree plus stores.
This past March we announced our newest store format. The combo store leveraging the strengths of both banners under one roof to provide.
Lisa <unk> with extreme value and merchandise excitement.
These stores represent another way to introduce the multi price assortment to dollar tree shoppers and the $1 assortment to family dollar shoppers a major benefit from the dollar tree and family dollar a combination.
We currently have 100.
<unk> shy of combo stores and I believe we can reach 3000 of these stores in rural markets alone.
Demonstrating a great confidence in combo stores as a true strategic format more than 85% of our new family dollar stores will be combo stores in fiscal 2022.
We anticipate.
<unk> 400, new renovated or relocated combo stores next year.
We are also in the process of validating combo store concept and other demographic markets and are excited about the possibilities.
Our larger combo stores on average are delivering 23% more sales.
31% more gross margin dollars approximately 120% more cash contribution dollars and are reducing payback time by approximately 30%.
New combo stores compared to similar sized stores are showing sales increases of 17% and.
And even more encouraging.
Great for our renovated or relocated combo stores are delivering greater than 40% more sales when compared to family dollar stores that have not been renovated or relocated.
Details about our combo stores are available at Www Dot family dollar Dot Com backslash combo stores.
I will now hand, the call over to Kevin to provide details on Q2 performance and our outlook.
Yeah.
Thanks, Mike and good morning, our second quarter EPS of $1.23 per share an increase of 12% from the prior year's quarter and 62% compared to the second quarter of 2019.
19.
Consolidated net sales increased 1% to 634 billion comprised of three $2.6 billion at dollar tree and 3.08 billion at family dollar.
Enterprise same store sales decreased one 2% as we cycled a strong seven two.
So from a year ago.
Representing a 6% increase on a two year stacked basis.
Comps for the dollar tree segment decreased 2%.
Family dollar same store sales decreased two 1% cycling a very strong 11, 6% increase from last year.
On a two year stacked basis.
Dollar tree comps increased two 9% income $1 increased nine 5%.
<unk> comps was comprised of a one 1% increase in traffic offset by a decline in average ticket.
Family dollar experienced a three 5% decline in traffic, partially offset by an increase in average ticket.
To Purdue believe that dollar Tree's traffic has continued to be hindered by a lack of shopper mobility as more than half of the workforce continues to work remote.
Gross profit was $1.86 billion for the quarter.
Gross margin was 29, 4% compared to 35% in the prior year's quarter.
Gross profit margin for the dollar tree segment declined 100, 130 basis points to 32, 4% when compared to the prior year's quarter.
Factors impacting the segment's gross margin performance included merchandise costs, including freight increased 175 basis points driven by increased freight.
<unk> costs, which was partially offset by favorable mix net of markup.
Occupancy costs increased 10 basis points as a result of loss of leverage due to the due to the comparable store sales decline.
Shrink improved 55 basis points related to favorable inventory results in a decrease in the shrink accrual rate.
And distribution costs decreased five basis points cycling COVID-19 related expenses in the prior year.
Gross.
Margin for the family dollar segment declined 110 basis points to 26, 1% in the second quarter.
Year over year Delta included the following merchandise costs, including freight.
Freight increased 175 basis points related to higher freight costs and increased sales of lower margin consumable merchandise.
Occupancy cost increased 35 basis points as a result of the comparable store sales decrease.
Shrink improved 50 basis points related to favorable inventory results in a decrease in the shrink.
Accrual rate.
Distribution costs improved 20 basis points compared to the prior year quarter due to the lower COVID-19 related costs.
And markdown costs decreased 25 basis points compared to last year based on civil unrest costs incurred a year ago.
Consolidated selling general and administrator.
Expenses improved 150 basis points to 23% of total revenue compared to 24, 5% in Q2 last year.
For the second quarter, DSG and a rate for the dollar tree segment as a percentage of total revenue improved 170 basis points to 22, 3% when compared to the prior year's quarter.
Payroll costs improved 155 basis points, primarily due to decreased COVID-19 related store payroll costs.
Other SG&A decreased by 20 basis points, resulting from lower general liability insurance costs, primarily offset by increased debit and credit card fees.
Store facility cost decreased five basis.
Australia points due to lower repairs and maintenance costs.
And for the family dollar in the second quarter SG&A rate as a percentage of total revenue was 21% compared to 21, 9% in the prior year's quarter.
Payroll costs decreased 95 basis points, primarily due to decreased COVID-19 related store payroll and incentive comp costs.
Partially offset by deleverage related to the comp store sales decline.
Dore facility costs decreased 30 basis points, driven mainly by lower repairs and maintenance costs due to expense incurred from civil unrest in the prior year's quarter.
Other SG&A expense increased 35 basis points, primarily due to increased advertising.
Basis, Paul expense compared to the prior year.
And depreciation and amortization expense increased 10 basis points due to deleverage on the comp sales.
Corporate and support expenses as a percentage of total revenue decreased 20 basis points compared to the prior year's quarter, primarily due to lower incentive and equity compensation.
Operating income increased seven 3% to $402.2 million compared with $374.9 million in the same period last year and operating income margin was six 3% in the second quarter compared to 6% in the prior year quarter the.
The second quarter of 2021 included total incremental operating costs of $3 million.
On a trailing 19 related expenses compared to $134.9 million in the second quarter of 2020.
Non operating expenses totaled $33 million comprised of net interest expense and our effective tax rate was 23, 5% compared to 23, 1% in the prior year's second quarter.
For Covid company had net income of $282.4 million or $1.23 per diluted share and this compared to net earnings of $261.5 million or $1 <unk> per share in the prior year's quarter.
Combined cash and cash equivalents at quarter end totaled $728 million compared to $1 <unk>.
$2 billion at the end of fiscal 2020.
Outstanding debt as of July 31 was $3.25 billion.
In Q2, we repurchased approximately 7 million shares of our common stock for $700 million.
We currently have 145 billion remaining on our share repurchase.
<unk>.
For dollar tree at quarter end increased 13, 1% from the same time last year, while selling square footage increased three 7%.
Inventory per selling square foot increased 9%.
Inventory for family dollar at quarter end increased 10, 9% from the same period last year, while selling.
Selling square footage increased two 1% inventory.
Inventory per selling square foot increased eight 6%.
Both banners store inventory levels are below 2019 levels at quarter end.
Capital expenditures were $229.1 million in the second quarter versus $232.5 million in Q2.
Two last year.
For fiscal 2021, we now expect that consolidated capital expenditures will be approximately $1.1 billion.
Depreciation and amortization totaled $176.1 million for Q2 compared to $168.1 million in the second quarter of last year.
And for fiscal 2000.
'twenty, one we expect consolidated depreciation and amortization to be approximately $720 million.
Our outlook for the remainder of 2021 includes the following assumptions. We expect continued pressure on wages due to the current shortage of workers available for our distribution centers and stores.
Does that shrink.
We will continue to be a tailwind as we go through the back half of the year, but not at the same rate as we begin cycling improved results from the prior year.
Net interest expense is expected to be approximately $34 million in Q3, and approximately $134 million for fiscal 2021.
We estimate consolidated.
For the third quarter will range from $6.4 billion to $6 five 2 billion.
Based on a low single digit increase in same store sales for the combined enterprise diluted.
Diluted earnings per share are estimated to be in the range of <unk> 88 to 98.
Consolidated net sales for full fiscal 2021 are expected to.
Net sales from $26, one 9 billion to $26.44 billion.
Based on a low single digit increase in same store sales and three 4% square footage growth.
The company now estimates diluted earnings per share will range from $5.40 to $5.60.
Freight costs for fiscal 2000.
'twenty one are now expected to be $1.50 to $1.60 higher than fiscal 2020.
Expressed in terms of the impact on diluted earnings per share.
The updated outlook includes 60 to 65 per diluted share were 185 million to $200 million of additional freight.
Arrangements our prior guidance on May 27, 2021.
As Mike noted earlier the market conditions for freight have continued to deteriorate since our update in may.
These changes include the significant difficulties our regular contract carriers are having in meeting their original commitments as well as continuing increases in the spot market rate. These disruptions.
Cost affected the timing of inventory receipts and have affected sales and mix.
Our outlook assumes a tax rate of 22, 7% for the third quarter and 23% for fiscal 2021.
Weighted average diluted share counts are assumed to be $225.9 million shares for Q223.
<unk> have a 9 million shares for the full year.
Our outlook does not include any additional share repurchases, although as I said before we still have $1.4.5 billion remaining on our existing share repurchase authorization.
I will now turn the call back to Mike.
Thank you Kevin.
Our core business is strong.
Eight when Kevin stated our updated outlook for fiscal 2021 is $5.40 to $5.60 per share.
It's unfortunate that the global supply chain is in the condition. It is.
As expected to result in a year over year drag to our business of a $1.52 to $1.60 per share.
S and freight costs. This year were similar to what we were just a year ago, we estimate that our earnings per share will be in the range of $6.90 to $7.20.
For this fiscal 2021.
The work of our teams has been remarkable our store and distribution center.
Center teams continue to demonstrate their commitment to serving our shoppers each and everyday.
Our customer satisfaction survey scores have never been higher we have we have seen improvements across the board for store cleanliness assortment service and speed of checkout.
The merchants are delivering.
Fair values to our customers that are meeting that are meeting or exceeding our initial merchandize margin targets are buyers are disciplined nimble and committed.
While it represents a smaller part of our overall business. Our digital teams saw a 70% increase in sales versus the first half.
Great a 'twenty one we're also pleased with the solid performance of our local delivery program through instant card.
Our initiatives are driving improved results customers are responding to dollar tree plus the <unk> format, and our new combo stores.
We are pleased to accelerate both of these initiatives.
Two in fiscal 2022.
The supply chain issues, which we are confident are transitory in nature will take some time until the global demand and supply for equipment is rebalance importantly, we believe the foundation of our business is stronger than ever. We believe we are in the process of material.
Materially improving the long term earnings power of our business for years to come.
Before we get into questions. There's another topic I want to quickly touch on because it's important to all of US here at dollar tree.
Recently morning console reported that the public views dollar tree is one of the 10 most trust.
Retail brands in America.
We see this as a validation of our core mission of delivering value and convenience to our customers.
But it also reflects our commitment to the broader communities we serve.
As I wrote in our 2021 corporate sustainability report dollar.
Trust drives to be the best corporate citizen for all stakeholders and the thousands of neighborhoods towns and rural markets, where our stores are located.
And that means taking concrete actions to implement our sustainable vision.
One recent step by can share we are executing on our climate.
Tree by pursuing two new solar projects for our stores and distribution centers.
These will provide up to six megawatts of renewable power, taking that usage off the carbon grid for years to come.
These and other efficiency projects show that our efforts to build out the infrastructure for system.
Golar renewable growth are now taking root.
Additionally, our executive leadership team.
Has leaned in on commitment to fostering an inclusive work environment, where the individual differences are understood respected and appreciated as a valuable source to strengthen our company.
This strategy is designed to evolve our culture and sustained momentum through the guidance of our executive Council that ensures leadership accountability to our very important dei objectives.
We constantly seek to improve all aspects of our business and that includes areas like store safety.
Healthier product offerings and many others that are so important to our associates.
Our customers, our neighbors and our shareholders you.
You should know that we always strive to be transparent on these topics I look forward to providing future updates on the strides we are making.
In summary.
There's a lot of inspiring news at dollar tree, we are excited that our strategic store formats, our accelerated growth plans and many key sales and traffic driving initiatives, along with our robust balance sheet and commitment to sustainable growth will enable us to deliver long term value.
Our stakeholders.
Operator, we are now ready to take questions.
Thank you. Thank you I'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Yes.
Please be kidney function is turned off to allow your signal to reach our equipment.
Please.
For yourself to one question and one follow up question if necessary.
We will go ahead and take our first question from Matthew boss with Jpmorgan.
Please go ahead great. Thanks.
Great. Thanks.
Mike maybe overall, how do you feel about the health of the dollar tree banner today any factors to consider.
That impacted the second quarter should we expect similar comp performance in <unk> and just overall.
How do you see dollar tree concept relative to 2% to 3% sustainable comps looking back as we look forward.
Yes, Thanks, Matt.
Yes, we feel very good about dollar tree looking forward.
<unk> and the inflationary times, where the $1 price point, which will mean more to customers than ever.
And our ability to continue to procure the product at the margins that we expect.
The second quarter, there was still some.
Some trip consolidation going on due to the Covid implications.
Implications out there and we saw that in the summer of course, everybody in the country went on vacation twice to make up for last year.
And between between that and and there is not really any huge holidays.
During the summer the dollar tree does so well on what.
But I do like and what I'm really encouraged about is our average ticket.
Is continuing on a two year stack to be at 20% to 21% that's.
That's amazing growth over 2019, and if we can get the dollar tree.
As a traffic going along with that basket size I really believe we're going to like the results and especially as we look ahead of US we've got back to school fall Halloween Thanksgiving and Christmas and with schools opening back up and in offices, hopefully opening back up and traffic moving.
One with trips arent. So consolidated I believe there is upside for us and we saw a little bit of that.
While we weren't happy with the traffic in Q2, it was positive for the first time.
In four quarters. So we're very confident that dollar tree is going to have sustainable growth in that low single digit comps.
<unk> around it and then maybe just a follow up.
For Kevin.
Maybe also Mike at the end.
Just outside of freight you're underlying core business guidance. This year when you kind of walk through this in your opening remarks actually increased by 20 I think at the midpoint. So maybe just any way any way to speak.
Speak to the factors that drove the increased outlook outside of frame. This year and I guess my second part of that question is as we look forward are there any impediments preventing the acceleration of the dollar tree plus concept that you announced today from being accretive to the bottom line profile as we think multiyear.
<unk>.
Sure, Matt So I'll start.
So obviously as the outlook, we gave today really the <unk>.
A message there is that.
The freight is the change in the guidance for the most part basically I think the other thing you've got there is a little bit of a bench.
Back half from the shares we repurchased.
In Q2.
So I think otherwise we look at the business as much like we did in Q2, all pieces outside of outside of freight so very stable.
And feel good about where we're at.
<unk> perspective, we've done a good job controlling our SG&A costs.
And.
Everybody is very on top of those and doing a good job.
We feel good about that and so now it's about driving that top line and working through the supply chain issues.
Documented documented.
From that.
For everybody today.
So I think a lot of good opportunity.
Your question as it relates to dollar tree plus would be additive, yes, I mean thats that is the whole reason to do that it was.
It's not additive to the bottom line.
We don't want to spend our resources necessarily.
Doing that so that is the expectation.
And with the mix change from the initial version that was very consumable driven to one that is now very discretionary driven.
That obviously plays well, it's part of what we are known for our customers embracing it added.
Certainly allows us to drive that bottom line and then obviously the top line does help us leverage some of the fixed costs.
Yeah, and just to add year finalize that we've seen nothing thats going to.
Be a barrier against us to continue to drive the things that you said top line growth and margin dollars in our stores.
Best of luck.
Alright again.
One.
Question. Thank you.
I had a question has been answered you may have amazing stuff in the queue by pressing star count we.
We can go ahead and take our next question from Kate Mcshane with Goldman Sachs.
Please go ahead.
Hi, good morning, Thanks for taking my question.
I wondered with regard to the issues with freight and thank you for all the detail.
How are you balancing the prioritization of the cost of freight versus getting inventory on the shelf is airfreight ever an option or something that.
You are using increasingly more.
And how much were you able to make up by shifting to some of the domestic questions you highlighted in your prepared comments.
Yes, Pete Thanks for your question.
At the dollar price point, Unfortunately, airfreight, just as cost prohibitive.
And there really isn't that much of an available out there.
So our teams are our global supply team, we got a sourcing team that's over there working with our merchants and we're working with the logistics team. Those three are working hard to pick the right source and prioritize the right product based on inventory needs margin and seasonality.
And.
And just as an example on the switching.
To different sources domestically.
<unk> solve this problem and we wanted to be right.
Back to school, so it'd be very quickly shifted both family dollar and dollar tree to procure product for the back to school season here domestically so that we could have.
Gels and drive that important season for us.
Thank you.
We can go ahead and take our next question.
Hi, Michael.
Okay.
Please go ahead.
Hey, Mike.
On the chart.
You have some color on.
<unk> brand right.
Color on cadence.
Suitable versus discretionary other than discretionary was strong.
Some color on that.
Let's see how the quarter unfolded.
So geographically we pretty much saw.
Consists.
And across geographies other than weather events or but normally it's they're both behaving similarly across the geography.
But on the family dollar side, what we like what we're seeing is we are seeing consumables.
Consumable sale, our consumable market share continues to gain.
Just wanted to get share.
And it's the addressable market opportunity is so large so we really focus on.
Drive continuing to drive that market share and DAP and family dollar has been doing a great job of continually quarter after quarter.
To have a year over year look and enhancing our.
<unk> market share on the consumables side and then on the discretionary side as you call out remember the team did such a great job of apparel, and toys and home and seasonal and we're maintaining that two year stack high.
High double digit market share in the teens.
That is really helping our business.
Mark Okay.
And then maybe as a follow up when you think about dollar tree plus two issues. There. So it sounds like it's it's probably as a penetration right mid single digit penetration of baskets.
Right. So I think the the Baskin Robbins <unk>.
With the dollar tree plus side.
Where do you see that going right. When you think about adding more items to the mix of more.
More SKU intensity and then what's the bottleneck on anything into 500 next year.
Can you do more and what's the bottleneck to doing more next year in 2003.
Yes, well, we're really excited about doing the 15.
100, because of the impact it has on a 6% sales lift.
And I would say as we the beautiful thing about this is it gives us the flexibility.
To do what we need to to grow our overall productivity of the store.
Referring to your <unk> grow the category.
<unk> <unk> assortment inside the multi price.
We will watch this and over time, we will make great decisions to keep an eye on our overall margin dollars in top line sales and ebb and flow as we did with dollar tree product and categories.
Just like we did with our.
<unk>, our snack zone, we will use that to drive so we increased our our assortment in there and space allocated to it and then.
And our Crafters square, we did the same thing there. So I see this is the we keep doing the same ability to ebb and flow based on whatever our customers.
Responding.
And two on whatever it is driving our top line and improving our margin dollars.
Okay. Thank you.
Okay.
Okay. We'll go ahead and take our next question from Joe Feldman with Telsey Advisory Group. Please go ahead.
Yeah, Hi, guys. Thanks for taking the.
Spawning.
I guess.
On the freight side of things.
Okay.
I guess the Big question is what gives you confidence at this point that you've properly.
Forecasted.
The impact of these increases I guess.
Where.
Are we conservative or we were you conservative with with the forecast for the second half.
Was it based just on what's happened to date, I guess I'm trying to understand.
While we're not going to have another quarter like this where we hear another well we had to take.
Question on again, because straight was more expensive.
Yes, Joe this is.
Kevin.
Obviously as always when we give a forecast we use the best information we have.
And what we know about our business.
This case, what we know about the external.
Take numbers.
And the changes and again, it's a very dynamic is.
Anybody would tell you and again, but I don't know that we can 100% certainty say that it won't change there could be another COVID-19 outbreak there could be a lot of different things that could affect it.
<unk> I just think you have to think about the fact that it's probably the most dynamic thing.
We may have ever seen as it relates to the marketplace.
But again, we always put it together with the idea of what do we know how we're thinking about it.
Do we and this is our best.
Estimate at this point in time and.
No.
Im hoping that in the sense that we have it.
At this time, but there are never any guarantees in this type of thing.
Got it.
And I guess, a follow up kind of related to it is if you guys are.
Best assuming.
Now you know that.
Your receipts will be more like 60% to 65% of what you had previously thought.
I guess how.
What gives you confidence that youll get to the to the low single digit comp guidance that you've given because if you don't have the inventory will you be able to.
Do you sell.
Yes, let me let me that's a great question, because I do want to bring clarity to that.
The 60% to 65% is the contractual agreement that we have at a lower freight rate.
We have a contract that's 100%.
We forecasted it first it while theyre going to at least.
85% of that and where I said theyre not even meeting that we think it's going to be 60% to 65%.
What that means is the other 30% to 35% then we'll be at the at the market rate at a higher rate and all those rates are calculated into our freight that Kevin described going forward.
Got it thanks for clarifying that I appreciate it.
Best of luck with this quarter guys. Thank you.
And we'll go ahead and take our next question from Paul Lajoie with Citi.
Please go ahead.
Hey, Thanks, guys, you made a comment about trimble product merch margin and pricing.
But youre seeing just curious what's driving that are you adjusting pack sizes are you actually seeing declines enlighten product and then on the dollar tree plus store rollout next year. How are you thinking about that geographically taking a regional approach or are you going to look when you open a bunch of installed <unk> plus stores and one one region of the time.
Or are you looking to have a dollar tree plus presence across a broad range of your markets.
Yes on your first question is.
It was the question about our initial markup and a margin that were there.
We're able to get with all the inflationary pressures going on was that your question.
Yeah, correct and what's driving that.
Yeah.
Thanks for the question because I want to brag about our merchants and the great job that they do when you sell everything for a dollar.
There are as you've read about there's inflationary pressures.
All over the board and we've got a very experienced.
<unk> and knowledgeable team of merchants.
And then there are supported by our best in class Global sourcing team that work really hard.
And they're not just negotiating the end product you see on the shelf.
Our merchants absolutely understand all the components that drive the cost of the product.
As well as the value that they need out in the marketplace to seller.
So they know the main commodity of the product, whether it's resin or cotton or paper copper.
So they go in very knowledgeable on the cost and the components they.
They know the cost of a handle or a litter stitching.
Or the weight of the paper.
And as they build that product and understand that that's how they come up with a no the margin they need they know what the.
The retailers at a dollar.
They know the sales that they have to obtain to drive the mix.
So on this most recent trip.
And our July trip, where they were just wrapping up a couple of weeks ago, We bought one $8 billion in receipts.
And they were able to obtain the margin the initial markup and actually beat it by a little bit.
And it's higher than 2019, so that's why with.
With all the pressures they have and what that dollar price point, our merchants are able to navigate and manage that and look at all the components. So it's not only what's making that product, but it's the packaging is the plastic that is how do we package the case there.
They are very knowledgeable negotiable, because pennies matter when you are selling things for one.
I couldnt be more proud of the work that they do and when they read out and shared the products.
It gets down to the detail of how many pedals around that Roes what size of the pedal what size of the market have does that value look great and then they produces great product at the cost that they need to hit the margins we.
We won at the dollar price point and they did it over and over again because on this last trip I think it was 70% to 73% of the items on that $1.8 billion by had problems with inflation that things that we had to solve for and they did it they worked at it they.
Did it in the presentations were spectacular and I'm. So excited about the value and product, we're having at a dollar and I know it's hard to understand.
A lot of retailers can't do but we do it we've been doing it for 30 years and they just did it in July and Thats why I said, if you think about the components of our margin.
We have the initial markup that we're very excited about that I just described how we got to it.
Revenue from Kevin that our shrink as very favorable our mark our markdowns are in line and then you have freight so if you take the free and set it to a more normalized we feel really good about the future of dollar tree.
And then to answer the second part of your the dollar tree plus rollout.
We're doing it probably regionally and by distribution center. So as we put the product in the DC then we're going to look at the available stores around that DC network and then we will grow it that way so it's going to be probably.
Infusion center geographically driven.
The good news is that it.
First up on that.
Well right now we're in the we started out in the southeast and then are the southwest I'm, sorry, and then I shared that we are moving into the mid Atlantic and we're going to we'll be.
We'll be rolling out from there.
Got it. Thank you good luck.
And we'll take our next question from Brad Thomas with Keybanc capital markets.
Please go ahead hi.
Thanks, Good morning.
Wanted to ask a question about the third quarter first of all your guidance.
This implies total sales and comps accelerate <unk> and was just curious if that's something that you are seeing so far to date, what gives you confidence in that and if youre seeing that in both banners.
Yeah, you're right. We gave we're back to giving guidance for the first time in well over a year and we guided low single digits.
At the $6 four to the 652 and I can share that both banners are positive comps now.
And they are aligned with the guidance that we've given.
Really helpful. And then a quick follow up on the dollar tree plus.
Financial commentary.
Terry you shared today, but very encouraging as we think about that flow through should we think about the 6% sales lift in the 6% gross profit lift.
Adding close to that too.
Total operating margin for the dollar tree banner, how should we think about the flow through of those gross profit dollars.
Yes.
That's exactly it's pretty in line with the.
The other data point, we gave which was basically a 13% lift.
The increase in <unk>.
Contribution so yes, its somewhat additive there $6 six kind of gets you to that same point.
Very helpful. Thank you so much.
All right. We'll go ahead and take our next question from Chuck Grom with Gordon Haskett. Please.
Please go ahead Sir.
Thanks, a lot.
So when you look at the Treaty business.
I know you just said that August was a little bit better, but when you think about the backdrop of all the money that's flowing out there.
Delivering a flat comp I guess I'm curious when you.
Dissect why that is I guess, how would you unpack it for us.
So are you, referring those look forward or the.
Well just looking at all of the second quarter, the second quarter and the flat comp given all the stimulus and child tax credit money that's out there.
Yes.
Family dollar responds to stimulus dollars a lot better than the dollar tree comp.
And I've already shared the comments on the we think that.
There is still some trip consolidation there wasn't any there is no big holidays, you saw right about everybody went on vacation and then.
The Delta variant kind of hit towards the end of the quarter and kind of slowed things down a little bit. So I think it's more of that.
We're really excited about looking forward with what we have ahead of us, but but I think you bring up a great point on.
The opportunity ahead with.
On the <unk>.
Net benefits out there.
Our enterprise.
Has increased the snap benefits.
In our.
As a retailer by almost doubled since 2019 and why that's important is.
Right now as an enterprise we are the six.
Doug just snap retailer.
And that's really important to us.
Just behind the Walmart Kroger hold an albertsons. So we are the number one largest retailer of snap benefits in the dollar channel and.
And think about the benefits as you know that they announced that they're going to increase them.
A large in October significantly.
And family dollar what we really like about that is we've doubled.
2019 inside family dollar, but then inside that basket of snap, 42% of that customer buys a discretionary item.
So if you think about.
The work we've done on the discretionary side in that mix and looking forward in the basket, we think there's a big upside for us.
When the snap benefits continue to increase in October and then our capabilities in that the merchants have been on the discretionary side and our customer willing to add that to the basket when they are in their solar.
Oh, that's great and my second question is on the combo stores they look great.
And then move up to 85% of the new family dollars in that format is pretty exciting.
I'm curious what you would do with the existing family dollar stores is there an opportunity to remodel some of them to convert and certain markets I guess, how does that how does that.
Okay.
Oh, absolutely. So theres two things I mean, we also were not slowing down we've got 800 H two renovations that were going to continue to do and we like the results and the lift we're getting on those.
And then to your point in those 3000 towns that we've identified we're attacking their new ones, but.
That play out in 1000, Omar ready so our team our real estate team is diligently going through there how long is that lease can we expand at where we're at can we relocate it.
Or is it big enough already so those are the things that we're going to do on that thousand existing of the 3000.
We're also community so where we.
We've got a team.
Going against both of those new and then the relocated and new and then our existing will be focused on the H two renovations.
Okay, great. Thanks, a lot Mike.
Okay.
Okay.
Operator right.
Unfortunately, we are getting close to the end of the call and all we have time for one more question. We will take our last question from Michael Lasser with UBS.
Good morning, Thanks, a lot, particularly good morning, Thanks, a lot for taking my question.
Dollar tree comp negative at a time when many other retailers.
Oh really experiencing robust trends. This comes on the heels of challenges from tariffs now transportation costs.
And family dollar issues before that.
Is it just too difficult to manage this business in an environment where.
Okay.
Inflation is going to be structurally higher than it's been.
In.
All of this is translating to your earnings.
Expectation for 2021.
<unk> on par with where your earnings were in 2018.
At what point do you think.
Youre going to be able to be in a position to start to resume growth in earnings that will be more consistent with what the market is accustomed to from dollar tree in the past.
Yes.
I can't reiterate more about my confidence in <unk> ability to grow and our ability.
To manage through these inflationary times you set this great aside and we would be delivering exactly what you're describing and I am excited about the market opportunity out there and the beautiful thing is is we've got these strategic initiatives that will grow well into the future and more importantly with everything.
You described we still got a strong balance sheet.
We make a lot of cash flow and with our cash flow, we have the ability to keep growing this company.
Growing the infrastructure of the company and buying back shares to drive total shareholder wealth, so I like our opportunity going forward.
Both dollar tree and family dollar.
Okay, Mike the biggest source of pushback, we've gotten from folks today is just on the core dollar tree comp.
Negative when everyone else is seeing robust trends.
Putting aside dollar tree and putting aside some of the questions around traffic what gives you the.
Everything that you can see that the core of that business continue to improve independent of what's going to happen.
In the external environment.
And as a quick follow up Kevin could you walk us through the path for how freight costs are going to unfold beyond this year. Your comments were it's.
Coffee relief in fiscal 'twenty two.
Youre, saying if you add this back you could earn close to $7 to win is it realistic for the market to expect you to earn this $7 targets.
Yes.
I can't reiterate enough how confident I am in a dollar tree format.
Not going to especially with the dollar tree plus initiative that we're going to be driving the 5000 stores in just a short few years.
And then what I just described on what our merchants are able to do with a great value and the dollar price point and keep in mind. This dollar price point is going to be more important than ever as other retailers.
Our driving their comps by raising prices that dollar price point is going to look good and I am confident going into the back half with our seasons with a product that we have and what our merchants are delivering we're going to continue to be able to drive this organization forward.
Michael.
As to your second part.
<unk> question as it relates to the freight.
Obviously, the marketplace in general or the expectation that it does not get.
Better necessarily in the first half and the other piece of what you have to remember is cost some of the costs that will incur this year and trade at the end of the year.
Our attached to those goods that then gets sold in the next year. So certain amount of freight gets capitalized into inventory as it comes in so as your inventory turns as when you burn that off so.
Anything.
Along the lines that we've been incurring will fall there is a piece of that that falls into next year.
So you have to remember that as far as $7 listen.
Obviously, we know what we know today a lot of things are going to change in the next six months.
Well no no more than in when we give guidance.
March of 2022 for the year.
Well again.
So now you're at a point, where we'll put our best foot forward on what we know at that point in time, so beyond that it's theirs.
Nothing to speculate at this point.
Understood Good luck and thank you.
Alright, Mr. Carley I'd like to turn the conference back to you for any additional or closing remarks.
Great. Thank you. Thank you for joining us for today's call. Our next earnings conference call to discuss Q3 results is tentatively scheduled for Tuesday November 23rd 2021, Thank you and have a good day.
This concludes today's call. Thank you all for your participation you may now disconnect.
Again.
Okay.
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Good day and welcome to the dollar Tree, Inc. Two Q2021 earnings conference call. Today's call is being recorded after today's prepared remarks, we will have a question and answer session. We kindly ask all participants to limit yourself.
Self to one question and one follow up question if necessary at this time I would like to turn the conference over to Randy Giler, Vice President of Investor Relations. Please go ahead.
Thank you Madison, Good morning, and welcome to our call to discuss the results per dollar tree second fiscal quarter of 2021 with me on.
On today's call are Mike and.
Kevin Wampler before we begin I would like to remind everyone that various remarks that we will make about our expectations plans and prospects for the company constitute forward looking statements for the purposes of the Safe Harbor provision under the private Securities Litigation Reform Act of 19.
95 DC.
These statements are subject to risks and uncertainties and our actual results may differ materially from those indicated in these forward looking statements.
For information on the risks and uncertainties that could affect our actual results. Please see the risk factors business is managed.
Discussion and analysis of financial condition and results of operations sections in our annual report on Form 10-K filed March 16, 2021, our Form 10-Q for the most recently ended fiscal quarter. Our most recent press release and form 8-K and other filings.
Must be made from time to time with the Securities and Exchange Commission, we caution against reliance on these forward looking statements made today and we disclaim any obligation to update or revise these statements except as may be required by law.
Following our prepared remarks, we will open the call to your questions. Please limit your questions.
Things, we to one and one related follow up if necessary.
Now I'll turn the call over to Mike with Henske dollar Tree's, President and Chief Executive Officer.
Thank you Randy and good morning, everyone on this morning's call, we're going to discuss our strong operating performance.
Talk through some of the headwinds facing our industry.
Question is share details on the robust and accelerated strategic initiatives, we have underway to drive short and long term value creation.
I am proud of our team's continuing efforts, especially in our stores and distribution centers to adapt and react in this dynamic environment.
<unk> customer.
Customers and deliver improvements in both operating margin and earnings.
Our second quarter earnings per share of $1.23 represented a year over year quarterly increase of 12% and 62% when compared to Q2 of 2019.
We continue to see strong.
Strong performance in the discretionary side of the business and our key initiatives, including age to dollar tree plus and the new combo stores are delivering compelling results.
All three concepts have performed very well and we are significantly accelerating these initiatives in 2022 and beyond.
Regarding the continuing and well publicized challenges in the global supply chain as well as higher freight costs and other inflationary pressures.
Our teams are working hard to navigate these issues, while staying focused as always on delivering the value and convenience are shoppers expect.
I wanted to.
More details on these challenges how they affect our business and the actions we are taking the best manage and mitigate the impacts.
In recent quarters, we have spoken about the freight cost environment, both international and domestic.
As you have certainly seen in the media and elsewhere freight costs.
Share of unprecedented levels as a result of increased demand limited capacity and shipping delays.
For context three months ago.
Saying, hi, Containerized freight index, which reflects spot rates on ocean freight from China was already an all time high up.
Save reached 280% year over year and more than 400% since 2019.
Now these rates have continued to rise and have increased more than 20%.
Since we last reported on May 27th.
According to the recent journal of Commerce annual ranking of the top 100.
<unk> orders.
Dollar tree ranked as the fifth largest among retailers.
Tree brings in Europe, 90, 40 foot containers per year.
<unk> for the dollar tree banner.
As you can see in the slide deck on the Investor Relations portion of our website at dollar tree info Dot com.
And we believe the dollar tree banner imports more containers per $100 billion in sales than other large retailers.
And combined with our low $1 price point, we have an outsized impact from freight cost.
After the first quarter of 2021, our updated freight outlook.
I assume that our regular ocean carriers would fulfill only 85% of their contractual commitments and assume we also assume the higher spark the spot market rates. However, we are now project that our regular carriers will fulfill only 60% to 65% of their commitment.
<unk> and the spot market rates will be much higher than previously estimated.
This shortfall is caused by a variety of factors such as equipment shortages equipment situated in wrong location significant backlogs and delays in both China and U S ports.
Breaks up Covid.
It, causing labor shortages or closure of entire terminals and the lingering effects of the Suez Canal blockage.
To give you a real life example of the kinds of challenges we're seeing one of our dedicated charters was recently denied entry into China because of crew member tested positive for Covid.
Forcing the vessels returned to Indonesia <unk>.
<unk> the entire crew before continuing overall the voyage was delayed by two months.
With the current pressure on carriers once disruptions in the supply chain occur there is not enough capacity to make it up.
During a recent transportation webinar.
Webinar, a San Francisco based freight Forwarder stated the transit times from Shanghai to Chicago have more than doubled to 73 days from 35 days.
Another transportation executive from a carrier recently estimated that voyages are now taking 30 days longer than in previous years due to.
Port congestion container handling delays and other factors.
The dollar tree banner is more sensitive to freight cost than others in the industry.
Our products have lower price points than other retail importers and as a result, our freight costs are a higher percentage of our gross margin.
Our merchandise margin.
The good news is our initial product margin.
Which exclude freight have been improving as evidenced by our most recent overseas product purchases included from manufacturers and more than two dozen countries.
Even in this inflationary environment, we continue to.
To meet or exceed our desired initial product margins at values attractive to our customers.
As freight costs moderate in the future we are confident when paired with our teams significant efforts to enhance our supply chain. This will become a material tailwind contributing to a better product margins.
Industry experts expect the ocean shipping capacity will normalize no later than 2023, when many new ships come online.
We are not counting on material improvements in 2022, especially in the first portion of the year.
As a result, we are working proactively to reduce the freight cost.
Cost impact and otherwise improve gross margin merchandise.
Examples of steps. We are taking include using dedicated space on chartered vessels for the first time, including one large vessel contracted for three year term, which is scheduled to make its first voyage within weeks.
We're expecting to add more charters this year.
We're at it alternative sources of supply both domestic and international that do not rely on Trans Pacific shipping.
We expect some of this shift could become permanent as an example, dollar tree and family dollar, we're well prepared for back to school.
School season, with Alternatively source domestic product.
We're taking a fresh look at which skus should be prioritized for import and which should be alternatively sourced.
Prioritizing containers based on seasonality the margin impact and our overall inventory needs.
We will be continuing to pull forward seasonal purchases by 30 days.
We're optimizing which China and U S ports, we used to take advantage of the shipping availability.
And our operations team is delivering shrink improvements through technology enhanced processes and disciplined execution.
We are confident that our teams will allow us to navigate through this period of global supply chain challenges.
In addition to the supply chain channel hurdles. We are also being impacted by labor shortages in our distribution centers and stores.
Steps were taken to combat these trends include host.
National hiring events paying sign on bonuses offering enhanced wages and select markets paying tuition reimbursement and more all designed to be more competitive in a tight market for talent.
We're continuing to optimize our DC network by reducing stem miles.
Partnering.
Hosting with suppliers to optimize and minimized length of haul for inbound freight.
Testing, validating and expanding self checkout, and our stores and developing and utilizing more efficient processes, both in our stores and Dcs.
Despite these challenges affecting our industry I am very.
<unk> leads with the team's performance to deliver a 62% improvement in EPS in Q2, when compared to 2019.
Now, let's talk about the exciting path forward I would like to highlight some of the key initiatives, we have in place, especially dollar tree plus and our.
Very close stores, which are helping to position our company for the future.
We are incredibly excited about the results we're seeing.
As we have discussed in the past, we are well positioned to serve customers across all types of markets urban suburban and rural.
Family dollar <unk>.
Our common used to perform very well.
In Q2, we renovated 435 stores into the <unk> format and now have a total of approximately 3382 stores.
Importantly, we are accelerating the expansion of dollar tree plus initiative and the rollout of combo stores.
Stores.
To better serve customers' needs and drive sustainable long term value.
We have been carefully improving in calibrating, our dollar tree plus initiative with a better understanding of the multi price offerings and greater values customers are increasingly embracing the dollar tree plus concept.
Which provides extraordinary value in the discretionary categories may most desire, while enhancing store productivity.
As we have refined the dollar tree plus concept the operating metrics have achieved strong results and have provided us valuable insights that are enabling accelerated expansion.
And on average stores with dollar tree plus are experiencing an overall sales lift of approximately 6% with a similar lift in gross profit improved contribution of approximately 13%.
And a payback on the investment of less than a year.
For obvious reason.
We are focused first on large stores and we are already seeing similar positive results as we are now implementing into smaller stores.
We currently have the multi price assortment in about 340 stores and we expect to be at 500 stores by year end.
Building on this continued.
<unk> success, we are planning to add dollar tree plus to an addition of 1500 stores in fiscal 'twenty to 'twenty two.
And we aim to have at least 5000 dollar tree plus stores by the end of fiscal 2024.
Many of our new stores will also be opening up as dollar tree plus.
Stores.
This past March we announced our newest store format. The combo store leveraging the strengths of both banners under one roof to provide shoppers with extreme value and merchandise excitement.
These stores represent another way to introduce the multi price assortment to dollar.
The tree shoppers and the $1 assortment to family dollar shoppers a major benefit from the dollar tree and family dollar a combination.
We currently have 105 combo stores and I believe we can reach 3000 of these stores in rural markets alone.
Demonstrating a great confidence in combo.
Stores as a true strategic format more than 85% of our new family dollar stores will be combo stores in fiscal 2022.
We anticipate 400, new renovated or relocated combo stores next year.
We are also in the process of validating combo store concept and other.
Mcgrath markets and are excited about the possibilities.
Our larger combo stores on average are delivering 23% more sales, 31% more gross margin dollars approximately 120% more cash contribution dollars and are reducing payback time.
By approximately 30%.
New combo stores compared to similar sized stores are showing sales increases of 17% and even more encouraging our renovated or relocated combo stores are delivering greater than 40% more sales when compared to family dollar stores that have not been renovated.
It or relocated.
Details about our combo stores are available at Www Dot family dollar Dot Com backslash combo stores.
I will now hand, the call over to Kevin to provide details on Q2 performance and our outlook.
Thanks, Mike.
Vic and good morning, our second quarter EPS of $1.23 per share an increase of 12% from the prior year's quarter and 62% compared to the second quarter of 2019.
Consolidated net sales increased 1% to 634 billion comprised of $3 billion to $6 billion.
At dollar tree and 3.08 billion at family dollar.
Enterprise same store sales decreased one 2% as we cycled a strong seven 2% from a year ago.
Presenting a 6% increase on a two year stacked basis.
Comps for the dollar tree segment decrease.
<unk>, 2%.
Family dollar same store sales decreased two 1% cycling a very strong 11, 6% increase from last year.
On a two year stacked basis dollar tree comps increased two 9% in peso dollar increased nine 5%.
Dollar Tree's comps was comprised of a $1.
1% increase in traffic offset by a decline in average ticket.
Family dollar experienced a three 5% decline in traffic, partially offset by an increase in average ticket. We do believe that dollar tree's traffic has continued to be hindered by a lack of shopper mobility as more than half of the workforce continues to work remotely.
Gross profit was $1.86 billion for the quarter.
Gross margin was 29, 4% compared to 35% in the prior year's quarter.
Gross profit margin for the dollar tree segment declined 100, 130 basis points to 32, 4% when compared to the prior year's quarter.
What actors impacting the segment's gross margin performance included merchandise costs, including freight increased 175 basis points driven by increased freight costs, which was partially offset by favorable mix net of markup.
Occupancy costs increased 10 basis points as a result of loss of leverage due to the due to the comparator.
Full store sales decline.
Shrink improved 55 basis points related to favorable inventory results in a decrease in the shrink accrual rate.
And distribution costs decreased five basis points cycling COVID-19 related expenses in the prior year.
Gross.
Margin for the family.
Comparable segment declined 110 basis points to 26, 1% in the second quarter.
Year over year Delta included the following merchandise costs, including freight increased 175 basis points related to higher freight costs and increased sales of lower margin consumable merchandise.
Occupancy cost.
Family reached 35 basis points as a result of the comparable store sales decrease.
Shrink improved 50 basis points related to favorable inventory results in a decrease in the shrink accrual rate.
Distribution costs improved 20 basis points compared to the prior year quarter due to the lower COVID-19 related costs.
And mark down cost.
Cost and decreased 25 basis points compared to last year based on civil unrest costs incurred a year ago.
Consolidated selling general and administrative expenses improved 150 basis points to 23% of total revenue compared to 24, 5% in Q2 last year.
For the.
Quarter, DSG and a rate for the dollar tree segment as a percentage of total revenue improved 170 basis points to 22, 3% when compared to the prior year's quarter.
Payroll costs improved 155 basis points, primarily due to decreased COVID-19 related store payroll costs.
Other SG&A decreased.
Second by 20 basis points, resulting from lower general liability insurance costs, primarily offset by increased debit and credit card fees.
Store facility cost decreased five basis points due to lower repairs and maintenance costs.
And for the family dollar in the second quarter SG&A rate as a percentage of total revenue was 21%.
<unk> compared to 21, 9% in the prior year's quarter.
Payroll costs decreased 95 basis points, primarily due to decreased COVID-19 related store payroll and incentive comp costs, partially offset by deleverage related to the comp store sales decline.
Dore facility costs decreased 30 basis points driven mainly.
Mainly by lower repairs and maintenance costs due to expense incurred from civil unrest in the prior year's quarter.
Other SG&A expense increased 35 basis points, primarily due to increased advertising and travel expense compared to the prior year.
And depreciation and amortization expense increased 10 basis points due to deleverage on the comp sales.
Corporate and support expenses as a percentage of total revenue decreased 20 basis points compared to the prior year's quarter, primarily due to lower incentive and equity compensation.
Operating income increased seven 3% to $402.2 million compared with $374.9 million in the same period last year and operating.
Income margin was six 3% in the second quarter compared to 6% in the prior year quarter.
The second quarter of 2021 included total incremental operating costs of $3 million for COVID-19 related expenses compared to $134.9 million in the second quarter of 2020.
Non.
Operating expenses totaled $33 million comprised of net interest expense and our effective tax rate was 23, 5% compared to 23, 1% in the prior year's second quarter.
The company had net income of $282.4 million or $1.23 per diluted share and this compared to net earnings of 260.
$61.5 million or $1.10 per share in the prior year's quarter.
Combined cash and cash equivalents at quarter end totaled $728 million compared to 142 billion at the end of fiscal 2020.
Outstanding debt as of July 31 was $3.25 billion.
In Q2, we repurchased approximately 7 million shares of our common stock for 700 million.
We currently have 145 billion remaining on our share repurchase authorization.
Okay.
Inventory for dollar tree at quarter end increased 13, 1% from the same time last year, while selling square footage increased three.
7% inventory.
Inventory per selling square foot increased 9%.
Inventory for family dollar at quarter end increased 10, 9% from the same period last year, while selling square footage increased two 1%.
Inventory per selling square foot increased eight 6%.
Both banners store inventory.
Levels are below 2019 levels at quarter end.
Capital expenditures were $229.1 million in the second quarter versus $232.5 million in Q2 last year.
For fiscal 2021, we now expect that consolidated capital expenditures will be approximately $1.1 billion.
Depreciation and amortization totaled $176.1 million for Q2 compared to $168.1 million in the second quarter of last year.
And for fiscal 2021, we expect consolidated depreciation and amortization to be approximately $720 million.
Our outlook for the remainder.
There are 2021 includes the following assumptions, we expect continued pressure on wages due to the current shortage of workers available for our distribution centers and stores.
Does that shrink will continue to be a tailwind as we go through the back half of the year, but not at the same rate as we begin cycling improved results from the prior year.
Net interest expense is expected to be approximately $34 million in Q3, and approximately $134 million for fiscal 2021.
We estimate consolidated net sales for the third quarter will range from $6.4 billion to $6 five 2 billion.
Just on a low single digit increase in same store sales for the combined enterprise.
Enterprise <unk>.
Diluted earnings per share are estimated to be in the range of 88 to 98.
Consolidated net sales for full fiscal 2021 are expected to range from $26, one 9 billion to $26.44 billion.
Based on a low single digit increase in same store sales and three 4% square.
As growth.
Company now estimates diluted earnings per share will range from $5.40 to $5.60.
Freight costs for fiscal 2021 are now expected to be $1.50 to $1.60 higher than fiscal 2020 expressed in terms of the impact on diluted earnings per share.
We're footing the.
The updated outlook includes 60 to 65 per diluted share were 185 million to $200 million of additional freight costs since our prior guidance on May 27.2021.
As Mike noted earlier the market conditions for freight have continued to deteriorate since our update in may.
Sure. It does include the significant difficulties our regular contract carriers are having in meeting their original commitments as well as continuing increases in the spot market rate. These disruptions have affected the timing of inventory receipts and have affected sales and mix.
Our outlook assumes a tax rate of 22, 7% for the third quarter and 23%.
These change for fiscal 2021.
Weighted average diluted share counts are assumed to be $225.9 million shares for Q3, and $228.9 million shares for the full year.
Our outlook does not include any additional share repurchases, although as I said before we still have $1.4.5 billion.
<unk> on our existing share repurchase authorization.
And I will now turn the call back to Mike.
Thank you Kevin our core business is strong as Kevin stated our updated outlook for fiscal 2021 is $5.40 to $5.60 per share.
It's unfortunate that.
Renewable supply chain is in the condition. It is which is expected to result in a year over year drag to our business of $1.50.
60 per share.
Freight costs. This year were similar to what we were just a year ago, we estimate that our earnings per share will be in the range of $6.90.
The gold to $7.20.
For this fiscal 2021.
The work of our teams has been remarkable our store and distribution center teams continue to demonstrate their commitment to serving our shoppers each and every day.
Our customer satisfaction survey scores have never been higher.
We have been we have seen improvement across the board for store cleanliness assortment service and speed of checkout.
The merchants are delivering greater value to our customers that are meeting and are meeting or exceeding our initial merchandize margin targets are buyers are disciplined nimble.
Committed.
While it represents a smaller part of our overall business. Our digital teams saw a 70% increase in sales versus the first half of 2021.
We're also pleased with the solid performance of our local delivery program through instant card.
Our initiatives are driving.
And results customers are responding to dollar tree plus the H two format and our new combo stores.
We are pleased to accelerate both of these initiatives in fiscal 2022.
The supply chain issues, which we are confident are transitory in nature will take some time until the global demand and.
Improved by four equipment is rebalanced importantly, we believe the foundation of our business is stronger than ever. We believe we are in the process of materially improving the long term earnings power of our business for years to come.
Before we get into questions. There's another topic I wanted to quickly touch on.
Because it is important to all of us here at dollar tree.
But recently morning console reported that the public views dollar tree is one of the 10, most trusted retail brands in America.
We see this as a validation of our core mission of delivering value and convenience to our customers.
But it also reflects our commitment to the broader communities we serve.
As I wrote in our 2021 corporate sustainability report dollar tree strives to be the best corporate citizen for all stakeholders and thousands of neighborhoods towns and rural markets, where our stores are located.
And that.
In concrete actions to implement our sustainable vision.
One recent step I can share.
Executing on our climate goals by pursuing two new solar projects for our stores and distribution centers.
These will provide up to six megawatts of renewable power taking that usage.
Means to off the carbon grid for years to come.
These and other efficiency projects show that our efforts to build out the infrastructure for sustainable growth are now taking root.
Additionally, our executive leadership team.
As lean in on commitment to fostering an inclusive.
<unk> environment, where the individual differences are understood respected and appreciated as a valuable source to strengthen our company.
This strategy is designed to evolve our culture and sustained momentum through the guidance of our executive Council that ensures leadership accountability to our very important.
<unk> objectives.
We constantly seek to improve all aspects of our business and that includes areas like store safety healthier product offerings and many others that are so important to our associates, our customers our neighbors and our shareholders.
Know that we always strive to be transparent on these topics I look forward to providing future updates on the strides we are making.
In summary, there is.
A lot of inspiring news at dollar tree, we are excited that our strategic store formats, our accelerated growth plans and many key sales.
You should traffic driving initiatives.
Along with our robust balance sheet and commitment to sustainable growth will enable us to deliver long term value for our stakeholders.
Operator, we're now ready to take questions.
Thank you. Thank you I'd like to ask a question. Please.
Please signal by pressing star one on your telephone keypad.
Please mckenney function as Karen path to allow your signal to reach our equipment.
Again, please limit yourself to one question and one follow up question if necessary.
Gary.
We will go ahead and take our first question from Matthew Boss with JP Morgan.
Please go ahead great. Thanks.
Great. Thanks.
Mike maybe overall, how do you feel about the health of the dollar tree banner today any factors to consider that impacted the second quarter should we expect similar comp performance in <unk> and just overall.
How do you see dollar tree.
Concept, you know relative to 2% to 3% sustainable comps looking back as we look forward.
Yeah. Thanks, Matt Yeah, we feel very good about dollar tree looking forward.
Especially in the inflationary times, where the $1 price point that will mean more of the customer.
<unk> cars than ever.
And our ability to continue to procure the product at the margins that we expect.
The second quarter, there was still some trip consolidation going on due to the COVID-19.
Implications out there.
We saw that in the summer of course, everybody in.
Customers really went on vacation twice to make up for last year.
And the between between that and and there is not really any huge holidays. During the summer that dollar tree does so well on what I, what I do like and what I'm really encouraged about is our average ticket.
The continuing on a two year stack to be at 20% to 21%.
That's amazing growth over 2019, and if we can get the dollar tree traffic going along with that basket size I really believe we're going to like the results and especially as we look ahead of US we've got back to school.
It all Halloween Thanksgiving and Christmas.
And with schools opening back up.
Offices, hopefully opening back up and traffic moving around in the trips arent. So consolidated I believe there is upside for us and we saw a little bit of that.
While we weren't happy with the traffic in Q2 it was.
For the first time.
In four quarters. So we're very confident in that dollar tree is going to have sustainable growth in that low single digit comps.
Great and then maybe just a follow up maybe for Kevin.
Maybe also Mike at the.
Pause.
Outside of freight you're underlying core business guidance. This year when you kind of walk through this in your opening remarks actually increased by 20 I think at the midpoint. So maybe just any way to any way to speak to the factors that drove the.
<unk> outlook outside of freight this year and I guess my second part of that question.
And so as we look forward are there any impediments, preventing the acceleration of the dollar tree plus concept that you announced today from being accretive to the bottom line profile as we think multiyear.
Sure, Matt So I'll start.
So obviously as the outlook we gave today really.
<unk>.
The message there is that.
The freight is the change in the guidance for the most part basically I think the other thing you've got there is a little bit of a benefit in the back half from the shares we repurchased.
In Q2.
So I think.
Otherwise, we look at the business.
Much like we did in Q2, all pieces outside of outside of freight so very stable.
And feel good about where we're at from that perspective, we've done a good job controlling our SG&A costs.
And.
Everybody is.
Other very on top of those and doing a good job.
We feel good about that and so now it's about driving that top line and working through the supply chain issues.
Documented documented.
For everybody today.
So I think a lot of good opportunity.
Your question is.
As a dollar tree plus would be additive, yes, I mean thats that is the whole reason to do that it was.
It's not additive to the bottom line.
We don't want to spend our resources necessarily do.
Doing that so that is the expectation.
And with the mix change from the initial.
Is it really <unk> that was very consumable driven to one that is now very discretionary driven.
And that obviously plays well, it's part of what we're known for our customers embracing it and it allows us to drive that bottom line and then obviously the top line does help us leverage some of the fixed costs.
And just to add year to finalize that we've seen nothing thats going to.
Be a barrier against us to continue to drive the things that you said top line growth and margin dollars in our stores.
Great Best of luck.
Alright.
But again that is star one.
Jan. Thank you find your question has been answered you may remove yourself from the queue by pressing star one.
You can go ahead and take our next question from Kate Mcshane with Goldman Sachs. Please go ahead.
Hi, good morning, Thanks for taking my question.
I wondered.
With regard to issues with freight and thank you for all the detail how are you balancing the prioritization of the cost of freight firstly getting inventory.
Sure.
Airfreight ever an option or something that you are using increasingly more and how much were you able to make up by shifting to some of.
Domestic inflation as you highlighted in the prepared comments.
Yes, Kate Thanks for your question.
At the dollar price point, Unfortunately, airfreight, just as cost prohibitive in.
And there really isn't that much of an available out there. So our teams are our global supply team, we got a sourcing team that's over.
Over there working with our merchants and we're working with our logistics team. Those three are working hard to pick the right source and prioritize the right product based on inventory needs margin and seasonality.
And just as an example on the switching to.
To different source.
Basically our teams solve this problem and we wanted to be right.
Back to school so it would be very quickly shifted both at family dollar and dollar tree to procure product for the back to school season here domestically. So that we could have it on the shelves and drive that important season for us.
Thank you.
Okay. We can go ahead.
Next question.
Hi, Michael with Guggenheim Partners. Please.
Please go ahead.
Hey, Mike I just wanted to start you have.
Color on.
By brand right.
Color on cadence.
Consumable versus discretionary other than discretionary was strong.
Some color on that.
Let's see how the quarter unfolded.
Yeah, so geographically, we pretty much saw consistent across geographies other than weather events or but normally it's they're both behaving similarly.
And across the geography.
But on the family dollar side, what we like what we're seeing is we are seeing.
Suitable sale, our consumable market share continues to gain market share.
And it's the addressable market.
Market opportunity is so large so we.
Our focus on <unk>.
<unk> continuing to drive that market share.
And family dollar has been doing a great job at continually quarter after quarter.
Have a year over year look and enhancing our market share on the consumables side and then on the discretionary side as you call out remember the team did such a great.
Job of apparel, and toys and home and seasonal and.
And we are maintaining that two year stack hi.
High double digit market share in the teens.
That is really helping our business.
Okay.
And then maybe as a follow up.
Do you think about.
We really plus Q2 issues there so it sounds like it's it's probably as a penetration right mid single digit penetration of baskets.
So I think the the vasculitis <unk>.
With the dollar tree plus side, where do you see that going right. When you think about adding more items.
<unk> so more <unk>.
More SKU intensity and then what's the bottleneck on 500 next year.
Can you do more and what's the bottleneck to doing more next year in 'twenty three.
Yeah, well, we're really excited about doing the 1500 because of the impact it has on a 6% sales lift.
To the.
And I would say as we the beautiful thing about this is it gives us the flexibility to.
To do what we need to to grow our overall productivity of the store and im referring to year do you grow the categories <unk> assortment inside the multi price.
We will watch this.
And over time, we will make great decisions to keep an eye on our overall margin dollars in top line sales.
And ebb and flow as we did with dollar tree product and categories.
Just like we did with our snack zone, we will use that to drive so we've increased.
This center, our assortment in the air and space allocated to it and then.
On our Crafters square, we did the same thing there. So I see this is the we keep doing the same ability to ebb and flow based on whatever our customers.
Responding to and whatever it is driving our top line and improving our margin dollars.
Okay. Thank you.
Okay.
Okay. We'll go ahead and take our next question from Joe Feldman with Telsey Advisory Group. Please go ahead.
Yeah, Hi, guys. Thanks for taking the question.
I guess.
On the freight side of things.
Okay.
The Big question is what gives you confidence at this point that you've properly.
Forecasted.
The impact of these increases I guess.
Were we conservative or we were you conservative with with the forecast for the second half.
Yeah.
Was it based just on what's happened to date, I guess I'm trying to understand.
While we're not going to have another quarter like this where we hear another well we had to take numbers down again, because straight was more expensive.
Yes, Joe this is Kevin.
So obviously as always when we give a forecast we use the best information we have.
And what we know about our business.
This case, what we know about the external factors.
And the changes and again, it's a very dynamic is.
Anybody would tell.
And again, but I don't know that we can 100% certainty say that it won't change there could be another COVID-19 outbreak there could be a lot of different things that could affect it.
You have to think about the fact that it's probably the most dynamic thing.
We may have ever seen as it relates.
<unk> tell you the marketplace and but again, we always put it together with the idea of what do we know how we're thinking about it.
<unk>.
Do we.
This is our best estimate at this point in time.
Sure.
I'm, hoping that in the sense that we have.
Right.
Tight at this time, but there are never any guarantees in this type of thing.
Got it.
And I guess, a follow up kind of related to it is if you guys are assuming.
Now you know that your receipts will be more like 60% to 65% of what you had.
Previously thought.
I guess how.
What gives you confidence that youll get to the to the low single digit comp guidance that you've given because if you don't have the inventory will you be able to.
Do you sell it.
Yes, let me let me that's a great question, because I do want to bring clarity to that.
The 60.
Previously 5% is.
Contractual agreement that we have at the lower freight great.
We have a contract that's 100%.
We forecasted it first it while theyre going to at least meet 85% of that and where I said theyre not even meeting that we think it's going to be 60 to 65.
Yes.
What that means is the other 30% to 35% then we'll be at the at the market rate at a higher rate and all those rates are calculated into our freight that Kevin described going forward.
Got it thanks for clarifying that I appreciate it.
Best of luck with this.
Perfect. Thank you.
And we'll go ahead and take our next question from Paul Lajoie with Citi.
Please go ahead.
Hey, Thanks, guys.
Made a comment about trimble product merch margin and pricing that you're seeing I'm. Just curious what's driving that are you adjusting pack sizes or you're actually seeing.
Quarter declines in like product.
Then on the dollar tree plus store rollout next year, how are you thinking about that geographically taking a regional approach or are you going to look when you open a bunch of with dollar tree plus stores and one one region at a time when you're looking to have a dollar tree plus presence across a broad range of.
Of your markets.
Yes on your first question is.
Was the question about our initial markup and a margin that were.
And then we're able to get with all the inflationary pressures going on was that your question.
Yes, correct and what's driving that.
Yes, yes. Thanks.
For the question because I don't want to brag about our merchants and the great job that they do.
When you sell everything for a dollar.
There are as you've read about there's inflationary pressures all over the board and we've got a very experienced and knowledgeable team of merchants.
And then there are supported.
Best in class global sourcing team that work really hard.
And they're not just negotiating the end product you see on the shelf.
Our merchants absolutely understand all the components that drive the cost of the product as well as the value that they need out in the marketplace to seller.
So they know the main commodity of the product, whether it's resin or cotton or paper or copper.
So they go in very knowledgeable on the cost and the components they.
They know the cost of a handle or a litter stitching or the weight of the paper.
And as they build that product and understand.
Stand that thats, how they come up with a no the margin they need they know what the.
The retailers at a dollar.
They know the sales that they have to obtain to drive the mix.
So on this most recent trip and our July trip, where they were just wrapping up a couple of weeks ago, we bought one.
One $8 billion in receipts.
And they were able to obtain the margin the initial markup and actually beat it by a little bit and it's higher than 2019. So that's why with all the pressures they have and what that dollar price point, our merchants are able to navigate.
And manage that and look at all the components. So it's not only what's making that product, but it's the packaging is the plastic that is how do we package in the case.
They are very knowledgeable negotiable, because pennies matter when you're selling things for one dollar and I couldnt be more proud of the work that they do and when they read out and shared.
The products.
It gets down to the detail of how many pedals around that rolls what size of the pedal what size of the market have does that value look great and then they produces great product at the cost that they need to hit the margins we want at the $1 price point.
And they did it over and over again.
Because on this last trip I think it was 70% to 73% of the items on that $1.8 billion by had problems with inflation that things that we had to solve for and they did it.
Work that they did it in the presentations were spectacular and I'm. So excited about the value.
Product, we're having at a dollar and I know, it's hard to understand.
A lot of retailers can't do but we do it we've been doing it for 30 years and they just did it in July and Thats why I said, if you think about the components of our margin.
We have the initial markup that we're very excited about that I just described how we.
All you into it you heard from Kevin that our shrink as very favorable our market. Our markdowns are in line and then you have freight so if you take the freight and set it to a more normalized we feel really good about the future of dollar tree.
And then to answer the second.
Got part of your the dollar tree plus rollout.
We're doing it probably regionally and by distribution center. So as we put the product in the DC then we're going to look at the available stores around that DC network and then we will grow with that way so it's going to be probably.
Distribution center geographically.
Secondly, driven.
The good news is that the first step on that.
Well right now we're in the we started out in the southeast and then are the southwest I'm, sorry, and then I shared that we are moving into the mid Atlantic and we're going to we'll be we'll be rolling out from there.
Thank you good luck.
And we will take our next question from Brad Thomas with Keybanc capital markets.
Please go ahead hi.
Thanks, Good morning.
Wanted to ask a question about the third quarter first of all your guidance implies total sales and comps accelerate.
<unk> <unk> and was just curious if that's something that you are seeing so far to date, what gives you confidence in that and we're seeing that in both camps.
Yeah, you're right. We gave we're back to giving guidance for the first time in well over a year and we guided low single digits at the $6 four to the 652.
And I can share that both banners are positive comps now.
And they are aligned with the guidance that we've given.
Really helpful. And then a quick follow up on the dollar tree plus.
Financial commentary.
Today very encouraging as we think.
Flow through should we think about the 6% sales lift in the 6% gross profit lift.
Adding close to that too.
Total operating margin for the dollar tree banner, how should we think about the flow through of those gross profit dollars.
Yes, I think that's exactly it's pretty in line with.
The.
About data point, we gave which was basically a 13% lift.
The increase in contribution so yes, its somewhat additive there $6 six kind of gets you to that same point.
Very helpful. Thank you so much.
Other domain will go ahead and take our next question from Chuck Grom with Gordon Haskett.
Please go ahead.
Thanks, a lot.
So when you look at the <unk> business.
I know you just said that August was a little bit better, but when you think about the backdrop of all the money that's flowing out there.
Delivering a flat comp I guess I'm curious when you dissect.
Why that is.
How would you unpack it for us.
So are you, referring does look forward or the <unk>.
Well just looking at the second quarter, the second quarter and the flat comp given all the stimulus and child tax credit money that's out there.
Yes.
Secondly, dollar responds to stimulus dollars a lot better than the dollar tree comp and I've already shared the the comments on the.
We think that.
There is still some trip consolidation there wasn't any there is no big holidays, you saw right about everybody went on vacation and then.
The Delta variant kind of hit towards the end of the quarter and kind of slowed things down a little bit. So I think it's more of that.
Really excited about looking forward with what we have ahead of us, but but I think you bring up a great point on.
The opportunity ahead with.
The snap benefits out there.
Our enterprise.
Has increased the snap benefits.
And our.
As a retailer by almost doubled since 2019 and why that's important is.
Right now as an enterprise we are the six <unk>.
The snap retailer.
And that's really important to us.
Just behind the Walmart Kroger hold an albertsons. So we are the number one largest retailer of snap benefits in the dollar channel.
And think about the benefits as you noted that they announced that they're going to increase them.
Large in October significantly.
And family dollar what we really like about that is we've doubled.
2019 insight family dollar, but then inside that basket of snap, 42% of that customer buys a discretionary item.
So if you think about.
The work we've done on the discretionary side in that mix and looking forward in the basket, we think there's a big upside for us.
When the snap benefits continue to increase in October and then our capabilities in that the merchants have been on the discretionary side and our customer willing to add that to the basket when they are in their solar.
Oh, that's great and my second question is on the combo stores they look great.
And then move up to 85% of the new family dollars in that format is pretty exciting.
I'm curious what you would do with the existing family dollar stores and is there an opportunity to remodel some of them to convert and certain markets I guess, how does that how does.
Okay.
Oh, absolutely. So theres two things I mean, we also were not slowing down we've got 800 H two renovations that were going to continue to do and we like the results and the lift we're getting on those.
And then to your point in those 3000 towns that we've identified.
Tacking their new ones, but.
We're also in a thousand Omar ready so our team our real estate team is diligently going through there how long is that lease can we expand at where we're at can we relocate it.
Or is it big enough already so those are the things that we're going through on that thousand existing of the 3000.
The play Attunity. So we're.
We've got a team effort going against both of those new and then the relocated and new and then our existing will be focused on the <unk> renovations.
Okay, great. Thanks, Amit.
Okay.
Okay.
Operator right.
Unfortunately, we are getting close to the end of the call and all we have time for one more question. We will take our last question from Michael Lasser with UBS.
Good morning, Thanks, a lot, particularly good morning, Thanks, a lot for taking my question.
Dollar tree comp negative at a time when many other retailers.
Are really experiencing robust trends. This comes on the heels of challenges from Karen now transportation costs.
And family dollar issues before that.
Is it just too difficult to manage this business in an environment where.
Leasing is going to be structurally higher than it's been.
And.
All of this is translating to your earnings.
Expectation for 2021.
<unk> on par with where your earnings were in 2018.
At what point do you think.
It's going to be able to be in a position to start to resume growth in earnings that will be more consistent with what the market's accustomed to from dollar tree in the past.
Yes.
I can't reiterate more about my confidence in dollar tree's ability to grow and our ability.
To manage through these inflationary times you set this freight aside and we would be delivering exactly what you're describing and I am excited about the market opportunity out there and the beautiful thing is is we've got these strategic initiatives that will grow and well into the future and more importantly with everything.
<unk> you described we still got a strong balance sheet, we make a lot of cash flow and with our cash flow. We have the ability to keep growing this company growing of those infrastructure of the company and buying back shares to drive total shareholder wealth, So I like our opportunity going forward for.
Both dollar tree and family dollar.
Okay, Mike the biggest source of pushback, we've gotten from folks today is just on the core dollar tree comp.
<unk> negative when everyone else is seeing robust trends.
Putting aside dollar tree and putting aside some of the questions around traffic what gives you.
The confidence that you can see that the core of that business continue to improve independent of what's going to happen.
In the external environment.
And as a quick follow up Kevin could you walk us through the path for how freight costs theyre going to unfold beyond this year your comments were.
Not going to see relief in fiscal 'twenty two.
Youre, saying if you add this back you could earn close to $7 to win is it realistic for the market to expect you to earn this $7 targets.
Yes, I couldnt.
I can't reiterate enough how confident I am in a dollar tree format.
Especially with the dollar tree plus initiative that we're going to be driving to 5000 stores in just a short few years.
And then what I just described on what our merchants are able to do with a great value and the dollar price point and keep in mind. This dollar price point is going to be more important than ever as other retailers.
Dollars are driving their comps by raising prices that dollar price point is going to look good and I am confident going into the back half with our seasons with a product that we have and what our merchants are delivering we're going to continue to be able to drive this organization forward.
Michael.
As to your second part.
To your question as it relates to the freight.
Obviously, the marketplace in general or the expectation that it does not get.
Better necessarily in the first half and the other piece of what you have to remember is costs. Some of the costs that will incur this year in freight at the end of the year.
Our attached to those goods that then gets sold in the next year. So certain amount of freight gets capitalized into inventory as it comes in so as your inventory turns as when you burn that off so.
Anything.
Along the lines that we've been incurring will fall if there is a piece of that that falls into next year.
So thats, how you have to remember that as far as $7 lifting.
Obviously, we know what we know today a lot of things are going to change in the next six months.
And no more than in when we give guidance.
March of 2022 for the year.
Well again.
Again at a point, where we'll put our best foot forward on what we know at that point in time, so beyond that there is.
Nothing to speculate at this point.
Understood Good luck and thank you.
Alright, Mr. Carley I'd like to turn the conference back to you for any additional or closing remarks.
Okay. Thank you. Thank you for joining us for today's call. Our next earnings conference call to discuss Q3 results is tentatively scheduled for Tuesday November 23rd 2021, Thank you and have a good day.
This concludes today's call. Thank you all for your participation you may now disconnect.