Q4 2024 Dollar Tree Inc Earnings Call

Operator: Hello, and welcome to the Dollar Tree Q4 2023 Earnings. If anyone should require operator assistance, please press star zero on your telephone keypad. Our question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad.

Hello, and welcome to the dollar tree Q4, 2023 earnings call.

If anyone should require operator assistance. Please press star zero on your telephone keypad.

A question and answer session will follow the formal presentation.

Would be placed in the question queue at any time by pressing star one on your telephone keypad. We ask you. Please limit yourself to one question and then return to the queue at.

Operator: We ask that you please limit yourselves to one question and then return to your seats. At this time, I'd like to turn the call over to Bob LaFleur, Senior Vice President, Investor Relations. Please go ahead, sir.

At this time I'd like to turn the call over to Bob the floor Senior Vice President of Investor Relations. Please go ahead Sir.

Robert Andrew LaFleur: Good morning, and thank you for joining us today to discuss Dollar Tree's fourth-quarter results. With me today are Dollar Tree Chairman and CEO Rick Dreiling and CFO Jeff Davis. Before we begin, I would like to remind everyone that some of the remarks that we will make today about the company's expectations, plans, and future prospects are considered forward-looking statements under the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1994. These statements are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated by our forward-looking statements. For information on the risks and uncertainties that could affect our actual results, please see the Risk Factors, Business and Management Discussion and Analysis of Financial Condition and Results of Operations section in our annual report on Form 10-K, filed on March 10, 2023, our most recent press release and Form 8-K, and other filings with the SEC.

Bob: Good morning, and thank you for joining us today to discuss dollar Tree's fourth quarter results with me today are dollar trees, chairman and CEO, Rick Dreiling and CFO, Jeff Davies before we begin I would like to remind everyone that some of the remarks that we will make today about the company's expectations plans and future prospects are considered.

Bob: Forward looking statements under the Safe Harbor provision of the private Securities Litigation Reform Act of 1995.

These statements are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated by our forward looking statements.

Bob: For information on the risks and uncertainties that could affect our actual results. Please see the risk factors business and management discussion and analysis of financial condition and results of operations section in our annual report on Form 10-K filed on March 10th 2023, our most recent press release and form 8-K.

Bob: And other filings with the SEC, we caution against reliance on any forward looking statements made today and we disclaim any obligation to update any forward looking statements, except as required by law.

Robert Andrew LaFleur: We caution against reliance on any forward-looking statements made today, and we disclaim any obligation to update any forward-looking statements except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures; reconciliations of those non-GAAP items to the most directly comparable GAAP financial measures are provided in today's earnings release, available on the IR section of our website. These non-GAAP measures are not intended to be a substitute for GAAP results.

Bob: Also during this call we will discuss certain non-GAAP financial measures reconciliations of those non-GAAP items to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR section of our website.

Bob: These non-GAAP measures are not intended to be a substitute for GAAP results unless otherwise stated we will refer to our financial results on a GAAP basis.

Robert Andrew LaFleur: Unless otherwise stated, we will refer to our financial results on a gap-based basis. Additionally, unless otherwise stated, all comparisons discussed today are for the fourth quarter of fiscal 2023 or against the same period a year in advance. Please note that a supplemental slide deck outlining selected operating metrics is available in the IR section of our website. Following our prepared remarks, Rick and Jeff will take your questions. Given the number of callers who would like to participate in today's session, we ask that you limit yourself to one question.

Bob: Additionally, unless otherwise stated all comparisons discussed today are for the fourth quarter of fiscal 2023 are against the same period a year ago.

Bob: Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.

Bob: Following our prepared remarks, Rick and Jeff will take your questions.

Bob: Given the number of callers who would like to participate in today's session. We ask that you limit yourself to one question I'd now like to turn the call over to Rick.

Unknown Executive: I'd now like to turn the call over to Randy. Thanks, Bob. Good morning, everyone.

Richard W. Dreiling: Thanks, Bob Good morning, everyone.

Richard W. Dreiling: This past year, our organization made meaningful progress in the ongoing transformation of our core business, which includes building a foundation for sustainable. While I have been chairman and CEO for a year now, we are still in the early stages of this transformation journey. We're off to a good start, and we remain focused, and we are excited about the remaining transformation work that lies ahead of us. You've heard me say that sales per square foot, transactions, and units are among the most important benchmarks in retail. I am pleased to report that we are seeing growth across all three and momentum is building across the business. We are making progress on the operational objectives of our transformation, and in some areas, we are seeing positive results earlier than we expected. While the transformation process is dynamic, we remain focused on delivering against our core growth objectives and, as always, navigating through the challenges we encounter along the way.

Richard W. Dreiling: This past year, our organization made meaningful progress in the ongoing transformation of our core business, which includes building a foundation for sustainable growth.

Richard W. Dreiling: While I have been chairman and CEO for a year now we are still in the early stages of this transformation journey, we're off to a good start and we remain focused and we are excited about the remaining transformation work that lies ahead of us.

Richard W. Dreiling: You've heard me say that sales per square foot transactions and units are among the most important benchmarks in retail.

Richard W. Dreiling: I'm pleased to report that we are seeing growth across all three animal Mentum is building across the business.

Richard W. Dreiling: We are making progress on the operational objectives of our transformation and in some areas. We are seeing positive results earlier than we expected.

Richard W. Dreiling: While the transformation process is dynamic we remain focused on delivering against our core growth objectives and as always navigating through the challenges we encounter along the way.

Richard W. Dreiling: As I previewed on our last call, we are also taking decisive steps to strengthen the Family Dollar brand and better position it to achieve its full potential. We took a thoughtful and deliberate approach to address underperforming stores by considering each individual store's performance. The local operating environment and our broader need for scale and operating efficiencies across the portfolio. As part of the portfolio review process, we have identified approximately 600 Family Dollar stores that we will close in the first half of fiscal 2024. Additionally, approximately 370 more Family Dollar and $30 Dollar Tree stores will close at the end of each store's current lease term. We believe rationalizing these unprofitable locations will help to unlock meaningful value at the enterprise level.

Richard W. Dreiling: As I previewed on our last call. We are also taking decisive steps to strengthen the family dollar brand and better position it to achieve its full potential.

Richard W. Dreiling: We took a thoughtful and deliberate approach to address underperforming stores by considering each individual stores performance.

Richard W. Dreiling: Local operating environment, and our broader need for scale and operating efficiencies across the portfolio.

As part of the portfolio review process, we have identified.

Richard W. Dreiling: Proximately 600 family dollar stores that we will close in the first half of fiscal 'twenty 'twenty four. Additionally.

Richard W. Dreiling: Additionally, approximately 370 more family dollar and 30 dollar tree stores will close at the end of each store's current lease term.

Richard W. Dreiling: We believe rationalizing these unprofitable locations will help to unlock meaningful value at the enterprise level.

Richard W. Dreiling: Collectively, we estimate the net sales loss from the stores we intend to close this year is approximately $730 million on an annual run rate basis. On the other hand, given their historical underperformance, we would get back approximately 30 cents of annual run rate EPS, net, of any strategy. Now, let me shift gears and discuss our fourth quarter results on a consolidated basis. Net sales increased 12% to $8.6 billion, including a $560 million benefit from this year's 53rd week. Enterprise comp grew by 3% with 4.6% higher traffic, offsetting a 1.5% lower. Adjusted operating income increased by 21% to $749 million.

Richard W. Dreiling: Collectively we estimate that net sales loss from the stores, we intend to close this year is approximately $730 million on an annual run rate basis.

Richard W. Dreiling: On the other hand, given their historical underperformance, we would get back approximately 30 cents of annual run rate E. P. S net of any stranded costs.

Speaker Change: Now, let me shift gears and discuss our fourth quarter results on a consolidated basis net sales increased 12% to 8.6 billion, including a $560 million benefit from this year's 53rd week.

Speaker Change: Enterprise comp grew by 3% with 4.6% higher traffic offsetting a 1.5% lowered ticket.

Speaker Change: Adjusted operating income increased by 21% to $749 million.

Richard W. Dreiling: Adjusted EPS grew 25% to $2.55, while our quarter four reported EPS on an adjusted basis was below our quarter four outlook. These results include 17.. of Net Costs Primarily Related to Actuarial Insurance Adjustment that were not contemplated in our out, Jeff will provide more detail on this in his remarks, but without these unanticipated costs. Quarter four operating results exceeded our expectations. Looking at performance by Banner.

Speaker Change: Adjusted EPS grew 25% to $2.55.

Speaker Change: While our quarter four reported E. P. S on an adjusted basis was below our quarter. Four outlook. These results include 17 cents of net costs, primarily related to actuarial insurance adjustments that were not can't.

Speaker Change: <unk> played into our outlook.

Speaker Change: Jeff will provide more detail on this in his remarks, but without these unanticipated costs quarter four operating results exceeded our expectations.

Speaker Change: Looking at performance by banner dollar tree segment comps were up 6.3% on 7.1% more traffic and a 0.7% decrease in ticket track.

Richard W. Dreiling: Dollar Tree segment comps were up 6.3% on 7.1% more traffic and a 0.7% decrease in tick. Traffic and ticket both improved sequentially. This strong quarter 4 comp came on top of an 8.7% comp last year. Dollar Tree's consumable comp was up 10.8%, and his discretionary comp was up 3.1%. A 200 basis point sequential increase from Quarter 3 and an impressive accomplishment given the general weakness in discretionary demand across regions. The quarter's consumable comp came on top of a 9% comp last week. And as pleased as we are with Dollar Tree's fourth quarter performance, It's worth noting that we believe January's winter storms negatively impacted comp by about 70 bases. In Quarter 4, Dollar Tree continued to take unit market share in consumables. According to Nielsen, our unit volume grew 8% while the market declined 1.5%.

Speaker Change: Traffic and ticket both improved sequentially.

Speaker Change: This strong quarter for Com came on top of an 8.7% comp last year.

Speaker Change: Dollar Tree's consumable comp was up 10, 8% and is discretionary comp was up 3.1%.

Speaker Change: A 200 basis point sequential increase.

Speaker Change: From quarter, three and an impressive accomplishment given the general weakness in discretionary demand across retail.

Speaker Change: The quarter's consumable comp came on top of a 9% comp last year as pleased as we are with dollar tree's quarter four performance.

Speaker Change: It's worth noting that we believe january's winter storms negatively impacted comps by about 70 basis points.

Speaker Change: In quarter four dollar tree continued to take unit market share in consumables. According to Nielsen Our unit volume grew 8%, while the market declined 1.5%. These strong gains in traffic and market share are supported by.

Richard W. Dreiling: These strong gains in traffic and market share are supported by Dollar Tree's ability to attract new and higher-income customers. Continuing recent trends, Dollar Tree added 3.4 million new customers in 2023, mostly from households earning over $125,000 a year. We attribute Dollar Tree's exceptional performance to the range of initiatives we have been implementing. One of the most important initiatives at Dollar Tree is our multi-price point strategy, which we're calling More Choices. The underlying premise here is that we can present a more relevant assortment to our customers if we are free to offer items at a variety of prices. Here, we are making tremendous progress. We have substantially completed the rollout of $3, $4, and $5 frozen and refrigerated items, which are now available in more than 6,500 stores. Today, we typically offer multi-price frozen products in three coolers within our usual ten cooler band.

Speaker Change: Dollar tree's ability to attract new and higher income customers.

Speaker Change: Continuing recent trends dollar tree added 3.4 million new customers in 'twenty twenty-three, mostly from households, earning over $125000 a year.

Speaker Change: We attribute dollar tree's exceptional performance to the range of initiatives, we have been implementing.

Speaker Change: One of the most important initiatives at dollar tree is our multi price point strategy.

Speaker Change: Which we're calling more choices the underlying premise here is that we can present, a more relevant assortment to our customers. If we are free to offer items at a variety of price points here.

Speaker Change: Here, we are making tremendous progress.

Speaker Change: We have substantially completed the rollout of three dollar for dollar and five dollar frozen and refrigerated items, which are now available in more than 6500 stores.

Speaker Change: Today, we typically offer multi price frozen product in three coolers within our usual 10 Cougar bank.

Richard W. Dreiling: Over time, that will evolve to 8 out of 10 as we expand the assortment. By the end of 2023, we will introduce $3 and $5 center store merchandise to approximately 5,000 stores and expect to add another 2,000 stores this year. We are especially excited about the next phase of our multi-price expansion strategy. Dollar Tree's Chief Merchandising Officer, Rick McNeely, and his team are continuously working on new ways to deliver value while expanding our assortment across a wider range of prices. This expanded assortment will offer Dollar Tree shoppers a wider range of choices across a variety of categories, including food and snacks, beverages, pet care, personal care, and more. This year, across 3,000 stores, we expect to expand our multi-price assortment by over 300 items at price points ranging from $1.50 to $7.00.

Speaker Change: Over time that will evolve to eight out of 10 as we expand the assortment.

Speaker Change: By the end of 2023 we introduced three dollar in five dollar center store merchandise to approximately 5000 dollar tree stores and expect to add another 2000 stores this year.

Speaker Change: We are especially excited about the next phase of our multi price expansion strategy.

Speaker Change: Dollar Tree's, Chief merchandising officer, Rick Mcneely, and his team are continuously working on new ways to deliver value, while expanding our assortment across a wider range of price points. This expanded assortment will offer dollar tree.

Speaker Change: Choppers, a wider range of choices across a variety of categories, including food and snacks beverages pet care personal care and more.

Speaker Change: This year across 3000 stores, we expect to expand our multi price assortment by over 300 items at price points ranging from $1.50 to $7.

Speaker Change: But even as our multi price assortment expands over time, the vast majority of the items sold in dollar tree stores will remain at our entry level fixed price point.

Richard W. Dreiling: But even as our multi-price assortment expands over time, the vast majority of the items sold in Dollar Tree stores will remain at our entry-level fixed price. Over time, you will also see us fully integrate multi-price merchandise into our stores, so our shoppers will find $5 bags of dog food next to our traditional $1.25 pet treats and toys, and our $3 bags of candy will be found in the candy aisle.

Speaker Change: Over time, you also see is fully integrate multi price merchandise more into our stores. So our shoppers will find five dollar bags of dog food next door, a traditional $1.25 pet treats and toys and our three dollar bags of candy will be found in the candy.

Speaker Change: The aisle.

Richard W. Dreiling: This is the next exciting chapter of the Dollar Tree value story. New items, more choices, and more safety. Now, let's turn to Family Doll.

Speaker Change: This is the next exciting chapter of the dollar tree value story.

Speaker Change: New items more choices and more savings.

Speaker Change: Now, let's turn to family dollar.

Richard W. Dreiling: Here, persistent inflation and reduced government benefits continue to pressure the lower-income consumers that comprise a sizable portion of Family Dollar's customer base. Accordingly, Family Dollar's quarter 4 comp declined 1.2% as a.7% traffic increase was more than offset by a 2% ticket decline. Family Dollars Consumables Comp decelerated sequentially to 2.2% in Q4 from 6.2% in Q3. Discretionary comp was down a full 12 percent. As challenging as this was, it was a slight sequential improvement over quarter three. However, categories like apparel, home decor, electronics, and general merchandise remain weak as lower income consumers continue to be very deliberate about their spending.

Speaker Change: Here persistent inflation and reduced government benefits continued to pressure the lower income consumers that comprise a sizeable portion of family dollar's customer base Accordingly family dollars quarter for comp declined 1.2% as a point.

Speaker Change: 7% traffic increase was more than offset by 2% ticket decline family dollar's consumables comp decelerated sequentially to 2.2% in quarter four from six 2% in quarter three.

Speaker Change: [noise] discretionary comp was down a full 12%.

Speaker Change: As challenging as this was it was a slight sequential improvement over quarter three cat.

Speaker Change: Categories like apparel home decor electronics, and general merchandise remain weak as lower income consumers continue to be very deliberate about their spending.

Richard W. Dreiling: Family Dollar continued to take unit and dollar market share in consumables even as lower income consumers struggle with reduced SNAP benefits and other macro. In fact, we estimate the reduced SNAP payments per total quarter for a common by about five points, and when coupled with the weak discretionary demand, the comp impact was closer to seven. Looking forward, we expect reduced SNAP benefits will be a headwind through at least the first half of FY24 before comparison, while the operating environment remains difficult. However, I don't believe the challenges we face are structural, and I continue to believe that a well-run and well-located family dollar store is a powerful retail. As I mentioned earlier, we are taking aggressive actions to address underperforming stores, looking through the transient factors that weighed on comps throughout 2023.

Speaker Change: Family dollar continued to take unit and dollar market share in consumables, even as lower income consumers struggle with reduced snap benefits and other macro pressures in fact, we estimate the reduced snap payments her total quarter for comp.

Speaker Change: <unk> by about five points and when coupled with the weak discretionary demand the comp impact was closer to seven points.

Speaker Change: Looking forward, we expect reduced snap benefits will be a headwind through at least the first half of FY 'twenty four before comparisons ease.

Speaker Change: While the operating environment remains difficult I don't believe the challenges we face are structural and I continue to believe that a well run and well located family dollar stores are powerful retail force.

Speaker Change: As I mentioned earlier, we are taking aggressive actions to address underperforming stores.

Speaker Change: Looking through the transient factors that weighed on comps throughout 2023.

Richard W. Dreiling: I am encouraged by the fact that, in a more normalized operating environment, our comps would have been higher. We believe our ongoing market share gains are a strong validation of the many initiatives we have underway. We are gaining traction in the vast majority of stores where they've been implemented, and I continue to believe that the Family Dollar banner is well-positioned for long-term improvement as we continue to focus on operational excellence and financial performance. Before I turn the call over to Jeff, I'd like to update you on some of the key milestones we have achieved so far in our transformation journey. In real estate, we opened 641 new stores last year, which was at the high end of our target of 600 to 600.

Speaker Change: I am encouraged by the fact that in a more normalized operating environment, our comps would have been higher.

Speaker Change: We believe our ongoing market share gains are a strong validation of the many initiatives we have underway.

Speaker Change: We are gaining traction in the vast majority of stores, where they've been implemented and I continue to believe that the family dollar banner is well positioned for long term improvement as we continue to focus on operational excellence and financial performance.

Speaker Change: Before I turn the call over to Jeff I'd like to update you on some of the key milestones we have achieved so far in our transformation journey.

Jeffrey A. Davis: In real estate, we opened 641, new stores last year, which was at the high end of our target of 600 to 650.

Richard W. Dreiling: Selling square footage increased 3.6%, which was ahead of target. We are placing a greater emphasis on Dollar Tree openings, given the attractive returns and performance, and we expect the vast majority of our new store openings in fiscal 2024 will be Dollar. I'm excited about the overall quality of our project pipeline for both bands. In the supply chain, our D.C. and Matthews, North Carolina, are now providing RotoCart deliveries to approximately 600 family dollar stores, and we are also testing RotoCart deliveries to Dollar Tree from our D.C. here in Chester.

Jeffrey A. Davis: Selling square footage increased 3.6%, which was ahead of target.

Jeffrey A. Davis: We are placing a greater emphasis on dollar tree openings, given the attractive returns and performance and we expect the vast majority of our new store openings in fiscal 'twenty 'twenty four will be dollar trees.

Jeffrey A. Davis: I'm excited about the overall quality of our project pipeline for both banners and.

Jeffrey A. Davis: In supply chain, our D C. In Matthews North Carolina is now providing rota cart deliveries to approximately 600 family dollar stores and we are also testing roto car deliveries to dollar tree stores from our D. C. Here in Chesapeake by the end of this year over 3000.

Richard W. Dreiling: By the end of this year, over 3,000 stores should be receiving Rotocart deliveries from a total of six D.C. locations, four for Dollar Tree and 2 for Family Dollar. As expected, we are already seeing a meaningful reduction in unloading times at stores using RotoCop, and we expect those efficiencies will continue to build. Expanding and modernizing our trailer fleet is an important part of the Roto-Car-A-Nit. To this end, we added nearly 900 new trailers with lift gates to the fleet in 2023 and expect to add 2,000 more this coming year.

Jeffrey A. Davis: Stores should be receiving rotor card deliveries from a total of six D. CS four for dollar tree and two for family dollar as expected we are already seeing a meaningful reduction in unloading times at stores using road of cards and we expect those.

Jeffrey A. Davis: Wyszynski, Yes, we'll continue to build expanding and modernizing our trailer fleet is an important part of the Roto card initiative.

To this end we added nearly 900, new trailers with lift gates to the fleet in 2023 and expect to add 2000 more of this coming year.

Richard W. Dreiling: By the end of 2023, nine of our DCs will be temperature controlled. By the end of this year, all 25 of our D.C.s should be either fully temperature-controlled or have dedicated temperature-controlled facilities on site. Temperature-controlled DCs help reduce cross-stocking costs and allow us to carry OTC and other temperature-sensitive products throughout our distribution now. They also increase productivity by providing associates with a safer and more comfortable working environment.

Jeffrey A. Davis: By the end of 'twenty twenty-three nine of our D C's where temperature controlled.

Jeffrey A. Davis: By the end of this year, all 25 of our D. CS should be either fully temperature controlled or have dedicated temperature controlled facilities onsite.

Jeffrey A. Davis: Temperature control D. CS help reduce cross docking costs and allow us to carry O T C and other temperature sensitive products throughout our distribution network.

Jeffrey A. Davis: They also increase productivity by providing associates with a safer and more comfortable working environment.

Jeffrey A. Davis: And finally, we continued to make progress on our completely revamped family dollar D C and west Memphis.

Richard W. Dreiling: And finally, we continue to make progress on our completely revamped Family Dollar D.C. in West Memphis, which should improve the overall efficiency of our distribution. As you probably saw in the news last month, Family Dollar reached a resolution with the U.S. Department of Justice regarding its West Memphis, Tennessee, location, and we are pleased to have this situation. As part of our ongoing transformation effort, we continue to strengthen and enhance our food and product safety protocols and our compliance with them. In our IT modernization, our new warehouse management system is up and running at its first D.C. Concurrent with this rollout, we are also deploying and integrating our new Transportation Management and Labor Management solutions. Over time, we expect these enterprise-wide solutions to contribute to the optimization of our distribution network and labor efficiency. We have also installed new network infrastructure in over 3,800 stores.

Jeffrey A. Davis: Which should improve the overall efficiency of our distribution network.

Jeffrey A. Davis: As you probably saw in the news last month family dollar reached a resolution with the U S Department of Justice regarding its west Memphis D. C. And we are pleased to have this situation behind us as.

Jeffrey A. Davis: As part of our ongoing transformation efforts, we continue to strengthen and enhance our food and product safety protocols and our compliance oversight.

Jeffrey A. Davis: In our I T modernization, our new warehouse management system is up and running and its first D. C. Concurrent with this rollout. We are also deploying and integrating our new transportation management and Labor management system over time, we expect.

Jeffrey A. Davis: These enterprise wide solutions to contribute to the optimization of our distribution network and labor efficiency.

Jeffrey A. Davis: We have also installed new network infrastructure in over 3800 stores, bringing improved internet connectivity security and in store Wifi access to better support store operations.

Richard W. Dreiling: Bringing improved internet connectivity, security, and in-store Wi-Fi access to better support store operations. Since our last report, we have also begun implementation work on both our new enterprise-wide POS solution and our new human capital and payroll system. We have also launched new mobile apps for both Family Dollar and Dollar Tree. The Family Dollar app allows us to offer more targeted promotions and a better customer experience. The Dollar Tree app gives shoppers the ability to see new products, view weekly ads, receive notifications about great deals, and do...

Jeffrey A. Davis: Since our last report we have also begun implementation work on both our new enterprise wide P. O S solution, and our new human capital and payroll management system.

Jeffrey A. Davis: We have also launched new mobile apps for both family dollar and dollar tree. The family dollar App allows us to offer more targeted promotions and a better customer experience. The dollar tree at gives shoppers the ability to see new products view weekly ads receive.

Jeffrey A. Davis: Notifications about great deals and do price checks.

Richard W. Dreiling: In private brands, we launched approximately 250 new SKUs and converted over 300 control brands to private. The Private Brand Program is one of the most significant initiatives underway at FamilyDollar, and I'm excited that we now have a highly competitive offer that expands our assortment across multiple categories and offers the Family Dollar Consumer National Brand Equivalent product at Compelling Value. By the end of last year, our private brand penetration reached 15 percent.

Jeffrey A. Davis: In private brands, we launched approximately 250, new S Skus and converted over 300 control brands to private brands. The private brand program is one of the most significant initiatives underway at family dollar and I'm excited that we now have a highly compare.

Jeffrey A. Davis: Dave offering that expands our assortment across multiple categories and offers the family dollar consumer national brand equivalent products at compelling values.

Jeffrey A. Davis: By the end of last year, our private brand penetration reached 15% 100 basis points ahead of our target and a great headstart towards reaching our 20% goal by 2026.

Richard W. Dreiling: 100 basis points ahead of our target and a great head start towards reaching our 20% goal by 2020. On category resets, I'd like to take this opportunity to recognize Family Dollar's Chief Merchandising Officer, Larry Gatta, and his team for their efforts to expand and improve our merchandising assortment. By the end of 2023, we successfully raised the merchandise height profile to 78 inches across the banner and optimized our assortment with the addition of approximately 900 net new SKUs. These efforts are already having a meaningful impact on our results.

Jeffrey A. Davis: On category resets I'd like to take this opportunity to recognize family dollar as Chief merchandising officer, Larry Gander and his team for their efforts to expand and improve our merchandising assortment.

Jeffrey A. Davis: By the end of 2023, we successfully raised the merchandise high profile to 78 inches across the banner and optimize our assortment with the addition of approximately 900 net new skus.

Jeffrey A. Davis: These efforts are already having a meaningful impact on our results.

Richard W. Dreiling: Adding 130 basis points to our quarter four comp, which helped offset at least some of the impact from the softer macro environment and comparatively weaker discretionary demands. This reset was a major undertaking for Larry's team, and our new planograms will allow us to expand and improve our product assortment and help Family Dollar gain additional markets. We are also moving forward with our goal of increasing the number of cooler doors and Family Dollar Stores. We added over 17,000 cooler doors last year, which was 1,000 doors above our target and brought our average across the family dollar segment to 26 coolers per store, which is approaching our goal of 30 coolers.

Jeffrey A. Davis: Adding 130 basis points to our quarter, four comp, which helped offset at least some of the impact from the softer macro environment and comparatively weaker discretionary demand.

Jeffrey A. Davis: This reset was a major undertaking for Larry's team and our new plan O grams will allow us to expand and improve our product assortment and help family dollar gain additional market share.

Jeffrey A. Davis: We are also moving forward with our goal of increasing the number of cooler doors in family dollar stores.

Jeffrey A. Davis: We added over 17000 cooler doors last year, which was 1000 doors above our target and brought our average across the family dollar segment to twenty-six coolers per store, which is approaching our goal of 30 coolers per store.

Richard W. Dreiling: In summary, we continue to execute well around factors that we can control. I've said before that our progress on this journey will include challenges, with the belief that we will succeed more often than not in our efforts, but the direction and destination remain clear, which is the long-term health and success of our business for the benefit of our customers and associates.

Jeffrey A. Davis: In summary, we continue to execute well around factors that we can control.

Jeffrey A. Davis: I've said before that our progress on this journey will include challenges with the belief that we will succeed more often than not in our efforts, but the direction and destination remain clear, which is the long term health and success of our business.

Jeffrey A. Davis: <unk> for the benefit of our customers associates stakeholders and partners.

Richard W. Dreiling: stakeholders and partners. Our growth initiatives are central to this journey, and we are focused on continually improving even in the face of a rapidly evolving macroeconomic system. We have an outstanding team with a cultural foundation focused on service to the customer and improving our performance each and every day. We remain relentlessly focused on retail fundamentals and continue to gain market share.

Jeffrey A. Davis: Our growth initiatives are central to this journey and we are focused on continually improving even in the face of a rapidly evolving macro landscape.

We have an outstanding team with a cultural foundation focused on service to the customer and improving our performance each and every day.

Jeffrey A. Davis: We remain relentlessly focused on retail fundamentals and continued to take market share.

Jeffrey A. Davis: While challenges and macroeconomic factors will always be part of any retail journey, we continue to face them head-on as they arise. We're excited about where we are and optimistic about where we are headed. With that, I'll turn the call over to you.

Jeffrey A. Davis: While challenges and macroeconomic factors will always be part of any retail journey.

Jeffrey A. Davis: We continued to face them head on as they arise we're excited about where we are and optimistic about where we're headed.

Jeffrey A. Davis: With that I'll turn the call over to Jeff. Thank you Rick and good morning.

Jeffrey A. Davis: Thank you, Rick, and good morning. I will first discuss our fourth-quarter results, after which I'll provide some details on the financial impact of the portfolio optimization and close with our fiscal 2024 and Q1 outlook. As I discuss our fourth quarter results, where applicable, I will focus on our non-GAAP adjusted results. A reconciliation between GAAP and non-GAAP is provided in our earnings release. Also, as a reminder, our Q4 and full year 2023 results. In addition, we included an extra week of operation, which gave us an incremental $560 million in revenue and 35 cents of EPS for the quarter and the year. In the fourth quarter, the Dollar Tree and Family Dollar segments increased traffic, unit volume, and market share by, despite consistent headwinds from an unfavorable sales mix and reduced SNAP benefits. Looking at the business on a consolidated basis, net sales increased 12% to $8.6 billion. The suggested operating income was $749 million.

Jeffrey A. Davis: I will first discuss our fourth quarter results after which I'll provide some details on the financial impact of the portfolio optimization and close with our fiscal 'twenty 'twenty, four and Q1 outlook.

Jeffrey A. Davis: As I discuss our fourth quarter results, where applicable I will focus on our non-GAAP adjusted results a reconciliation between GAAP and non-GAAP is provided in our earnings release.

Jeffrey A. Davis: Also as a reminder, our Q4 and full year 2023 results include an extra week of operations, which gave us an incremental $560 million in revenue and 35 cents of EPS for the quarter and the year.

Jeffrey A. Davis: In the fourth quarter, the dollar tree and family dollar segments increased traffic unit volume and market share despite persistent headwinds from an unfavorable sales mix and reduced snap benefits.

Jeffrey A. Davis: Looking at the business on a consolidated basis net sales increased 12% to $8.6 billion.

Jeffrey A. Davis: Adjusted operating income was $749 million, a 21% increase from last year.

Jeffrey A. Davis: 21% increase from last year. Operating Margin increased by 70 bases, driven by a 220 basis point increase in adjusted gross margin and offset by a 150 basis point increase in adjusted SG&A. Suggested gross profit increased 20% to $2.9 billion. Adjusted Gross Margin improvement was driven primarily by lower freight, Occupancy Cost Leverage from the Extra Week, and Higher Vendor Allowance, partially offset by product cost inflation. Unfavorable Sales Mix and Elevated Shrink. Adjusted SG&A expenses increased primarily from ongoing labor investments, higher incentive compensation, and depreciation. Partially offset by leverage from additional sales from the extra week. Our adjusted effective tax rate was 23.1% compared to 23.4%.

Jeffrey A. Davis: Adjusted operating margin increased by 70 basis points, driven by a 220 basis point increase in adjusted gross margin and offset by a 150 basis point increase in adjusted SG&A rate.

Adjusted gross profit increased 20% to $2 $9 billion adjusted gross margin improvement was driven primarily by lower freight costs.

Jeffrey A. Davis: Occupancy cost leverage from the extra week and higher vendor allowances.

Jeffrey A. Davis: Partially offset by product cost inflation unfavorable sales mix and elevated shrink.

Jeffrey A. Davis: Adjusted SG&A expenses increased primarily from ongoing labor investments higher incentive compensation unfavorable general liability claim development and depreciation.

Jeffrey A. Davis: We offset by leverage from additional sales from the extra week.

Jeffrey A. Davis: Our adjusted effective tax rate was 23, 1% compared to 23, 4%.

Jeffrey A. Davis: Adjusted net income was $556 million and adjusted EPS was $2 55, which includes the.

Jeffrey A. Davis: Adjusted income was $556 million, and adjusted EPS was $2.55, which includes the 17 cents per share negative impact primarily from unfavorable general liability insurance. Before I move on to segment level results, let me spend a moment to walk you through the non-gap adjustment and our Q4 results and shed some additional light on the $0.17 per share negative impact primarily from unfavorable general liability insurance. The first non-GAAP adjustment was related to the portfolio review process. Here, we incurred total non-cash charges of $594 million.

Jeffrey A. Davis: <unk> 17 cents per share negative impact primarily from unfavorable general liability insurance claims.

Speaker Change: Before I move on to segment level results, let me spend a moment to walk you through the non-GAAP adjustments in our Q4 results and shed some additional light on the 17th cents per share negative impact primarily from unfavorable general liability insurance claims.

Speaker Change: The first non-GAAP adjustment was related to the portfolio review process here.

Speaker Change: Here, we incurred total noncash charges of $594 million, including $86 million for inventory markdowns and $504 million for store asset impairments.

Jeffrey A. Davis: Including $86 million for inventory markdowns and $504 million for Store Asset Impairment, we also incurred an additional $4 million of related fees. The second non-GAAP adjustment was a non-cash impairment charge of $2 billion for family dollars, including $1.1 billion related to goodwill and $950 million related to the trade. The third non-GAAP adjustment was a $27 million charge for SG&A related to the resolution we reached with the Department of Justice regarding our West Memphis distribution.

Speaker Change: We also incurred an additional $4 million of related fees.

Speaker Change: The second non-GAAP adjustment was a noncash impairment charge of $2 billion for family dollar, including 1.1 billion related to goodwill and $950 million related to the trade name.

Speaker Change: The third non-GAAP adjustment was a $27 million charge within SG&A related to the resolution we reached with the department of Justice regarding our West Memphis distribution Center.

Jeffrey A. Davis: This was in addition to the $30 million West Memphis Reserve we recorded in Q1. Outside of the non-GAAP adjustments, Q4 results included 17.. Net EPS Headwinds Related to Items That Weren't Contemplated in our Q4 Outlook. These items include negative adjustments to our general liability accrual, which were partially offset by favorable adjustments to workers' compensation liability, and the elimination of certain rent and depreciation expenses.

Speaker Change: This was in addition to the 30 million dollar West Memphis Reserve, we recorded in Q1.

Speaker Change: Outside of the non-GAAP adjustments Q4 results included 17 cents.

Speaker Change: Of net EPS headwinds related to items that weren't contemplated in our Q4 outlook.

Speaker Change: These items include negative adjustments to our general liability accruals, which were partially offset by favorable adjustments to workers compensation liabilities and the elimination of certain rent and depreciation expenses as part of our family dollar impairment process.

Jeffrey A. Davis: Part of our Family Dollar Impairment Process. Adjustments to general liability accruals may sound familiar to many of you. We absorbed seven cents of EPS impact from this issue in the second quarter of 2023. So let me explain why we are revisiting this in Q4, in the process of accruing for potential general liability exposure. Predicting the outcome of both existing and unreported claims is inherently complex.

Speaker Change: Adjustments to general liability accruals may sound familiar to many of you as we absorb seven cents of EPS impact from this issue in the second quarter of 2023. So let me explain why we are revisiting this in Q4.

Speaker Change: In the process of accruing for potential general liability exposure.

Speaker Change: Addicting the outcome of both existing and unreported claims is inherently complex.

Jeffrey A. Davis: We rely on third-party actuarial analysis to estimate insurance reserves on an ongoing basis. As we discussed in our second quarter call, general liability claims have been more volatile in recent years. Since the pandemic, the development of claims has worsened.

Speaker Change: We rely on third party actuarial analysis to estimate insurance reserves on an ongoing basis.

Speaker Change: As we discussed in our second quarter call General liability claims have been more volatile in recent years.

Speaker Change: Since the pandemic the development of claims has worsened.

Jeffrey A. Davis: The charge taken this quarter intends to capture this new environment. To address this over the long term, we have upgraded our risk management capabilities and revised our processes to focus on claim closures among other areas, as we continue to address all open claims with our new process. Our actuarial studies should reflect more normalized risk exposure over time.

Speaker Change: The charge taken this quarter intense to capture this new environment.

Speaker Change: To address this over the long term, we have upgraded our risk management capabilities and revised our processes to focus on claim closures among other areas.

Speaker Change: As we continue to address all open claims with our new processes, our actuarial studies should reflect more normalized rests exposure over time.

Jeffrey A. Davis: Now back to our business segment results. Dollar Tree's net sales increased by 16% to $5 billion, and adjusted operating income increased 21% to $873 million.

Speaker Change: Now back to our business segment results dull.

Speaker Change: Dollar trees net sales increased by 16% to $5 billion.

Speaker Change: Adjusted operating income increased 21% to $873 million.

Jeffrey A. Davis: Adjusted operating margin increased 80 basis points, driven by a 230 basis point increase in gross margin, partially offset by a 150 basis point increase in adjusted SG&A rates. Gross margin increased primarily from lower domestic and import freight, and favorable occupancy costs leveraged due to the 53rd. These were partially offset by mixed pressures from lower margin consumables. Cost inflation, Higher distribution and merchandise costs, and elevated shrink; suggested SG&A expenses expanded principally from unfavorable general liability insurance claims and higher payroll. Appreciation, Hammerization, and Repairs in Maintenance.

Speaker Change: Adjusted operating margin increased 80 basis points, driven by a 230 basis point increase in gross margin, partially offset by a 150 basis point increase in adjusted SG&A rate.

Speaker Change: Gross margin improved primarily from lower domestic and import freight costs and favorable occupancy cost leverage due to the 53rd week. These.

Speaker Change: These were partially offset by mixed pressures from lower margin consumables.

Speaker Change: Cost inflation higher distribution and merchandise costs and elevated shrink.

Speaker Change: Adjusted SG&A expenses expanded principally from the unfavorable general liability insurance claims and higher payroll expenses dip.

Speaker Change: Depreciation amortization and repairs and maintenance.

Jeffrey A. Davis: Family dollars net sales increased by 7% to $3.7 billion. Suggested operating income was $7.2 million compared to $1.4 million. An adjusted operating margin increased 20 basis points on a 160 basis point increase in adjusted gross margin, offset by a 140 basis point increase in adjusted SG&A rate. Adjusted gross margin increased primarily from lower freight. Mark on Increases Resulting from Vendor Allowance, Lower Occupancy, and Distribution, partially offset by higher shrink and sales. Adjusted SG&A Expense, increased primarily from unfavorable general liability claims.

Speaker Change: Family dollars net sales increased by 7% to $3 $7 billion adjusted operating income was $7 $2 million compared to $1.4 million.

Speaker Change: And adjusted operating margin increased 20 basis points on a 160 basis point increase in adjusted gross margin offset by a 140 basis point increase in adjusted SG&A rate.

Speaker Change: Adjusted gross margin increased primarily from lower freight mark.

Speaker Change: Mark on increases, resulting from vendor allowances lower occupancy and distribution costs parse.

Speaker Change: Partially offset by higher shrink and sales mix.

Speaker Change: Adjusted SG&A expenses increased primarily from unfavorable general liability claims store labor investments repairs and maintenance and depreciation.

Jeffrey A. Davis: Store Labor Investments, Repairs and Maintenance, and Depreciation. Moving on to the balance sheet and free cash, inventory decreased by 6.2%, reflecting a decrease of $337 million.

Speaker Change: Moving onto the balance sheet and free cash flow.

Speaker Change: Inventory decreased by 6.2%, reflecting a decrease of $337 million.

Jeffrey A. Davis: Relative to last year, our sell-through of seasonal merchandise was strong. In addition, we had more capitalized freight costs and inventory last year. Fourth quarter capital expenditures were $784 million versus $328 million, reflecting the record 219 new stores we opened in the quarter and Elevated Investments in Other Renovations, Supply Chain, and IT to support our growth initiatives. Free cash flow declined by $82 million versus the fourth quarter last year.

Speaker Change: Relative to last year, our sell through of seasonal merchandise was strong. In addition, we had more capitalized freight costs and inventory last year.

Speaker Change: Fourth quarter capital expenditures were $784 million versus $328 million.

Speaker Change: Reflecting the record 219, new stores, we opened in the quarter.

Speaker Change: An elevated investments in other renovations supply chain and I T to support our growth initiatives free.

Speaker Change: Free cash flow declined by $82 million versus the fourth quarter last year, reflecting higher levels of capital expenditures at year end.

Jeffrey A. Davis: Although reflecting higher levels of capital expenditures at year end, for fiscal 2023, free cash flow improved by $217 million versus the same period last year. Led largely by lower merchandise inventories and the timing of accounts payable, partially offset from lower net income adjusted for non-cash items and increased Cap-Ex, this improvement for the full year comes despite a challenging macro environment and significantly higher levels of investments to support our multi-year growth strategy. Given the portfolio review process, we did not repurchase any shares in the open market during Q4. For the year, we repurchased 3.9 million shares for $504 million, including applicable excise fees.

Speaker Change: For fiscal 2023 free.

Speaker Change: Free cash flow improved by $217 million versus the same period last year led.

Speaker Change: Led largely by lower merchandise inventories and the timing of accounts payable with a partial offset from lower net income adjusted for noncash items and increased capex.

Speaker Change: This improvement for the full year comes despite a challenging macro environment and significantly higher levels of investments to support our multiyear growth strategy give.

Speaker Change: Given the portfolio review process, we did not repurchase any shares in the open market during Q4 <unk>.

Speaker Change: For the year, we repurchased three 9 million shares for $504 million, including applicable excise tax.

Jeffrey A. Davis: At the end of fiscal 2023, we had $1.35 billion remaining under our share repurchase authorization. Cash and cash equivalents totaled $685 million, compared to $643 million. At year end, our leverage, as defined under our revolving credit agreement, stood at approximately 2.4 times.

Speaker Change: At the end of fiscal 2023, we had $1.35 billion remaining under our share repurchase authorization.

Speaker Change: Cash and cash equivalents totaled $685 million compared to $643 million.

Speaker Change: At year end, our leverage as defined under our revolving credit agreement stood at approximately 2.4 times.

Jeffrey A. Davis: Before I move on to our fiscal 24 and Q1 outlook, I'd like to take a moment to level set our 2023 performance to give you some deeper perspective on the foundation upon which our 2024 outlook is built. We think the best way to look at fiscal 23 is to start with our non-gap adjusted full year EPS of $5.89. As I mentioned earlier, this adds back all the costs associated with a portfolio review. The Goodwill and Trade Name Impairments and the West Memphis Resolution

Speaker Change: Before I move on to our fiscal 'twenty, four and Q1 outlook I'd like to take a moment to level set our 2023 performance to give you some deeper perspective on the foundation upon which our 'twenty 'twenty four outlook is built.

Speaker Change: We think the best way to look at fiscal 'twenty three is to start with our non-GAAP adjusted full year EPS of $5.89.

Speaker Change: As I mentioned earlier this adds back all of the costs associated with the portfolio review.

Speaker Change: The goodwill and trade name impairments and the West Memphis resolution.

Jeffrey A. Davis: On top of that, we got about 29 cents related to costs we called out in quarters two, three, and four, including the insurance true-up, the OTC recall, and other discreet items. Finally, the 53rd week this year added an extra 35 cents of EPS. Taking all that into consideration gets you to approximately $5.83 of EPS.

Speaker Change: On top of that we got about 29 cents related to costs, we called out in quarters, two three and four including the insurance true ups.

Speaker Change: The OTC recall and other discrete items.

Speaker Change: Finally, the 50 <unk> week. This year added an extra 35 cents of E. P. S.

Speaker Change: Taking all that into consideration gets you to approximately $5.83 of EPS.

Jeffrey A. Davis: Coming from the underlying operating performance of the business in 2023 on a 52-week basis. So, with this $5.83 as a 2023 starting point, I'd like to discuss a few things that we expect to affect the actual operating performance of the business in 2024. First,

Speaker Change: Coming from the underlying operating performance of the business in 2023 on a 52 week basis.

Speaker Change: So with this $5.83 as a 2023 starting point I'd like to discuss a few items that we expect to affect the actual operating performance of the business and 'twenty 'twenty four.

First <unk>.

Jeffrey A. Davis: Lower ground and ocean freight costs benefited our full year 2023 EPS by approximately $1.50, which was nicely ahead of our original expectation. On the other side of the ledger, Shrink and Mix increased EPS by approximately $1.15 on a full year basis, which is also more than we originally expected. Said another way, the 2023 shrink and mixed headwinds offset about three-quarters of the benefit we receive from lower freight costs. The good news is that, based on current rates, we expect to realize additional freight savings in FY24. The bad news is that the base level of shrink and mixed headwinds is meaningfully worse than we had previously expected.

Speaker Change: Lower ground and ocean freight costs benefited our full year 2023, EPS by approximately $1 50.

Speaker Change: Which was nicely ahead of our original expectations.

Speaker Change: On the other side of the ledger shrink and mix hurt E. T. S by approximately $1 15 on a full year basis, which is also more than we originally expected.

Speaker Change: Said, another way the 'twenty twenty-three shrink and mix headwinds offset about three quarters of the benefit we receive from lower freight costs last year.

Speaker Change: The good news is that based on current rates, we expect to realize additional freight savings in FY 'twenty four.

Speaker Change: The bad news is that the base level of shrink and mix headwinds as meaningfully worse than we had previously expected.

Jeffrey A. Davis: We anticipate these headwinds to be concentrated in the first half of 2024 and then moderate longer term as the macro environment normalizes and our self-help initiatives start to yield results. In light of these factors, and to address the immediate macroeconomic environment, in 2024, we will be optimizing our SG&A and capital expenditure investment.

Speaker Change: We anticipate these headwinds to be concentrated in the first half of 2024, and then moderate longer term has the macro environment normalizes and our self help initiatives start to yield results.

Speaker Change: In light of these factors and to address the immediate macro economic environment in 'twenty 'twenty, four we will be optimizing our SG&A and capital expenditure investments to support our growth initiatives.

Jeffrey A. Davis: Support our growth initiative. So with that, let's move on to our full year and Q1. Consolidated net sales for fiscal 2024 are expected to be in the range of $31 to $32 billion.

Speaker Change: So with that let's move on to our full year and Q1 outlook.

Speaker Change: Consolidated net sales for fiscal 2024 are expected to be in the range of $31 billion to $32 billion.

Jeffrey A. Davis: For the full year, we expect low to mid-single-digit comparable net sales growth for the enterprise, low single-digit growth for the family dollar sector, and mid-single-digit growth for the Dollar Tree. Adjusting for the stores that are closing as part of the portfolio optimization, we expect fiscal year 24 net sales for the family dollar segment to decline by 1-3% on a year-over-year basis. Diluted EPS for the full year is expected to be in the range of $6.70 to $7.30. For Q1, we expect net sales to be in the range of $7.6 to $7.9 billion, based on comparable net sales growth in the low to mid-single digits for both the enterprise and Dollar Tree segments and approximately flat for the family dollar segment. Diluted EPS for the first quarter is expected to be in the range of $1.33 to $1.48.

Speaker Change: For the full year, we expect low to mid single digit comparable net sales growth for the enterprise.

Speaker Change: Low single digit growth for the family dollar segment and.

Speaker Change: And mid single digit growth for the dollar tree segment.

Speaker Change: Adjusting for the stores that are closing as part of the portfolio optimization, we expect fiscal year 'twenty four net sales for the family dollar segment to decline by 1% to 3% on a year over year basis.

Speaker Change: Diluted EPS for the full year is expected to be in the range of $6 70 to $7.30.

Speaker Change: For Q1, we expect net sales to be in the range of $7.6 billion to $7.9 billion.

Speaker Change: Based on comparable net sales growth in the low to mid single digits for both the enterprise and dollar tree segment and approximately flat for the family dollar segment.

Speaker Change: Diluted EPS for the first quarter is expected to be in the range of $1 33 to $1 48.

Jeffrey A. Davis: Our outlook for Q1 and Fiscal 24 does not include any severance or other incremental costs related to the portfolio review process. Having given you our high-level expectations, let me share some of the key factors and assumptions that are incorporated in our Fiscal 24 Outlook. We expect full-year gross margin in the Dollar Tree segment will be in the range of 36 to 36.5 percent, reflecting our strong comp outlook for the year and reduced freight expenses. In the Family Dollar segment, we expect full-year gross margin will be in the range of 24.5 to 25 percent as elevated shrinks, unfavorable mix, and reduced SNAP benefits remain headwinds through at least the first half of the year. We expect lower freight costs to provide approximately $0.80 to $0.90 of full-year EPS benefit in fiscal 2024.

Speaker Change: Our outlook for Q1 and fiscal 'twenty four does not include any severance or other incremental costs related to the portfolio review process.

Speaker Change: Having given you our high level expectations, let me share some of the key factors and assumptions that are incorporated in our fiscal 'twenty four outlook.

Speaker Change: We expect full year gross margin in the dollar tree segment will be in the range of 36 to 36, 5%.

Speaker Change: Reflecting our strong comp outlook for the year and reduced freight expenses.

Speaker Change: And the family dollar segment, we expect full year gross margin will be in the range of 24.5% to 25% as elevated shrink.

Speaker Change: Unfavorable mix and reduced snap benefits remained headwinds through at least the first half of the year.

Speaker Change: We expect lower freight costs to provide approximately 80 to 90 cents of full year EPS benefit in fiscal 'twenty. Four this is a bit below the one dollar benefit we've discussed previously and reflects the current conditions in the global shipping market, including lower water levels in the Pan.

Jeffrey A. Davis: This is a bit below the $1.00 benefit we've discussed previously and reflects the current conditions in the global shipping market, including lower water levels in the Panama Canal and the Red Sea situation. We expect approximately 60% of the freight savings to come in the first half of the year, with Q1 seeing the greatest benefit before it moderates in each subsequent quarter. Our fiscal 24 outlook also assumes approximately $0.30 to $0.35 of EPS headwinds from unfavorable mix and elevated shrink. Nearly all of these headwinds will be absorbed in the first half of the year as we analyze our 2023 exit rate on these items, with approximately two-thirds of the impact coming in Q1 and the balance in Q2. While we don't expect to get meaningful relief from shrink and mix pressures in the back half of the year, we expect the year-over-year impact to be more or less neutral in the back half. We expect full-year SG&A expenses as a percent of total revenue to be approximately 25%.

Speaker Change: <unk> can now in the Red Sea situation.

Speaker Change: We expect approximately 60% of the freight savings to come in the first half of the year with Q1 seeing the greatest benefit.

Speaker Change: Before it moderates in each subsequent quarter.

Speaker Change: Our fiscal 'twenty four outlook also assumes approximately 30 to 35 cents of EPS headwinds from unfavorable mix and elevated shrink near.

Speaker Change: Nearly all of these headwinds will be absorbed in the first half of the year as we annualize our 2023 exit rate on these items.

Speaker Change: With approximately two thirds of the impact coming in Q1 and the balance in Q2.

Speaker Change: While we don't expect to get meaningful relief from shrink and mix pressures in the back half of the year, we expect the year over year impact to be more or less neutral in the back half.

We expect full year SG&A expenses as a percent of total revenue will be approximately 25%.

Jeffrey A. Davis: Our fiscal 24 SG&A outlook for the Dollar Tree segment reflects the incremental one-time reconfiguration costs that we expect to absorb at each of the 3,000 stores we are scheduled for conversion into our expanded and fully integrated multi-price format this year, within our overall SG&A expense. We expect full-year corporate, support, and other expenses will be in the range of 1.8 to 1.9 percent of total revenue. The Family Dollar store closures are expected to be approximately 15 cents accretive to EPS, mostly in the second half of the year as we close these stores throughout the first half, after adjusting for the timing impacts of all of these items. We believe approximately 38% of our full-year EPS will be achieved in the first half of the year, with the remaining 62% coming in the back half. From a seasonality perspective, the fourth quarter is historically our strongest earnings quarter. And finally, here are a few other modeling items to consider. Full-year depreciation should be approximately $1 billion, which is approximately $0.55 higher year-over-year on an EPS basis. Reflecting the additional depreciation and amortization associated with the $2.1 billion of CapEx spent in fiscal 23.

Speaker Change: Our fiscal 'twenty four SG&A outlook for the dollar tree segment reflects the incremental onetime reconfiguration costs that we expect to absorb at each of the 3000 stores. We are scheduled for conversion into our expanded and fully integrated multi price format. This year.

Speaker Change: Within our overall SG&A expenses, we expect full year corporate support and other expenses will be in the range of 1.8% to 1.9% of total revenue.

Speaker Change: The family dollar store closures are expected to be approximately 15 cents accretive to EPS most.

Speaker Change: Mostly in the second half of the year as we close these stores throughout the first half.

Speaker Change: Adjusting for the timing impacts of all of these items, we believe approximately 38% of our full year EPS will be achieved in the first half of the year with the remaining 62% coming in the back half.

Speaker Change: From a seasonality perspective fourth quarter is historically, our strongest earnings quarter.

Speaker Change: And finally here are a few other modeling items to consider.

Speaker Change: Full year depreciation should be approximately $1 billion, which is approximately 55 cents higher year over year on an EPS basis, reflecting the additional depreciation and amortization associated with the $2.1 billion of Capex spend in fiscal 'twenty three.

Jeffrey A. Davis: We expect net interest expense of approximately $95 million for the year and $26 million for Q1. Our effective tax rate should be approximately 24% for both Q1 and the year. We expect capital expenditures for the year to be in the range of $2.1 to $2.3 billion.

Speaker Change: We expect net interest expense of approximately $95 million for the year and $26 million for Q1.

Speaker Change: Our effective tax rate should be approximately 24% for both Q1 and the year.

Speaker Change: We expect capital expenditures for the year to be in the range of $2.1 billion to $2.3 billion.

Richard W. Dreiling: Finally, our outlook assumes no share repurchases, but we do have $1.35 billion of capacity under our remaining authorization. And with that, I'll turn the call back over to Rick. There certainly were a number of moving parts last quarter, and as a result, our reported earnings included a few unexpected items.

Speaker Change: Finally, our outlook assumes no share repurchases, but we do have $1.35 billion of capacity under our remaining authorization.

Speaker Change: And with that I'll turn the call back over to Rick.

Rick: There was certainly a number of moving parts last quarter as a result, our reported earnings included a few unexpected items that said if you peel away the layers reproduce them very good operating results in a very challenging macro environment.

Richard W. Dreiling: That said, if you peel away the layers, we produce some very good operating results in a very challenging macro environment. Considering what we have accomplished while continuing to execute upon multiple strategic initiatives, we have much to be proud of. And, as I discussed earlier, we are continuing to invest in our risk mitigation, Food and Product Safety and Compliance Program, in order to keep building on the foundation of service that defines this company.

Rick: Considering what we accomplished while continuing to execute upon multiple strategic initiatives, we have much to be proud of.

Rick: And as I discussed earlier, we are continuing to invest in our risk mitigation food and product safety and compliance programs in order to keep building on the foundation of service that defines this company.

Richard W. Dreiling: Looking forward, the Dollar Tree segment, led by Multiprice, is exceeding expectations and gaining momentum. In the Family Dollar segment, we are taking the steps, as I outlined earlier, to fortify our base. Strengthen our brand and position Family Dollar to achieve its full potential. I couldn't be prouder of our organization and our 200,000 associates across Dollar Tree and Family Dollar for their continued contribution to our success. I am truly honored to lead and to be part of the Best Team in Research.

Rick: Looking forward the dollar tree segment led by multi price is exceeding expectations and gaining momentum in the family dollar segment. We are taking the steps as I outlined earlier to fortify our base strengthen our brand and position family dollar to achieve its full potential.

Rick: <unk>.

Rick: I couldnt be prouder of our organization and our 200000 associates across dollar tree and family dollar for their continued contribution to our success.

Rick: I'm truly honored to lead and to be part of the best team in retail.

Operator: Operator, with that, Jeff and I are ready to take questions. Thank you, and I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is active. You may press star two if you'd like to remove yourself.

Speaker Change: Operator, with that Jeff and I are ready to take questions.

Jeffrey A. Davis: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue. As a reminder, we ask you. Please ask one question and return to the queue.

Operator: As a reminder, we ask that you please ask one question, then we'll... Our first question today is coming from Edward Kelly from Wells Fargo. Your line is now live. Hey, how are you Rick?

Jeffrey A. Davis: First question today is coming from Edward Kelly from Wells Fargo. Your line is now live.

Hi, there.

Edward Kelly: However, you Rick.

Richard W. Dreiling: I'm good, sir. What's up? So I wanted to start, maybe Rick, just take a step back and talk about, you know, how the company, or how you are thinking about the company's outlook, and confidence, and the strategy around the individual businesses are evolving. So you take, you know, your core Dollar Tree segment that we have a lot of multi-price points, seems to be going very well. How is your view on the opportunity there changing? And then family dollar? It's obviously not where it needs to be. What does that say?

Edward Kelly: Good Sir what's up.

Edward Kelly: So I wanted to start.

Edward Kelly: Maybe Rick just take a step back and talk about how the company.

Edward Kelly: How you are thinking about the company's outlook and confidence in the strategy around the individual businesses are evolving. So you take your core dollar tree segment. There were a lot of multi price point seems to be going very well. How is your view on the opportunity that are changing and then family dollar obviously, not where it needs debate.

What does that say and I'm sure you're not going to throw good money after bad here.

Richard W. Dreiling: You know, I'm sure you're not going to throw good money at the bad guys here. And then, as part of all of that, is $10 still in play? Maybe you just get there differently.

Edward Kelly: And then as part of all of that is $10 still in play maybe you just get there differently.

Richard W. Dreiling: Just thoughts on how things are evolving for you would be, I think, helpful. Thank you. Yeah, great question. And hey, I'd like to throw something on the table. Jeff and I talked a little longer than normal. And for those of you that are interested, we'll go past the nine o'clock straight up and give you a little more time for questions. As I think about Ed, there is a, this is a sum of the parts story at the end of the day.

Speaker Change: Just thoughts on how things are evolving for you would be I think helpful. Thank you yes.

Speaker Change: Yeah, Great question, and I'd like to throw on the table, Jeff and I talked a little longer than normal and for those of you that are interested we will go past the nine o'clock straight up and give you a little more time for questions.

Speaker Change: As I think about Ed.

Speaker Change: There is a world.

Speaker Change: This is a sum of the parts story at the end of the day and whats important here is we're very intently focused on creating shareholder value.

Richard W. Dreiling: And what's important here is we're very intently focused on creating shareholder value. The Dollar Tree's multi-price point strategy is doing significantly better than we thought it would do. Customer acceptance has been off the chart, to be frank. Our biggest problem right now is getting enough merchandise into the stores fast enough so the consumer can respond. Family Dollar is a victim of the macro environment out there. If you think about the increase in shrink, which I thought would have moderated, if anything, by now, but it's continuing to accelerate, and then there is the pressure on the mix.

The dollar tree multi price point strategy is doing significantly better than we thought it would do.

Speaker Change: The customer acceptance.

Speaker Change: Has been off off the chart to be Frank our biggest problem right now is getting enough merchandise into the stores fast enough. So the consumer can respond.

Speaker Change: Family dollar is a victim of the macro environment out there if you think about the increase in shrink.

Speaker Change: Which I thought would have moderated if anything by now but is it continuing to accelerate and then the pressure on the mix.

Richard W. Dreiling: But again, I come back to a well-run Family Dollar is a very, very powerful retail format. And I think what we're doing is making the right decisions to fortify the base in Family Dollar and position it so we can go forward in a stronger position. Now, in regards to the $10. We continue to believe in the $10 target that we announced, oh, I guess, about a year ago, and we're continuing to march toward that goal. However, the macro environment has gotten in our way, and we are dealing with high, high shrink numbers.

Speaker Change: But again I come back to a well run.

Speaker Change: Family dollar is a very very powerful retail format and I think what we're doing is making the right decisions to fortify the base in family dollar and position yet. So we can go forward in a more stronger position now.

Speaker Change: Now in regards to the $10.

Speaker Change: We continue to believe in the $10 target.

Speaker Change: We announced I guess about a year ago, and we're continuing to march toward that goal.

Speaker Change: However, the macro environment has gotten in our way.

Speaker Change: And we are dealing with high high shrink numbers, we're dealing with big mix shifts. So it's a little difficult for us to pinpoint that $10 target going forward.

Richard W. Dreiling: We're dealing with big mix shifts, so it's a little difficult for us to pinpoint that $10 target going forward. We still believe in the target, but we believe the path is to get to $7 in 2024, and we're intently focused on that. But again, we want a positive 2024, and then as we move through 24 and 25, we'll give you more of a handle on the $10. Our next question is coming from Simeon Gutman from Morgan Stanley. Your line is now live. Good morning. Hi, good morning. This is Zach on behalf of Simeon Gutman.

Speaker Change: We still believe in the target, but we believe the path is to get to $7 in 2024, and we're intently focused on that.

Speaker Change: But again.

We won a positive 2024, and then as we move through 'twenty four and 'twenty five will give you more of a handle on the $10.

Speaker Change: Thank you. Our next question is coming from Simeon Gutman from Morgan Stanley. Your line is now live.

Speaker Change: Good morning, Hi. This is good morning. This is zach on for Simeon Gutman, Thanks for taking our questions.

Jeffrey A. Davis: Thanks for taking our questions. Can you provide any additional color on how you're thinking about the comp outlook in 24? Specifically, what are your assumptions for the progression of ticket and traffic throughout the year?

Speaker Change: Can you provide any additional color on how youre thinking about the comp outlook in 'twenty four.

Zach: Specifically what are your assumptions for the progression of ticket and traffic throughout the year.

Richard W. Dreiling: Yeah, I mean, obviously, our guidance, we're looking for a strong year, particularly on the Dollar Tree side. Uh, and I think as we get into quarter four, uh, that is our big time of the year in terms of discretionary spending on Dollar Tree. We believe the initiatives that we're putting in place in Dollar Tree are definitely delivering very positive comms. Family Dollar, as Jeff called out, is going to be a little tougher, and that's driven by the mix shift, and it's also driven by, quite honestly, the pressure on the low-end consumer in terms of income and SNAP benefits. We will cycle through the SNAP benefits as we move toward the end of the year, but we feel very comfortable with our comp outlook. Your next question is from Matthew Boss from J.P. Morgan. Your line is now live. Good morning Matt. Great thanks. Morning Rick.

Speaker Change: Yeah, I mean, obviously our guidance, we're looking for a strong year, particularly on the dollar tree side.

Speaker Change: And I think as we get into quarter four.

Speaker Change: That is our big time of the year in terms of discretionary and dollar tree. We believe the initiatives that we're putting in place and dollar tree are definitely delivering very positive com.

Speaker Change: Family dollar is Jeff called out is going to be a little tougher.

Speaker Change: And it's driven by the mix shift and it's also driven by quite honestly the pressure on the low end consumer and low end consumer.

Speaker Change: In terms of income and the snap benefits, we will cycle through the snaps benefits.

Speaker Change: Benefits as we move toward the end of the year, but we feel very comfortable with our comp outlook.

Thank you. Our next question is coming from Matthew Boss from Jpmorgan. Your line is now live.

Matthew Robert Boss: Good morning, Matt Great. Thanks, Good morning, Rick.

Richard W. Dreiling: So, two questions. Maybe, could you elaborate on the traffic trends and market share by demographic that you're seeing at the Dollar Tree banner and just any change in underlying momentum at Dollar Tree this quarter to date? And then, in light of the portfolio optimization, just your confidence in the go-forward family dollar fleet or maybe if you could share some performance across the curve in terms of the store base. And, just lastly, the potential opportunity to accelerate unit growth at Dollar Tree as you see it just given the performance. Yeah, Dollar Tree's fastest growing demographic is north of $125,000 a year in income, which brings a lot more firepower to the store, to be honest with you, and I think quite honestly that attraction is the multiple price points and the fact that we've been able to increase the variety of products in the store. And I think the interesting thing about Dollar Tree is that the lift is pretty universal across all the operating markets. It's not like, you know, the Northeast is strong and the West is weak.

Matthew Robert Boss: So two.

Matthew Robert Boss: Two questions, maybe could you elaborate on the traffic trends in market share by demographic that youre seeing at the dollar tree banner and just any change in underlying momentum at dollar tree quarter to date and then in light of the portfolio optimization just your confidence in the go forward family dollar fleet.

Speaker Change: Or maybe if you could share.

Speaker Change: Some performance across the curve in terms of.

Speaker Change: The store base, and just lastly potential opportunity to accelerate unit growth at dollar tree as you see it just given the performance.

Speaker Change: Dollar tree the fastest growing demographic is north of $125000 a year in income.

Speaker Change: Which brings a lot more firepower to the store to be honest with you.

Speaker Change: And I think quite honestly I think that attraction is the multi price point and the fact that we've been able to increase the variety of product in the store.

Speaker Change: And I think.

Speaker Change: The interesting thing about dollar tree.

Speaker Change: The list is pretty universal across all the operating markets. It's not like you know the north East is strong in the west is weak it's it.

Richard W. Dreiling: It's the one where that boat is lifting pretty even all the way up. When I look at the potential for Family Dollar and the optimization, again, it's a sum-of-the-parts story. And there are many opportunities for Family Dollar to maximize shareholder value, and what we intend to do, we know how well Dollar Tree is performing. As we said on our call, we're going to shift our focus to opening more Dollar Trees than we historically have done in the past, and quite frankly, it's being driven by the work on the coolers, and it's being driven by the multi-price point that's made the box more viable. But I think the rationalization of the portfolio was a natural step, and now that we can do by eliminating a bunch of underperforming stores, If I may, I just want to make an additional point.

Speaker Change: That vote is lifting pretty even all the way up.

Speaker Change: When I look at the potential for family dollar and the optimization.

Speaker Change: Again, it's a sum of the parts story.

Speaker Change: And there are many opportunities in family dollar to maximize shareholder value.

And what we intend to do.

Speaker Change: We know how well dollar tree is performing as we said in our R&R call, we're going to shift our focus to opening more dollar trees than.

Speaker Change: And then we historically have done in the past.

Speaker Change: And quite frankly, it's been driven by the work on the coolers and it's being driven by the multi price point, that's made the box more viable, but I think the rationalization.

Speaker Change: The portfolio was a natural step and now what we can do by eliminating a bunch of underperforming stores, which take the bulk of the district managers time, we can now focus them on the stores that are doing doing better.

Speaker Change: If I may I, just want additional point, if you think about the family dollar a segue.

Richard W. Dreiling: If you think about the Family Dollar segment, one of the things that we're really proud of is that we continue to take market share across units, dollars, and traffic. So what we're doing there within this banner is... We have found that we are under a little more pressure with our particular higher penetration and lower income customer segment, but we believe that other merchandising and operating actions that we're taking will allow us to further unlock the value of this remaining portfolio of stores that we have within the Family Dollar brand. Thank you. The next question is coming from Chuck Grom from Gordon-Haskett. Your line is online now. Hey, good morning, Jeff, just a couple, a couple for me. Jeff, can you unpack the margin guide by Banner?

Speaker Change: Segment, one of the things that we're really proud of is that we continue to take market share across units dollars.

Speaker Change: Traffic so what we're doing there within this banner is working for us.

Speaker Change: We found that we are under a little more pressure with our particular.

Speaker Change: Higher penetration of lower income customer segment, but we believe the other merchandising and operating actions that we're taking will allow us to further unlock the value of this remaining portfolio of stores that we have within the family dollar brand.

Speaker Change: Thank you. Your next question is coming from Chuck Grom from Gordon Haskett. Your line is now live.

Charles P. Grom: Hey, good morning, John.

Charles P. Grom: Hi, Jeff.

Charles P. Grom: Just a couple a couple from me Jeff can you unpack the margin guide by banner I'm, just trying to isolate if you're still anticipating another year of a loss at family dollar and then Rick just bigger picture. When you look with input prices dropping can you talk about how your merchants are adding more value, particularly at the dollar tree and particularly at the $1 25.

Jeffrey A. Davis: I'm just trying to isolate if you're still anticipating another year of losses at Family Dollar. And then Rick's bigger picture, when you look at input prices dropping, can you talk about how your merchants are adding more value, particularly at the Dollar Tree and particularly at that $1.25 price point? The Dollar Tree is a combination of a couple of things. One, as we continue to roll out a multi-price offering, that is going to place a little bit of pressure on us from a margin rate perspective, but you're really going to like the dollars it's going to be driving in units.

Charles P. Grom: This appointment.

Rick: Let me take the first year. So at dollar tree for example on the margin, we're guiding to 36% to 36 and a half that's a combination of a couple of things one as we continue to roll out the multi price.

Rick: Offering that is going to place a little bit of pressure on us from a margin rate perspective, but youre really going to like the dollars, it's going to be driving with your with your units. We do anticipate where you had mentioned that.

Jeffrey A. Davis: We do anticipate, as we had mentioned, that we're anticipating about another 80 to 90 cents of freight. That's going to be more heavily realized on the Dollar Tree side. And as I had mentioned, we'll expect to see about 60% of that in the first half of the year.

Rick: We're anticipating about another 80% to 90% of freight that's going to be more heavily realized on the.

Rick: Dollar tree side and as I had mentioned, we'll expect to see about 60% of that in the first half of the year. So that the margin on the dollar tree side is going to be sort of led by additional freight.

Jeffrey A. Davis: So the margin on the Dollar Tree side is going to be sort of led by additional freight and then offset partially as a result of the rollout of the 3,000 stores and multi-price and further penetration in some of the other stores. But all in all, a very healthy 36 to 36.5% gross margin. And listen, Dollar Tree is also not immune to some of the issues we're having with shrink, as well as the overall mix impact across the business. A little more profound when you get to the Family Dollar side of the business, while they will have a modest impact on the freight because we do import there also. But the impact there is really on shrink and mix offset by or actually lifted by further penetration of our private label product as well as our opportunity within OTC and HBA, which are normally higher margin opportunities. And the only thing I'd add to Chuck, especially on the Dollar Tree side.

Rick: And then offset partially as a result of the rollout of the 3000 stores and multi price and further penetration in some of the other stores, but all in all a very healthy 36 to 36, 5%.

Rick: <unk> margin.

Rick: And listen dollar tree also is not immune to some of the issues, we're having with shrink as well as the overall <unk>.

Rick: Mix impact across the.

Rick: The business a little more profound when you get to the family dollar side of the business, while they will have.

Rick: Modest impact on the the freight because we do import there also.

Rick: But the impact there is really on the shrink in mix.

Rick: Offset by or actually lifted by further penetration of our private label products as well as our opportunity within OTC and HBA, which are normally higher margin opportunities for us.

Rick: And the only thing I'd add that Chuck, especially on the dollar tree side.

Richard W. Dreiling: Uh, when input cost goes down, the fact that we have a fixed price point allows the Dollar Tree team to re-engineer the product and bring greater value to the table. And that's how that franchise has been built over the years, and so it's $1.25. It might stay $1.25, but it brings more value to the table to the consumer. Thank you. Our next question today is from John Heinbockel from Guggenheim Partners. Your line is now active. Good morning, John. This morning,

Rick: When input costs goes down the fact that we have fixed price points allows the dollar tree team to reengineer, the product and bring a greater value to the table.

Rick: And that's how that franchise has been built over the years and so the.

Rick: What's a $1 25 might it might stay $1 25, and it brings more value to the table to the consumer.

Rick: Thank you. Our next question today is coming from John Heimbach <unk> from Guggenheim Partners. Your line is now live.

John Heinbockel: John Good morning.

Richard W. Dreiling: I wanted to focus on the multi-price point journey, right? So going from three doors to eight. How do you think you'll attack that, right? Three to eight all at once in certain stores or staggered? How long do you think it will take to kind of replantagram plus the old plus right into the categories?

John Heinbockel: I wanted to focus on the multi price point journey right, so going from three doors to eight how.

John Heinbockel: How do you think youll attack that right three to eight all at once and certain stores or staggered.

John Heinbockel: How long do you think it will take to kind of replanted ground plus the old plus right into the categories and then do you have a view.

Richard W. Dreiling: And then do you have a view like, you know, multi-price point penetration? When do we get to 10 percent? That seems like a fair mile marker.

John Heinbockel: Multi price point penetration when do we get to 10%.

Speaker Change: Seems like a fair a mile marker.

Richard W. Dreiling: Yeah, great questions. The first thing I'll say to you, John, is we will stagger the rollout. I like to spread an initiative over time. That way, it turns into a gift that keeps on giving.

Speaker Change: Yeah, great questions.

Speaker Change: First thing I'll say to you John is we will stagger the rollout.

Speaker Change: I like to spread an initiative over time that way it turns into a gift that keeps on giving so that's kind of our first plan on that.

Richard W. Dreiling: So that's kind of our first plan on that. The penetration, I would say right now, if Rick McNeely was in the room, the demand is insatiable from the customer. I like the 10% number that you threw out. We were 8.8% in quarter four.

Speaker Change: The penetration.

Speaker Change: I would say right now.

Speaker Change: If Rick Mcneely was in the room the demand is insatiable from the from the customer.

Speaker Change: I like the 10% number that.

Speaker Change: That you threw out.

Speaker Change: We're gonna be eight we were eight 8% in quarter four.

Richard W. Dreiling: So, yeah, I think it is, right now, of all of the things we're doing, and I got Jeff shaking his head, I would call it the gift that keeps on giving right now. And we're just really pleased with it. And then I believe that the last part of the question, if I was hearing it correctly about the timing of doing the replanogramming, if you will, of the plus section. First of all, we don't planogram.

Speaker Change: So yeah.

Speaker Change: Yeah, I think it's it is a right now of all of the things, we're doing and I've got Jeff shaking his head I would call. It the gift that keeps on giving right now.

Speaker Change: And we're just really pleased with it.

Speaker Change: And then I believe that the last part of that.

Speaker Change: Question, if I was hearing it correctly about the timing of doing the re plan and grabbing if you will of the plus section first of all we don't plan to ground.

Jeffrey A. Davis: So that's an easier part to look at, but as we think about doing some reconfiguration of the store to bring in the multi-priced In line with other products, we're starting to do that this year.

Speaker Change: So that's the easier part to look at this but as we think about doing some reconfiguration of the store to bring into multi.

Speaker Change: Price.

Speaker Change: And in line with other product, we're starting to do that this year. That's 3000 stores that we expect to deliver this year and our goal John is get the multi price point in the aisle, where it belongs rather than being in the center of the store, we think it's more shopper and the consumer will trade up.

Jeffrey A. Davis: That's 3,000 stores that we expect to deliver this year, and our goal, John, is to get the multi-price point in the aisle where it belongs rather than being in the center of the store. We think it's more shoppable, and the consumer will trade out. Thank you. Our next question today is coming from Michael Montani from Evercore IS Fireline. Good morning, Michael. Hey, good morning.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question today is coming from Michael Mann Tani from Evercore ISI. Your line is now live.

Speaker Change: Good morning, Michael.

Speaker Change: Hey, Good morning, just wanted to ask first off two questions related to the store closures I guess number one.

Richard W. Dreiling: Just wanted to ask, first off, two questions related to the store closures. Number one, is there additional opportunity that we should be thinking about here in terms of re-bannering, in addition to the closures? And then, number two, you know, wanted to see your thoughts around the potential to recapture some of that 700 million in revenue, given the proximity to the other stores. Great, two great questions.

Speaker Change: Is there additional opportunity that we should be thinking about here in terms of re banner ing them. In addition to the closures and then number two I wanted to see your thoughts around the potential to recapture some of that $700 million of revenue given the proximity to the other stores.

Speaker Change: Great two great questions.

Richard W. Dreiling: As far as re-bannering is concerned, we've already looked at a modest number of stores that we intend to do that in. And as we move through the portfolio, we will continue to research that. The one thing we want to be very careful of is, number one, the proximity to another Dollar Tree. And, number two, we want to be careful that we don't distort the Dollar Tree brand. So it's a little more complicated than just standing up, saying, and changing them all to dollar trees and moving forward. But it's a very good question that we're actually looking at as we speak. And What was the second part of the question?

Speaker Change: As far as re banner, Inc. We've already looked at a modest number of stores that we intend to do that in and as we move through the portfolio. We will continue to research that.

Speaker Change: The one thing we wanted to be very careful of is number one the proximity to another dollar tree and number two we wouldn't be careful that we don't distort the dollar tree brand. So it's a little more complicated than just standing up saying change them all of the dollar trees and move forward.

Speaker Change: I mean, it's a very good question.

Speaker Change: That where we're actually looking at as we speak.

Speaker Change: And what was the second part of the question recapturing sales yeah recapturing. The sales are I think we feel pretty bullish about that.

Richard W. Dreiling: Recapturing sales. Yeah, recapturing sales. I think we feel pretty bullish about that. A lot of these stores that we're rationalizing out of the system were built on top of another store, and there is the opportunity for us to take back some cannibalization. And I think it's a matter of time.

Speaker Change: A lot of these stores that we're rationalizing out of the system will bolt on top of another store.

Speaker Change: And there is the opportunity for us to take back some cannibalization.

Speaker Change: And I think it's a matter of time and of course, we're going to continue to build new stores next year.

Richard W. Dreiling: And of course, we're going to continue to build new stores next year. Our next question is coming from Kate McShane from Goldman Sachs. Her line is now live. Good morning, Kate.

Speaker Change: Thank you. Our next question is coming from Kate Mcshane from Goldman Sachs. Your line is now live.

Jeffrey A. Davis: Hi, good morning. Thanks for taking our question. I wondered if we could ask about the supply chain, the changes that you've been making, and how they've impacted inventory levels and turns. I mean, I'll speak to half that question and let Jeff do the hard part.

Katharine McShane: Good morning, Kate Hi, good morning, Thanks for taking our question I wondered if we could ask about the supply chain.

Katharine McShane: Is that you've been making and how it's impacted inventory levels and turns.

Katharine McShane: I mean, I'll speak I'll speak to have that question and let Jeff do the hard part.

Richard W. Dreiling: The fascinating thing, you know, it depends on how many cases are stored yet. In order to determine how many hours of savings there are, but I can tell you this, we've reduced our unload time to approximately one hour, which will benefit us long term, majorly, especially in terms of store standards in stocks, which should lead to higher transactions and, you know, and the rest will be history, having been through it. And in regards to inventory? Yeah, so from a supply chain standpoint, one of the things we've been very focused on this past year is not only having stock in the stores but how we get stock in the DCs. So working with our supplier partners and making sure that we're getting the merchandise on a timely basis, according to the POs that we've placed, we've actually seen some good improvement in that area, which has benefited us, ultimately, in having our inventories in store at the time that we need to. The fourth quarter is just an example of that, where last year, we had a little bit more supply chain disruption. The year before this year, we were able to have the merchandise in the country, in DC, in our stores.

Speaker Change: The fascinating thing.

Speaker Change: Pins on how many cases, a store yet and in order to determine how many hours of savings there are but I can tell you. This we have reduced our on load time to approximately one hour.

Speaker Change: Which will benefit us long term.

Speaker Change: Majorly, especially in terms of store standards in stocks, which should lead to higher transactions and you know and the rest will be history, having been through it.

And in regards to inventory, yes, so from a supply chain basis, one of the things we've been very focused on this past year is <unk>.

Speaker Change: Not only in stock in the stores, but how do we get in stock in the Dcs.

So working with our supplier partners to make sure that we're getting the merchandise at a timely basis.

Speaker Change: According to the PFS.

Speaker Change: We've placed and we've actually seen some good improvement in that area, which has benefited us ultimately and having.

Speaker Change: Our inventories and store at the time that we need to the fourth quarter is just an example of that where last year, we had a little bit more of a supply chain disruption.

Speaker Change: The year before this year, we were able to have the merchandize in in country in D. C. In our stores and that helped us with our overall sell through which ultimately helped us on our inventory levels at year end, because we were able to flow that through versus not having any inventory at the right time for the customer.

Jeffrey A. Davis: And that helped us with our overall sell-through, which ultimately helped us with our inventory levels at year end because we were able to flow that through versus not having inventory at the right time for the customer. But I believe overall, the other actions that we're taking with respect to some of our systems to give us better visibility into where our inventories lie and where our needs are across the network will allow us to further improve our in-stock position. And Kate, I'd like to call out Mike Kindy, who's been with me for years, who's driving the supply chain now. And again, you raised a very good question. Mike is working on two things, the inbound service rate, which is getting the right inventory here at the right time, and then the outbound service rate, which is shipping what the stores are drawing on. And we've had trouble with that, to be frank, over the years.

Speaker Change: But I believe overall the.

Speaker Change: Other actions that we're taking with respect to some of our systems to give us better visibility into where inventories lie and where our needs are across the network will allow us to further improve on our in stock positions.

Speaker Change: If I could I'd like to call out Mike Kennedy, who has been with me for years who's driving the supply chain now.

Mike Kennedy: And again you raised a very good question, Mike is working on two things the inbound service rate, which is getting the getting the right inventory here at the right time, and then the outbound service rate, which is shipping what the stores are drawing and we've had trouble with that to be Frank over the.

Richard W. Dreiling: But again, it's another example of the improvements we're making. Thank you. Our next question today is coming from Paul Lejuez from Citigroup. Your line is now live. Good morning, Paul.

Mike Kennedy: Years, but again, it's another example of improvements we're making.

Mike Kennedy: Thank you. Our next question today is coming from Paul is used from Citigroup. Your line is now live.

Mike Kennedy: Paul.

Jeffrey A. Davis: Morning. Thanks, guys. Two questions.

Paul: Morning, Thanks, guys to.

Richard W. Dreiling: Curious what's driving the average ticket lower at Dollar Tree, even as you add the higher price points? And how do you think about, you know, rolling in those high-priced items and the eventual impact on the average ticket at Dollar Tree? And then second, and sorry if I miss this, but what's the cash cost of closing the 600 stores family dollar? And maybe if you could talk about the location of those stores, are they concentrated in certain geographies, any common threads other than just not earning their cost of capital? I'll let you manage the second part, which is the hard part.

Paul: Two questions just curious what's driving the average ticket lower at dollar tree, even as you add the higher price points and how do you think about rolling in those high priced items.

Paul: Central impact on the on the average ticket at dollar tree, and then second and sorry, if I missed this but what's the cash cost of closing the 600 stores family dollar and maybe if you can talk about the location of those stores are they concentrated in certain geographies any common threads other than just not earn.

Paul: Their cost of capital.

Speaker Change: I'll, let you manage the second part, which yeah hard part.

Richard W. Dreiling: What we're seeing is the reason our average ticket is down. I think it's because we're seeing more trips. People are coming more often. I think eventually that will probably shake itself out, but it's all driven by the frequency of which the customer is coming in. Just to top that off, also, what we've seen is that when a customer has a multi-priced item in their basket, their basket is often as much as two times the average basket. So as it relates to...

Speaker Change: The.

Speaker Change: What we're seeing is the reason our average ticket is down I think it's because we're seeing more trips people are coming more often.

Speaker Change: I think eventually that will probably shake itself out, but it's all driven by the frequency of which the customers coming in.

Speaker Change: Just to top that off also what we've seen is that.

Speaker Change: When a customer has a multi price item in their basket their basket. Many times is as much as two times the average basket so as it relates to.

Jeffrey A. Davis: The variety that we're asking, that we're providing, it's definitely giving us a larger basket. As Rick has said, the additional traffic, people are coming more often, and the basket's just on average lower. As it relates to the stores that we're taking action on, from a geography standpoint, there's really no real concentration of stores across the country. It's pretty much reflective of our overall fleet demographics, if you

Speaker Change: The variety that were asked but we're providing it's definitely giving us a larger basket as Rick has said the additional traffic people are coming more often.

Speaker Change: The baskets on average lower as it relates to the.

Speaker Change: Stores that where we're taking action on.

Speaker Change: From a geography standpoint, there's really no real concentration.

Speaker Change: The country, it's pretty much reflective of our overall fleet demographics, if you will across the country.

Jeffrey A. Davis: As it relates to the..., https://www.youtube.com.au, From a P&L perspective, you pick up the idea you no longer have to carry the rents, but the stranded cost associated with the ongoing... The cost of running the dark store is going to be less than if you were operating the store. And net-net, you would actually pick up just a little bit of cash versus if you were running these stores and operating them under a lost position. But over time, that actually gets better as these stores start to run off whatever remaining portion of their lease, so the cash requirement is reduced pretty substantially over the next three years. Your next question today is coming from Peter Keith from Piper Sandler. Your line is now live. Morning, Peter. Hey, good morning, everyone. I wanted to dig into the snap headwind of negative 5% on Family Dollar. Could you quantify how you got to that map?

Speaker Change: As it relates to the <unk>.

Speaker Change: Our cash cost of closing these stores.

Speaker Change: On a cash basis will actually be neutral to actually.

Speaker Change: Accretive.

Speaker Change: In closing these stores.

Speaker Change: It really comes from the fact that.

Speaker Change: From a P&L perspective, you pick up the I didn't no longer have to carry the rents, but the stranded costs associated with the ongoing.

Speaker Change: Cost of running the dark store.

Speaker Change: And to be less than if you were operating the store.

Speaker Change: And net net you would actually pick up just a little bit of cash versus if we were running the stores and operating them under a loss position.

Speaker Change: Over time that actually gets better as these stores start to run off whatever remaining portion of the release so the cash requirement.

Speaker Change: As reduced pretty substantially over the next three three years.

Speaker Change: Thank you. Our next question today is coming from Peter Keith from Piper Sandler Your line is now live.

Morning, Peter.

Peter Jacob Keith: Hey, good morning, everyone I wanted to dig into the snap headwind of negative 5% in family dollar.

Could you quantify how you got to that math, because if I'm doing the math myself I look at about a 35% decline in snap for the quarter on about 7% to 8% of sales is about two 5% headwind overall.

Jeffrey A. Davis: Because if I'm doing the math myself, I look at about a 35% decline in snap for the quarter on about seven to 8% of sales, which is about two and a half percent headwind overall. Yeah, the way we're looking at this, once again, it depends on your assumption about the penetration of our customers. But as we take a look at what that customer means for us and how we've been looking at the sort of contribution on a year over year basis, that's how we derive the five.

Peter Jacob Keith: Yeah.

Peter Jacob Keith: The way we're looking at this once again it depends on your assumption on the penetration of our customer, but as we take a look at.

Peter Jacob Keith: What that customer means for us and how we've been looking at the.

Peter Jacob Keith: Uh huh.

Peter Jacob Keith: Sort of contribution on a year over year basis, that's how we derive the 5%.

Jeffrey A. Davis: Thank you. Our next question is coming from Joe Feldman from Telsey Advisory Group. Your line is now live.

Peter Jacob Keith: Thank you. Our next question is coming from Joe Feldman from Telsey Advisory Group. Your line is now live.

Richard W. Dreiling: Great, good morning guys. Thanks for taking the time to answer the question. I wanted to ask you guys, as you guys are looking at the family dollar stores that you're closing, I was just kind of curious, like what part of the transformation strategy work that you guys have done in the past, you know, year or so, I guess, do you feel won't work in those stores? Like, was there something that you just felt like it's a lost cause for lack of a better term, but maybe you could just share some thoughts around that.

Joseph Isaac Feldman: Great. Good morning, guys. Thanks for taking the question good morning.

Joseph Isaac Feldman: Wanted to ask.

Joseph Isaac Feldman: What.

Joseph Isaac Feldman: As you guys are looking at the family dollar stores that you're closing I was just kind of curious like what part of the transformation strategy work that you guys have done in the past year or so I guess do you feel work in those stores like was there something that that you just felt like its I guess its a lost cause for lack of a better term, but maybe you could just.

Speaker Change: Sure some thoughts around around that where maybe.

Richard W. Dreiling: Where, where maybe, could help the other stores that do continue to run and what works there that didn't work in these? Yeah, another really good question. I would look at you and say the initiatives have worked in every store. The problem is the magnitude of the lift.

Speaker Change: To help the other stores that do continue to run and what works there that didn't work in these stores.

Speaker Change: Another another really good question.

Speaker Change: I would look at you and say the initiatives have worked in every store.

Speaker Change: Problem is the magnitude of the lift.

Richard W. Dreiling: And I think also, as we looked at these stores, it was their location, the competitive environment, the quality of the facility, the proximity to the competition. There were many, many, many facts, and we have had in the past a real estate strategy that wasn't really, really focused on maximizing value. And what we've done now is pick stores that we don't think have a long-term future. And more importantly, hopefully, we'll be able to transfer some sales from this closed store into one of our operating stores. So I mean, it's a pretty thorough process, and the important question is, why didn't they get the lift? from the initiatives of the other stores that we're keeping, obviously, which is the bulk of the portfolio. It has to do merely with a lot of other extraneous factors.

Speaker Change: And I think also as we looked at these stores.

Speaker Change: Was there a location the competitive environment the quality of the facility the proximity to a cut.

Speaker Change: Competition, there was many many many factors.

Speaker Change: And.

Speaker Change: We have had in the past our real estate strategy that wasn't really really focused on maximizing value and what we've done now is pick stores that we don't think has a long term future and more importantly, hopefully we'll be able to transfer.

Speaker Change: For some sales from this closed store into one of our operating stores. So I mean, it's a pretty thorough process.

Speaker Change: And the.

Speaker Change: That's an important question.

Speaker Change: Is why didn't they get the lift.

Speaker Change: From the initiatives of the other stores.

Speaker Change: That we're keeping obviously, which is the bulk of the portfolio. It has to do nearly with a lot of other extraneous factors yeah.

Jeffrey A. Davis: And just to add, I think actually Paul had a portion of his question I didn't answer that was on this very topic. Many of these stores were operating, unfortunately, at a level where the operating loss of these stores was pretty substantial.

Speaker Change: And just to add back I think actually Paul had a portion of his question I didn't answer that was on this very topic.

Speaker Change: Any of these stores quarter operating unfortunately at a level that the.

Speaker Change: The operating loss of these stores was pretty substantial and even with the lift off some of the initiatives. While we're starting to have to mute. The the level of loss you were still significantly below what would we consider to have a reasonable return, especially.

Jeffrey A. Davis: And even with the lifting of some of the initiatives, while it was starting to mute the level of loss, you were still significantly below what we would consider to have a reasonable return, especially when we think about the additional investments that we would want to make in these stores as it relates to store standards, as it relates to just a number of other things that we just wouldn't be able to carry a return on the additional investment for these stores. A lot of this is driven by the fact that, over time, rent... And a number of other exogenous factors have driven this store to a point where, unfortunately, they're just operating at a very significant loss. Your next question is coming from Brad Thomas from KeyBank Capital Markets. Your line is now active. Good morning, Brad. Hey, good morning, Rick.

Speaker Change: When we think about the additional investments that we would want to make in these stores as it relates to our store standards as it relates to just the number of other <unk> that.

Speaker Change: It just wouldn't be able to carry a return on the additional investment for these stores a lot of this is driven by the fact that over time.

Speaker Change: <unk> shrink.

Speaker Change: And a number of other exogenous sort of.

Speaker Change: Factors has driven the store to a point where.

Speaker Change: Unfortunately, they're just operating at a very significant loss.

Speaker Change: Thank you. Our next question is coming from Brad Thomas from Keybanc Capital markets. Your line is now live good.

Bradley Thomas: Good morning, Brad.

Bradley Thomas: Hey, good morning, Rick.

Richard W. Dreiling: Hey Rick, I was hoping you could talk a little bit about the family dollar side of things in the consumables category. And I was hoping you could talk a little bit about the competitive landscape, how you're feeling about pricing, and some of the opportunities to drive share going forward. Yeah, thank you, Brad.

Bradley Thomas: Hey, Rick I was hoping you could talk a little bit on the family dollar side about the consumables category.

Bradley Thomas: And I was hoping you can talk a little bit about the competitive landscape, how you're feeling about pricing and some of the opportunities to drive share going forward. Thanks.

Rick: Yeah. Thank you Brad on the consumable side in family dollar as we have gotten our mix right inside the store in terms of the SKU count.

Richard W. Dreiling: On the consumable side and family dollar, as we have gotten our mix right inside the store in terms of the SKU count. Remember, we discontinued 1000 and added 2000 for a net of 1900 and change. We're very pleased with what we're seeing in terms of movement. We've made the consumable mix more relevant, and add to that the emphasis that we have placed on private brands, and now you have a national brand equivalent item that the consumer can purchase. And I think our consumable mix, to be honest, is the best it's been in family dollar and harkens back to my old days as a grocer.

Speaker Change: Remember, we discontinued a thousand and added 2000 for a net of 1900 and change.

We're very pleased with what we're seeing in terms of movement, we've made the consumable mix more relevant.

Speaker Change: And add.

Speaker Change: Add to that the emphasis that we've placed on private brands.

Speaker Change: And now you have a national brand equivalent item that the consumer can purchase and I think.

Speaker Change: Our consumable mix to be honest is the best it's been.

And family dollar.

Speaker Change: Harkens back to my old days is a grocer in regards to pricing activity out there the market continues to be relatively stable.

Richard W. Dreiling: In regards to pricing activity out there, the market continues to be relatively stable. I would even say the promotional activity on the weekly flyers is relatively stable. It's not like we're seeing anything that's really wild.

Speaker Change: I would even say the promotional activity on the week weekly fliers has relatively stable, it's not like we're seeing anything that's a really wild.

Richard W. Dreiling: And I think our pricing position for family dollars is as good as it's ever been. Thank you. Your next question is coming from Scot Ciccarelli from Truist Security. Your line is now live. Good morning, Scott. Hey, good morning. This is Josh Young on for Scott.

Speaker Change: And I think our pricing position.

Speaker Change: For family dollar as it is.

Speaker Change: Good as it's ever been.

Speaker Change: Thank you. Our next question is coming from Scot Ciccarelli from truly Securities. Your line is now live.

Scot Ciccarelli: Good morning, Scott.

Scot Ciccarelli: Hey, Good morning. This is Josh on for Scott could you guys. Just clarify what are you going to do with the inventory at the stores slated for closure.

Jeffrey A. Davis: Could you guys just clarify what you are going to do with the inventory at the stores slated for closure? In other words, are there discounts which may boost sales and hurt margins? Or will inventory just be shifted to other stores? And is that all captured in your guidance? Yes, so first of all, it is captured in our guidance. And the way that we'll do this is, given the announcement of the timing of the store closure, we'll run a series of different discounts to help move through the inventory. Also, as part of the impairment that we've taken, we've also already accounted for an impairment of that value of inventory at some level to ultimately realize, The Bulletproof Executive 2013.

Josh: In other words are there discounts, which may boost sales that hurt margins oil inventory just be shifted to other stores and it is.

Josh: That all captured in your guidance.

Speaker Change: Yes, so first of all it is captured in our guidance.

Speaker Change: And the way that we'll do this is.

Speaker Change: Given the announcement of the timing of the store closures will run a series of different discounts to <unk>.

Speaker Change: Help move through the inventory.

Speaker Change: Also as part of the impairment that we've taken we've also already accounted for an impairment of that value of inventory at some level to ultimately realize.

Jeffrey A. Davis: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing. Thank you all very much for your time today and look forward to talking to you again in the near future. Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your...

Speaker Change: The sale.

Speaker Change: Thank you we've reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.

Speaker Change: Thank you all very much for your time today.

And looking forward to talking to you again in the near future.

Speaker Change: Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.