Q2 2025 Dollar Tree Inc Earnings Call

Speaker Change: Greetings. Welcome to the Dollar Tree 2nd quarter 2024 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation.

Robert LaFleur: Benning, which require operator assistance during the conference, please press star 0 on our telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Robert LaFleur, Senior Vice President and Investor Relations. Thank you, you may begin.

Robert LaFleur: Good morning and thank you for joining us today to discuss Dollar Tree's second quarter fiscal 2024 results.

Robert LaFleur: Before we begin, I'd like to let everyone know that our CEO and Executive Chairman Rick has been under the weather for the past few days and his voice has not yet fully recovered. He's here listening to the call today and since his regards, but has asked our chief operating officer Mike Creaton to step in for him today.

Speaker Change: At the end of our prepared marks, Mike will join our CFO Jeff Davis for the Q&A session. We wish Rick a speedy recovery and I know he looks forward to chatting with you all again next quarter.

Mike Creaton: So with that, I would like to remind everyone that.

Mike Creaton: Some other 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 1995.

Mike Creaton: The statements are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated by our forward-looking statements.

Mike Creaton: For information on the risks and uncertainties that could affect our actual results, please see the risk factors, business, and management's discussion and analysis of financial condition and results of operations sections in our annual report on Form 10K for the March 20th, 2024.

Mike Creaton: Our most recent press release and Formate K and other filings with the SEC. We caution against reliance on any Ford-looking statements made today, and we disclaim any obligation to update any Ford-looking statements except is required by law.

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

Mike Creaton: These non-gap measures are not intended to be a substitute for gap results unless otherwise stated. We will refer to our financial results on a gap basis.

Mike Creaton: Additionally, unless otherwise stated, all comparisons discussed today for the 2nd quarter of fiscal 2024 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.

Speaker Change: Flawling our prepared remarks. Jeff and Mike 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.

Speaker Change: I now like to turn it all over to Mike. Thanks for the morning everyone. This is Mike Crete and I'm Dollar Trees Chief Operating Officer and I'm happy to pinch it for Rick this morning.

Speaker Change: When Rick first joined Dollar Tree as executive chairman and again last year when he became CEO, he told you that he came here to lead a transformation. With the primary goal of helping this company realize it's full potential.

Speaker Change: He's also said the transformations are rarely easy or linear, and that is especially true for a company as large as ours. That is navigating through one of the most challenging macro environments we've ever seen.

Speaker Change: That said, Rick and all of us on the senior leadership team believe very deeply in this transformation and the positive impact we're having in the areas we control.

Speaker Change: We also believe very deeply in the importance of providing the high quality low-cost products to individuals and families need in a convenient and comfortable shopping environment.

Speaker Change: We are also committed to serving the communities where we operate and most importantly we are aware of the awesome responsibility we have each and every day to serve our customers, associates, and shareholders.

Speaker Change: Clearly, we are not pleased with our second quarter results or having to revise our full-year outlook. But this updated outlook reflects how the challenging macro environment continues to pressure our customers.

Speaker Change: It also reflects some revised financial estimates that we will discuss shortly.

Speaker Change: That said, we will also talk about several areas where we are performing well and where our transformation initiatives are taking hold. And I will share where we are heading into company and why we are still so excited about our future.

Speaker Change: So let's get started.

Speaker Change: Sales came in towards the low end of our outlook rage.

Speaker Change: Family Dollar's comp was in line, but Dollar Tree's comp while positive was lower than we expected.

Speaker Change: As we have seen for several quarters now, demand from family dollars core lower-income customer remains weak.

Speaker Change: Dollar Tree has a broader customer base that includes more middle and upper income households.

Speaker Change: and beginning this quarter, we started to see inflation, interest rates, and other macro pressures have a more pronounced impact on the buying behavior of these customers.

Speaker Change: This impacted our second quarter of performance and is the primary driver of our revised full year outlook.

Speaker Change: Despite these near-term pressures, we are confident in the Dollar Tree's segment's ability to compete and win.

Speaker Change: Our offerings provide customers with exceptional values that are well matched to the current environment. We are strong believers in the inherent strength of Dollar Tree's differentiated business model and its long-term strategy of multi-price expansion and store-growth acceleration.

Speaker Change: Today we need to be sensitive and responsive to the needs of our customers and meet them where they are and how they are living.

Speaker Change: In this environment, retailers who can offer products to provide value, inconvenience, to pressure consumers, are the ones who will take market share and grow sales. We believe we are and will continue to be one of those winning retailers.

Speaker Change: Before getting into the rest of the details on the second quarter, let us acknowledge that Dollar Tree's Comps Store performance was just part of the lower than expected Q2 earnings.

Speaker Change: The most significant component, 30 cents of EPS that wasn't in our June outlook, was related to general liability claims.

Speaker Change: predicting these claims is complex and we again increased our cruel for general liability this quarter after observing higher than expected costs to resolve certain claims. Jeffrey will give you the full details on this in a few minutes.

Jeffrey: Again, this evolving economic backdrop, our team remains focused on factors that are within our control, including the rollout of key transformation initiatives.

Speaker Change: Dollar Tree's multi-price expansion continues to resonate with our customers and the 1600 stores that have been converted into our newest inline format are seeing an outsized sales list.

Speaker Change: As we talked about last quarter, we are building new muscle memory with Vultiprice.

Speaker Change: This rollout is a process and we are constantly making adjustments based on our learnings from earlier rounds of conversions.

Speaker Change: for example.

Speaker Change: We are now prioritizing ready to convert stores and moving them to the front of the line. A head of stores that may need some additional prep work before they can realize the full range of conversion benefits.

Speaker Change: As we've taken the time to incorporate these learnings, we're a few hundred stores behind our original schedule. But we've learned that to better to get the conversions done right, then to rush the process.

Operator: At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation. If any of which require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.

Speaker Change: The most important thing is that the customer response is validating our strategy.

Speaker Change: Because our biggest challenge now is keeping up with the demand for the new assortment.

Speaker Change: To give you a sense of how these stores are performing, cost for the 1600 stores we've converted were up 4.6% in the second quarter, versus less than half of percent and our other formats.

Robert LaFleur: I will now turn the conference over to Robert LaFleur, senior vice president and investor relations. Thank you.

Robert LaFleur: You may begin. Good morning and thank you for joining us today to discuss Dollar Tree's second quarter fiscal 2024 results. Before we begin, I'd like to let everyone know that our CEO and executive chairman Rick has been under the weather for the past few days and his voice has not yet fully recovered. He's here listening to the call today and senses regards, but has asked our chief operating officer Mike Creedon to step in for him today.

Speaker Change: are Q1 conversions, who had the benefit of the new multi-price format and assortment for all of Q2 did a 5.1% cop.

Speaker Change: Importantly, these inline stores showed strength across the assortment, with a 6.7% and 2.6% discretionary cop.

Robert LaFleur: At the end of our prepared marks, Mike will join our CFO Jeff Davis for the Q&A session. We wish Rick a speedy recovery and I know he looks forward to chatting with you all again next quarter.

Speaker Change: Considering the vast majority of our new discretionary, multi-price items won't be in these stores until later this year, we are very pleased with these early results.

Robert LaFleur: So with that, 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 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. 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 sections in our annual report on form 10K, file on March 20th, 2024, our most recent press release and form 8K 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 is required by law.

Speaker Change: We also believe that over time our expanded discretionary multi-press offerings will help us overcome some of the macro-driven weakness we're seeing elsewhere in the portfolio.

Speaker Change: We believe the expansion of inline multi-price across the Dollar Tree portfolio will be a major growth driver for many years to come. Today, less than 15% of our skews are multi-price.

Speaker Change: In addition to driving comp, the higher gross profit dollars per item generated by this assortment should provide a meaningful lift to store economics over time.

Speaker Change: As excited as we are about these initial results, we believe we're still in the very early innings.

Speaker Change: with many years of runway ahead of us.

Speaker Change: We're also happy to announce that as of today, we've reopened approximately 85, 499 sent only locations as dollar trees.

Speaker Change: In fact, another 20 stores are reopening tomorrow and the remaining 56 should reopen by the end of the year.

Robert LaFleur: Also, during this call, we will discuss certain non-gap financial measures, reconciliations of these non-gap items to the most directly comparable gap financial measures are provided in today's earnings release available on the IR section of our website. These non-gap measures are not intended to be a substitute for gap results, unless otherwise stated, we will refer to our financial results on a gap basis. Additionally, unless otherwise stated, all comparisons discussed today for the second quarter of fiscal 2024 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.

Speaker Change: Getting this done from scratch, in less than a hundred days, required a massive effort across multiple teams.

Speaker Change: that's a real accomplishment and we'd like to take everyone involved for all their hard work.

Speaker Change: These 99-cent-only locations are proven high-quality stores in strong markets with great growth potential. We're very excited about expanding our footprint across California and the Southwest, and we couldn't be more pleased with the reception we received from the communities who welcomed us.

Speaker Change: This transaction was a rare opportunity to acquire a portfolio of assets under very favorable least terms.

Speaker Change: We expect these stores will provide compelling unit level economics and positive synergies across our network.

Robert LaFleur: Following our prepared remarks, Jeff and Mike 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.

Speaker Change: While we have to absorb some unanticipated upfront costs that Jeff will talk about in a minute, this is still a great deal.

Mike Creedon: I now like to turn the call over to Mike. Thanks, Bob.

Mike Creedon: Good morning, everyone. This is Mike Creative. I'm Dollar Tree's Chief Operating Officer and I'm happy to pinch hit for Rick this morning. When Rick first joined Dollar Tree as Executive Chairman and again last year when he became CEO, he told you that he came here to lead a transformation, with the primary goal of helping this company realize its full potential. He's also said the transformations are rarely easy or linear and that is especially true for a company as large as ours that is navigating through one of the most challenging macro environments we've ever seen.

Jeff: In supply chain, our DC and West Memphis Arkansas has reopened and is now making deliveries.

Mike Creedon: University. That said, Rick and all of us on the senior leadership team believe very deeply in this transformation and the positive impact we're having in the areas we control. We also believe very deeply in the importance of providing the high quality, low cost products, the individuals and families need in a convenient and comfortable shopping environment. We are also committed to serving the communities where we operate. And most importantly, we are aware of the awesome responsibility we have each and every day.

Jeff: Recall that after we lost our DC in Marietta, Oklahoma, we decided to temporarily repurpose West Memphis to support the Dollar Tree Banner.

Jeff: We're also making good progress on Rotocarts, West Memphis is servicing over $600 tree and combo stores with Rotocarts, and by next year it will be able to handle an additional 150 stores.

Jeff: Elsewhere, our DC and Matthews North Carolina is delivering to family dollar stars with roadocards, and we're serving approximately $300 free stores with roadocards out of our DC here in Chesapeake, Virginia.

Jeff: By the end of the year, 4DC should be providing road-of-part deliveries to over 2,000 stores.

Jeff: We're collecting lots of data from initial deployments and refining our rollout plans based on what we learn along the way.

Jeff: and I.T. Bobby Appleton and I.T. are making great progress across our modernization initiatives.

Mike Creedon: To serve our customers, associates and shareholders. Clearly we are not pleased with our second quarter results or having to revise our full year outlook, but this updated outlook reflects how the challenging macro environment continues to pressure our customers. It also reflects some revised financial estimates that we will discuss shortly. That said, we will also talk about several areas where we are performing well and where our transformation initiatives are taking hold.

Jeff: Our new warehouse management system went live at its first two DCs with two more slated for early next year.

Jeff: Across both banners, we've transitioned over 9,000 stores to our network infrastructure, which supports business operations by improving internet connectivity, security, and store Wi-Fi access for associates.

Jeff: Additionally, we've created an entirely new infrastructure to support the multi-priced rollout, including shelf-tag label printers, in store price checkers, and back-off as functionality.

Mike Creedon: And I will share where we are heading as a company and why we are still so excited about our future. So let's get started. Sales came in towards the low end of our outlook range. Family dollars comp was in line, but Dollar Tree's comp while positive was lower than we expected. As we have seen for several quarters now, demand from family dollars core lower income customer remains weak. Dollar Tree has a broader customer base that includes more middle and upper income households.

Jeff: Our Family Dollar Private Brands program continues to gain momentum. Private Brands contributed 16% of consumable sales in the quarter, which puts us well ahead of schedule to hit our 17% year end target.

Jeff: Year to date, we've added 75 new skews across food, HPA and household products, and private brands now represent 9% of family dollar skews.

Mike Creedon: And beginning this quarter, we started to see inflation, interest rates and other macro pressures have a more pronounced impact on the buying behavior of these customers. This impacted our second quarter comp performance and is the primary driver of our revised full year outlook. Despite these near term pressures, we are confident in the Dollar Tree's segments ability to compete and win. Our offerings provide customers with exceptional values that are well matched to the current environment.

Jeff: A month categories were seeing strong growth in food and we see great potential in HBA where we remain under indexed.

Jeff: Shrake remains a major topic across retail.

Jeff: While shrink remains unacceptable high, it appears to be stabilizing.

Jeff: While it is too early to declare victory, I am pleased that our targeted actions and interventions helped our second quarter shrink rate.

Mike Creedon: We are strong believers in the inherent strength of Dollar Tree's differentiated business model and its long term strategy of multi price expansion and store growth acceleration. Today, we need to be sensitive and responsive to the needs of our customers and meet them where they are and how they are living. In this environment, retailers who can offer products to provide value and convenience to pressured consumers are the ones who will take market share and grow sales. We believe we are and will continue to be one of those winning retailers.

Jeff: We are running ahead of shrink expectations at Family Dollar and still have some additional work to do at Dollar Tree As we adjust to the new shrink challenges that arise when we introduce more high-value multiprice products into the assortment Now, let's move to the financial highlights from the court

Jeff: on a consolidated basis. Net sales increased 0.7% to 7.4 billion.

Jeff: Enterprise Cop increased 0.7% on a 1.1% traffic increase partially offset by a 0.5% average ticket to climb.

Mike Creedon: Before getting into the rest of the details on the second quarter, let us acknowledge that Dollar Tree's comp store performance was just part of the lower than expected Q2 earnings. The most significant component, 30 cents of EPS that wasn't in our June outlook, was related to general liability claims. Predicting these claims is complex and we again increased our approval for general liability this quarter after observing higher than expected costs to resolve certain claims.

Jeff: Looking at performance by banner, Dollar Tree Combs increased 1.3% on a 1.4% traffic increase, modestly offset by a 0.1% average ticket decline.

Mike Creedon: Jeff will give you the full details on this in a few minutes. Again, this evolving economic backdrop, our team remains focused on factors that are within our control, including the rollout of key transformation. Coalitionist. Dollar Tree's multi-price expansion continues to resonate with our customers and the 1600 stores that have been converted into our newest in-line format are seeing an outsized sales lift. As we talked about last quarter, we are building new muscle memory with multi-price.

Jeff: While cops would positive in each month, they softened sequentially throughout the quarter.

Jeff: While discretionary products remain an integral part of DollarTree's retail mission, our sick sales mix has shifted towards consumables in recent years.

Jeff: For example, Dollar Tree's consumable mix increased 210 basis points in the second quarter to 50.6%. Part of this shift reflects softer discretionary demand, but part of it is tied to some timing differences in our latest multi-price rule out.

Jeff: Given their shorter lead times, many of the earliest items we introduced were consumables. In the back half of the year, our discretionary mix should improve as more longer lead time discretionary items, particularly in seasonal, finally arrive in our stores.

Mike Creedon: This rollout is a process and we are constantly making adjustments based on our learnings from earlier rounds of conversions. For example, we are now prioritizing ready-to-convert stores and moving them to the front of a line. Ahead of stores that may need some additional prep work before they can realize the full range of conversion benefits. As we've taken the time to incorporate these learnings, we're a few hundred stores behind our original schedule.

Jeff: Dollar Trees Consumable COMP was 4.7% against a very challenging 13.2% COMP last year.

Jeff: While discretionary cop was down 1.9% on the unfavorable mix, this was a sequential improvement from the Easter related challenges we faced in Q1.

Jeff: Consumable categories like candy apparel, snacks and beverages, were our best performing areas in Q2 while higher margin discretionary categories like crafts, floral, and home decor underperform.

Mike Creedon: While we've learned, it's better to get the conversions done right than to rush the process. The most important thing is that the customer response is validating our strategy. Because our biggest challenge now is keeping up with the demand for the new assortment. To give you a sense of how these stores are performing, costs for the 1600 stores we've converted were up 4.6% in the second quarter, versus less than half a percent at our other formats.

Jeff: After several quarters of Toronto Grove, Dollar Tree's unit and Dollar Market Shayer gains moderated in the second quarter.

Jeff: Dollar Tree attracted 2.8 million net new shoppers over the past 12 months.

Speaker Change: In the family dollar segment, customer traffic in average ticket largely offset as Comps declined 0.1%. Comps were positive in the middle month of the quarter in negative in the first and last months.

Mike Creedon: Our Q1 conversions, who had the benefit of the new multi-price format and assortment for all of Q2, did a 5.1% comp. Importantly, these inline stores showed strength across the assortment, with a 6.7% consumables comp and a 2.6% discretionary comp. Considering the vast majority of our new discretionary multi-price items won't be in these stores until later this year, we are very pleased with these early results. We also believe that over time, our expanded discretionary multi-price offerings will help us overcome some of the macro-driven weakness we're seeing elsewhere in the portfolio.

Speaker Change: Customer Traffic Increased 0.7% while average decreased traffic 0.8%.

Speaker Change: Our consumables cop increased 0.3% on top of a strong 9.5% cop in Q2 last year.

Speaker Change: Discussion Area Comptecline 1.7%, a 300-basis point sequential improvement over Q1.

Speaker Change: The improving trend in discretionary cop reflects recent efforts to improve our assortment by emphasizing more relevant items with higher purchase frequency.

Speaker Change: Standouts for best performing categories or evenly split across discretionary and consumables, including beverages, apparel, health OTC and personal care.

Mike Creedon: We believe the expansion of inline multi-price across the Dollar Tree portfolio will be a major growth driver for many years to come. Today, less than 15% of our skews are multi-price. In addition to driving comp, the higher gross profit dollars per item generated by this assortment should provide a meaningful lift to store economics over time. As excited as we are about these initial results, we believe we're still in the very early innings with many years of runway ahead of us.

Speaker Change: Meanwhile, bottom performing categories like home decor, seasonal and beauty, skewed towards discretionary.

Speaker Change: Family Dollars unit and market share were essentially flat in the corner in the quarter. Family Dollar attracted 1.8 million net new shoppers over the past 12 months.

Speaker Change: Let's also update you on Snap Benefits, as you may know over 40% of family dollar customers are eligible for some form of government assistance, including Snap, and those benefits are a meaningful part of their household resources.

Mike Creedon: We're also happy to announce that as of today, we've reopened approximately 85 former 99 cent only locations as Dollar Tree. In fact, another 20 stores are reopening tomorrow, and the remaining 56 should reopen by the end of the year.

Speaker Change: We have cycled most of last year's benefit reductions and we believe the worst is now behind us.

Speaker Change: In the second quarter, reduced snap benefits were a 60 basis point cop head went for family dollar. Significantly better than the 280 basis point impact we saw in Q1 and the 500 basis point impact in Q4 last year.

Mike Creedon: Getting this done from scratch in less than 100 days required a massive effort across multiple teams. That's a real accomplishment, and we'd like to thank everyone involved for all their hard work. These 99 cent only locations are proven high-quality stores in strong markets with great growth potential. We're very excited about expanding our footprint across California and the Southwest, and we couldn't be more pleased with the reception we've received from the communities who welcomed us, and us.

Speaker Change: and one last point to share on Snap, family dollar customers can now buy Snap eligible products online through Instacart delivery.

Speaker Change: This collaboration reduces transportation dependency by giving customers access to same-day delivery of family dollar products. This is a logical extension of our mission to help individuals and families do more with less by making essential goods more affordable and accessible.

Mike Creedon: This transaction was a rare opportunity to acquire a portfolio of assets under very favorable least terms. We expect these stores will provide compelling unit level economics and positive synergies across our network. While we have to absorb some unanticipated upfront costs, the Jeff will talk about in a minute, this is still a great deal. In supply chain, our DC and West Memphis Arkansas has reopened and is now making deliveries. Recall that after we lost our DC in Marietta, Oklahoma, we decided to temporarily repurpose West Memphis to support the Dollar Tree banner.

Speaker Change: Now.

Speaker Change: Let us share some thoughts on a few other top of my additions.

Speaker Change: We know the tariffs have been a big topic recently.

Speaker Change: In the event of any meaningful change to the current tariff regime, we have long-standing contingency plans to diversify our supply chain in a timely and cost-effective manner.

Speaker Change: We also have the flexibility to adjust product specs and price points to address any changes in the market.

Speaker Change: Regarding Ocean Freight, our exposure to spot rates remains limited as the vast majority of our capacity is covered by annual or long-term contract.

Mike Creedon: We're also making good progress on roadocards. West Memphis is servicing over $600 tree and combo stores with roadocards and by next year it will be able to handle an additional 150 stores. Elsewhere, our DC and Matthews, North Carolina, is delivering to family dollar stores with roadocards and we're serving approximately $300 tree stores with roadocards out of our DC here in Chesapeake, Virginia. By the end of the year, four DC should be providing roadocard deliveries to over 2,000 stores. We're collecting lots of data from initial deployments and refining our rollout plans based on what we learn along the way.

Speaker Change: which limited near-term exposure to container-rate volatility, our outlook for ocean and domestic freight remains positive.

Speaker Change: Regarding changes to overtime thresholds for salary workers under the Fair Labor Standards Act, we fully absorbed the first phase of this in early July.

Speaker Change: The next proposed phase, which raises the July salary threshold by an additional 34 percent, is scheduled to go into effect on January 1st of next year.

Speaker Change: However, there is significant uncertainty over when and if this change will be implemented. We are evaluating multiple mitigation strategies to address the proposed rules.

Mike Creedon: In IT, Bobby Aplatoon and his team are making great progress across our modernization initiatives. Our new warehouse management system went live at its first two DCs with two more slated for early next year. Across both banners, we've transitioned over 9,000 stores to our network infrastructure, which supports business operations by improving internet connectivity, security, and in-store Wi-Fi access for associates. Additionally, we've created an entirely new infrastructure to support the multi-price rollout, including shelf tag label printers, in-store price checkers, and back office functionality.

Speaker Change: And finally, we wanted to provide an update and let you know what we are making good progress on our strategic review at Family Dollar.

Speaker Change: which includes evaluating a full range of pathways to maximize shareholder value.

Speaker Change: As we discussed in June, our transformation includes operational and business improvements, such as multi-principaletry as well as this more holistic evaluation of the best structure and pathway for our family-dollar business.

Speaker Change: We understand that there are many questions on this topic and we reiterate our commitment to update you when we reach the conclusion of the review.

Mike Creedon: Our Family Dollar Private Brands program continues to gain momentum. Private Brands contributed 16 percent of consumable sales in the quarter, which puts us well ahead of schedule to hit our 70 percent year end target. Year to date, we've added 75 new skews across food, HBA, and household products, and private brands now represent 9 percent of Family Dollar skews. Among categories, we're seeing strong growth in food, and we see great potential in HBA, where we remain under indexed.

Speaker Change: The actions we took earlier this year at Family Dollar to close underperforming stores are having the intended impact. And our remaining Family Dollar stores are focused on providing service and value to our customers across the country each and every day.

Speaker Change: Before wrapping up, we'd like to share a few thoughts about our revised artwork.

Speaker Change: We've adjusted our sales outlook to better reflect where the consumer is today as they continue to adapt to the evolving macro landscape.

Mike Creedon: Shrink remains a major topic across retail. While shrink remains unacceptably high, it appears to be stabilizing. While it is too early to declare victory, I am pleased that our targeted actions and interventions helped our second quarter shrink rate. We are running ahead of shrink expectations at Family Dollar and still have some additional work to do at Dollar Tree, as we adjust to the new shrink challenges that arise when we introduce more high value multi-price products into the assortment.

Speaker Change: Regarding the 99th since only portfolio, I revised outlook reflects a better estimate of the one-time pre-opening costs associated with these stores.

Jeff: Better than what we had when the transaction first closed. Finally, it is also the adjustment to our general liability exposure, and our latest DNA forecast, which depth Jeff will discuss in a moment.

Jeff: We are comfortable with this reset, given where the customer and the business are today, and we are confident in our ability to execute against our objectives.

Mike Creedon: Now let's move to the financial highlights from the quarter. On a consolidated basis, net sales increased 0.7 percent to 7.4 billion. Enterprise COP increased 0.7 percent on a 1.1 percent traffic increase partially offset by a 0.5 percent average tick- 1. Decline. Looking at performance by banner, Dollar Tree comps increased 1.3% on a 1.4% traffic increase, modestly offset by a 0.1% average ticket decline. While comps were positive in each month, they softened sequentially throughout the quarter.

Jeff: With that, I'll turn the call over to Jeff.

Jeff: Thank you, Mike, and get morning. I'll start off by discussing our second quarter results after which I'll provide some comments on our third quarter in fiscal 2024 outlook. Where applicable, I will focus on our adjusted results.

Jeff: Our reconciliation of our non-gap adjusted results is provided in our earnings release.

Jeff: Second quarter results obviously sell short of our expectations. Our adjusted EPS of 67 cents was 38 cents below the midpoint of our June outlook.

Mike Creedon: While discretionary products remain an integral part of Dollar Tree's retail mission, our sick sales mix has shifted towards consumables in recent years. For example, Dollar Tree's consumable mix increased 210 basis points in the second quarter to 50.6%. Part of this shift reflects softer discretionary demand, but part of it is tied to some timing differences in our latest multi-price rollout. Given their shorter lead times, many of the earliest items we introduced were consumables.

Jeff: Of that 38 cents, 30 cents was attributable to the general liability adjustment, while the remaining 8 cents was attributable to the flow through from the sales shortfall, mostly in the Dollar Tree segment.

Jeff: As Mike indicated, Dollar Tree's conf softeness was primarily on the discretionary side of the business and reflected the increasing effect of macro pressures on the purchasing behavior of the Dollar Tree's middle and higher income customers.

Mike: Our original second quarter outlook did not anticipate those pressures migrating to Dollar Tree's customer base to the degree that they did.

Mike Creedon: In the back half of the year, our discretionary mix should improve, as more longer lead time discretionary items, particularly in seasonal, finally arrive in our stores. Dollar Tree's consumable comp was 4.7% against a very challenging 13.2% comp last year. While discretionary comp was down 1.9% on the unfavorable mix, this was a sequential improvement from the Easter-related challenges we faced in Q1, consumable categories like candy, apparel, snacks, and beverages were our best performing areas in Q2 while higher margin discretionary categories like crafts, floral, and home decor underperformed.

Speaker Change: Turning to the business results on a consolidated basis.

Speaker Change: had just it operating income was $218 million. A 24% decrease from last year.

Speaker Change: Adjusted operating margin decreased by approximately 90 basis points to 3%. Reflecting an 80 basis point increase in gross margin offset by 180 basis point increase in adjusted SG&A rate.

Speaker Change: Gross Margin improvement came primarily from lower freight costs, partially all set by unfavorable sales mix and higher quality costs.

Mike Creedon: After several quarters of strong growth, Dollar Tree's unit and dollar market share gains moderated in the second quarter. Dollar Tree attracted 2.8 million net new shoppers over the past 12 months. In the family dollar segment, customer traffic in average ticket largely offset, as comps declined 0.1%, comps were positive in the middle month of the quarter, in negative in the first and last months. Customer traffic increased 0.7% while average decreased traffic 0.8%.

Speaker Change: Adjusted SGNA increased primarily from the general liability adjustment, higher depreciation.

Speaker Change: temporary labor for Dollar Tree's multi-price rollout.

Speaker Change: Fire Utility Costs and Sales de-Leverage.

Speaker Change: Partially offset by lower incentive comp costs.

Speaker Change: are just an effective tax rate was 24.2% compared to 24%.

Speaker Change: had just it net income was $143 million and adjusted the looted EPS with 67 cents.

Mike Creedon: Our consumables comp increased 0.3% on top of a strong 9.5% comp in Q2 last year. Discretionary comp declined 1.7%, a 300 basis point sequential improvement over Q1. The improving trend in discretionary comp reflects recent efforts to improve our assortment by emphasizing more relevant items with higher purchase frequency. Standouts for best performing categories were evenly split across discretionary and consumables, including beverages, apparel, health OTC, and personal care. Meanwhile, bottom performing categories like home decor, seasonal and beauty skewed towards discretionary. Family dollars unit and market share were essentially flat in the quarter. Family dollar attracted 1.8 million net new shoppers over the past 12 months.

Speaker Change: Let me take a step back and offer additional details around the general liability adjustment we made in the quarter.

Speaker Change: As we stayed before, predicting the outcome of both the existing and unreported claims is inherently complex. Particularly as general liability claims have become more volatile in recent years.

Speaker Change: Due to the increase in estimated liabilities for these claims, we took an incremental $84 million charge, or 30 cents of EPS against our prior outlook.

Speaker Change: with about 21 cents of that pertaining to Dollar Tree and the balance to Family Dollar.

Speaker Change: So, what's going on here and why are we talking about this again?

Speaker Change: Given the size and scale of our footprint, we managed thousands of general liability claims, stemming from customer accidents and other incidents at our stores and surrounding areas.

Mike Creedon: Let's also update you on snap benefits. As you may know, over 40% of family dollar customers are eligible for some form of government assistance, including snap, and those benefits are a meaningful part of their household resources. Resources. We have psyched most of last year's benefit reductions, and we believe the worst is now behind us. In the second quarter, reduced SNAP benefits were a 60 basis point comp headwind for Family Dollar, significantly better than the 280 basis point impact we saw in Q1 and the 500 basis point impact in Q4 last year.

Speaker Change: While some claims are current, many relate to prior years.

Speaker Change: Over time, the ultimate outcome of claims.

Speaker Change: particularly older claims during the pandemic and post-pandemic timeframe, as becoming increasingly challenged to predict.

Speaker Change: Given the higher settlement and litigation costs that have resulted from a more volatile insurance environment.

Speaker Change: For these reasons, twice a year, we rely on third-party, actual rural assessments and assumptions.

Mike Creedon: This collaboration reduces transportation dependency by giving customers access to same day delivery of Family Dollar products. This is a logical extension of our mission to help individuals and families do more with less by making essential goods more affordable and accessible.

Speaker Change: to evaluate accruals for open claims as well as incurred but not yet reported claims.

Speaker Change: The claims have continued to develop unfavorably due to the rising cost of reimburse, subtle, and litigate these claims, which impacted our actuarially determined liabilities.

Mike Creedon: Now, let us share some thoughts on a few other top of mind issues. We know that tariffs have been a big topic recently. In the event of any meaningful change to the current tariff regime, we have longstanding contingency plans to diversify our supply chain in a timely and cost effective manner. We also have the flexibility to adjust product specs and price points to address any changes in the market. Regarding ocean freight, our exposure to spot rates remains limited as the vast majority of our capacity is covered by annual or long term contracts.

Speaker Change: While exposure to general liability claims remain difficult to forecast, we believe the adjustment we took in Q2 captures the current range of potential outcomes based on what we have experienced in recent years.

Speaker Change: Now let's move on for our business segment results.

Speaker Change: At Dollar Tree, adjusted operating income decreased 13% to $344 million.

Speaker Change: Adjusted operating margin decreased 190 basis points driven by a 80 basis point increase and gross margin offset by 270 basis point increase and adjusted SGNA rate.

Mike Creedon: With limited near term exposure to container rate volatility, our outlook for ocean and domestic freight remains positive. Regarding changes to overtime thresholds for salary workers under the Fair Labor Standards Act, we fully absorbed the first phase of this in early July. The next proposed phase, which raises the July salary threshold by an additional 34%, is scheduled to go into effect on January 1 of next year. However, there is significant uncertainty over when and if this change will be implemented. We are evaluating multiple mitigation strategies to address the proposed rules.

Speaker Change: Gross margin improved primarily from lower freight costs. This was partially offset by unfavorable sales mix and occupancy cost.

Speaker Change: Adjusted SGNA expenses increased primarily due to the general liability adjustment.

Speaker Change: Higher Depreciation.

Speaker Change: temporary labor for the multi-price rollout, higher utility costs, and sales of the leverage.

Speaker Change: at Family Dollar.

Mike Creedon: And finally, we wanted to provide an update and let you know what we are making good progress on our strategic review at Family Dollar, which includes evaluating a full range of pathways to maximize shareholder value. As we discussed in June, our transformation includes operational and business improvements such as multi-price adultery, as well as this more holistic evaluation of the best structure and pathway for our Family Dollar business. We understand that there are many questions on this topic and we reiterate our commitment to update you when we reach the conclusion of the review.

Speaker Change: Adjusted operating loss was $3.6 million, compared to adjusted operating income of $11.8 million last year.

Speaker Change: Adjusted operating margin decrease 40 basis points on a 50 basis point increase and gross margin offset by a 100 basis point increase in adjusted SGNA rate.

Speaker Change: Gross margin increased primarily from lower freight and occupancy costs.

Speaker Change: Partly offset by unfavorable sales mix, higher distribution costs, and mark downs.

Mike Creedon: The actions we took earlier this year at Family Dollar to close underperforming stores are having the intended impact and our remaining Family Dollar stores are focused on providing service and value to our customers across the country each and every day.

Speaker Change: adjusted SGNA rate increased primarily from higher depreciation and amylization, the general liability charge, and sales de-leverage.

Speaker Change: [inaudible]

Speaker Change: Moving on to the balance sheet and cash flow.

Speaker Change: Imentory D-Crees by 4% or 228 million dollars.

Mike Creedon: Before wrapping up, we would like to share a few thoughts about our revised outlook. We've adjusted our sales outlook to better reflect where the consumer is today as they continue to adapt to the evolving macro landscape. Regarding the 99 cents only portfolio, our revised outlook reflects a better estimate of the one time pre-opening costs associated with these stores, and better than what we had when the transaction first closed. Finally, it is also the adjustment to our general liability exposure and our latest DNA forecast, which depth Jeff will discuss in a moment. We are comfortable with this reset given where the customer and the business are today, and we are confident in our ability to execute against our objectives.

Speaker Change: Average inventory per store decreased 3.6%.

Speaker Change: On a related note, today we have received $70.8 million of insurance proceeds related to the inventory loss and property damage at our Marietta Oklahoma BC.

Speaker Change: We expect the remaining $46 million of outstanding losses will be fully recovered under our existing insurance policies and due course.

Speaker Change: with cash and cash equivalents of $570 million, and long-term debt of $3.4 billion, are guaranteed we managed wrong.

Speaker Change: Art Bank Defined Leverage at quarter-end stood at approximately 2.5 times, which continues to underpin our investment grade credit worthiness.

Jeff Davis: With that, I'll turn the call over to Jeff. Thank you Mike and good morning. I'll start off by discussing our second quarter results, after which I'll provide some comments on our third quarter and fiscal 2024 outlook. Where applicable, I will focus on our adjusted results. A reconciliation of our non-gap adjusted results is provided in our earnings release.

Speaker Change: On the cash flow statement, regenerated $300 and $7 million from operating activities compared to $172 million last year.

Speaker Change: Capital expenditures were $501 million in the quarter versus $425 million last year. Reflecting the accelerated Newstore openings and ongoing investments in growth and other initiatives.

Jeff Davis: Second quarter results obviously sell short of our expectations. Our adjusted EPS of 67 cents was 38 cents below the midpoint of our June outlook. Of that 38 cents, 30 cents was attributable to the general liability adjustment, while the remaining 8 cents was attributable to the flow through from the sales shortfall, mostly in the Dollar Tree segment. As Mike indicated, Dollar Tree's calm softness was primarily on the discretionary side of the business and reflected the increasing effect of macro pressures on the purchasing behavior of the Dollar Tree's middle and higher income customers.

Speaker Change: are free cash flow in the quarter and prove $60 million over last year.

Speaker Change: Consistent with our discipline approach to capital allocation.

Speaker Change: After investing in the growth of our business this quarter, we return $91 million to our shareholders by repurchasing $750,000 at an average price of $120 per share.

Speaker Change: At Quarter N, we had approximately $952 million remaining under our existing Share Repurchase Program.

Jeff Davis: Our original second quarter outlook did not anticipate those pressures migrating to Dollar Tree's customer base to the degree that they did. Turning to the business results on a consolidated basis, adjusted operating income was $218 million, a 24% decrease from last year. Adjusted operating margin decreased by approximately 90 basis points to 3%, reflecting an 80 basis point increase in gross margin offset by 180 basis point increase in adjusted S-GNA rate. Gross margin improvement came primarily from lower freight costs, partially offset by unfavorable sales mix, and higher occupancy costs.

Speaker Change: Now let me provide some perspectives on our third quarter and full year expectations.

Speaker Change: Her current revised outlook reflects the following.

Speaker Change: We are taking a more conservative view towards comp sales in the back half of the year, particularly in the Dollar Tree segment.

Speaker Change: as macro factors continue to weigh on customer sentiment.

Speaker Change: and it virtually affects discretionary demand and buying behavior.

Speaker Change: It also reflects one-time integration cost related to the 99th sense only lease acquisitions.

Speaker Change: Because time was of the essence in acquiring these leases in a competitive bidding process, the time between when we took physical possession of these properties and when they opened was longer than expected.

Jeff Davis: Adjusted S-GNA increased primarily from the general liability adjustment, higher depreciation, temporary labor for Dollar Tree's multi-price rollout, higher utility costs, and sales the leverage, partially offset by lower incentive calm costs. Our adjusted effective tax rate was 24.2% compared to 24%.

Speaker Change: As a result, we are incurring upfront occupancy costs, like rent, insurance and security for an extended period before the stores open.

Speaker Change: We announced this transaction a week before

Speaker Change: are prior to our last earnings call, and these additional upfront costs were not anticipated in the outlook we gave at that time.

Jeff Davis: Adjusted net income was $143 million and adjusted deluded EPS with 67 cents. Let me take a step back and offer additional details around the general liability adjustment we made in the quarter. As we stated before, predicting the outcome of both existing and unreported claims is inherently complex, particularly as general liability claims have become more volatile in recent years. Sanders. Due to the increase in estimated liabilities for these claims, we took an incremental $84 million charge, or 30 cents of EPS against our prior outlook, with about 21 cents of that pertaining to Dollar Tree and the balance to Family Dollar.

Speaker Change: All in The Estimates.

Speaker Change: We estimate these incremental upfront costs will negatively impact third quarter EPS by approximately 7 cents.

Speaker Change: and Ford Quarter EPS by approximately five cents.

Speaker Change: On a positive note, the initial sales performance of the converted and reopen stores is exceeding our initial expectations, and we are increasingly bullish regarding the long-term prospect for this portfolio.

Speaker Change: We are also expecting higher DNA expense in the back half of the year after reforcing our capital projects to reflect higher anticipated costs for projects such as new stores, renovations, and our IT transformation.

Jeff Davis: So what's going on here and why are we talking about this again? Given the size and scale of our footprint, we managed thousands of general liability claims stemming from customer accidents and other incidents at our stores and surrounding areas. While some claims are current, many relate to prior years. Over time, the ultimate outcome of claims, particularly older claims during the pandemic and post-pandemic timeframe, has become increasingly challenged to predict, given the higher settlement and litigation costs that have resulted from a more volatile insurance environment.

Speaker Change: as well as the timing of receipt for vendor invoices.

Speaker Change: This is expected to be an incremental EPS headwind of approximately 12 cents, split evenly between Q3 and Q4.

Speaker Change: On the positive side of the ledger, we saw some green shoots and discretionary mix at Family Dollar in Q2, which is so far carried into Q3.

Speaker Change: We are assuming this trend continues for the bounce of the year and are now expecting a modest mix headwind for family dollar in the back half.

Speaker Change: The better initial performance at the converted 99 cents only stores is also reflected in our revised sales outlook.

Jeff Davis: For these reasons, twice a year, we rely on third-party actuarial assessments and assumptions to evaluate accruals for open claims as well as incurred but not yet reported claims. The claims have continued to develop unfavorably due to the rising costs to reimburse, settle, and litigate these claims, which impacted our actuarially determined liabilities. While exposure to general liability claims remain difficult to forecast, we believe the adjustment we took in Q2 captures the current range of potential outcomes based on what we have experienced in recent years.

Speaker Change: From a modeling perspective, it also worth reminding everyone that sales from these and all new stores won't show up in our comp store net sales until after they've been open for 15 months.

Speaker Change: and finally, payroll should come in lower than previously forecast as re-align incentive of comp and hours with our revised business outlook.

Speaker Change: with that background.

Speaker Change: For the third quarter, we expect net sales will be in the range of 7.4 to 7.6 billion dollars. Based on low-single digit, comp net sales growth for the enterprise and both Dollar Tree and Family Dollar segments.

Jeff Davis: Now let's move on to our business segment results. At Dollar Tree, adjusted operating income decreased 13% to $344 million. Adjusted operating margin decreased 190 basis points, driven by an 80 basis point increase in Gross Margin, offset by 270 basis point increase in adjusted SG&A rate. Gross margin improved primarily from lower freight costs. This was partially offset by unfavorable sales mix and occupancy cost. Adjusted SG&A expenses increase primarily due to the general liability adjustment, higher depreciation, temporary labor for the multi-price rollout, higher utility costs, and sales the leverage.

Speaker Change: A justing for the stores that were closed as part of the portfolio optimization, we expect third quarter net sales for the family dollar segment to decline by 1 to 3% on a year-over-year basis.

Speaker Change: We expect adjusted EPS will be in the range of $1.5 to $1.15 which reflects a more conservative sales outlook. The incremental upfront cost of the 99 cents only stores and the DNA Reforecast.

Speaker Change: For the full year, we expect net sales to be in the range of 30.6 to 30.9 billion dollars based on low single digit comp net sales growth for the enterprise and both the Dollar Tree and Family Dollar segments.

Jeff Davis: At Family Dollar, adjusted operating loss was $3.6 million compared to adjusted operating income of $11.8 million last year. Adjusted operating margin decreased 40 basis points on a 50 basis point increase in Gross Margin, offset by a 100 basis point increase in adjusted SG&A rate. Gross margin increased primarily from lower freight and occupancy cost. House, partially offset by unfavorable sales mix, higher distribution costs, and markdowns. Adjusted SG&A rate increased primarily from higher depreciation and amortization, the general liability charge, and sales deliverage.

Speaker Change: A justing force stores close as part of the portfolio optimization in the extra week in fiscal 2023. We expect full year net sales for family dollar to decline by 3% to 5% on a year over year basis.

Speaker Change: A just at EPS for the full year is now expected to be in the range of $5.20 to $5.60.

Speaker Change: Reflecting our second quarter results are revised sales forecast, the 99th sense only cost and DNA.

Speaker Change: In the interest of time, I will direct you to our supplemental financial presentation, which is available on our IR website for the remaining details that support our current column.

Speaker Change: So, to recap.

Jeff Davis: Moving on to the balance sheet and cash flow, inventory decreased by 4% or $228 million. Average inventory per store decreased 3.6%. On a related note, today we have received $70.8 million of insurance proceeds related to the inventory loss and property damage at our Marietta Oklahoma DC. We expect the remaining $46 million about standing losses will be fully recovered under our existing insurance policies and do course. With cash and cash equivalents of $570 million and long-term debt of $3.4 billion are balance sheet remains strong.

Speaker Change: We're revising the midpoint of our full year 2024 outlook from $5.40 from $5.06.75.

Speaker Change: of that $1.35 delta.

Speaker Change: 38 cents came from Q2 shortfall.

Speaker Change: The vast majority of which came from the general liability adjustment.

Speaker Change: Then in the back half of the year, 12 cents is from the higher up front cost in the 99 cents only portfolio.

Speaker Change: Another 12-sense is from the DNA adjustment and the remaining 73-sense.

Speaker Change: is primarily from the flow through on the lowered sales outlook.

Speaker Change: which is mostly due to our more conservative outlook for discretionary sales at Dollar Tree.

Jeff Davis: Our bank defined leverage at quarter end stood at approximately 2.5 times, which continues to underpin our investment grade creditworthiness. On the cash flow statement, we generated $307 million from operating activities compared to $172 million last year. Capital expenditures were $501 million in the quarter versus $425 million last year, reflecting the accelerated new store openings and ongoing investments in growth and other initiatives. Our free cash flow in the quarter improved $60 million over last year.

Mike: with that. I'll turn the call back over the month. Thanks, Jeff. On behalf of Rick and the entire Senior Management team, I want to thank our teams for their continued hard work in a very challenging macro environment and for supporting our strategic review of Family Dollar.

Speaker Change: Our strategic review is looking at the full range of alternatives for family dollar with a focus on clearly demonstrating the full value of our two distinct franchises.

Speaker Change: Despite significant headwits, our Dollar Tree Banner's comp remains positive, even as they lap two years of extremely strong performance.

Speaker Change: Our non-multiply stores were modestly positive this quarter and our newly converted multi-price stores produced a 4.6% comp. This is one of the best multi-year comp performances in all of retail.

Jeff Davis: Consistent with our disciplined approach to capital allocation, after investing in the growth of our business this quarter, we return $91 million to our shareholders by repurchasing 750,000 shares at an average price of $120 per share. At quarter end, we had approximately $952 million remaining under our existing share repurchase program.

Speaker Change: Most importantly, we have just begun to roll out our expanded multi-price cues and we still have thousands of stores to convert to our new format. On top of that, we're opening hundreds of brand new inline multi-price stores this year and plan to do so for many years to come.

Speaker Change: In light of all this, we continue to believe that Dollar Tree is one of the strongest platforms in all of retail, with many years of strong cop and store growth still ahead of us.

Jeff Davis: Now let me provide some perspective on our third quarter and full-year expectations. Our current revised outlook reflects the following. We are taking a more conservative view towards comp sales in the back half of the year, particularly in the Dollar Tree segment. As macro factors continue to weigh on customer sentiment and adversely affect discretionary demand and buying behavior. It also reflects one-time integration costs related to the $0.99 only lease acquisitions. Because time was of the essence in acquiring these leases and in a competitive bidding process, the time between when we took physical possession of these properties and when they opened was longer than expected.

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

Speaker Change: Thank you, we will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.

Speaker Change: For participants using to be your equipment, maybe necessary to pick up your handset before pressing the star keys. As a reminder, we ask that you please limit yourself to one question. One moment please while we pull for your questions.

Speaker Change: Our first question comes from the line of Michael Lasser with UBS, please receive with your question.

Michael Lasser: Good morning, thank you so much for taking my question.

Jeff Davis: As a result, we are incurring upfront occupancy costs like rent, insurance and security for an extended period before the stores opened. We announced this transaction a week before or prior to our last earnings call, and these additional upfront costs were not anticipated and the outlook we gave at that time. All in, the estimate, we estimate these incremental upfront costs will negatively impact third quarter EPS by approximately seven cents. On a positive note, the initial sales performance of the converted and re-open stores is exceeding our initial expectations and we are increasingly bullish regarding the long-term prospect for this portfolio.

Speaker Change: So putting aside what has been happening a family dollar, the core dollar tree standard has a number tailwind, such as multi-priced points.

Speaker Change: Frame movements and others.

Speaker Change: yet a series of unexpected items.

Speaker Change: that has indicated to be one time in nature has consistently been dragging down.

Speaker Change: The Burning of this business.

Speaker Change: So at what point can it move past the one time in nature item and be on a consistent glide path forward?

Speaker Change: and as part of that, what is an updated, realistic operating margin for core dollar tree if it is a long-term low-sealed digit comp grower. Thank you very much.

Speaker Change: Good morning, Michael. This is Jeff. I'll take a portion of that question regarding general liability and some of the other elements. You point out, I think, a very valid point.

Jeff Davis: We are also expecting higher DNA expense in the back half of the year after re-forecasting our capital projects to reflect higher anticipated costs for projects such as new stores, renovations, and our IT transformation, as well as the timing of receipt for vendor invoices. This is expected to be an incremental EPS headwind of approximately twelve cents, split evenly between Q3 and Q4.

Speaker Change: The General Lot Building.

Speaker Change: Adjustments we had to take is one that we're not happy with.

Speaker Change: It's one in which as I mentioned in my remarks it is very complex.

Speaker Change: as a result of how these claims develop over time and having new information around that. We believe that the adjustment that we've taken today.

Speaker Change: We're flexing not only that historic performance, our current...

Jeff Davis: On the positive side of the ledger, we saw some green shoots and discretionary mix at Family Dollar in Q2, which is so far carried into Q3. We are assuming this trend continues for the bounce of the year and are now expecting a modest mix headwind for Family Dollar in the back half. The better initial performance at the converted 99 cents only stores is also reflected in our revised sales outlook. From a modeling perspective, it also worth reminding everyone that sales from these and all new stores won't show up in our comp store net sales until after they've been open for fifteen months. And finally, payroll should come in lower than previously forecast as we align incentive comp and hours with our revised business outlook.

Speaker Change: Altaums as it relates to how these claims are developing, but we're also making sure that we're not anticipating any improvement in these claims experience on a go-forward basis.

Speaker Change: That's we feel more confident around the adjustments that we've taken reflects the current liability that is sitting out there for once again, not only these existing claims, but the claims that are yet to be reported.

Speaker Change: and that's the best way I can respond to that to Michael that we believe we now have this behind us.

Speaker Change: The second portion of your question I believe was around, what do we think, the offering margins of the...

Speaker Change: with a long-term operating margins of the business would be.

Speaker Change: You know, as we continue to drive multi-price.

Speaker Change: and we're going to continue to drive higher gross profit dollars per transaction.

Speaker Change: We believe that as we move forward and we get beyond some of the higher transformation costs that we're experiencing right now as it relates to some of the IT investments that we're making supply chain investments that we'll be able to.

Jeff Davis: With that background, for the third quarter, we expect net sales will be in the range of $7.4 to $7.6 billion based on low single-digit comp net sales growth for the enterprise and both Dollar Tree and Family Dollar segments. Adjusting for the stores that were closed as part of the portfolio optimization, we expect third quarter net sales for the Family Dollar segment to decline by one to three percent on a year-over-year basis. We expect adjusted EPS will be in the range of $1.5 to $1.15 which reflects a more conservative sales outlook, the incremental upfront cost of the 99 cents only stores and the DNA reforecast.

Speaker Change: I achieved the outlook that we have provided previously on a longer-term basis for the business. I don't want to...

Speaker Change: Give any longer term, have that.

Speaker Change: View of the business, other than what we've already given, in our outlook for the quarter.

Speaker Change: We said that once again, family dollar, once our dollar tree is going to be low-single digits, we said that to be...

Speaker Change: 1 second here.

Speaker Change: In our financial...

Jeff Davis: For the full year, we expect net sales to be in the range of $30.6 to $30.9 billion based on low single-digit comp net sales growth for the enterprise and both the Dollar Tree and Family Dollar segment. Announcements. Adjusting four stores close as part of the portfolio optimization in the extra week in fiscal 2023, we expect full year net sales for family dollar to decline by three to 5% on a year over year basis. The second quarter results are revised sales forecasts, the 99 cents only cost, and DNA.

Speaker Change: If I can find a girl back.

Jeff: and Jeff, I'll just do that. Michael, the mixed we see on the multipriser, remember it comes in heavy, consumable first because that's what we could get in the short order. As you look to enter the back half of the year with the holidays, you get that discretionary benefit from the multipriser rollout.

Jeff: Yeah, I found it here in Michael. I just want to make sure that I call it this properly. As I relate to 2024 outlook, we still believe that the gross margins on the Dollar Tree business will be in the range of 36 percent.

Speaker Change: and the flow throughs that we've had previously. We've said on a consolidated basis, the S-GNA will be approximately 26% and the...

Jeff Davis: In the interest of time, I will direct you to our supplemental financial presentation, which is available on our IR website for the remaining details that support our current outlook. So to recap, we're revising the midpoint of our full year 2024 outlook from five dollars and 40 cents from five dollars and six dollars and 75 cents. Of that $1.35 delta, 38 cents came from Q2 shortfall, the vast majority of which came from the general liability adjustment.

Speaker Change: The SG and how it looked on the Dollar Tree segment already reflects the additional cost that we've had as relates to the approximately 2800 stores of we're going to convert to multi-price that's the other headwind that we have currently in the business as we're using third party labor for that.

John: and John.

Speaker Change: Thank you. Our next question comes from the line of Edward Kelly with the Wells Fargo. Please proceed with your question.

Edward Kelly: Yeah, hi guys, good morning.

Edward Kelly: So I want to just take a step back, you know, given the, I guess the overhangs and the questions that investors really have, you know, with this point, as you think about multi-price point.

Jeff Davis: Then in the back half of the year, 12 cents is from the higher upfront cost in the 99 cents only portfolio. Another 12 cents is from the DNA adjustment and the remaining 73 73 cents is primarily from the flow through on the lowered sales outlook, which is mostly due to our more conservative outlook for discretionary sales at Dollar Tree.

Speaker Change: at Dollar Tree. How confident are you that...

Speaker Change: Some of the weakness we've seen recently is just macro, as opposed to push back on the multiprocycling strategy.

Speaker Change: I know you have the conversions that are doing well but I think three and five dollars are in many more stores.

Speaker Change: just curious what you think consumers are really saying there and then you know you had optimism around Q4 so when you know if you think you can start to turn the corner and then the other thing is family dollar and I don't know what you can say but it

Mike Creedon: With that, I'll turn the call back over the month. Thanks, Jeff.

Mike Creedon: On behalf of Rick in the entire senior management team, I want to thank our teams for their continued hard work in a very challenging macro environment and for supporting our strategic review of family dollar. Our strategic review is looking at the full range of alternatives for family dollar with a focus on clearly demonstrating the full value of our two distinct franchises. Despite significant headwinds, our Dollar Tree banner comp remains positive, even as they lap two years of extremely strong performance.

Speaker Change: Is there anything you can tell us around your confidence and your ability to come to some resolution in that business that is a created to shareholder value? Thank you

Speaker Change: Yeah, and it's like, I'll pick the first one, you know, we said we're still in the early innings of multi-priced, and I'll tell you that

Speaker Change: We like what the customer is telling us with multibrize, so we're surveying our customers, we're listening to them, they're telling us with their cops, you know, I highlighted how...

Mike Creedon: Our non-multiprice stores were modestly positive this quarter, and our newly converted multi-price stores produced a 4.6 percent comp. This is one of the best multi-year comp performances in all of retail. Most importantly, we have just begun to roll out our expanded multi-price SKUs and we still have thousands of stores to convert to our new format. On top of that, we're opening hundreds of brand new inline multi-price stores this year and plan to do so for many years to come. In light of all this, we continue to believe that Dollar Tree is one of the strongest platforms in all of retail, with many years of strong comp and store growth still ahead of us.

Speaker Change: Strong, our multi-price stores are performing, you know, compared to stores that just have the dollar 25.

Speaker Change: and we're really growing traffic, we're adding new customers and our customers are letting us know that they like the product and then when you look to the second half, we really think they're going to like the discretionary product.

Speaker Change: So, we've seen it as our...

Speaker Change: Stores of Set, you know, are associates, are our customers, and our associates are telling us, they love this multi-priced product, they're excited about, you know, the holiday season and all that. So, we'll continue to learn as we go. We've made changes as I mentioned in my prepared remarks.

Speaker Change: We're a couple hundred stores behind where we are. That's because we want to be better. We want to get it right when we roll them out. So we took the approach. We added some column milestones or stopgates.

Operator: Operator, with that, Jeff and I are ready to take questions. Thank you.

Operator: We will now be conducting a question-on-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself, from the Q. For participants using speaker equipment, maybe necessary to pick up your hands up before pressing the star keys. As a reminder, we ask that you please limit yourself to one question. One moment please, while we pull for your questions.

Speaker Change: To say, we're not going to convert a store unless that store is ready to be converted, so we can improve what the customer sees when they come in and the overall performance of the multi-price stores.

Speaker Change: and Jeff, I'll let you talk to the FDA, just a couple of things that add to that. If you think about the Dollar Tree segment, you know, last year this time we added over 2 million new customers. We're now laughing at we continue to add the on that. So it is absolutely resonating with the customer.

Michael Lasser: Our first question comes from the line of Michael Lasser with UBS. Please receive with your question.

Jeff Davis: Good morning. Thank you so much for taking my question. So putting aside what has been happening at Family Dollar, the core Dollar Tree Fanner has a number of tailwinds such as multi-price point, frame improvements and others, yet a series of unexpected items that have indicated to be one time in nature have consistently been dragging down the earnings of this business. So at what point can it move past the one time in nature item and be on a consistent glide path forward? And as part of that, what is an updated realistic operating margin for core Dollar Tree? If it is a long-term, low single digit comp roller. Thank you very much.

Speaker Change: If you think about the fact that we continue to maintain our market share in this environment, at a time when we're actually seeing customers contract their spend, it's not that we are seeing the combination of things. So we're seeing contraction of spend, we're not seeing necessarily a loss from the competitive standpoint.

Speaker Change: So we continue to add new customers, maintain market share, continue to resonate with the customer when Mike had spoken about the new.

Mike: Inline conversion stores, that multi-price delivering, that 6% plus constant consumables, and even positive almost a 3% comp in discretionary. So, very, very favorable force.

Speaker Change: as her late to family dollar.

Jeff Davis: Yeah, good morning Michael. This is Jeff. I'll take a portion of that question regarding general liability and some of the other elements. You know, you point out I think a very valid point. The general liability adjustments we had to take is one that we're not happy with. It's one in which, as I mentioned in my remarks, it is very complex as a result of how these claims develop over time and having new information around that.

Speaker Change: We're excited about what we're seeing in family dollars also from a standpoint of we're starting to actually see some discretionary improvement. We believe we're beyond the big head ones that we've had with respect to the customer with snap.

Speaker Change: We're continuing to see improvement and shrink. We've invested in people-time technology and systems on the family dollar side. And this proof points are really starting to deliver and improve shrink results there.

Jeff Davis: We believe that the adjustment that we've taken today reflects not only that historic performance, our current outcomes as it relates to how these claims are developing, but we're also making sure that we're not anticipating any improvement in these claims experience on a go-forward basis. Thus, we feel more confident around the adjustment that we've taken reflects the current liability that is sitting out there for once again, not only these existing claims, but the claims that are yet to be reported.

Speaker Change: Budget pressures, and they're working through it. And when we're seeing that customer use all tenders not only that may be government assistance, but also using credit where it makes sense.

Speaker Change: Thank you. Our next question comes from the line of Simian Gutman with Morgan Stanley. Please proceed with your question.

Simian Gutman: Hi, good morning, everyone. Mike, I wanted to start with Dollar Tree, thinking about multi-price rollout. Can you remind us what's the timing of the rollout? Why can't you go quicker and the flavor is a constraint that makes sense to hire your own?

Jeff Davis: That's the best way I can respond to that to Michael that we now have this behind us. The second portion of your question, I believe, was around, what do we think the operating margins of the long-term operating margins of a business would be? As we continue to drive multi-price and we're going to continue to drive higher gross profit dollars per transaction, we believe that as we move forward and we get beyond some of the higher transformation costs that we're experiencing right now as it relates to some of the IT investments that we're making supply chain investments, that we'll be able to achieve the outlook that we have provided previously on the longer-term basis for the business.

Speaker Change: and then was there any rhyme or reason to the first 1600 stores, so thinking about what the results could look like further downstream as you get further along the way.

Speaker Change: Chair and Simeon. So there's two pieces to this. One is the bandwidth of our own internal team to get these stores done with both the new store openings. We're doing renovations.

Speaker Change: and the multivolice rollout. That's why we really leaned on third party to take off as much as we could and go as quickly as we could.

Speaker Change: The other gaining processes as we turn our distribution network on with multi-price, that then feeds the stores that we convert. So there is a little bit of a gaining factor in terms of the product coming in, the DC being set for multi-price, and being able to service those stores.

Jeff Davis: I don't want to... Give any longer term view of the business other than what we've already given. In our outlook for the quarter, we said that once again, family dollar, I'm sorry Dollar Tree is going to be low single digits. We said that to the second here. In our financial, if I can find it real quick, and Jeff log just doing that at Michael the mix we see too on the multi price remember it comes in heavy consumable first because that's what we could get in the short order.

Speaker Change: So we'll do, when you look at it, we set a couple hundred behind this year, so instead of 3,000, that's 2,800 or more. But then there's another 300 new stores that open up multi-prices as well. And you'll see a similar cadence each year as we go through to all stores that we can put multi-prices in.

Speaker Change: So, it's really a question of our own bandwidth to process it and then our ability to work with vendors to get it into our DCs and get it out to the stores. I'll tell you, I mean, when we do the execution right, the only challenge we have is keeping up with the product because the customers...

Jeff Davis: As you look to enter the back half of the year with the holidays, you get that discretionary benefit from the multi price roll out. Yeah, I found it here Michael. I just want to make sure that I court this properly as related to 2024 outlook. We still believe that the gross margins on the Dollar Tree business will be in the range of 36%. And you know the flow throughs that we've had previously we said on a consolidated basis the SGNA will be approximately 26%.

Speaker Change: Thank you. Our next question comes from the line of Matthew Boss with the JPMorgan. Please proceed with your question.

Matthew Boss: Great, thanks. So Mike, at the Dollar Tree Banner, could you elaborate on the softening progression of same store sales in the second quarter?

Speaker Change: and any change in trends that you've seen so far in the third quarter.

Speaker Change: and then just larger picture, I guess.

Speaker Change: Maybe, could you speak to performance versus plan?

Speaker Change: In the roughly 80% of your doors at Dollar Tree, outside of the 1600s converted stores. I think you sighted these as flat-ish comps this quarter.

Jeff Davis: And the the SGN outlook on the Dollar Tree segment already reflects the additional cost that we've had as relates to the approximately 2800 stores that we're going to convert to multi price. That's the other headwind that we have currently in the business as we're using third party labor for that. Thank you.

Speaker Change: But pre-pandemic 2017-2019 Dollar Tree Banner Comps were pretty consistently in that 3% run rate. Just how best to think about the difference in the core doors relative to pre-pandemic performance.

Speaker Change: Sure, I'm back to morning, so first in terms of the trends, I think it's a little bit of a compliment, the who the how and the what, the who is the income level.

Mike Creedon: Our next question comes from the line of Edward Kelly with the Wells Fargo. Please proceed with your question. Yeah. Hi guys. Good morning. So I want to just take a step back, you know, given the I guess the overhang in the questions that investors really have. You know what this point is you think about multi price point at Dollar Tree. How confident are you that some of the weakness we've seen recently is just macro was opposed to you know push back on the multi price point strategy.

Speaker Change: Well, we saw in Family Dollar early that the low income...

Speaker Change: Pressured Chopper. We saw that drift up and materially drift up in the second quarter as the middle income, the greater than 125,000.

Mike Creedon: I know you have the conversions that are doing well, but I think three and five dollars are in many more stores. Just curious is like what you think consumers are really saying there. And then you know you had optimism around you for so when you know do you think you can start to turn the corner. And then the other thing is family dollar. I don't know what you can say, but is there anything you can tell us around your confidence in your ability to come with some resolution in that business that is accreted the shareholder value. Thank you.

Speaker Change: that person started feeling the pressure as well, from the macro environment.

Speaker Change: and then the how they shifted to buying for need versus buying for one and so really that showed in our discretionary mix leaning towards consumables.

Speaker Change: and then finally the one, you know, this started with sensitivity on big ticket items and has come all the way now to us as people have, you know, maybe change how they celebrate a party this summer, a few were guests, a few were parties, they're really...

Speaker Change: Tightening their belt in the macroeconomy is driving them to behave a bit differently.

Mike Creedon: Yeah, and it's my I'll pick the first one. You know, we said we're still in the early innings of multi price. And I'll tell you that we like what the customer is telling us with multi price that we're surveying our customers. We're listening to them. They're telling us with their comps, you know I highlighted how strong our multi price stores are performing, you know compared to stores that just have the dollar 25.

Speaker Change: and so when we look at all those things together, that really, that really pressured us.

Speaker Change: as you look then at how we exit and where we go.

Speaker Change: I'll tell you, two, two is always one of those quarters where there's really no holiday. All you have is for the July, where it's two, three, we get back to school and Halloween. And then when you look at Q4, you get that harvest, you get Christmas and really that.

Speaker Change: Demands you go to Dollar Tree. It's we help people celebrate their lives. And so that gets our people coming in. So those were the trends and as we look out, I think Jeff would say are...

Mike Creedon: And we're really growing traffic. We're adding new customers and our customers are letting us know that they like the product. And then when you look to the second half, we really think they're going to like the discretionary product. So we've seen it as our stores have set, you know, our associates are our customers and our associates are telling us they love this multi price product. They're excited about you know the holiday season and all that.

Jeff: Current Trends, you know, reflect our overall forecast right now. And then finally on the core doors.

Jeff: and I would tell you I still think yes they were in that half a percent, but you look at some of the two-year stacks. When you really look at the multi-year performance of these stores, I think it's some of the best in retail. And as we roll out the multi-price,

Mike Creedon: So we'll continue to learn as we go. We've made changes. As I mentioned in my prepared remarks, you know, we're a couple hundred stores behind where we are. That's because we want to be better. We want to get it right when we roll them out. And so we took the approach. We added some call milestones or stopgates to say we're not going to convert a store unless that store is ready to be converted. So we can improve what the customer sees when they come in and the overall performance of the multi price stores.

Speaker Change: We really feed!

Speaker Change: That.

Speaker Change: You know, thrill of the hunt and we get it to more doors. They come in for the thrill of the hunt on the multi price and we get to sell the rest of the store. So I really think we end up getting that boost to the core from the rest from the role on a multi-best.

Jeff Davis: And Jeff, I'll let you talk to the FDA strategic. Yeah, just a couple of things that add to that. If you think about the dollar tree segment, you know, last year, this time we added over two million, customers. We're now lapping that. We continue to add beyond that. So it is absolutely resonating with the customer. If you think about the fact that we continue to maintain our market share in this environment, at a time when we're actually seeing customers contract their spend, it's not that we are seeing a combination of things.

Speaker Change: Thank you. Our next question comes from the line of John Hanbuckle with You Can High and Partners. Please proceed with your question.

John Hanbuckle: Hey, my couple of quick things. When you look at those 1600 stores, can you touch on, you know, volume, right, you know, in that comp, right, the unit throughput, the multi-price point penetration.

Speaker Change: and then when you think about consumable, right, so a Dollar Tree, the consumable share games, right, kind of flattened out a little bit.

Speaker Change: Do you think that's more, it's more you, do you think it's the competition?

Jeff Davis: So we're seeing contraction of spend. We're not seeing necessarily a loss from competitive standpoint. So we continue to add new customers, maintain market share, continue to resonate with the customer when Mike had spoken about the new in line conversion stores, that multi price, delivering 6% plus comps and consumables and even positive, almost a 3% comp and discretionary. So very, very favorable for us. As it relates to family dollar, we're excited about what we're seeing and family dollar also from a standpoint of we're starting to actually see some discretionary improvement.

Speaker Change: and what's the plan for, I know you want to get to eat of 10 doors multi-price point. I think you're at three today, what's the plan now to get there? Go faster, go slower, what's the thought?

Speaker Change: Yeah, so to the first one, as we roll out the 1600, you know, right now you get that mix we're early on, it's consumable and then we go into the full kind of set for this year that gets into the discretionary and we'll get to like 15% penetration in the store in terms of the multi-friest penetration in the store.

Speaker Change: and then, you know, John on share gains and we're growing. Our unit market is growing, our dollar markets growing, we are taking share in a...

Jeff Davis: We believe we're beyond the biggest headwinds that we've had with respect to the customer with snap. We're continuing to see improvement and shrink. We've invested in people time, technology and systems on the family dollar side. And this proof points are really starting to deliver and improve shrink results there. The customer is resonating with the number of the resets that we've had. It's just that customer right now is under some of the more significant budget pressures and they're working through it. And when we're seeing that customer use all tenders, not only that may be government assistance but also using credit where it makes sense. Thank you.

John Hanbuckle: in a belt-tightening environment, but we continue to be incredibly relevant to the customer. And I would say we continue to be needed by the customer as they adapt to the macro conditions.

John Hanbuckle: and then in terms of where this can go, you have a steady...

John Hanbuckle: Rollout.

John Hanbuckle: We continue to learn from the rollout.

John Hanbuckle: and a big part of why we're behind 200 stores on the rollout was we simply won't convert a store that's not ready to convert it. It's something we learned from the early rollout. There was this tendency to kind of, hey, we can muscle through this. And when we saw, remember Rick talked about, you know, 50 apps will love 25% or in line and 25% are behind.

Simeon Gutman: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question. Hi, good morning, everyone. Mike, I wanted to start with Dollar Tree thinking about multi price rollout. Can you remind us what's the timing of the rollout? And why can you go quicker and if labor is a constraint, that makes sense to hire your own. And then was there any rhyme or reason to the first 1600 stores. So thinking about what the results could look like further downstream as you get further along the way.

Mike Creedon: Sure, Simeon. So there's two pieces to this. One is the bandwidth of our own internal team to get these stores done with both the new store openings we're doing, renovations we're doing and the multi price rollout. That's why we really leaned on third party to take off as much as we could and go as quickly as we could. The other gating processes as we turn our distribution network on with multi price, that then feeds the stores that we convert.

John Hanbuckle: In order to try to influence that, we changed our process to say, we're not going to muscle through, we're going to make sure our store is ready to convert and ready to realize the full potential of the multi-ficed when we execute it. And we'll continue to learn from the rollout and make changes as we go.

John Hanbuckle: and then John on the Family Dollar side while the Consumable...

John Hanbuckle: Calm, we're exploiting out a little bit.

John Hanbuckle: I would say in contrast on the discretionary side we also saw.

John Hanbuckle: of some flattening out of the decline and discretionary on continue to see the resets that we're doing in that particular area, we're focusing on expandable consumption at price points that is very attractive for the customer, given their needs, is starting to resonate for us. And these compounds, again, are on top of last year, some of the highest compounds that we had for the last year.

Mike Creedon: So there is a little bit of a gating factor in terms of the product coming in, the DC being set for multi price and being able to service those stores. So we'll do when you look at it, we set a couple hundred behind this year. So instead of 3000, that's 2800 or more. But then there's another 300 new stores that open up multi price as well. And you'll see a similar cadence each year as we go through to all stores that we can put multi price in. So it's really a question of our own bandwidth to process it. And then our ability to work with vendors to get it into our DCs and get it out to the stores.

Speaker Change: Thank you. Our next question comes from the line of Chuck Grom with Gordon Hasket. Please for seeing what your question is.

Chuck Grom: Thanks for morning on the on the stores that I've been converted, Jeff and Mike, can you unpack that 4.6% conflict between traffic and ticket and then can you also talk about the four-wall profitability of those stores as you've progressed.

Speaker Change: on the rollout. You know, if you pull out the S.J. dollar growth for the entire Dollar Tree banner X, the general liability is up 10% year to date. Curious, you know, how the four wall profits are looking with the higher costs to roll that, multi-price point ever out. Thank you.

Mike Creedon: I'll tell you something, when we do the execution right, the only challenge we have is keeping up with the product because the customers love it. Thank you.

Chuck Grom: Yeah, so great questions, they're Chuck.

Speaker Change: you know, as we, if I am taxome of these, as it relates to the source that it converted, and you've mentioned that 4.6% of, uh,

Matthew Boss: Our next question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question. Great thanks.

Speaker Change: Combed there, we haven't given the detail between traffic and ticket.

Speaker Change: We, as we look at it overall, it's really being drowned driven by traffic. Take it here right now, is flat at best.

Matthew Boss: So Mike, at the Dollar Tree banner, could you elaborate on the softening progression of same store sales in the second quarter and any change in trends that you've seen so far in the third quarter? And then just larger picture. I guess maybe could you speak to performance versus plan in the rough roughly 80% of your doors at Dollar Tree outside of the 1600 converted stores. I think you cited these as flat-ish comps this quarter, but pre-pandemic 2017 to 2019 Dollar Tree banner comps were pretty consistently in that 3% run rate. Just how best to think about the difference in the core doors relative to pre-pandemic performance?

Speaker Change: with the Dollar Tree and it is, in those particular stores, also, take it if you can imagine that when you have a multi-price item in the basket, you also still have a number of dollars, 25 items, and it's the increase.

Speaker Change: Traffic that's coming in, that basket is staying relatively flat overall, but we're really being driven by traffic.

Speaker Change: As it relates to the SGNA, I think you're very properly pointed out.

Speaker Change: The headwins and SGNA, other than the general liability, has been as it was all 12V.

Mike Creedon: Sure, Matt, good morning. So first, in terms of the trends, I think it's a little bit of the, I call it the who the how and the what, the who is the income level? Well, we saw in Family Dollar early that the low income pressured shopper. We saw that drift up and materially drift up in the second quarter as the middle income, the greater than 125,000. And that person started feeling the pressure as well from the macro environment.

Speaker Change: who we call other payrolls at third party.

Speaker Change: Labor that we're using to implement the stores. We're going to have that this year. We'll have it next year. We have called it out previously as a headwind of 20 plus.

Speaker Change: Sense this year as a headwind to our overall ETS.

Speaker Change: The other area that's impacting our SGNA is absolutely on a depreciation side. And it's the cumulative investments that we've been making, not only in new stores, but other initiatives as it relates to supply chain.

Mike Creedon: And then the how they shifted to buying for need versus buying for one. And so really that showed in our discretionary mix leaning towards consumables. And then finally, the what, you know, this started with sensitivity on big ticket items and has come all the way now to us as people have maybe changed how they how they celebrate a party this this summer, fewer guests, fewer parties. They're really tightening their belts and the macro economy is driving them to behave a bit differently. And so when we look at all those things together, that really that really pressured us.

Speaker Change: I.T. Those investments are starting to level off as we've gotten that much further in the overall transformation and as we move forward we'll be giving you other...

Speaker Change: As we look forward to subsequent years, but we're not updating any forecast at this point in time.

Speaker Change: Thank you. Our next question comes from a lot of all leduous with City. Please proceed with your questions.

Mike Creedon: As you as you look then at how we exit and where we go, I'll tell you, Q2 is always one of those quarters where there's really no holiday. All you have is it's fourth of July, whereas Q3, we get back to school and Halloween. And then when you look at Q4, you get that harvest, you get Christmas and really that demands you go to Dollar Tree. It's we help people celebrate their lives.

Speaker Change: Davis.

Speaker Change: I mean, Michael Cresher was decided and a dowager in middle of hiring him to continue to do things that the customer's shopping, the last several years, if they're going somewhere else. And one or if they need to change anything on the price inside or how fast you go out, multiply it. And then check in, I'm serious.

Speaker Change: If you can talk about what are your techniques and actions behind the scenes to separate.

Mike Creedon: And so that gets our people coming in. So those were the trends. And as we look out, I think Jeff would say our current trends, you know, reflect our overall forecast right now. And then finally on the on the core doors, I mean, I would tell you I still think yes, they were in that that half a percent. But you look at some of the two year stacks when you really look at the multi year performance of these stores.

Speaker Change: Aspects with the Dollar Tree and Family Dollar business that might have some sort of P&L impact if you plan to do that over the course of the year. If you think about the strategic review of Family Dollar, thanks.

Speaker Change: Yeah, I'll take the first one, I'll let Jeff tackle the separation of business. So...

Speaker Change: and this is macro belt tightening.

Speaker Change: I mean, we see it. We see we're growing traffic. We see the 2.8 million new customers we've added.

Mike Creedon: I think it's some of the best in retail. And as we roll out the multi price, we really feed that, you know, thrill of the hunt and we get it to more doors. They come in for the thrill of the hunt on the multi price and we get to sell the rest of the store. So I really think we end up getting that boost to the core from the rest, from the roll out of multi.

Unknown Executive: Thank you.

Speaker Change: We hear the feedback.

Speaker Change: on multi-price and that they love that they can get more, we get more share of their wallet. They can not have to, you know, drop somewhere else to fill in the shop.

Speaker Change: But they're really changing, as you look at some of the discretionary, in future we saw some changes in terms of how they celebrate.

Speaker Change: and that.

Speaker Change: is just belt tightening by our consumer.

John Heinbockel: Our next question comes from the line of John Heinbockel with Duke and Heinb Partners. Please proceed with your question. Any of my couple of quick things.

Speaker Change: and one that we feel they need us more now and ever and so we'll be there to help them celebrate as they do need the discretionary and go back to a little more celebration and invite more people to party and...

Mike Creedon: When you look at those 1600 stores, can you touch on volumes in that comp, the unit throughput, the multi-price point penetration, and then when you think about consumable, so a Dollar Tree, the consumable share gains, kind of flattened out a little bit. Do you think that's more you, do you think it's the competition, and what's the plan for, I know you want to get to eight of ten doors, multi-price point, I think you were three today.

Speaker Change: and do it all the things that really that kind of the holidays demand.

Speaker Change: Jeff.

Jeff: just to add to that young.

Jeff: You know, one of the things that we do, we try and double click on the number of different things we were seeing from our over customer base, based on customer insights.

Speaker Change: We continue to see customers buy more so they're expanding their consumption and we see individuals who are contracting their spend. Right now, because of this macrobell tightening, you see more people contracting than actually expanding.

Mike Creedon: What's the plan now to get there, go faster, go slower, what's the thought? Yeah, so to the first one, as we roll out the 1600, right now, you get that mix where early on, it's consumable, and then we go into the full kind of set for this year that gets into the discretionary, and we'll get to like 15% penetration in the store in terms of the multi-price penetration in the store. And then, you know, John, on share gains, I mean we're growing, our unit market is growing, our Dollar Market is growing, we are taking share in a belt tightening environment, but we continue to be incredibly relevant to the customer, and I would say we continue to be needed by the customer as they adapt to the macro conditions.

Speaker Change: But that is, as more the issue, as Mike has said, it's a bell-tightening, it's not from a competitive standpoint. Those individuals met shopping elsewhere.

Speaker Change #100: has released a family dollar in the strategic review. We continue to operate both businesses with the intent of continuing to maximize her older value in order to grow both.

Speaker Change #101: As we had mentioned earlier, even last quarter, we had decided that we were going to shift some of the investments as it relates to new store hope and some of the renovations.

Speaker Change #101: Building a little more towards a Dollar Tree versus Family Dollar. But rather than that, we continue to operate the two businesses with the expectation that once again, we are bullish on both.

Mike Creedon: And then in terms of, you know, where this could go, you have a steady rollout, we continue to learn from the rollout, and a big part of why we're behind 200 stores on the rollout was we simply won't convert a store that's not ready to convert. It's something we learned from the early rollout, there was this tendency to kind of hey, we can we can muscle through this, and when we saw remember Rick talked about, you know, 50 absolute love, 25% are in line and 25% are behind in order to try to influence that we changed our process to say we're not going to muscle through, we're going to make sure a store is ready to convert, and ready to realize the full potential of the multi-price when we execute it.

Speaker Change #101: The question probably didn't go this far but I think it's probably easiest to address this point in time on the strategic review. We are looking at a wide range of operations including those that would include outside parties and those that would actually be able to execute by ourselves and we're very pleased that the progress we're making on that strategic review at this point in time.

Speaker Change #102: Thank you. Our next question comes from the line of Christina Katai with Deutsche Bank. Please receive with your questions.

Christina Katai: Hi, good morning and thanks for taking the question Jeff, I wanted to ask if this challenge consumer backdrop that we've been seeing was just changing the way that you view. If any incremental investments might be needed in the business, just thinking about the overall value engineering labor.

Mike Creedon: And we'll continue to learn from the rollout and make changes as we go. And then John on the family dollar side, while the consumable comp gets flattened out a little bit, I would say in contrast on the discretionary side, we also saw some flattening out of the decline in discretionary. We continue to see the recess that we're doing in that particular area, we're focusing on expandable consumption and price points that is very attractive for the customer given their needs is starting to resonate for us. And these comps, once again, are on top of last year, some of the highest comps that we had for the last year.

Speaker Change #104: Sports Standards. And as you see the bell tightening as you noted, does how do you think about cordolatory value proposition and how do you see the evolution in the back half, just given peers this greater mark connectivity. Thank you.

Chuck Grant: Thank you.

Speaker Change #104: Yes, Christine, as we think about this, we want to mention business for a long term. And these are different situations. In this period of time, we're seeing some bell-tiny and doesn't mean that this is not this is an impact on me.

Speaker Change #104: and the sector of this business longer term.

Speaker Change #104: The investments that we're making around store standards, the investments that we're making, with respect to our...

Speaker Change #104: Rollout of the multi-price, we believe is all core to providing a great experience with a customer, a convenient opportunity and delivering value.

Chuck Grant: Our next question comes from the line of Chuck Grant with Gordon Hasket. Please proceed with your question. Thanks, good morning.

Jeff Davis: On the stores that have been converted, Jeff and Mike, can you unpack that 4.6% conflict between traffic and ticket? And then can you also talk about the four wall profitability of those stores as you've progressed on the rollout? If you pull out the S&A dollar growth through the entire Dollar Tree banner, X, the general liability is up 10% year to date. Curious how the four wall profits are looking with the higher cost to roll that multi price point effort out. Thank you.

Speaker Change #104: So we feel as if as we've worked through this.

Speaker Change #104: Thank you, our last question will come from the line of Scott Chigarelli with Truist Security. Please proceed with your question.

Scott Chigarelli: Good morning, everyone. So you guys took some tougher medicine at family dollar or the last couple quarters and seems like the profit performance at family dollar actually has started to improve a bit once you get through the adjustments.

Jeff Davis: Yeah, so great, great questions there, Chuck. You know, as we, if I impact some of these, as it relates to the stores that have converted, and you've mentioned the 4.6% cop there, we haven't given the detail between traffic and ticket. We, as we look at it overall, it's really being driven by traffic. Ticket here right now is flat at best with the Dollar Tree, and it is, in those particular stores also, ticket, if you can imagine that when you have a multi-price item in the basket, you also still have a number of Dollar 25 items, and it's the increased traffic that's coming in that that basket is staying relatively flat overall, but we're really being driven by traffic.

Scott Chigarelli: but Dollar Tree seems to keep suffering from additional issues and expenses, quarter after quarter. Would it make sense to do a harder reset at Dollar Tree and Dollar Tree expectations, whether that's through store closures, fully or permanently resetting labor costs, et cetera? Because I think investors tend to despise the death of a thousand cuts. Thanks.

Speaker Change #106: I think the best way we think about this is this quarter we saw pull back in a higher-income customer. We believe that we are positioned appropriately to meet that customers' needs over time. As you're looking for value, we believe our multi-price.

Speaker Change #107: Offering is what's going to give us that support.

Jeff Davis: As it relates to the S-GNA, I think you're very appropriately pointed out, the headwinds and S-GNA other than the general liability has been, as a result of the, what we call other payrolls, that third party labor that we're using to implement the stores. We're going to have that, this year, we'll have it next year. We have called it out previously as a headwind of 20 plus cents this year, as a headwind to our overall EPS.

Speaker Change #107: The investments we're making as it relates to, once again, source standards and other things that we're doing is part and parcel to making sure that we deliver the experience of the higher income customers looking for.

Speaker Change #107: We will continue to be diligent and disciplined as we think about those investments on a go-forward basis, but we need that in line with what we need to deliver over the long term.

Speaker Change #108: Yeah, and as I look at just the new stores we open, the renovations we're doing, and then when you talk about more than 3,000 stores that will touch this year.

Jeff Davis: The other area that's impacting our S-GNA is absolutely on the depreciation side, and it's the chemical of investments that we've been making, not only in new stores, but in other initiatives as it relates to supply chain, and IT, those investments are starting to level off as we've gotten that much further in the overall transformation, and as we move forward, we'll be giving you other estimates as we look forward to subsequent years, but we're not updating any forecast at this point in time. Thank you.

Speaker Change #108: That is an investment in our store standards. That is making our store better.

Speaker Change #108: you know, for our customers.

Speaker Change #108: and so we'd like what that future looks like. We'd like the ability to kind of touch the chain every year and get back on a track.

Speaker Change #108: of really...

Speaker Change #108: Showing our customer that we care by bringing in new things, that excite them, new things, that wild them, and really true to who Dollar Tree is. So I mean, I look at it and say, our customer needs our business more than ever, and we're continuing to evolve the business to meet them where they are.

Speaker Change #109: And the last thing I'll add is, you know, if you think about the 99th sense store acquisition that we give it leases,

Paul Lejuez: Our next question comes from the line of all legislators with city. Please proceed with your question. Thank you for your question. Thank you, thank you. I mean, macro-pressure was decided in a Dollar Tree's middle iron container.

Speaker Change #109: Yes, we've had some hard and expected upfront costs.

Speaker Change #109: But we are really excited about this 161 stores that we've been able to acquire. They're in the markets that we believe we need to be in. At very attractive overall, we believe that we have the credibility and a lot of to grow very aggressively in these particular areas.

Jeff Davis: Do you think that customer is shopping less overall if they're going somewhere else, and one of the things you need to change anything on the price inside or how fast you roll out, will be priced, and then check, and I'm curious if you can talk about what are your thinking actions behind the scenes to separate aspects of the Dollar Tree and Family Dollar business that might have some sort of P&O impact. If you plan to do that over the course of the years, you think about the strategic review of Family Dollar.

Speaker Change #109: The stores are of the size and scale that other stores that we've had in this type of situation have been able to outperform against the broader portfolio. So while there's some short-term paying here as we kind of work through this, we'll be very excited about what this is going to deliver for us once again over the long-term.

Speaker Change #110: Thank you. We have reached the end of our question and answer session. I would now like to hand the call back over to management for any closing comments.

Jeff Davis: Thanks. Yeah, Paul, I'll take the first one, I'll let Jeff tackle the separation of business. So this is macro belt tightening. I mean, we see it, we see we're growing traffic, we see the 2.8 million new customers we've added. We hear the feedback on multi-price, and that they love that, you know, they can get more, we get more share of their wallet, they can not have to, you know, drop somewhere else to fill in the shop.

Speaker Change #111: Thank you everyone for your time this morning and thank you for all our Dollar Tree and Family Dollar Associates out there serving our customers and we look forward to speaking to you again next quarter.

Speaker Change #112: Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Jeff Davis: But they're really changing as you look at some of the discretionary. In Q2, we saw some changes in terms of how they celebrate, and that is just belt tightening by our consumer, and one that we feel they need us more now and ever, and so we'll be there to help them celebrate as they do need the discretionary and go back to, you know, a little more celebration and invite more people to a party and do all the things that really that kind of have to holiday demand.

Jeff Davis: Yeah, just to add to that, you know, one of the things that we do, we try and double click on the number, different things we're seeing from our overall customer base, based on customer insights, and we continue to see customers buy more so they're expanding their consumption, and we see individuals who are contracting their spend. Right now, because of this macro belt tightening, you see more people contracting than actually expanding. But that is more of the issue, as Micah said, it's about belt tightening.

Jeff Davis: It's not from a competitive standpoint, those individuals met shopping elsewhere. As it relates to family dollar and the strategic review, we continue to operate both businesses with the intent of continuing to maximize your order of value in order to grow both. As we had mentioned earlier, in the last quarter, we had decided that we were going to shift some of the investments as it relates to new store opening and some of the renovations, tilting a little more towards Dollar Tree versus Family Dollar. But other than that, we continue to operate the two businesses with the expectation that, you know, once again, we are bullish on both.

Jeff Davis: The question probably didn't go this way, but I think it's probably easiest to address this at this point in time on the strategic review. We are looking at a wide range of operations, including those that would include outside parties and those that would be able to execute by ourselves. And we're very pleased that the progress we're making on that strategic review at this point in time. Thank you.

Krisztina Katai: Our next question comes from the line of Kristina Katai with Georgia Bank. Please proceed with your question. Hi, good morning and thanks for taking the question. Jeff, I wanted to ask if this challenge consumer backdrop that we've been seeing is just changing the way that you view. If any incremental investments might be needed in the business, just thinking about the overall value engineering, labor, forestanders. And as you see, the bell tightening, as you noted, is how do you think about core Dollar Tree's value proposition and how do you see the evolution in the back half just given peers as greater markdown activity?

Jeff Davis: Thank you. Yes, Kristina, you know, as we think about this, we want to manage the business for a long term. And these are, you know, different situations. In this period of time, when we're seeing some bell tightening doesn't mean that this is not, this is an impact on the this sector, this business longer term. The investments that we're making around store standards, the investments that we're making with respect to our rollout of the multi-price, we believe is all core to providing a great experience with a customer, a convenient opportunity and delivering value.

Jeff Davis: So we, we feel as if as we work through this, we have a, we're mindful of what the kind of macroeconomic environment is. But we also understand that we need to remain true to our transformation and how this will deliver value over time.

Unknown Executive: Thank you.

Scott Chikarelli: Our last question will come from the line of Scott Chikarelli with truest securities. Please proceed with your question.

Mike Creedon: Good morning, everyone. So you guys took some tougher medicine at family dollar or the last couple quarters and seems like the profit performance at family dollar actually has started to improve a bit once you get through the adjustments. But Dollar Tree seems to keep suffering from additional issues and expenses quarter after quarter. Would it make sense to do a harder reset at Dollar Tree and Dollar Tree expectations, whether that's through store closures, fully or permanently resetting labor costs, etc? Because I think investors tend to despise the death of a thousand cuts. Thanks.

Mike Creedon: I think the best way we think about this is this quarter. We saw pullback in a higher income customer. We believe that we are positioned appropriately to meet that customer's needs over time. As you're looking for value, we believe our multi-price offering is what's going to give us that support. The investments that we're making as it relates to once again store standards and other things that we're doing is part and parcel to making sure that we deliver the experience that higher income customer is looking for.

Mike Creedon: We will continue to be diligent and disciplined as we think about those investments on a go-forward basis. But we believe that is in line with what we need to deliver over the long-term. Yeah, and as I look at just the new stores we open, the renovations we're doing, and then when you talk about more than 3,000 stores that will touch this year, that is an investment in our store standards, that is making our stores better for our customers.

Mike Creedon: And so we look at what that future looks like, we like the ability to kind of touch the chain every year and get back on a track of really showing our customer that we care by bringing in new things that excite them, new things that wow them, and really true to who Dollar Tree is. So I mean, I look at and say our customer needs our business more than ever, and we're continuing to evolve the business to meet them where they are.

Mike Creedon: And the last thing I'll add is, you know, if you think about the 99 cents store acquisition that we did with leases, yes, we've had some hard and expected upfront costs, but we are really excited about this 161 stores that we've been able to acquire. They're in the markets that we believe we need to be in, at very attractive overall lease rates, we believe that we have the credibility and latitude to grow very aggressively in these particular areas.

Mike Creedon: These stores are the size and scale that other stores that we've had in this type of situation have been able to outperform against the broader portfolio. So while there's some short-term pain here as we kind of work through this, we'll be very excited about what this is going to deliver for us once again over the long term.

Operator: Thank you. We have reached the end of our question and answer session.

Operator: I would now like to hand the call back over to management for any closing comments. Thank you, everyone, for your time this morning, and thank you for all our Dollar Tree and Family Dollar Associates out there serving our customers, and we look forward to speaking to you again next quarter. Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. Thank you.