Q1 2026 Dollar Tree Inc Earnings Call
Greetings and welcome to the dollar tree first quarter 2025 earnings call. At this time, all participants are in a listen only mode.
Speaker Change: <unk> and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: Now I'd like to turn the call over to your host Mr. Bob Lafleur Senior Vice President Investor Relations for dollar tree. Thank you you may begin.
Speaker Change: Good morning, and thank you for joining us today to discuss dollar trees first quarter fiscal 2025 results with me today are dollar Tree's CEO, Mike Creedon, and CFO Stewart Glendinning before.
Speaker Change: Before we begin I would like to remind everyone that.
Speaker Change: 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 1095.
Speaker Change: These statements are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated by our forward looking statements.
Speaker Change: For information on the risks and uncertainties that could affect our actual results. Please see the risk factors business and management discussion and analysis of financial condition and results of operations section in our annual report on Form 10-K filed on March 26, 2025, our most recent press release and form 8-K.
Speaker Change: K and other filings with the SEC, we caution against reliance on any forward looking statements made today and we disclaim any obligation to update any forward looking statements, except as required by law.
Speaker Change: Also during this call we will discuss certain non-GAAP financial measures.
Speaker Change: Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR section of our website.
Speaker Change: These non-GAAP measures are not intended to be a substitute for GAAP results unless otherwise stated we will refer to our financial results on a GAAP basis.
Speaker Change: Additionally, unless otherwise stated all comparisons discussed today for the first quarter of fiscal 2025 are against the same period a year ago.
Speaker Change: Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.
Speaker Change: Following our prepared remarks, Mike and Stuart 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.
Mike Creedon: I'd now like to turn the call over to Mike.
Mike Creedon: Good morning, everyone. Thank you for joining US today, let me begin my comments by thanking our associates and leadership team for their efforts in delivering a strong first quarter result.
Speaker Change: In Q1, we delivered upside across every key metric and results exceeded the outlook we provided.
Speaker Change: Our expanded assortment strategy is having the intended impact of driving incremental traffic ticket and cop.
Speaker Change: We also continue to grow the dollar tree footprint recently celebrating the opening of our 9000 store located in Plano, Texas as excited as we are to reach this milestone. We're just as excited about the growth runway ahead of us.
Speaker Change: Turning now to our Q1 results. We are pleased with our performance amid increasing volatility we remain focused on the things that are within our control and our results demonstrate just how much progress. Our teams have made in areas like rolling out our expanded assortment improving store conditions and achieving strong sell through.
Speaker Change: Through our seasonal merchandise.
Speaker Change: Q1 comps and net sales both exceeded the high end of our outlook range driven by a strong Valentine's day and Easter. Additionally, the revenue contribution from non comp stores was up nearly 90% year over year led by ongoing strength in the former 99 cents only portfolio adjusted EPS from continuing operations.
Speaker Change: <unk> came in a penny above our outlook range at a dollar twenty-six, reflecting strong sales and ongoing focus in expense management.
Speaker Change: Dollar tree is 5.4% comp was nicely balanced with traffic up 2.5% and ticket up 2.8% category performance was strong across the board with consumables Comped up six 4% and discretionary comp up 4.6% our highest discretionary.
Speaker Change: Comp since Q4 of 2022.
Speaker Change: We always start with our customer and today, our customers need us now more than ever.
Speaker Change: Each week more shoppers across a diverse range of economic and demographic backgrounds are responding to the appeal of dollar tree's unique value convenience and discovery proposition.
Speaker Change: Our gains in dollar and unit market share accelerated in Q1 in fact, we gained twice as much unit share in Q1 as we did in Q4.
Speaker Change: These gains are driven by strong trends in immediate consumption purchases like candy snacks and beverages as well as key discretionary categories.
Speaker Change: New customers and increasing trip frequency are both driving share gains we added 2.6 million new customers in Q1, and the number of customers who visit a dollar tree store three times, a month or more increased by 9%.
Speaker Change: Trade and trends remain strong as we attract customers from other retail channels in recent quarters higher income customers have been a meaningful growth driver for us in Q1, we had measurable sales improvement across all income levels with the most growth coming from our higher income customers in particular, we saw meaning.
Speaker Change: Full traffic increase from customers with household incomes of more than $100000 demonstrating dollar tree's broad appeal.
Speaker Change: Dollar tree is resonating with its customers in the current environment, our low prices and smaller pack sizes are perfect for families trying to manage a tight household budget and our expanded assortment is attractive to all customers across every income level.
Speaker Change: We believe that value convenience and discovery is exactly the right formula for all of our customers.
Speaker Change: Q1 marked the one year anniversary of our multi priced 3.0 launch demonstrating the broader appeal of our expanded assortment. The 3.0 portfolio continues to outperform our other store formats by providing a nice boost to traffic ticket comp and discretionary mix during the quarter we completed.
Speaker Change: Approximately 503.0 convergence and we are still on track to have about half the store base converted by year end.
Speaker Change: Now, let me shift to tariffs as I detailed for you last quarter, our merchant and operations teams have spent the past several years developing contingency plans to address a wide range of potential disruptions to global trade, including tariffs as a result of these efforts we have multiple tools in place to address any challenges.
Speaker Change: As a reminder, the five levers we have available to address cost inflation, including tariffs are negotiating with our suppliers respecting products moving country of origin, dropping noneconomic items and leveraging our expanded multi price capabilities.
Speaker Change: Today, we are actively engaged on multiple fronts to mitigate the impact of inflationary cost pressures, including tariffs.
Speaker Change: As we discussed last quarter, our teams effectively use these levers to offset 90% of the first round of tariffs. The initial 10% announced in February and we are continuing to employ these levers to address the latest round.
Speaker Change: But the tariff landscape is highly fluid and changing week to week. So we are focused on agility and on improving that agility as always our goal is to use our significant scale combined with the uniqueness and flexibility of our assortment to secure the lowest landed cost on the products, we source and provide our.
Speaker Change: Customers with compelling products at a great relative value.
Speaker Change: Since our founding we have been committed to delivering great value at low prices and that mission is just is central to our business today as it was when making Brock Doug Perry and Ray Compton opened the first dollar only store back in 1986 to put things in perspective, the average unit.
Speaker Change: Retail or AUR in our first dollar store was a dollar today almost 40 years later, our AUR is around $1 35, and 85% of the items in the store are still priced under $2. No. Other retailer has been able to sustain a value proposition like that for as long as.
Speaker Change: We have.
Speaker Change: What has made us successful over the years is our ability to remain agile in how we deliver value.
Speaker Change: We are constantly adapting to the evolving needs of our customers not just by what we offer but by how we offer it.
Speaker Change: The evolution of our business model towards multi price has added a new dimension to our agility multi price allows us to expand our product assortment to give customers access to a wider variety of items at a wider variety of value centered price points. This way our offerings remain attractive and relevant under a wide.
Speaker Change: Range of macro inflationary and tariff scenarios and as the success of our 3.0 stores suggests our customers are responding positively.
Speaker Change: As we build on the ability to meet our customers needs and deliver great value. We will continue to scale. This model. This enables us to respond to our customers' needs strengthen our value proposition and support profitable growth over the long term.
Speaker Change: Given the volatility of today's operating environment. It is challenging to predict with precision the near term performance of the business in Q2, especially regarding tariff and other cost mitigation efforts stepping back and taking a full year view, we believe that by successfully deploying our five levers we will be able to mitigate most if not all of.
Speaker Change: The potential earnings impact from higher tariffs, assuming the current levels remain in place.
Speaker Change: To this end we are updating our full year adjusted EPS outlook range to $5 15 to $5 65, which is essentially the outlook. We provided last quarter adjusted for our year to date share repurchases Stewart will share more details on our outlook shortly.
Speaker Change: Before I close I wanted to update you on the family dollar sale, we have received U S regulatory approval for the transaction and we remain on track for an early summer close as we work through the final logistics of separating the two companies. Our leadership team remains focused on growing and strengthening the core dollar tree business as I D.
Speaker Change: Failed last quarter selling family dollar sharpens, our operational focus strengthens our balance sheet and is highly cash flow accretive.
Speaker Change: In closing we're proud of what we accomplished this quarter and we're even more excited about what lies ahead our strong performance in Q1 underscores the progress we've made against our strategic priorities and it is a clear signal that our customers are responding positively to that progress from store operations to merchandising from <unk>.
Speaker Change: Sourcing to in store execution every part of our business is becoming more agile better aligned and more resilient. The dollar tree model is uniquely positioned to succeed in times like these thanks to the hard work and commitment of our teams I'm confident in our ability to navigate whatever near term challenges, we may face with that.
Stuart: I'll turn the call over to Stuart Stuart.
Stuart: Thank you and good morning, as Mike mentioned, our latest results reflect continued topline momentum and strong margin performance.
Speaker Change: Solid execution of our multi price strategy and expense management combined to deliver upside relative to our internal expectations and the Q1 outlook that we previously provided.
Speaker Change: Unless otherwise noted I'll focus my prepared comments on dollar trees continuing operations.
Speaker Change: First quarter adjusted EPS from continuing operations was $1 26, which exceeded the high end of our outlook range of $1 10 to $1 25.
Speaker Change: Turning to results from continuing operations as compared to the same period of last year, our revenue increased by 11, 3% driven.
Speaker Change: Driven by a 5.4% comparable store sales growth and a seven 4% increase in square footage from last year.
Speaker Change: Adjusted operating income was 388 man of 1.4% increase from last year.
Speaker Change: Adjusted operating margin declined 80 basis points, driven by a 20 basis point increase in gross margin offset by a 100 basis point increase in the adjusted SG&A rate.
Speaker Change: The gross margin improvement came from lower freight costs improved mark on and lower occupancy due to sales leverage from the strong comps.
Speaker Change: Our SG&A rate was negatively impacted by higher depreciation related to investments in our stores wage.
Speaker Change: Wage related payroll increases general liability claims and utility costs, partially offset by lower stock compensation expense and less temporary labor related.
Speaker Change: Related to our three point of conversions.
Speaker Change: Our adjusted effective tax rate was 26, 1% compared to 24, 6%, reflecting increased tax expense for share based payment awards.
Speaker Change: Adjusted net income was $270 million compared to $268 million.
Speaker Change: Moving onto the balance sheet and free cash flow.
Speaker Change: Total inventory increased $247 million or 10% to $2.7 billion on higher markon and inventory receipts as we expanded our multi price or assortment.
Speaker Change: We ended the quarter with $1 billion in cash and cash equivalents.
Speaker Change: On the cash flow statement for continuing operations for the quarter.
Speaker Change: We generated $379 million in cash from operating activities.
Speaker Change: Had capital expenditures of $249 million.
Speaker Change: And delivered $130 million of free cash flow.
Speaker Change: We ended the quarter with no borrowings under our revolvers no commercial paper outstanding and bank defined leverage below two five times.
Speaker Change: Subsequent to the end of the first quarter, we paid off our 1 billion dollar May 2025, senior notes using a combination of commercial paper and available cash on hand.
Speaker Change: Recall that on last quarter's call.
Speaker Change: We announced a new $1 billion 364 day revolver to address this maturity.
Speaker Change: In addition to extending our preexisting five year 1.5 billion dollar credit facility to 2030.
Speaker Change: As a result, we continue to have ample liquidity between cash on hand, and availability under these credit facilities to meet the ongoing capital needs of the business.
Speaker Change: As Mike mentioned the proceeds from the family dollar sale will put us in an even stronger cash position.
Speaker Change: During the first quarter, we repurchased approximately five 9 million shares of common stock for approximately $437 million, including excise tax.
Speaker Change: Subsequent to quarter end we.
Speaker Change: We've purchased an additional 780000 shares for approximately $68 million.
Speaker Change: Year to date, we have completed over $500 million of share repurchases.
Speaker Change: The pending sale of family dollar remains on track and we expect the transaction to close during the second quarter.
Speaker Change: As we indicated last quarter, we are in the process of establishing transition service agreements or T. S. A's Bushehr services.
Speaker Change: These agreements will allow us to provide ongoing support and services to the new buyers and to ensure business continuity for family dollar after the separation is complete.
Speaker Change: Recall that because family dollar is being treated as discontinued operations from an accounting perspective.
Speaker Change: Dollar tree will be burdened by a full year of corporate SG&A, but we will not receive any TSA related income to offset these expenses until after the deal closes.
Speaker Change: This timing mismatch will negatively impact our first half and full year profitability.
Speaker Change: Our current outlook for TSA related income for fiscal 'twenty 'twenty five is approximately $85 million to $90 million subject to final adjustment at the time of deal close.
Speaker Change: This figures based on internal and third party estimates and will begin meaningfully running through the P&L in the third and fourth quarters now let me provide our updated perspective on fiscal 2025.
Speaker Change: First we are reiterating the full year comp and revenue outlook that we provided last quarter, namely net sales in the range of 18.5 to $19 1 billion and comparable same store sales growth of 3% to 5%.
Speaker Change: We are updating our outlook for full year adjusted EPS from continuing operations.
Speaker Change: $5.15 to $5 65, which is essentially the same net income range implied by our previous outlook adjusted to reflect our year to date.
Speaker Change: Share repurchases.
Speaker Change: Over the balance of this year ish, assuming tariffs remain at their current levels. We believe we can address the tariff and other cost pressures, we face using the five levers that Mike discussed earlier.
Speaker Change: In the near term, we do expect to see some volatility relating to timing issues as the various inputs and outputs work their way through our P&L.
Speaker Change: While we delayed some shipments in early April when the tariff adjustments were first announced some products did arrive in the United States that was subject to the highest tariffs and some of those items will work their way through our system before the full breadth of our mitigation efforts are deployed.
Speaker Change: As such we expect our second quarter profits to be meaningfully lower than last year in light of higher tariff and other costs, including some costs, we absorbed during the 145% window on China tariffs.
Speaker Change: From a timing perspective that is approximately $70 million more of a cogs impact in the second quarter than what was contemplated in our original 20 twenty-five outlook.
Speaker Change: The precise timing of the full impact of our mitigation efforts, including the rollout of additional multi priced items and adjusted price points is also fluid.
Speaker Change: We now expect the initial round of labor and other cost investments associated with these efforts in the second quarter.
Speaker Change: To be approximately $40 million higher.
Speaker Change: We expect the benefits of these efforts will be largely realized on a go forward basis in the second half of the year.
Speaker Change: So on a net basis, we're expecting a transitory impact on our near term profitability as elevated costs run through our P&L in Q2, while the benefits and profit recovery from our mitigation efforts should materialize later in the year.
Speaker Change: As such our Q2 adjusted EPS from continuing operations could be down as much as 45% to 50% year over year before re accelerating in Q3 and four to get us back on track to reach our full year target.
Speaker Change: We expect to recover these costs in the back half of the year given the lower tariff rates that are currently in effect and as we ramp up our commercial efforts and build on the strong business trends we saw in Q1.
Speaker Change: It's worth noting that on a gross unmitigated basis, all the higher tariff rates announced this year amount to a year over year cost increase of approximately $200 million across the balance of this fiscal year.
Speaker Change: To put this in context as a line item this is less than our expected payroll inflation for the full year.
Speaker Change: So we're well equipped to deal with the tariffs says we address other cost increases as well.
Speaker Change: From a topline perspective, given trends to date and our outlook for the balance of the quarter. We believe Q2 comps will be towards the higher end of our full year outlook range of 3% to 5%.
Speaker Change: On a full year basis, assuming tariff rates remain at their current levels. We believe we can offset the negative earnings impact of inflationary costs, including tariffs and deliver $5.15 to $5 65 of adjusted EPS.
Speaker Change: With that for the full year on a continuing operation basis, we expect gross margin improvement of approximately 50 to 75 basis points.
Speaker Change: For dollar tree segment SG&A, we anticipate approximately 100 to 110 basis points of year over year deleveraging.
Speaker Change: For corporate SG&A prior to any TSA reimbursement, we expect costs to increase approximately 20% on a year over year basis.
Speaker Change: We expect TSA proceeds of approximately $85 million to $90 million subject to final adjustments fin.
Speaker Change: Finishing the P&L we.
Speaker Change: We expect net interest and other income of approximately $95 million and an effective tax rate of 25%.
Speaker Change: We still expect capital expenditures to be in the range of 1.2 to $1 $3 billion, including approximately 400, new dollar tree store openings and approximately $110 million as we start reconstruction of our D. C in Marietta, Oklahoma.
Speaker Change: Here I would also add that 2025 should be the peak in a multi year investment cycle. So we would expect capex to be lower in 2026 and 2027.
Speaker Change: With respect to cash we ended the quarter with 1 billion of cash and cash equivalents on the balance sheet.
Speaker Change: We expect approximately $800 million of net proceeds from the family dollar sale and $350 million cash tax benefits from the transaction.
Speaker Change: Our capital allocation priorities remain investing in the growth of the business and then returning cash to shareholders.
Speaker Change: Our preferred vehicle remains share repurchase.
Speaker Change: While 2025 is shaping up to be a more complicated year than we initially anticipated. We are encouraged by our strong sales trends driven by our attractive value proposition of multi processes and we remain confident in our ability to navigate our way through the current environment and still achieve our profitability goals for the year.
Speaker Change: We're looking forward to the closing of the family dollar sale and we feel great about our cash position and our future growth prospects of our business.
Mike Creedon: And with that I'll turn the call back over to Mike.
Mike Creedon: Thanks Stuart.
Speaker Change: History has shown that we have the resilience to emerge stronger from periods of economic uncertainty and that strength comes from the dedication and adaptability of our associates.
Speaker Change: In today's rapidly evolving environment, we see a meaningful opportunity to build on that foundation by enhancing our merchandising efforts and further elevating the value we deliver to our customers.
Speaker Change: Thanks to the hard work and commitment of our teams and confident in our ability to meet customers' needs with our exceptional value proposition, including multi price and to navigate whatever near term challenges we may face.
Speaker Change: Finally, with the sale of family dollar set to close here shortly and dollar tree setting off on its new journey as a standalone business. We think it's appropriate to provide the street with a refreshed view of our long term strategy and financial outlook. So we're planning to host an Investor day in New York on October 15th we will provide all the invitation details a little closer to the event.
Speaker Change: And with that we're ready to take your questions.
Speaker Change: Thank you if you'd like to ask a question. Please press star fun and Funky pad a confirmation tone will indicate your line is in the question. Kim You May Press star two if he like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys to allow.
Speaker Change: First many questions as possible, we ask that you each keep to one question. Thank you.
Speaker Change: Our first question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Speaker Change: Good morning. Thank you so much for taking my question.
Speaker Change: About $110 million of unanticipated cost between 70 and gross margin in the 40 in SG&A that you will incur in the second quarter.
Speaker Change: What will be the offset.
Speaker Change: At dollar general is able to achieve in the back half of the year, such that you're able to hold the guidance.
Speaker Change: And with what you expected previously and then on top of that the only thing that we can say will be constant this year and into the next couple of years is gonna be teens in volatility.
Speaker Change: Given how dynamic the environment is and given how your guidance. It does seem like your model is going to be a little slower to react to some of the change.
Speaker Change: It could create more earnings volatility.
Speaker Change: Is that wrong. Thank you very much.
Speaker Change: Thanks for the question Michael first I'll address the volatility we believe that over the past years, we've really created a more nimble and flexible company, that's able to address the volatility when given enough time. If you look at the first round of tariffs we face that we started.
Speaker Change: Planning for we were able to offset 90% of that first 10% and then when you look at where we sit today over the course of the year, we're able to offset those tariffs as well and mitigate those cost pressures using our five levers.
Speaker Change: That we are able to absorb.
Speaker Change: Absorb it and take it and so when I look at it and say, there's a near term piece of that where you have product flowing in that comes in at a higher tariff rates Stuart outlined that in his comments, but over time, we're able to make the adjustments leveraging our multi price leveraging country of origin, sometimes choosing not to sell a product.
Speaker Change: And respecting and negotiating with our suppliers. So we feel that we're more flexible today than we've ever been and given the right amount of time, we're able to offset those pressures.
Mike Creedon: Yeah. Thanks, Mike maybe I'll just jump in and just add a few extra comments on on the first part of the question yes.
Mike Creedon: Yes look I mean, we've highlighted $110 million. So we're going to take in the second quarter. We wanted that to be clear for you clearly we've got mitigation strategies, Mike has spoken to and in any normal year. The back half of the year is a bigger part of the year, which gives us the ability to recover.
Mike Creedon: It's probably also worth noting that in the first quarter. We we came in ahead. In this there is some benefit that will sweep from that quarter into this into the full year results and finally I would point to the fact that we had a very strong set of comps in the first quarter and we're guiding to another set of strong comps in the second quarter. So the busy.
Mike Creedon: This itself is performing very well.
Speaker Change: Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your question.
Edward Kelly: Hi, good morning, everyone. So when a dollar tree has successfully operated at a 35% to 36, 6% gross margin for a very long time before you had multi price point.
Speaker Change: Are you telling us today that you expect to be able to maintain that level of margin.
Edward Kelly: Right.
Edward Kelly: Current China tariffs at 30%.
Edward Kelly: Over time and as part of this can you talk a bit more about the importance of the various levels levers of mitigation, especially pricing and what the rollout of that of that pricing looks like such that you know when do you expect you could be back at that level of margin.
Edward Kelly: Yeah. So let me just jump in quickly on the gross margin side I mean, we've given you guidance for the year. So clearly we believe that we are in a position this year to to deliver that gross margin. Some of that strength is coming through as you mentioned is is freight.
Edward Kelly: But we think our merchants have done a terrific job of getting the right assortment and they're very focused on making sure that the kind of margins that are that we deliver to the business and not by accident is these are products that are chosen specifically for the performance that we expect.
Edward Kelly: And then when you look at the five levers that they have to be used in harmony. It's not one out ranks. The other it really is taking all five of them and we ordered them appropriately well first work with our vendors and negotiate we'll look at respecting we.
Edward Kelly: We've spent the last several years really improving our ability to move country of origin.
Edward Kelly: Sometimes we'll choose not to sell it and then finally, Ed Yeah, we leverage multi priced to be able to make sure that we deliver what our customer wants and needs are always starting with the customer and they're the ones that get to vote in terms of us exceeding their expectations and delivering that value convenience and discovery.
Speaker Change: Thank you. Our next question comes from the line of Paul Lajoie with Citi. Please proceed with your question.
Paul Lajoie: Hey, Thanks, guys just a follow up on Ed's question, just as far as price points can you maybe talk about what's happening.
Edward Kelly: The $1 50 price point.
Edward Kelly: And to what extent will that be used as part of the go forward plan to offset some of these tasks and then also just curious about.
Edward Kelly: Higher income consumer.
Edward Kelly: What price points are they gravitating towards our they steering more towards those price points above $2. When they first visit your store. Thanks.
Edward Kelly: Yes in terms of the price points Paul.
Speaker Change: We don't see this as a break the dollar moment, we're really focused on what the customer wants from us and so we're strategic in terms of where we take that price.
Speaker Change: The five levers, we have and especially multi price gives us the flexibility to make sure that if a customer wants that product, we can have that product for them.
Edward Kelly: So this is not necessarily that that big switch up the way. It was in the past. This is all about us leveraging our five leverage and leveraging multi price to deliver for the customer I go back to that AUR comment you are still at an AUR of $1 35 a.
Edward Kelly: And an 85% of the store in less than $2 and as far as the higher income customer we love that we added 2.6 million new customers in Q1.
Edward Kelly: And when you look at the majority of that growth coming above $100000 income, we believe they're loving the expanded assortment.
Edward Kelly: The multi price provides.
Edward Kelly: So the customer is getting what they want across all income cohorts and yes, the multi price really resonate with that higher income customer.
Edward Kelly: Okay.
Speaker Change: Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Speaker Change: Hey, good morning, everyone.
Simeon Gutman: So my first question can you tell us Mike you'd said the $1 to $1 35 evolution over time can you tell us or have you told us what the AUR is in a 3.0 stores and then not related but regarding the TSA.
Speaker Change: Is is whatever you're incurring youre going to get fully reimbursed or there is some risk that you spend money and you don't recoup that is there something to negotiate within that TSA. Thank you.
Speaker Change: I'll, let Stuart handle the TSA question on the AUR, we provide that for us across the chain. The $1 35 is across the chain, who didn't didn't break that up between the different three pointed out to point out one point out Stuart you want to handle the TSS yeah, absolutely maybe.
Speaker Change: Maybe just I'm going to give you a little bit of an expanded answer just so you can look at the total may we've got a group of people who work at our in our shed center. Some of those people will go to family dollar that they will be conveyed the family dollar on the very first day that that cost disappears from our from our P&L. It will be some people who remain.
Speaker Change: Inside of our business and who will perform services for family dollar to the extent that they perform services related to family dollar the cost of their salaries.
Speaker Change: Other benefits and other related costs will all be reimbursed to us by family dollar and at the end of the TSA period.
Speaker Change: Some more of those people will then potentially go over two two to family dollar. After all is said and done you'll recall in our last call.
Speaker Change: Last quarter, we're targeting over the medium term to get down to about 2% SG&A as a percentage of of of revenue.
Speaker Change: Thank you. Our next question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.
Matthew Boss: Great Thanks, and congrats on a nice quarter.
Speaker Change: Thanks, Matt.
Speaker Change: So Mike could you elaborate on the break on the breakdown of your mid single digit first quarter comp.
Speaker Change: Maybe more specifically.
Speaker Change: What stood out as the almost equal contribution from traffic and ticket have you seen that balance continue into the second quarter and if we were to bottoms up build your comp from here should we expect both traffic and ticket to contribute as we think about the back half of the year and multiyear.
Speaker Change: Yeah as I look back thanks, Matt as I look back at Q1, we were very pleased with.
Speaker Change: We got a lot of questions. After the last call about the 3% to 5%.
Speaker Change: And really we talked about a number of things the holiday calendar much better. This year late last year was the worst holiday calendar you have it every seven years.
Speaker Change: And so we knew the holiday calendar, especially with Easter later, which allows for better weather for Easter a more oh.
Speaker Change: Door activities et cetera, and then for us having that multi priced in the season remember we only started multi price we just anniversaried. It in February so having multi price in the assortment really adds to the discretionary and adds to the seasons and the events that are the driver of dollar tree, so being able to bring Holly.
Speaker Change: Days in seasonal events to the table with multi priced just makes it that much more attractive to our customers as far as the balance we want to see that balance.
Speaker Change: We know multi price drives the ticket we want to see that expanded assortment driving people into our stores as well we want to create a sticky relationship with that customer are such that we can count on them in the future. So we really will strive to balance traffic and ticket as much as we can knowing that multi price does have.
Speaker Change: A an impact on that higher ticket.
Speaker Change: Thank you. Our next question comes from the line of <unk> with Oppenheimer <unk> Company. Please proceed with your question good morning.
Speaker Change: And thanks for taking my question, So just going back I guess to the sales and comp guidance for the year you guys beat on you beat the high end of your Q1 comp guidance and you also guide to the high end of our Q Cai and for Q2 I'm. Just curious you know why the reiteration of guidance versus maybe raising it does it reflect conservatism or maybe some high level thoughts on you know why you maintain the range.
Speaker Change: Oh sure Yeah look in the last quarter, we got a bunch of questions about that could be put out such a range and somebody actually had the audacity to say, we'll be putting out a range that we wanted the street.
Speaker Change: Yes.
Speaker Change: The street wanted to see.
Speaker Change: And I'd say, we were really pleased to see that the quarter turned out as strongly as it did and we're pleased to see that that strength. We believe we'll go through the second quarter and I you know I Wouldnt. There was no reason to take it up given that we still think that that's a good range for the year, but we did want to make sure that for the second quarter a quarter and what.
Speaker Change: We're going to see some higher costs because of the current.
Speaker Change: At a tariff and some investments in store that you'd be able to see that this was being done in concert with a very strong performance from the business and for that reason, we wanted to make sure you realize that we would be towards the upper end of the range.
Speaker Change: Thank you. Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Speaker Change: Hey, Thanks. Good morning couple of questions for me just on multi price can you talk about how the one point, though.
Speaker Change: And to point those stores are comping.
Speaker Change: So far in the first quarter.
Speaker Change: And then Stuart on the SG&A guide for the year, you took it up pretty significantly it looks like about $40 million of that or 20 basis points is here in the in the second quarter, but when you talk about the overall increase in the factors driving that.
Stuart: Yeah, just in terms of Chuck in terms of the different formats.
Stuart: It gets tougher and tougher as we convert more and more of the chain over but what we saw in the first quarter was our three point those continue to be our strongest performance, but the entire chain. The one point, though is the two point those have all lifted.
Stuart: If you look at the kind of gaps between them.
Stuart: They get a little bit tighter, but only because the 1.0 in the 2.0 are performing stronger and our full multi price 3.0 store.
Stuart: Which you know we continue to invest in 500 stores.
Stuart: Those continue to be the strongest performers and then Stuart in terms of the SG&A that you want to take that yeah, absolutely I think that if you looked at SG&A broadly the cost increases follow the kind of cost increases that we shared last quarter, but the biggest one of these on the biggest two if you just looked at them by by a long shot.
Stuart: <unk> is store payroll and depreciation and what youre seeing in the balance of the year.
Stuart: Is that increased investment in store, which we think will have a good payback.
Stuart: When you go back to last quarter, we said that we would have 50 to 80 basis points on the year and now we're saying it's 100 to 110. So just think about that as the as the uplift in the range.
Stuart: And as you know as I said I think this is really being spent in a manner that we expect to have that.
Stuart: A good return.
Speaker Change: Thank you. Our next question comes from the line of Scot Ciccarelli with June Securities. Please proceed with your question.
Scot Ciccarelli: Good morning, guys. Thanks for the time.
Scot Ciccarelli: A follow up question on the $70 million impact on Cogs from the 145% tariff you seem to be talking about it as kind of a onetime ish item, but still guiding the full year to the same net income. So I guess my question is are these cuts you guys have to eat and somehow you're making it up later in the second half on operational basis. So that's an ongoing benefit.
Scot Ciccarelli: Or are you somehow calling back those specific dollars in the back half. Thanks.
Scot Ciccarelli: Yeah, I'll I'll I'll go first here I think you've got to look at how we deploy our toolkit in our five levers when you think about negotiating when you think about respecting, especially country of origin does take a little more time when given the right amount of time, where we're able to mitigate these costs.
Scot Ciccarelli: As we did with the first 10% as we will do with this 30 intend over the course of the year in the near term as you work all five levers there is a period of time, where you get some near term disruption.
Speaker Change: So that's what you're seeing from US too I don't know if you want to add.
Speaker Change: To go to some of the specific I mean.
Speaker Change: This is this is not about all onetime and all and no ongoing. This is just sort of a mix of both right.
Speaker Change: Some costs, which which because of timing will be one time, we've talked about the investments youre, making in store. We don't believe that those will be enduring and so think about that as sort of more of a bubble in this year that perhaps there's some some some declines next year.
Speaker Change: Tariffs, we don't know, we're assuming that those will be will be ongoing. So the actions are taken in the back half or are a bit of both some of it is claw back of one time and some of those changes that we're making you will see will provide enduring benefits to the business.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.
Seth Sigman: Great. Thanks, good morning, everyone.
Seth Sigman: Very strong quarter I am curious specifically on conversions I just wanted to go back to that I think you mentioned 150 basis point lift this quarter I'm not sure if that's exactly apples to apples with prior disclosure, but does it seem like that lift is moderating any more perspective on that and then as you think about what happens.
Seth Sigman: After the first year of the conversion how do you think the stores are going to comp do they continue to outperform thank you.
Seth Sigman: Yes in terms of the conversions as I did say it tightened a bit but not because of the overall strength of the three or four I know stores. They continue to perform incredibly well, but our 2.0 and our 1.0 stores are also.
Seth Sigman: We are proving it what gets harder and harder as we convert more of the store and then our learnings from 3.0, we will deploy in other stores. So if you think of the seasons and you think a multi price 3.0 stores getting the Easter.
Seth Sigman: Expanded assortment every store got that Theres elements of multi price now that goes into every store and so we're seeing great results from the one point on the two point out but in reality the more we convert and the more we take our learnings of this expanded assortment across the entire chain the harder it gets.
Seth Sigman: To kind of break them down and then in terms of how they perform over time, we continue to see that the longer you're on multi price the stronger your comps perform we just hit an anniversary in February we will continue to take the learnings and apply them across the chain.
Seth Sigman: We're really pleased most most importantly, we're pleased with what the customer is seeing and saying in terms of voting with their with their footsteps and with their basket.
Speaker Change: Thank you. Our next question comes from the line of Dan <unk> with Bernstein. Please proceed with your question.
Speaker Change: Okay.
Speaker Change: Might be on mute.
Speaker Change: Alright, well go to the next question operator.
Speaker Change: Thank you. Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.
Kate Mcshane: Hi, Thanks for taking our question, we wanted to ask a little bit more about inventory and the composition of inventory of the 10% increase can you talk to how much of that increase the dollars versus units and just how you're thinking of managing the inventory into the second half just given.
Speaker Change: That disruption.
Speaker Change: Headcount as a result of tariffs if you're experiencing any kind of delays are.
Speaker Change: Any any kind of disruption and how you feel about second half being in stock.
Speaker Change: Well, let me pick up on the numbers and Mike can talk about the quality of inventory for the back half but.
Speaker Change: We haven't really broken down inventory by units, we did say up as you can see it in the financials that were up were up about 10%, there's a little bit of tariff impact and now obviously as you think about stuff. That's been received we did have some period, where we were getting hit the 145% tariffs all that all that early tariff money.
Speaker Change: <unk> is actually sitting in the inventory so that so there's a piece of theres a piece of that in there, but we're not going to comment on the actual.
Speaker Change: Units I can probably also say by the way that cause he sent the multi price as a.
Speaker Change: As increasing its penetration in our inventory then you can assume that you know there are fewer units because the the dollars will add up foster with multi priced items than they would with $1 25 items. Yeah, just in terms of quality and availability Kate I mean, our our global sourcing team and our merchant team are just incredible.
Speaker Change: <unk> it.
Speaker Change: It is amazing to me, how they're able to navigate so well.
Speaker Change: And we believe we've got a unique opportunity here as these new customers find us $2 6 million new customers found us in Q1, and we want to create a great first impression for that customer and we want to create a sticky relationship with that customer for years and years to come and so as a result of that.
Speaker Change: <unk> that great first impression you know it needs to be product that they love on Michelle if somebody there ready to check them out in a timely manner, we're committed to making sure our customer has a great experience both for the customers that shop us all the time and has been with us throughout our history and those new ones that are finding us.
Speaker Change: <unk> and seeing the exciting thrill of the hunt the dollar should provide better than anyone so I'm I'm pleased with how well we've navigated that and we're going to work incredibly hard to make sure we make a great first impression.
Speaker Change: One other thing Mike just comment on NK.
Speaker Change: I Should've mentioned this earlier, but part of the inventory increase also relates to the fact that we have 496 more stores. This year than we had last year. So naturally as the company grows.
Speaker Change: So the inventory will follow.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of John Hind Battle with Guggenheim Partners. Please proceed with your question.
Speaker Change: Hey, Mike two two related things where are we on the journey to multi price point freezer cooler rigs I think the plan was to get to 80%.
Speaker Change: Of doors.
Speaker Change: 345, eventually where are we there and then what's your philosophical thought on.
Speaker Change: Regional pricing versus national pricing.
Speaker Change: Either at 125 or multi price.
Speaker Change: Sure.
Speaker Change: Yeah, John Great questions. There in terms of the freezer cooler. It it is a significant part of our multi price strategy Daphne.
Speaker Change: That being said it freezer cooler isn't in every store, we've got restricted leases and some we've got some areas where it isn't the right option for the demographics that we have there we do play with the doors.
Speaker Change: So you may see in some areas.
Speaker Change: $7 25 stores at doors, and then a three four and five in other stores, you'll see six three dollar doors and then two floors or two fives. So we do play with that as part of the demographics and where are we best fit with the customer and then in terms of the zone pricing as we look out in <unk>.
Speaker Change: And to the future I called zone pricing as we look out into the future. We believe that there is an assortment play here.
Speaker Change: Isn't one size fits all where you can provide a very compelling relative value is a little bit different in California, then that may be in Kansas, and so as we look out to the future and becoming more nimble and leveraging this expanded assortment to meet what our customer needs, which as we know it does.
Speaker Change: Vary a bit.
Speaker Change: I believe that's on the edges.
Speaker Change: Primarily we're a retailer that people love for its consistency and so we'll keep doing that but there is an opportunity here to take our expanded assortment and meet that specific demographics in a certain area. So it's a great point.
Speaker Change: Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.
Peter Keith: Hi, Thanks for taking the question.
Speaker Change: Mike as you push pushing deeper into multi price with more stores or are you finding any need that you have to invest more in labor and on a related note. Two do you see any opportunity to invest more in advertising.
Speaker Change: <unk> somebody awareness of new items coming into stores.
Speaker Change: Yeah. So first of all as we go deeper into multi price the way we put hours. If you will into the store is based on sales and so we've been very pleased to see that the performance in sales. These stores are earning their hours and when I say, earning their hours, where we're not.
Speaker Change: Having to put in place something above and beyond to deliver multi price. We have that initial reset costs that we continue to go but look at that as a onetime cost per store.
Speaker Change: And then after that the sales are really strong and they're earning their labor, which which we just love to see it.
Speaker Change: In terms of advertising, it's incredible to me to see a tick tock and see on Instagram I'm.
Speaker Change: Mentioned this I think on the last call, but you know dollar tree dinners.
Speaker Change: Unbelievable 12 million views. So we look at that and say we've never had to advertise at dollar tree. We believe very strongly in our community and in our word of mouth, but we know that we've changed the inside of the store and we are looking at how we can enhance how we can capture the social impressions that are occurring.
Speaker Change: And how we can take to the next level, making sure everyone knows across all income levels.
Speaker Change: What is so exciting inside a dollar tree.
Speaker Change: Thank you. Our next question comes from the line of Robbie <unk> with Bank of America. Please proceed with your question.
Robbie: Oh, Hey, good morning, great quarter.
Speaker Change: Hey, I wanted to just follow up.
Speaker Change: On the seasonal as a driver it looked like it.
Speaker Change: Crushed it in the first quarter in the second quarter.
Speaker Change: Is it is the impact of seasonal expected to be just very similar to what it was in the first quarter.
Speaker Change:
Speaker Change: That would be my first and the second question is just.
Speaker Change: And it's kind of been asked already but just more info on the 100 K customer you guys are bringing in wake, where where are they shopping before.
Speaker Change: Who do you who you think you're taking it from.
Ravi: Yeah, So Ravi.
Speaker Change: Q2 for US is is the if you look at our comps traditionally that's your weakest quarter. You you don't have the big drivers dollar tree is all about the seasons and the holidays. The celebrations Q4, you'll get Thanksgiving and Christmas in Q1, right out of the gate Valentine's day.
Speaker Change: And Easter and mother's day, and Grads Q2, you get a little red White and blue, but until we get to back to school. In Q3, you don't have that that real you have to go to dollar tree.
Speaker Change: Q2 from a seasonal standpoint is typically the weakest you see that in the balance of discretionary and consumable and so for us.
Speaker Change: That is traditionally a weaker quarter for us and we would expect that to continue but as you look at multi price and what we're changing inside the store, we're shifting those dynamics and we're really giving the customer a reason to come see that expanded assortment 12 months out of the year.
Speaker Change: And so really excited to see how that plays out. This Q2 in only the second the first anniversary of what we had a multi price and then in terms of this higher income cohort customer you.
Speaker Change: You know, we're really happy to see them and we want to make sure we delight them exceed their expectations and create a sticky relationship with them.
Speaker Change: And we believe that while we help with our pack sizes and we help with our incredible value every shopper live their lives better across all income cohorts. We are now attractive due to multi price due to our expanded assortment to everyone across every income cohort.
Speaker Change: Thank you. Our next question comes from the line of John MA with Bernstein. Please proceed with your question.
Speaker Change: I can tell you about the cut.
Speaker Change: Cut off just out so a longer term question on your philosophy around global sourcing, which has been really an underpinning for your success in the past now that we're in the peak of localized.
Speaker Change: And I guess, that's how it looks like from here.
Speaker Change: Do you think changed from a strategy and philosophy perspective, and specifically on China. How important is China to you today and do you expect that to change going forward. Thank you.
Speaker Change: Thanks, Yeah, no no problem at all.
Speaker Change: If you are committed to delivering value convenience and discovery and Thats thrill of the hunt discovery, so surprising that customer if you're committed to delivering that as we are then global sourcing is critical to providing that and for us. It's the lowest landed cost so we.
Speaker Change: Our global sourcing team will look and find that lowest landed cost and we look at all countries.
Speaker Change: As partners that can help us deliver that lowest landed cost.
Speaker Change: In different years that shifts a little bit in terms of the you know the country of origin, and where we put our biggest bets in our biggest way, but just know that it will always be to deliver the lowest landed cost because that's how you then turn around and deliver that value to the customer.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Kelly Bania with BMO capital markets. Please proceed with your question.
Kelly Bania: Hi, Thanks for.
Speaker Change: Hitting me in here.
Speaker Change: I need to go back to the incremental costs in Q2 that you called out and and just make sure I understand how much is due to the extreme 145% tariff level during that period.
Speaker Change: There was a comment also about store investments and and just wanted to also understand the.
Speaker Change: What is driving the SG&A the $40 million in SG&A, there and I guess.
Speaker Change: Addition, can you just talk about what are the drivers for the gross margin expansion that you are calling for in the second half.
Stuart: Okay. So it's Stuart here, let me, let me take both of those up so first of all as it relates to the tariffs.
Stuart: On a big there was a big impact in the second quarter from those few weeks of 145% tariff that that money really adds up at that rate.
Speaker Change: But it is comprised of both the higher rate and the lower rate that we see now.
Speaker Change: The tariff areas very complicated to to calculate and it's the reason why we've been so explicit in the guidance just because using average rates to try to get there and understanding the timing of how this works through the inventory is very difficult. So it's a big component of the second quarter.
Speaker Change: And then the $200 million for the year is it is it is a good is a good estimate.
Stuart: When we look at the SG&A costs and those as I mentioned, you should think about those.
Speaker Change: Seeing those in second third and fourth quarters, but we would expect those to start to unwind next year. So that we don't think these are higher costs that we live with forever. We do have a range of <unk>.
Speaker Change: Commercial efforts in our stores as we look for with strong execution and a strong back half, where we're putting we're putting we're putting more store hours and more labor and to accomplish that and.
Speaker Change: We've done it knowing that we think we're going to see a strong payback.
Speaker Change: Second thing is the drivers for the gross margin and I spoke to that in an earlier question, but the big drivers for the gross margin pick up in the back part of the year are similar to what we saw in the first quarter with some.
Speaker Change: Benefits expected from from freight with with some offset coming from shrink and markdowns.
Speaker Change: Yeah.
Speaker Change: Thank you. Our final question. This morning comes from the line of Joe Feldman with Telsey Advisory group.
Speaker Change: Please proceed with your question.
Speaker Change: Yeah, Hey, good morning, guys. Thanks for taking the question I appreciate it.
Speaker Change: Wanted to ask with regard to the inventory.
Speaker Change: Can you share a little more color about how youre planning it for the balance of the year and you know where you are in terms of presumably back to school is probably landed at this point, but.
Speaker Change: You know kind of how you how the staging.
Speaker Change: For the holiday through the end of the year for holidays.
Speaker Change: What are those kind of breakpoints time wise when you need to have the goods and how youre just planning for that and again just your inventory levels for the balance of the year. Thanks.
Speaker Change: Yeah, Joe as I look at planning out I'll go back to we want to create that great first impression and so our merchant teams and our global sourcing teams are focused and in it you know.
Speaker Change: And quite Crazy times are focused on making sure our customers find those products on the shelf. So yes back to school are already in hand.
Speaker Change: <unk>.
Speaker Change: Before you know it you'll be setting Halloween and then Christmas in the stores and so we have brought in.
Speaker Change: Freight early and certainly as you look at what our stores are being asked to do we're putting some extra hours there to make sure. They can execute this if.
Speaker Change: If we have a very traditional flow of product. This is not a traditional year in and we are definitely seeing some of that product flow early which we want to make sure we process well and so we've invested in some of them in the stores to make sure that the great moments for dollar tree, which are the back to school is the Halloween harvest Thanksgiving.
Speaker Change: And Christmas that we exceed our customers' expectations with great product on the shelf. So we're you know it's a keen focus of ours.
Speaker Change: And we're looking to make sure we get product in so that we can satisfy that demand from the customer.
Speaker Change: Thank you, ladies and gentlemen, we have come to the end of our time for questions I'll turn the floor back to management for any final comments.
Speaker Change: Yeah. Thank you all for joining the call today, great questions and look forward to talking to you soon thanks so much.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.