Dollar Tree(DLTR) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Total net sales increased by 3.5% to $7.6 billion in Q3 [27] - Adjusted diluted EPS was$ 1.12, a 16% increase from the previous year [54] - Dollar Tree segment comp increased by 1.8%, driven by a 1.5% increase in traffic and a 0.3% increase in average ticket [28] - Family Dollar segment comp increased by 1.9%, primarily driven by traffic [33] - Adjusted operating income increased by 14% to $343 million, with adjusted operating margin rising by 40 basis points to 4.5% [54] Business Line Performance - Dollar Tree's multi-price 3.0 format stores contributed approximately 30% of total net sales in Q3, with a 3.3% comp increase [20] - Dollar Tree's consumable mix increased by 150 basis points year-over-year to 49.9%, with a 6.2% comp increase [28] - Family Dollar's discretionary comp increased by 3.7%, marking the first positive discretionary comp since Q4 2022 [33] - Dollar Tree's multi-price 3.0 stores saw a 6.6% comp increase in consumables and a modestly positive discretionary comp [20] Market Performance - Dollar Tree's consumables market share gain accelerated, with dollar volume outpacing the industry by 480 basis points and unit volume by 280 basis points [30] - Family Dollar's renovation and store conversion program has completed over 1,500 projects, with high-single-digit comp increases at H2.5 format stores and double-digit comp increases at urban extra small box format stores [36] - Reduced SNAP benefits were a 30 basis point comp headwind for Family Dollar in Q3 [37] Strategic Direction and Industry Competition - The company is focused on accelerating the growth of Dollar Tree and finalizing the strategic review for Family Dollar, which could include a sale, spinoff, or other disposition [10] - Dollar Tree is converting stores to the multi-price 3.0 format, with plans to have approximately 3,000 multi-price 3.0 stores open by year-end [21][22] - The company is prepared to mitigate potential tariff impacts by negotiating lower costs with suppliers, changing product specs, or shifting supply sources [39][40] Management Commentary on Business Environment and Outlook - Customers continue to seek value, with a focus on buying for need and buying closer to the time of need, particularly among lower-income households [17][18] - The company expects low-single-digit comps in Q4 for both Dollar Tree and Family Dollar, with net sales projected to be in the range of$ 8.1 billion to $8.3 billion [48][61] - Management remains optimistic about the holiday season, with an expanded Christmas assortment and improved store conditions [46][47] Other Important Information - The company opened 567 new stores in Q3, with over 85% under the Dollar Tree banner, increasing the Dollar Tree store base by over 7% year-over-year [24] - The company is working to restore supply chain efficiency after challenges related to a tornado-destroyed DC in Marietta, Oklahoma [25] - CFO Jeff Davis will be stepping down, and the company has launched an external search for his successor [49] Q&A Session Summary Question: Impact of one-time items and Family Dollar strategic review on earnings outlook - One-time items from FY'24 will be added back to the base level for FY'25, but no guidance was provided on the impact of the Family Dollar strategic review [72] - The company has multiple strategies to mitigate potential tariff impacts, including changing product specs, negotiating with suppliers, and shifting supply sources [73] Question: Softness in November and holiday season outlook - November comps were soft due to the election and later Thanksgiving, but the company expects a stronger December with Christmas falling mid-week [75][76] - Customers are buying closer to the time of need, with strong performance in consumables and seasonal products like Halloween and Thanksgiving [76] Question: Customer demand trends and multi-price rollout performance - Lower-income customers are pressured and focused on consumables, while middle and higher-income customers are reducing discretionary spending [80] - Multi-price 3.0 stores are performing well, with Q1 conversions being the strongest, followed by Q2 and Q3 [88][93] Question: Family Dollar's momentum and sustainability - Family Dollar's positive discretionary comp is attributed to targeted merchandising efforts and store renovations, with long-lasting impacts expected [84] Question: Multi-price rollout cadence and performance - Multi-price 3.0 stores are seeing increased customer trips and basket size, with Q1 conversions performing the strongest [87][88] - The company is balancing the rollout to ensure execution quality, with plans to continue conversions over the next 18-24 months [91] Question: Margin performance and SG&A leverage - Temporary labor costs for the multi-price rollout are expected to normalize over the next 18-24 months, with SG&A leverage opportunities as the rollout matures [104][106] - Gross margin improvements were driven by lower freight costs, but SG&A deleveraged due to higher depreciation and temporary labor costs [102][104] Question: Gross margin acceleration and freight cost benefits - The company raised the benefit from lower freight costs by$ 0.10 for the year, but this was offset by storm-related costs and inventory markdowns [109] Closing Remarks - Management thanked participants and wished everyone a happy holiday season, concluding the call [112][113]