Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dollar Tree Inc (DLTR, Financial) reported a 0.7% increase in net sales to $7.4 billion.
- The company successfully reopened approximately 85 former 99 Cents Only locations as Dollar Trees, with positive initial performance.
- Dollar Tree's multi-price expansion continues to resonate with customers, with converted stores seeing a 4.6% comp increase.
- The company added 2.8 million net new shoppers over the past 12 months.
- Family Dollar's Private Brands program is gaining momentum, contributing 16% of consumable sales in the quarter.
Negative Points
- Second quarter results fell short of expectations, with adjusted EPS of $0.67, $0.38 below the midpoint of the June outlook.
- General liability claims resulted in an incremental $84 million charge, significantly impacting EPS.
- Sales came in towards the low end of the outlook range, with Dollar Tree's comp performance lower than expected.
- The challenging macro environment continues to pressure customers, leading to a revised full-year outlook.
- Higher-than-expected upfront costs related to the 99 Cents Only stores negatively impacted third and fourth quarter EPS.
Q & A Highlights
Q: Given the series of unexpected one-time items impacting earnings, when can Dollar Tree move past these and be on a consistent growth path? What is the realistic long-term operating margin for Dollar Tree?
A: Jeff Davis, CFO: The general liability adjustments are complex, but we believe the recent adjustment reflects the current liabilities. We are confident that we now have this behind us. As for long-term operating margins, we expect improvements as we continue the multi-price rollout and get beyond higher transformation costs. We still believe in our previously provided long-term outlook.
Q: How confident are you that the recent weakness at Dollar Tree is due to macro pressures rather than pushback on the multi-price strategy? And can you provide any updates on the strategic review of Family Dollar?
A: Mike Creedon, COO: We are confident in the multi-price strategy as customer feedback and comps from converted stores are positive. We are seeing strong traffic growth and customer satisfaction. Regarding Family Dollar, we are making progress on the strategic review and are evaluating a full range of options to maximize shareholder value.
Q: Can you elaborate on the timing and pace of the multi-price rollout at Dollar Tree? Why not go faster, and is labor a constraint?
A: Mike Creedon, COO: The pace is influenced by our internal bandwidth and the readiness of our distribution network. We are using third-party labor to accelerate the rollout but are prioritizing stores that are ready to convert to ensure the best execution. We are slightly behind schedule but believe it’s better to get it right than to rush.
Q: Can you discuss the softening same-store sales trends at Dollar Tree in Q2 and any changes in Q3? How do the core Dollar Tree stores compare to pre-pandemic performance?
A: Mike Creedon, COO: The softening is due to macro pressures affecting middle-income customers, leading to a shift towards consumables over discretionary items. We expect improvement in Q3 with back-to-school and Halloween, and further in Q4 with the holiday season. Core stores are performing well, and we believe the multi-price rollout will boost overall performance.
Q: Can you unpack the 4.6% comp lift in converted stores between traffic and ticket? How are four-wall profits looking with the higher costs of the multi-price rollout?
A: Jeff Davis, CFO: The comp lift is primarily driven by increased traffic, with ticket remaining relatively flat. Four-wall profitability is impacted by higher SG&A due to third-party labor and depreciation from investments. However, we expect these investments to pay off in the long term.
Q: Do you think the macro pressures on Dollar Tree’s middle and higher-income consumers are causing them to shop less overall or go elsewhere? Do you need to change pricing or the pace of the multi-price rollout?
A: Mike Creedon, COO: This is primarily macro belt-tightening. We are growing traffic and adding new customers, indicating that our value proposition remains strong. We believe our current strategy is appropriate and will continue to meet customer needs.
Q: Is the challenging consumer backdrop changing your view on incremental investments needed in the business? How do you see Dollar Tree’s value proposition evolving in the back half of the year?
A: Jeff Davis, CFO: We remain committed to our long-term transformation strategy, including investments in store standards and multi-price rollout. We believe these investments are essential to delivering value and a great customer experience, even in a challenging macro environment.
Q: Would it make sense to do a harder reset at Dollar Tree, similar to what was done at Family Dollar, to address ongoing issues and expenses?
A: Jeff Davis, CFO: We believe our current strategy is appropriate. The recent pullback is due to macro pressures, and we are positioned to meet customer needs with our multi-price offering and store investments. We are confident in our long-term growth prospects.
Q: Are you taking any actions to separate aspects of Dollar Tree and Family Dollar as part of the strategic review?
A: Jeff Davis, CFO: We continue to operate both businesses with the intent of maximizing shareholder value. We are evaluating a wide range of options, including those involving outside parties, and are pleased with the progress of the strategic review.
Q: Can you discuss the performance of the 99 Cents Only stores acquisition and its impact on your outlook?
A: Jeff Davis, CFO: The initial sales performance of the converted and reopened stores is exceeding expectations. While we are incurring higher upfront costs, we are bullish on the long-term prospects of these stores, which are in strong markets with favorable lease terms.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
