Dollar Tree Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
March 2, 2022

Key Takeaways

  • EPS Beat: Dollar Tree reported Q4 earnings per share of $2.01, surpassing its guidance range of $1.69–$1.79.
  • The company completed its nationwide rollout of the $1.25 price point over two months ahead of schedule, unlocking expanded assortments and expected to boost traffic and customer loyalty.
  • Same-store sales grew 3.1% at Dollar Tree and 1.7% at Family Dollar in Q4, with two-year stack comp gains of 5.5% and 9.8% respectively, marking a sequential improvement from Q3.
  • Gross margin contracted 160 basis points to 30.2% in Q4 due to higher freight and merchandise costs, though management expects a return to a 35%–36% annual range in 2022.
  • Full-year 2022 guidance targets consolidated EPS of $7.60–$8.00 and enterprise same-store sales growth in the low- to mid-single-digit range.
AI Generated. May Contain Errors.
Earnings Conference Call
Dollar Tree Q4 2022
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good day, and welcome to the Dollar Tree Inc. 4th Quarter 2021 Earnings Conference Call. Today's call is recorded. At this time, I would like to turn the conference over to Randy Guiler. Please go ahead, sir.

Speaker 1

Thank you, Ashley. Recorded. Good morning and welcome to our call to discuss results for Dollar Tree's 4th quarter and full year 2021.

Speaker 2

Being recorded. With me

Speaker 1

on today's call are Mike Wachinski and Kevin Wachler. Before we begin, I would like to remind everyone that being recorded. Various remarks that we will make about our expectations, plans and prospects for the company constitute forward looking statements for the purposes of the Safe issued in the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties being recorded and our actual results may differ materially from those indicated in these forward looking statements. For information on the risks and uncertainties being recorded in the quarter.

Speaker 1

We will now begin the call to review the financial

Speaker 2

results of the financial results of the financial results of the financial results of the financial

Speaker 3

results of the financial

Speaker 1

results of the fiscal year 2019. Recorded in our Form 10 Q for the most recently ended fiscal quarter and our most recent press release and Form 8 ks being recorded and other filings we make from time to time

Speaker 3

with the

Speaker 1

SEC. We caution against reliance on these forward looking statements made today and we disclaim being recorded. Following our prepared remarks, we will open the call to your recorded. I will now turn the call over to Mike Watinski, Dollar Tree's President and Chief Executive Officer.

Speaker 3

Being recorded. Thank you, Randy. Good morning and thank you for joining us on today's call. I'm extremely proud of the team's being recorded. We delivered comparable sales increases at Dollar Tree and Family Dollar, being recorded both representing improvements from the prior quarter on a 2 year stack basis.

Speaker 3

Our EPS of $2.01 being recorded. Exceeded our $1.69 to $1.79 guidance range. Importantly, we recently completed a successful conversion being recorded to $1.25 price point across all Dollar Tree stores in the United States, more than 2 months ahead of schedule, recorded, which significantly enhances our ability to provide a meaningful assortment at extreme values to our shoppers. Being recorded. We continue to have terrific performance on other key strategic initiatives, including the expansion of our $3 $5 plus assortments recorded to another 1500 Dollar Tree stores as well as our combo stores and H2 renovations at Family Dollar.

Speaker 3

Being recorded. The Dollar Tree segment delivered a comp sales increase of 3.1%, cycling a 2.4% increase from the prior year's quarter. Being recorded. The 5.5% 2 year stack quarterly comp was our best of the year and represented a sequential improvement being recorded in the quarter of 90 basis points from Q3. Discretionary continues to perform extremely well at a 5.4% comp.

Speaker 3

Being recorded. Christmas Seasonal, Party Celebrations, Crafts and Stationery. For the quarter, discretionary represented more than 57 being recorded in the quarter, up 130 basis points from the prior year's quarter. For the Dollar Tree banner, December was being recorded in the quarter as we were cycling a slight negative from the prior year. November was a low single digit positive comp being recorded and January was our lowest comp month as we cycled the strongest comp month of the prior year's quarter.

Speaker 3

Being recorded. Family Dollar delivered a positive 1.7 percent comp against the 8.1% increase a year ago. This represented the 4th consecutive quarter that Family Dollar 2 year comp stack exceeded 9%. Being recorded. The consumables side of the business comped just below a positive 3%, while the discretionary was a low single digit negative being recorded as we are cycling stimulus dollars from the prior year.

Speaker 3

The Family Dollar business continues to gain share. Being recorded. Recorded closely followed by December. Both periods were above the quarterly comp of 1.7%. Being recorded.

Speaker 3

January was a negative comp as we cycled a double digit comp from the prior year related to the release of stimulus dollars. Additionally,

Speaker 2

being recorded.

Speaker 3

Retail in January was impacted by Omicron variant, much colder and stormier weather than the prior year and the lapsing of the monthly child tax recorded by Credit Advanced Payments. The comps at both banners were again driven by an increase in average ticket, being recorded in the quarter, partially offset by

Speaker 4

a decline in transaction count.

Speaker 3

Last week, we completed the rollout of our $1.25 price point initiative being recorded to every Dollar Tree store across the U. S, more than 7,800 plus stores. This milestone completed more than 2 months ahead of our targeted date is a testament to the commitment and teamwork between our support teams, being recorded. Our merchandising organizations and our field leadership teams demonstrating our ability to execute. Being recorded.

Speaker 3

This strategic endeavor will enable Dollar Tree to ultimately drive store traffic and productivity, customer loyalty and operating performance, being recorded, while enhancing our ability to navigate the business through higher periods of higher cost. Being recorded. We have been considering this move for some time. In recent years, we have lost many items that are customer favorites being recorded and key traffic driving consumable products from our assortment due to the constraints of the dollar price point. Being recorded.

Speaker 3

Additionally, we have been operating through a higher cost environment as it relates to inflation, tariffs, supply chain and labor costs. Being recorded. The new $1.25 price point enhances our ability to materially expand our assortments, introduce new products and sizes being recorded and provide families with more of their daily essentials at a great value. In preparation for this move, our merchandising teams being recorded. We have taken on the Herculean task of reviewing thousands of products SKU by SKU or item by item to reassess the value being recorded through comp shops of our competitors.

Speaker 3

Many of our products, especially on the seasonal and discretionary side, are still considered to be an being recorded. For those products that are considered new or to be reinvested in with a large being recorded. We have a clear a very clear and focused and urgent plan to bring that product into our stores. These assortment changes will be taking place throughout the year, but we do expect 50% of the categories new and reinvested in products being recorded in the store by mid year. Example of the products already in the stores are carbonated beverages recorded and salty snacks all at the $1.25 price point.

Speaker 3

I could not be more proud of our team's smooth execution being recorded for the transition to the $1.25 price point. Initially, we rolled out the program to a diverse segment of more than 100 stores across the U. S. Being recorded. Then we expanded to nearly 200 stores across 3 metropolitan markets.

Speaker 3

And starting in December, we embarked on 7 waves being

Speaker 4

recorded in the Q1 of multi

Speaker 2

state introductions.

Speaker 3

The signage, training and talking points equipped our field leadership teams being recorded. The teams embraced the project, rolled up their sleeves and got it done. Being recorded. Feedback from our shoppers has indicated they clearly understood the change in pricing, stores were easy to shop and the signage was very clear. The key has always been and always will be enabling us to deliver extreme value to our customers.

Speaker 3

Being recorded. We are focused on exceeding shopper expectations for the value at $1.25 just like we have been at the dollar price point for more than 30 years. We have been closely tracking the performance of converted stores on a daily basis item by item, category by category. We have seen relatively consistent reaction and performance across various demographics, geographies and store sizes. Being recorded.

Speaker 3

Among our findings are the following. Our new and reinvested SKUs are driving improved being recorded in their categories, including in the food, snack and beverage, which are all very important traffic driving categories. Being recorded. Our CECL and discretionary continue to outperform consumable, but we believe this can balance out as we continue to modify the assortment on the being consumable and deliver greater value for our customers. As you would expect, we are seeing comp lift sales recorded to the stores that have transitioned to $1.25 partially offset by a decline in unit sales in the

Speaker 4

teens. Being recorded.

Speaker 3

As we go through the year, we expect to see a greater lift to the gross margin in the first half of the year as we sell through the current inventory. Being recorded. And importantly, as I have stated before, we have confidence we can get back to our historic 35% to 36% annual gross margin range this year, being recorded even with the continuation of elevated freight costs. And as we reinvest in the key categories to deliver being recorded. We expect to see improved traffic and productivity as we move throughout the year.

Speaker 2

Being recorded.

Speaker 3

I've shared much about the $1.25 price point as it is where many investors are focused and it is transforming our company. Being recorded. But I want to be clear that we are very pleased with the continued progress we are seeing across each of our strategic initiatives. Regarding Dollar Tree Plus, we finished the year with a multi price product in approximately 6 60 stores, being well beyond our original target of 500 stores. At Dollar Tree, our $3.05 plus assortment will be being expanded to another 1500 stores in fiscal 2022.

Speaker 3

Customers are responding very well to holiday, seasonal and discretionary categories, recorded and we will continue to grow and improve this initiative. At Family Dollar, our combo stores are working. Being recorded. Customers love shopping the best of Family Dollar and Dollar Tree in one easy to shop local store in their community. Being recorded.

Speaker 3

The stores are driving a material comp sales lift, increased productivity, higher gross margins and improved operating performance. We ended the year with more than 240 combo stores and are planning to add another 400 combo stores this year. Being recorded. We ended the year with 3,815 Family Dollar stores in the H2 format. We are planning for another 800 based on our expectations in fiscal 2022, which we believe will bring our store fleet current and will enable us to reallocate time, effort, being recorded.

Speaker 3

We will now turn the call over to Kevin to provide details on Q3. Being recorded. I will now hand the call over to Kevin to provide details on Q4 performance and our outlook for fiscal 2022. Being recorded. Thanks, Mike, and good morning.

Speaker 5

For the quarter, consolidated net sales increased 4.6 percent to 7 being recorded at $8,000,000,000 comprised of $3,920,000,000 at Dollar Tree and $3,160,000,000 at Family Dollar. Being recorded. Enterprise same store sales increased 2.5% as we cycled a 4.9% increase from a year ago, being recorded, representing a 70 basis point improvement from Q3 to 7.4% on a 2 year stack basis. Being recorded. Comps for the Dollar Tree segment increased 3.1%.

Speaker 5

Family Dollar same store sales increased 1.7%, cycling a being a strong 8.1% increase from last year. On a 2 year stack basis, Dollar Tree comps increased 5.5%,

Speaker 2

recorded, which was a 90 basis point improvement from

Speaker 5

Q3 and Family Dollar increased 9.8%, which was a 70 basis point improvement from Q3. Being recorded. Dollar Tree's comp was comprised of a 6% increase in average ticket, partially offset by a 2.8% decline in traffic. Being recorded. Family Dollar experienced a 4.6% increase in average ticket, partially offset by a 2.7% decline in traffic.

Speaker 5

Being recorded. Gross profit was $2,140,000,000 for the quarter. Gross margin was 30.2% being recorded as compared to 31.8% in the prior year's quarter. Gross profit margin for the Dollar Tree segment declined 50 basis points to 35.6% recorded when compared to the prior year's quarter. Factors impacting the segment's gross margin performance included.

Speaker 5

Merchandise costs, including freight, increased 110 basis points driven by higher freight costs, partially offset by increased initial mark on and increased sales of higher margin discretionary merchandise. This increase was partially offset by shrink that improved 30 basis points related to favorable inventory results and a decrease in the shrink accrual rate. Being recorded. Distribution costs improved approximately 20 basis points resulting primarily from lower COVID-nineteen related expenses and sales leverage, being partially offset by higher hourly wages and occupancy costs decreased approximately 10 basis points as a result of the leverage from the comp sales increase in the quarter. Gross profit margin for the Family Dollar segment declined 320 basis points to 23.4% in the 4th quarter.

Speaker 5

Being recorded. Year over year delta includes the following. Merchandise costs, including freight, increased 220 basis points related to higher freight costs being recorded and an unfavorable sales mix, partially offset by higher initial markdown. Markdowns increased 90 basis points primarily related to our recent product recall recorded in our Arkansas distribution center and 404 Family Dollar stores. Consolidated selling, general and administrative recorded.

Speaker 5

Expenses increased 40 basis points to 22.1 percent of total revenue compared to 21.7% in Q4

Speaker 4

last year.

Speaker 2

Being recorded. For the Q4, the

Speaker 5

SG and A rate for the Dollar Tree segment as a percentage of total revenue increased 50 basis points being recorded to 20.6% when compared to the prior year's quarter. Other SG and A increased approximately 50 basis points resulting from being

Speaker 2

recorded in the quarter, higher card

Speaker 5

transaction fees and operating taxes, along with marketing and store supply costs associated with the transition to the $1.25 price point. Being recorded. Payroll costs increased 10 basis points, resulting primarily from higher store hourly payroll costs due to minimum wage increases and higher healthcare costs, being partially offset by lower incentive compensation and depreciation costs decreased 15 basis points, primarily due to lower store impairment write offs being recorded and leveraged due to the increase in comp store sales. For Family Dollar, the 4th quarter SG and A rate as a percentage of total revenue increased being recorded in the quarter's quarter. Being recorded.

Speaker 5

Other SG and A expense increased 25 basis points, primarily due to lower miscellaneous income, an increase in card transaction fees, being recorded in the quarter.

Speaker 2

An increase in insurance costs

Speaker 5

related to general liability claims. Depreciation and amortization expense increased 15 basis points due to higher store asset impairment charges and expenditures associated with the store renovation program. Being recorded. Store facility costs increased 5 basis points, primarily due to higher repairs and maintenance expenses, including snow removal, being recorded, partially offset by lower telecommunication expenses. And payroll expenses improved 35 basis points, primarily due to lower incentive compensation and field management vacancies, partially offset by higher store hourly payroll, resulting from higher labor rates.

Speaker 5

Being recorded. Corporate support and other expenses as a percentage of total revenue were flat when compared to the prior year's quarter

Speaker 4

at 1.4%. Being

Speaker 5

recorded. Operating income was $578,800,000 or 8.2 percent of total revenue in the 4th quarter. Being recorded. Non operating expenses totaled $79,600,000 comprised primarily of net interest expense, including debt being recorded for the quarter. We expect to be approximately $46,500,000 associated with our debt refinancing in the quarter.

Speaker 5

Being recorded. Effective tax rate was 9% compared to 22.3% in the prior year's 4th quarter, being recorded, resulting primarily from a deferred tax benefit related to state entity restructuring. Being recorded. The company had net income of $454,200,000 or $2.01 per diluted share. Being recorded.

Speaker 5

This compared to net earnings of $502,800,000 or $2.13 per diluted share in the prior year's quarter. Being recorded. Combined cash and cash equivalents at year end totaled $984,900,000 compared to $1,420,000,000 at the end of fiscal being recorded in 2020. Outstanding debt as of January 29 was $3,450,000,000

Speaker 4

being recorded.

Speaker 5

For the year, the company repurchased $950,000,000 in shares at an average price of $103.75 being recorded. The company did not repurchase shares during the Q4 as our Board is engaged in discussions with Mantle Ridge. Recorded. Prior year, inventory levels increased 39% at Dollar Tree and 17% at Family Dollar. The higher levels of inventory are comprised of significant

Speaker 3

being recorded. We expect to see increases in goods

Speaker 5

on the water year over year as we rebuild inventory levels as well as increased capitalized freight costs based on much higher rates during being recorded. We do not anticipate any additional material inventory markdowns related to the recent Family Dollar voluntary product recall. Being recorded. Capital expenditures were $271,600,000 in the 4th quarter versus $191,800,000 in Q4 last year. Being recorded.

Speaker 5

For fiscal 2022, we expect that consolidated CapEx will be approximately $1,300,000,000 which will be focused on being recorded in the Q1 of 2019. We are now in the Q1 of 2019. We are now in the being recorded in the quarter, the addition or replacement of frozen or refrigerated capability to select Dollar Tree and Family Dollar stores, being recorded in the Q1 of 2019. Being recorded. Depreciation and amortization totaled $188,700,000 for Q4 compared to $182,900,000 in the Q4 last year.

Speaker 5

Being recorded. For fiscal 2022, we expect consolidated depreciation and amortization to be approximately $750,000,000 being recorded. Our initial outlook for fiscal 2022 includes the following assumptions. For same store sales recorded. For the enterprise, we are forecasting low to mid single digit positive comps for the year.

Speaker 5

Considerations for 2022 include the following. Being recorded. The company incurred approximately $33,500,000 in COVID-nineteen related costs in fiscal 2021. We being discussed. We will be cycling the 3rd round of stimulus check being recorded.

Speaker 5

We will be cycling the monthly advanced child tax being recorded in the quarter of 2021. We expect continued pressure on store and DC payroll based on competitive markets, being recorded in the quarter's quarter. We expect to incur more than 100 and $65,000,000 in store minimum wage changes and market adjustments. In addition, we are investing more than $30,000,000 in DC hourly wages. Recorded.

Speaker 5

We continue to partially offset these average hourly rates rate increases through productivity and efficiency initiatives. Being recorded. Import and domestic freight will present cost pressures due to the annualization of fiscal twenty twenty one rates in the first half of being recorded in 2020 2. In addition, diesel fuel prices are expected to be significantly higher in 2022. Recorded.

Speaker 5

Our next question comes from the line of Robert W. Baird and Company.

Speaker 2

Please go ahead. Thanks, Chris. Thanks, Chris. Thanks, Chris. Thanks, Chris.

Speaker 2

Thanks, Chris.

Speaker 5

Thanks, Chris. Thanks, Chris. Thanks, Chris. Thanks, Chris. Good morning, everyone.

Speaker 5

Being recorded. We estimate consolidated net sales for the Q1 will range from $6,630,000,000 to $6,780,000,000

Speaker 2

based on a

Speaker 5

low single digit increase in same store sales for the combined enterprise. Diluted earnings per share estimated to be in the range of $1.95 being recorded to $2.10 Consolidated net sales for full fiscal 2022 are expected to range from 27 point being recorded to $2,000,000,000 to $27,850,000,000 The company estimates diluted earnings per share will range from $7.60 being recorded to $8 which at the high end implies a consolidated operating income margin of 9%. Being recorded. Our outlook assumes a tax rate of 24.3 percent for the Q1 and 24.1 percent for fiscal 2022. Being recorded.

Speaker 5

Our weighted average diluted share counts are assumed to be 226,500,000 shares for Q1 and 226,700,000 shares for the full year. Being recorded. Our outlook does not include any share repurchases. And as previously mentioned, we currently have $2,500,000,000 remaining on our existing share repurchase authorization. I'll turn the call back over to Mike.

Speaker 3

Thanks, Kevin. I am more encouraged and enthusiastic about our business and the opportunity than ever before. Being recorded. After a few years of Dollar Tree delivering operating margins lower than we like, I believe we are poised to benefit from our initiatives being recorded. Because of our team's dedication, focus and execution, being recorded.

Speaker 3

We have one of the most important milestones behind us, converting more than 7,800 stores to the new pricing strategy. Being provided value to our customers and a meaningful assortment is at the forefront. And as we reinvest in being recorded. We are confident store traffic and productivity will improve throughout the year, being recorded, which will contribute to shopper loyalty. Value and convenience is more important than ever to our customer in today's environment.

Speaker 3

Being recorded. We are dedicated, aligned and focused. The ability to execute our key initiatives is paying off and setting a solid foundation

Speaker 1

recorded for improved operating performance. We delivered

Speaker 3

an EPS of $5.80 in fiscal 2021 being recorded and the high end of our guidance range this year is $8 representing a 38% increase. Being recorded. I believe we are at an inflection point to exhibit our earnings power in the years ahead. This year, we are laser focused on meeting our customer needs being recorded. These initiatives combined with our robust balance sheet being recorded.

Speaker 3

I would like to once again thank every one of our more than 200,000 associates for all they have accomplished over the past 2 years. Being recorded. Due to the unprecedented challenges presented with COVID-nineteen, supply chain issues and labor shortages, being recorded. Our teams are there every day to serve millions of shoppers across the U. S.

Speaker 3

And Canada. We have accomplished quite a lot in the last 18 months, being recorded. But in many ways, I feel that we are just getting started. But the future is bright for Dollar Tree and Family Dollar.

Speaker 4

Being recorded. Before we

Speaker 3

take your questions, I'd like to provide a brief update on our ongoing engagement with Mantell Ridge. Being recorded. We continue to have constructive dialogue with Mantell Ridge and our shareholders. And indeed, we have been meeting weekly with being recorded by Paul Hawal of Mantell Ridge and Rick Dreiling. Accordingly, we will not be addressing any Mantell Ridge related questions during the Q and A portion being recorded on our earnings call.

Speaker 3

Operator, we are now ready to take questions.

Operator

Thank being recorded. We will now take our first question from Scot Ciccarelli of Churros Securities. Please go ahead.

Speaker 6

Good morning, guys. Thanks for the information. So being recorded. Mike, given your comments on the decline in units at Dollar Tree, is it fair to assume that the Dollar Tree stores are roughly generating high single digit comps being recorded. And then secondly, are you surprised at the magnitude of the unit decline?

Speaker 6

I guess it doesn't quite seem to reconcile with some of comments that the consumers have been really accepting of the price changes. So any color there would be helpful.

Speaker 3

Yes, thanks. So So on the unit client, I mean, we have the same exact sensitivity models that many of you do on units, comps, being recorded in the quarter. And going into it, we've been watching this for the last 18 months to 24 months. Being recorded. And because of the vendor cost increases on our key consumable items that drive traffic for the last 18 months, being recorded.

Speaker 3

Vendors have eliminated items, downsized items or raised the price on items that we have lost in our assortment. Being recorded. And over those 18 months to 24 months, we have seen unit declines and transaction reduction because of that. So being recorded. It wasn't a surprise to us.

Speaker 3

We knew where we needed to invest our dollars. And as we rolled this out and tested it, being recorded. It really confirmed and our customers told us here is where we needed to do our work. And that's why it does three things for us. Being recorded.

Speaker 3

We were able to improve our assortment and move to the $1.25 and really being brought to bring back items that consumers like and that are extreme value and high traffic driving categories. And that will improve our traffic and our consumable sales going forward. The other thing it does is being. It enables us to get again, I keep saying, get back to 35% to 36% gross profit margins in this high cost environment. Being recorded.

Speaker 3

And then lastly, it allows us to improve our operating performance in a higher cost environment and offsetting. And as Kevin said being recorded. And we shared our high end of our range EPS range is $8 a 38% increase. And that's absorbing the $600,000,000 in freight that we assumed last being recorded. And then Kevin just shared another $200,000,000 in labor between the stores and DCs.

Speaker 3

So that's why this strategy is so important to us. Being recorded. And the unit decline as we see the new items come in, we see the customers responded very quickly. Being recorded. And many of you even pointed out as you've done your store inspections, you've seen some of the new products in our carbonated beverage being recorded in our salty snacks and our meat snacks.

Speaker 3

And we expect those sales to slowly improve. And even with the unit decline where it's at, you've seen how it's translated to an improved operating income as you saw that we beat being recorded in Q4 by $0.25 So, no, we're not surprised, but yes, we are working diligently to get the new product in to reverse that being a trend that's been existing for 18 months and really deliver what the customer wants at that extreme value on both the consumable side to drive traffic And the discretionary side that they know us for.

Speaker 6

Okay. Thank you very much.

Operator

We'll take our next question from Matthew Boss of JPMorgan. Please go ahead.

Speaker 7

Great. Thanks and congrats on a nice quarter. So on the top line, could you help provide maybe a comp forecast by banner if we broke being recorded in the Q1. Mike, what are you seeing from your low income customers so far in February? And just how best to think about the delta between low single digits in the Q1 and low to mid single digits for the year on the comp side.

Speaker 3

Yes. We're not we haven't broken out by banner. But our customer, last year, as you know, they were They had a lot of stimulus dollars in their hands between the stimulus dollars, the child tax credit, and then the food stamp environment being recorded. And then the extra unemployment, and many of those are going away. So not only are they going away, but then on the other side, it's the highest inflation you've seen in being recorded for 40 years.

Speaker 3

So they are starting to see pressure on their rent bills, their heating bills, their gas bills, their utilities and their food bills. So we think that this value segment that we're in and this undeniable value that we're going to deliver at 1.25 being recorded and our great values at Family Dollar at convenient locations are really poised well to deliver what the customer is looking for.

Speaker 7

Being recorded. This year in the forecast, specifically what are you embedding for freight and how best to think about gross margin drivers from here recorded at both the Dollar Tree banner and Family Dollar.

Speaker 5

Yes. I think as you look at the gross profit being recorded. So obviously, the biggest headwind continues to be freight. And as I spoke to the first half in particular. So as we went through 2021 rates climbed quarter to quarter until they being recorded.

Speaker 5

Kind of finally flattened out at the back half of Q3. So the first half of the year continues to see some pretty good being recorded. And that shouldn't be a surprise to anybody, I think. As we look at the year, we do not see things getting being better in the supply chain world and moving product and the rates that are required to continue to move goods. It's not just the rates to pay for the goods, it's also the rates you pay once you got it once it gets into the port, it's costing more to move the product.

Speaker 5

Being recorded. So, drayage is more storage costs are more everybody is trying to charge for equipment. So, there's a lot of pressure being recorded. Sure. In a lot of

Speaker 2

different places as it relates

Speaker 5

to moving products. So I think that's a big one. The other one is diesel costs. Diesel costs being recorded. Basically, I think just over $1 year over year at this point in time right now.

Speaker 5

So that adds being recorded. And then again, I think being recorded. To your point, I think we face stimulus dollars in particular in the Family Dollar business in Q1. Being recorded. Discretionary business, if you remember a year ago in Q1 at Family Dollar had a very large comp, a double digit comp.

Speaker 5

So we would see unfavorable mix in Q1 as it relates to being recorded on our Family Dollar business. So those are some of the things that are some of the moving pieces that are kind of going on. And then I think the other thing we think about from the and Mike kind of being recorded. Talked about it already is the investment, the reinvestment in the product that we're making at Dollar Tree. The recorded.

Speaker 5

The consumer has let us know where we need to continue to look at our value proposition. The merchants are doing a great job working through that and we're flowing being recorded. And we'll continue to flow goods throughout the year. So I think that will be an important piece of it.

Operator

We'll take our next question from Michael Lasser of UBS. Please go ahead.

Speaker 4

Being recorded. Please go

Operator

ahead, Michael. Your line is open.

Speaker 8

Good morning. Thank you all for taking my question. What is the being recorded. And how wide does the list vary across stores being recorded in geographies. And as part of that, how is it the move to $1.25 impacted customer shopping frequency?

Speaker 3

Yes. Thanks, Michael. And we did the consumer was a huge important part of this recorded and our ability to deliver meaningful assortment to them. And we did consumer research, in-depth research back in October, and we just recently finished it up. Being recorded.

Speaker 3

And I've seen some of the analysts have done their own in-depth research. And the most important thing is, as the research tells us that they trust Dollar being recorded. And that Dollar Tree is the most recognized and trusted brand in the value dollar segment, period. Being recorded. This is after the $1.25 price change.

Speaker 3

They expressed a likelihood to continue to shop of above 85%. Being recorded. They still want to recommend our stores above 77% of our shoppers. And there is an emotional connection still. Our customers still believe being recorded.

Speaker 3

They're getting a good value for the money and we receive higher marks than our competitors at a good value even at $1.25 So being recorded. Our customer, bringing our customer along is critical. And the reason that we're enabling that is recorded. On our discretionary side, it's $1.25 Our comp shops still tell us where we are winning. And our When I said a Herculean task, our merchants starting last fall, so November, December January and drove it into February, being top shopped them every item and brought it in and want to make sure that at $1.25 this item still stood up as a great value to the competitive market.

Speaker 3

Being recorded. And where we saw that, we see the units sales where we would expect them. And then to your point, being recorded. You see unit declines where we aren't competitive and we knew that over the last 18 months. But what the breaking the dollar does in going to $1.25 is really let us get the new assortment in and we're so excited about it.

Speaker 3

They over the last 3 months, our being recorded. Our January trip that we bought for the back half of this year is some of the most exciting items that we've had and our customers are going to be wowed about compared to what they're being recorded. And then the new items where we're delivering, we're seeing an improvement in unit sales as we bring those in. Being recorded. And we absolutely believe that throughout the next 6 to 7 months as the consumable side and those new items start to flow in, We will see units begin to come up and we will see our sales come up accordingly and we will maintain that customer loyalty being recorded from our customers.

Speaker 3

They still believe we're the number one value in the dollar segment because they're seeing the inflation being The highest in 4 decades. So they see what's happening in the marketplace and they trust us. Our merchants have worked very hard.

Speaker 2

Being recorded.

Speaker 3

And I think over the first half of the year, we will slowly get better and better in units and in our traffic going forward. Being recorded. And the most important thing, even with the track or even with the extra cost that Kevin talked about in our freight in the first half, being recorded. We still believe we can deliver that 35% to 36% margin. So it's the flow through that's going to be so important being recorded.

Speaker 3

While we're bringing in the new items to drive that top line. And to answer your question, across geographies, we really don't see being recorded. Any difference in unit declines across geographies, competitive makeup or demographics. It's really similar. Being recorded.

Speaker 3

And when we had the when we had a foot in both camps, our $1.25 stores being moved very similar to our dollar stores. There was not a the gap didn't get worse or better. It just moved very similar. So being recorded. It was very consistent across that perspective too, which gave us permission to move as quick as possible to get that new assortment in being recorded and really leverage this for our customers going forward.

Speaker 8

Mike, in the past, you've helpedfully provided being recorded. The comp list that Dollar Tree saw from the Dollar Tree Plus, which is 6%, is there an equal number that you can give us for the $1.25 And then how did you turn this into a longer term comp driver for the business to make sure it just doesn't have It's not just a one and done impact for 2022 and then the business goes back to being recorded. For example, does this open the door to move recorded from $1.25 to $1.50 that could provide even more mission and flexibility to drive the business down the road.

Speaker 3

Yes. So with the $1.25 going forward enables us to do is really going forward, being recorded. The $1.25 will allow us to bring in great assortment to drive traffic and meet the customers' need at a fixed price point being recorded and differentiated us. Just like we've been differentiated for 30 years, we think the $1.25 allows us to do that. Being recorded.

Speaker 3

But to your point, then how do you continue to drive our comp store sales? At the Dollar Tree Plus, that's why we're accelerating that to another 15 being recorded. And I've shared we want to get to 5,000 stores going forward. So we think that the growth in Dollar Tree, being recorded. Similar to a lot of you have referred to Dollarama up in Canada, we believe that this is going to be being recorded.

Speaker 3

We are now ready to continue to drive comp store sales, improved assortment with our $1.25 $3 $5 assortment. So So going forward, we're going to do 1500 this year. We're going to continue to grow another large amount of stores the following year. Being recorded. And then we're also at a Dollar Tree plus items at the $3.5.

Speaker 3

We're planning for and looking to expand it in 2023. So being recorded. Not only grow the store count, but expand the assortment and depth inside the store. So that will enable continuous being recorded. And to answer your question on the we just completed the assortment.

Speaker 3

Being recorded. We will share more as we get forward on the comp store growth with the unit decline. It is we are very confident we can be in that being recorded. Lowtomidsingledigitcomps. But even at that, it translates and flows through at that higher margin being recorded and leveraging throughout the P and L to a 38% increase in our EPS.

Speaker 3

So that's why we're very excited about being recorded. And as we move forward, now that we have the whole fleet on there, in the prior quarters, being recorded. We'll definitely share more details because it will be the whole fleet and in consistent timeframe. Being recorded. Throughout the last 3 months, we were just in December, we had a few 1,000 stores, but it was during the Christmas.

Speaker 3

Being recorded. January, we're rolling out more stores, but it was in a cycling. January was a tough month for retail. And then February was in our cycling bad weather from last year and we had one of the best Valentine's we've ever had. So There's just been a lot of moving parts.

Speaker 3

So once it stabilizes and we have the whole fleet on here, we'll absolutely share it. But it is doing exactly what we thought it would being recorded and is delivering that EPS we expect it to.

Speaker 8

Just to clarify, just because you don't want to provide it at this point,

Speaker 2

being recorded.

Speaker 3

Not at all. No. No. And it's evident by our 25% beat in the 4th quarter and 38% increase in EPS. This is being recorded.

Speaker 3

And the key is, is this really enables us, I can't stress enough. It enables us to bring back those key items on the consumable side being recorded. That over the last 18 months to 24 months have just slowly disappeared and they were 1 by 1, it wasn't all at once. But over time, we lost unit sales being recorded in the quarter and comps on the consumables, which ultimately lost transaction counts for the last 18 months, and you've seen it in our being recorded every quarter. What this enables us to do is bring back all of those items and then even more new items.

Speaker 3

Being recorded. And I'm so excited about the assortment that you're going to see flowing in there and our customers are excited. Our end caps with being recorded. The brand name leaders of carbonated beverage, 4 feet of meat snacks that we brought back are really going to be key traffic driving items being recorded in the Q1 of 2019.

Operator

Being our next question comes from John Heinbockel of Guggenheim. Please go ahead.

Speaker 9

Hey, Mike. I want to start with, What do you think happens to total assortment inside the Dollar Tree, let's say, over the next year and then broader than that, right? Because you don't want the assortment, I would imagine, to get being recorded. Significantly larger than it's been historically. And then what do you do with you guys don't have the kind of tight planograms that some others do.

Speaker 9

Can you go back into a strategic replanogramming and space allocation, maybe giving more to consumables? And when would that happen?

Speaker 3

Yes. No, it's a great call. We can't this line item review, we went category by category. Recorded and we strategically look at what drives traffic and give it the appropriate space needed. And we are planogrammed and that enables us to bringing great new items and bring out close out items and invest in Wow items and thrill of the hunt items being recorded to really get that customer excited about seeing newness in our stores.

Speaker 3

And being recorded. As we look at the store, the $1.25 items and then this $3.5 I believe going forward, being recorded. We will monitor the productivity in dollars and profitability. And our stores are we don't have being recorded. A shelf stretcher inside our stores.

Speaker 3

You're right, there is the only a set amount of linear footage. But we believe we can continue to optimize being recorded based on the customer's reaction on the $3 $5 And when we have those items, they are highly productive and deliver being recorded. Higher penny profit and more efficiencies throughout the supply chain and inside the store. So we will manage that going forward. And being recorded.

Speaker 3

We'll continue to look at the space we need for the right consumables to drive the traffic and then we will grow being recorded. Discretionary based on the productivity and continue to manage that going forward. Just as we have over the last 35 years, we've being Flex the space accordingly.

Speaker 9

And then maybe as a follow-up to that, right. So you're talking about reinvesting being recorded. Some of this gross margin benefit. Is that more likely to be in consumables, right, to drive traffic for discretionary? Being recorded.

Speaker 9

And once you get to that 35% to 36%, would you like to run that kind of margin neutral? And whatever benefit you get on EBIT margin is leverage, right, from the higher comp?

Speaker 3

Yes. We'd like to definitely get to 35% to 36%, but we believe there may be upside beyond that. And as you just said, it's the being recorded. Stick and rudder that a retailer always does. They want to do what they need to, to have great value and drive that top line being recorded and then at the margin that they need to deliver continuous improvement in EPS.

Speaker 8

Okay. Thank you.

Operator

We'll take our next question from Paul Lejuez of Citi. Please go ahead.

Speaker 6

Hey, thanks guys. Maybe just being Going back to the Dollar Tree comp impact from the move to $125,000,000 I think you said you didn't want to being given a specific number, but you did share that units were down mid teens. And I think all else equal, if units weren't down, you would have seen a 25% being. Complift, my simple math is right. So can you just confirm that you're actually seeing a net high single digit to low double digit being recorded.

Speaker 6

And if that is the case, is that how you're planning that concept being recorded. And are you ordering units down in that mid teens being recorded. Great that you've experienced thus far or something better than that. And then, just I guess I'll ask my follow-up now. I'm just curious which categories you're Seeing more or less elasticity.

Speaker 6

Thanks.

Speaker 3

Yes. So as I said before, we haven't shared the comp on recorded. The rollout because we just got everything rolled out. But we have shared, we believe in our forecast going forward in our guidance being recorded. And even with that, the lower units being recorded and the comp in that range still delivers a 38% growth in our EPS.

Speaker 3

Being recorded. And what was the second part of the question? All the categories, the elasticity is it's exactly where we thought it would. Our customer gives us being recorded. We have such great value and I've said this before, when we go to buy and create our seasonal items on the discretionary side, We go out in the comp shop and we find $5 $7 items and we will our merchants recorded.

Speaker 3

We'll make those items at the dollar. That's why we're known for such great value on the discretionary side. So So when we move to $1.25 our discretionary units are still selling very, very well and our customer research being recorded. And then it also, as I've shared on the consumable side is where we're seeing the unit decline. Being recorded.

Speaker 3

But as we bring in those new items, the unit decline in fact, the categories are positive comp where I've shared the last 18 months, they were negative and And we are losing units, where we've already introduced the items and they're flowing in, it's absolutely reversed and starting to trend in a positive nature.

Speaker 6

So how does that influence how you plan units in terms of managing inventory?

Speaker 3

Yes. So we're planning to feed being recorded. And we're buying on the discretionary side like we always buy to continue to drive our seasonal and our discretionary being recorded. And the good thing is we're getting every consumable item we can right now in the marketplace. And our new items that we're bringing in, we're buying as many as we can.

Speaker 3

And the timeline to replenish that is most of that is domestic. So we can keep feeding the sales growth and unit growth as it happens.

Operator

We'll take our next question from Edward Cuddy of Wells Fargo. Please go ahead.

Speaker 4

Being recorded.

Speaker 10

Hi, guys. Good morning. Mike, I wanted to ask you, rolling out the $1.25 without the new product makes it difficult for you being recorded to showcase what this ultimately means for your customers over the long term. Are you I mean, it doesn't sound like, but based upon what you've seen so far and being. Are you concerned at all about the gap in time between the $1.25 when the new product comes in and what that being recorded.

Speaker 10

And then as part of this question, can you just talk a bit more about being recorded. How the merchandising from here changes, the cadence around that? What percentage of the SKUs are actually going to change for customers? Being How important is bringing things back, right, that you haven't sold historically? Any additional color on all that would be great.

Speaker 10

Thank you.

Speaker 3

Yes. It's extremely important to bring back items that they haven't seen. And as I've reiterated several times,

Speaker 2

being recorded. In the last 18 months to 24

Speaker 3

months, we've seen our discretionary sales decline. And over the especially, being recorded. As everybody has seen throughout last year, our vendors were getting pressure, costs were increasing being recorded. And inflation is at the 4 decades high. So we needed to move for several reasons.

Speaker 3

1, to quickly get in that assortment that we wanted. And number 2, we needed to be simple for the organization. We can't have our merchants buying a dollar assortment and a $1.25 assortment and mixing it up. Being recorded. We needed to be crystal clear for them and they went to task for the last 3 to 4 months and went through that entire line being recorded.

Speaker 3

Line review and category review, item by item, and now the items are flowing back in. So we didn't want to confuse our customers and confuse our merchants and confuse our recorded. So we moved to $1.25 as fast as we did and we're bringing our customers along with us. Being recorded. Absolutely, we're afraid of our customer thought process.

Speaker 3

That's why we did in-depth research back in October when we first introduced it. Being recorded. And our customers told us because of the increases they're seeing in the marketplace, the $1.25 is still an extreme value. They also told us after we moved to $1.25 Dollar Tree is their number one trusted store by far being recorded in the Dollar Segment and Value segment. And I think some of you have done research stating the same thing that Dollar Tree's trust and brand loyalty being recorded.

Speaker 3

And now as these new items at the $1.25 flow in, it's even going to increase from there. And we recorded. It's very important for us to get this item in as soon as possible. And that's why we believe that throughout the year as this flows in, recorded. We will see the units improve in the categories that we've addressed.

Speaker 3

The categories on the discretionary side are already a great value because the being recorded. Market has moved significantly around us. So we think we're in a great position when the customers stressed more than ever, highest inflation in 4 decades. They're getting pressure on their rents, on their fuel for their cars, on their heating bills and on their food bills. They're going to come to Dollar Tree and Family Dollar now more than ever because of the great value that we have.

Speaker 10

And just a quick follow-up. On the gross margin on Dollar being recorded. Why wouldn't the early part of the year, particularly the first half, be much higher than 35% to 36% just given what's going on from a pricing standpoint and then that normalized towards the end. Is that a fair assessment?

Speaker 5

Yes. I think as we think about it, Ed, there is that possibility, obviously, because we haven't changed as much of the product. Being recorded. It's in process. But again, I think the other side of that is just

Speaker 2

a little

Speaker 5

bit of the freight market being recorded and the diesel costs and some things like that. Obviously, we obviously hope there's upside to that, but being recorded. So got to go out and work through the quarter and prove it at the end of the day.

Speaker 10

Understood. Thank you.

Operator

We will now take our final question from Simon Gutman of Morgan Stanley. Please go ahead.

Speaker 11

Hey, everyone. Good morning. So I guess my one question is when we look at the guidance on the face, it looked it felt a bit conservative. Mike, you mentioned the unit being recorded. And then there's some higher inventory costs.

Speaker 11

I wanted to ask you if there's points of conservatism. You mentioned that as you roll out new units, you're seeing being recorded. A new product, the units look like they're getting better. I don't know much on how the costs flow through throughout the year, but Can you talk about the points of conservatism that could be in this model throughout the year?

Speaker 3

Being recorded. Yes. We're and I'll toss it to Kevin on a few line items. But overall, we just got completed being recorded. And the merchants just went through their line by line items.

Speaker 3

So we it is a wait and see. We think that we're going to see being Fractured throughout the year to drive the comp and the improved unit decline and reverse its course. Being recorded. So we put out based on what we know now, to be a model of the low to mid digit comps. Being recorded.

Speaker 3

And the most important thing is that, that higher margin price point. So we think there is as we see if the items start flowing in faster Than what we want, then yes, we believe that then there could be some higher sales.

Speaker 5

Yes. And I think as we look at it, as We've talked about some of the things, the bigger headwinds. Obviously, labor is a big one at the end of the day with the being recorded. Continued investments that we continue to make in the workforce. And so I think we have to think about that.

Speaker 5

Being recorded. But I think again, as Mike has said many times, as this assortment changes, it does give us the opportunity to potentially, being recorded. Hopefully, outperformed this guidance at the end of the day. But I don't know that it makes sense to go beyond where we're at this point, being recorded. To Mike's point, given the fact that we just got all the stores converted, it's been somewhat lumpy from a business standpoint given being recorded.

Speaker 5

The January timeframe and with Omicron and weather between January February, so there's a lot of different things. Being recorded. So like Mike's statement about getting into the Q1 and hopefully all of this all kind of settles out, it will give us a much better read and give us obviously being recorded. The data that we'll be able to speak to and make changes if changes are warranted.

Speaker 3

Yes. And I would just reiterate, this is a moving beyond the dollar price point enable us to unlock our assortment being recorded and really deliver 38% improvement in our EPS. And for long term, being recorded. The way I think about it, it continues to move beyond that. And then we're bringing in 1500 more being recorded.

Speaker 3

Dollar Tree Pluses and growing that year after year going forward and how that's going to leverage our sales and productivity of our being

Speaker 2

recorded in the quarter

Speaker 3

and margin dollars. And then when you look at our combo stores on the Family Dollar side and being Getting 400 of those going. All of our initiatives will keep driving our top line

Speaker 2

recorded at

Speaker 3

a better margin rate and enhance the EPS as we go forward, not only this year, but in the years to come. Thank you.

Operator

And we will now take our final question from Michael Montani of Evercore. Please go ahead. Being recorded.

Speaker 12

Hi, thanks for taking the question. I just wanted to ask on the inventory side, if you could help us Understand, what is the build there in terms of units versus pricing, given some of the accounting being recorded and how we can get comfortable with that relative to sales. And then I just had a follow-up question.

Speaker 5

I think as you look at inventory, obviously, the number, they sound like big increases. Recorded. You got to remember that a couple of things. One, there's more we've had a backlog trying to get inventory moved recorded for some time now. We still have a backlog of inventory.

Speaker 5

It's taking longer to get goods from Asia being recorded through the ports and into our distribution centers. So there's an element of the goods on the water being higher that are just because of the fact that it's taking instead of being 30 days to 40 days, it's now 50 days to 60 days to get goods from one place to the other. Being recorded. I think the other side of it is, as I spoke to is, the freight rates that we've talked about all this past year, the additional $600,000,000 of freight, being recorded. Obviously, that gets capitalized into inventory and doesn't come through the P and L until you sell those goods.

Speaker 5

So there's a large portion of freight costs being recorded. And what you got to remember is Dollar Tree imports significantly more than Family Dollar. Being So that's why the Dollar Tree side of it is higher. We feel very good about our inventory position. I mean, obviously, I would tell you that our merchants would like to have more being Good, that they have right now in certain categories in particular.

Speaker 5

It's but we feel very good about where we're at From an inventory perspective, I think if we compared it probably to 2 or 3 years ago, probably 3 years ago, it would probably look being pretty reasonable if we looked at it on a store basis.

Speaker 12

Okay, thanks. And then just a Follow-up on the ticket, if I could, for Family Dollar. If I heard correctly, that was up, I think 4.8%. So So can you just give some color there in terms of like units per transaction versus inflation and mix?

Speaker 5

Yes. I think as you look at it, I think there is being Some obviously inflation in that number. And I don't have it broken out, but I would guess it's probably about half of that number potentially, being recorded. Maybe about 2%. As we look at the price increases that have been being incurred over the last 12 months in particular.

Speaker 5

So that's probably about where it falls out. Being

Speaker 4

recorded. I would now like

Operator

to turn the call being asked to Mr. Guider for any additional or

Speaker 2

closing remarks.

Speaker 4

Thank you, Ashley.

Speaker 1

Thank you for joining us for today's call. Our recorded. Our next earnings conference call to discuss Q1 results is tentatively scheduled for Thursday, May 26, being recorded in 2020 2. Have a good day.

Operator

Being recorded. Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.

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