Chairman and Chief Executive Officer at Dollar Tree
Thank you, Randy, and good morning, everyone. I apologize that I'm a little hoarse. I'm coming off of COVID and the good news is I'm fine. I will review the highlights for Quarter Four Fiscal 2022 and will provide an update on current priorities. Then Jeff will detail our financial performance and expectations for 2023. For the quarter, we delivered $7.72 billion in sales, an increase of 19%, with enterprise comp growth of 7.4%, operating income of $618.1 million, leading to a Quarter Four EPS of $2.04. Our sales performance for the fourth quarter was a continuation of momentum from Quarter Three. Same-store sales growth of 8.7% at Dollar Tree and 5.8% at Family Dollar represented comp accelerations on a one-, two-, and three-year stack basis. This improved performance and market share gain is not simply happening by itself. It is the result of lots of hard work and good work by our store and merchant teams, as well as the early fruits of our price, labor, and store investments. And I truly believe we're just getting started.
I had been in retailing for half a century and I've been fortunate to play a leadership role in multiple transformations. I'm incredibly excited by and energized to be part of the path ahead for Dollar Tree. We have an exceptional team assembled and I cannot overstate the amount of positive transformational change occurring in this business. We're committed to enhancing store productivity as we focus on developing our people, tools, and technology to fuel accelerated growth. And that we do this while simplifying operations, improving the supply chain, and innovating our merchandising strategies to better support our associates and to better serve our shoppers. Given the team's relevant prior experiences, we know exactly what to do to drive improved productivity and profitability. We're moving as quickly as possible to capture the full potential of this business and I'm confident we will succeed.
We have tremendous opportunity to improve the Dollar Tree banner. At Family Dollar, it's clear that we're at least a decade behind. And this is reflected in our prior performance levels and financial results. As we narrow the gap operationally, it will be realized in material improvements to our financial performance. As we get settled in, we're finding more and more opportunities to meaningfully improve both banners. Compared to just a few short months ago, the list of improvement opportunities has grown. Our guiding objective is to maximize returns to our shareholders. Doing so calls for implementing these initiatives with responsible urgency. There is no point in dallying. It has over the months become increasingly clear that our team's great experience gives us the opportunity to complete in just three to five years most of what has taken far longer in other situations. Our merchant, stores, and other teams are driving lots of initiatives, many of them with minimal investment. I will highlight some of these later. While these are already gaining traction, they will have the greatest impact if supported by additional complementary investments.
The stronger our associate team, the better the store conditions. The more competitive our pricing, the more we will get out of them. There is a synergy across these initiatives in the complementary investments we are making with each enhancing the others. For this reason, we are accelerating and pulling forward our schedule of major high-returning investments. The cost of these investments is reflected in our 2023 outlook as an incremental $430 million increase in SG&A and the outlook assumes only a minimal return from these investments. The company is confident that these investments once implemented, will yield attractive returns in 2024 and beyond. While we are confident these operating expense investments will yield strong returns, we are also aware of the dynamic nature of the earlier stages of the turnaround. The many simultaneous moving pieces, the interdependence of many of these pieces, and the current unusual dynamics in the economy. These considerations make forecasting the quarterly cadence of the benefits from these investments particularly challenging. For this reason, for this first year of our transformation, we will consider these benefits only as they in fact materialize.
This year's investments, which include the full-year impact of investments made during fiscal 2022, are in several key areas in the following order of magnitude: labor and wages including hourly wage rates and investments in field personnel; stores, through repairs and maintenance and improving store conditions; corporate, including technology and other initiatives. Under this new leadership team, we are increasing average hourly wages, an estimated $2 for the two-year period of 2022 and 2023. We feel that looking on a market-by-market basis and benchmarking to comparable retail wages, this investment will put us in a more competitive position. We also made additional investments in store hours and coverage, investments in our field labor and managers, and other areas to help us execute much better. We expect these labor and wage investments will drive improved execution in our stores, higher sales, lower turnover, attraction of and retention of talent, reduced shrink, and greater productivity and efficiency.
Our associates and field personnel are critical to our transformation journey and we are excited about the investments in our talent. We are looking to invigorate the culture of this business, give our local operators and associates the tools they need to execute, and importantly, provide them the opportunities they deserve to grow within our company.
On store standards, recall last quarter, I spoke about an intense focus on store standards. Our commitments to clean them up, straighten them up, and fill them up. When we do this, our shoppers respond with a bigger basket, and more importantly, with repeat visits. Our new COO, Mike Creedon, joined the team in October. Mike possesses a relentless focus on the three pillars of successful store operations: the work, the worker, and the workplace. The work. We must run efficient and productive stores. As a high transaction volume business, it's critical we have processes in place to get product onto our shelves quickly. I'm certain that we can't sell a product if it's in the backroom. Improving efficiencies and workflows positively impacts our associate experience.
The worker. As an organization, it must be a cornerstone that we support and enable our associates to be successful. This commitment will enhance our ability to recruit, hire, train, and retain associates and contribute to their retail career development. We believe this focus, combined with our wage investments, are contributing to the reduction in churn-over that we are starting to see.
The workplace. And as we have indicated in the past, we must improve our store and DC conditions, and we are in the process of doing so. Frankly, stores and DCs were not being maintained up to our new leadership standards. We are actively transitioning from what we consider to be reactive to proactive maintenance approach. In addition to the work, the worker, and the workplace, Mike's team are in the process of identifying certified GOLD stores for each region. GOLD stands for a Grand Opening Look Daily. These stores will serve as a clear, concise example for our district and store leadership teams across all regions, so they have a distinct vision and understanding of what our most successful and well-run stores look like.
On the question of our corporate investments, I will address these later in the call. Our merchandising teams led by Rick McNeely and Larry Gatta are working hard. The Dollar Tree merchant team successfully managed through the transition to the $1.25 primary price point. As we cycled the majority of these stores throughout the fourth quarter, we saw a 410 basis-point sequential improvement in traffic compared to Quarter Three. Now that we have anniversaried the remainder of our stores in February, traffic is positive and we are confident it will be a contributor to positive comps at Dollar Tree throughout the year.
In 2022, we added $3- and $5-plus merchandise into more than 1,800 Dollar Tree stores. We plan to add this multiple price point product in another 1,800 or more stores in 2023. And we will begin flowing this multiple price product through three additional distribution centers, bringing our total to seven. Separately, we have been aggressively expanding our $3, $4, and $5 frozen and refrigerated product across the Dollar Tree store base going from zero to 3,500 stores in 2022. This consists of three cooler doors, one at each price point with an attractive selection of proteins, pizza, ice cream, and more, which the customers are responding positively to. What we are seeing with Dollar Tree Plus and multiple price frozen is that when the customer purchased at least one of these items, the basket size is more than double the basket with no multi-price items. We are experiencing a more consistent and predictable slide chain. Stores were set well in advance for Valentine's Day, and we had terrific sell-through. The stores are now well-prepared for the Easter season. And with the $1.25 transition now behind us, we believe it's time for Dollar Tree merchants to get more creative than ever before. They have CARB launch to raise the bar on delighting customers and driving sales and all options are up for discussion. We believe doing what is easy has no reward.
In addition to the opportunities at the Dollar Tree banner, we have a tremendous long-term opportunity to improve the operating performance at Family Dollar. We have a number of sales and margin-driving initiatives that are already underway, albeit in the early stages. But as you have seen, these have contributed to the 4.1% comp in Quarter Three, followed by a 5.8% in Quarter Four.
Among our actions are the following. We have begun raising the shelf height to a 70-inch profile throughout the stores to enable us to broaden the product offering for our shoppers. This profit enhancing initiative allows us to grow our SKU base by 1,000 items, including OTC and HPA, without increasing our store-related costs. We are continuing to expand the number of cooler doors with plans to add 16,000 doors in 2023 to accommodate more frozen and refrigerated items. Our goal is to have 30 doors per store. Our shoppers rely on Family Dollar in their communities to provide these consumable based products to feed their families. We are replacing our control brands with private brands and we will be introducing hundreds of national brand equivalent products in the back half of this year. These will include new labels and redefined labels, many of which are being developed in our new test kitchen here in Chesapeake, Virginia. To better meet both store and shopper needs, we are improving our ability to ship in eaches which improves inventory flow and profitability on slower-moving, higher-margin items, including the over-the-counter in health and beauty products. This enables us to be more nimble and provides greater flexibility.
Additionally, we are working on improving Family Dollar productivity by enhancing end cap displays, eliminating flex space, and refining store adjacencies to better optimize the box. These are just a few examples that Larry's teams are focused on that we believe will contribute to Dollar's improved sales trajectory in the sales ahead.
We continue to be pleased with our positioning from price perspective. We are at parity with key competitors and have widened the gap to grocery and drug. Shoppers have responded to the sharp pricing actions we took in late Quarter Two. And third party data suggests that Family Dollar is seeing an increasing amount of new customers in our stores.
I will now turn the mic over to Jeff Davis. While Jeff has just been in his CFO's seat at Dollar Tree since October, he is pedaling fast, and making great progress in a number of key strategic initiatives, including leading the development of our long-term financial plan. Jeff will now provide more color on Quarter Four and what's ahead of us.