Dollar Tree, Inc.

Good day and welcome to the Dollar Tree Incorporated Fourth Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Randy Giler, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Brittany. Good morning and welcome to our conference call to discuss Dollar Tree's performance for the fourth fiscal quarter and the fiscal year 2018. Participating on today's call will be our President and CEO, Gary Philbin. and our CFO, Kevin Woffler. Before we begin, I would like to remind everyone that various remarks that we will make about future expectations, plans, and prospects for the company constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors included in our most recent press release, most recent 8K, 10Q, and annual report, which are on file with the SEC. We have no obligation to update our forward-looking statements, and you should not expect us to do so. As a reminder, the fourth quarter of fiscal 2017 was comprised of 14 weeks as part of our 53-week fiscal year. The extra week in 2017 contributed $406.6 million to sales and 21 cents to diluted EPS. In the fourth quarter of 2018, the company incurred several discreet charges, including a $2.73 billion non-cash charge for Goodwill impairment, a $40 million inventory markdown reserve related to the Family Dollar segment, a $13 million non-cash impairment of certain store assets, and a $1.5 million acceleration in non-cash deferred financing charges associated with debt prepayment. The fourth quarter of fiscal 2017 included the following discrete items, a $35 million recovery related to the Dollar Express settlement, a $12.6 million charge for an increase in the workers' comp reserve, and a $9.8 million acceleration in non-cash deferred financing costs. These items are detailed in the reconciliation of non-GAAP financial measures in today's earnings release. Unless otherwise noted, all margin, net income, and earnings comparisons presented today exclude the impact of these discrete items for the fourth quarter and fiscal year. At the end of the prepared remarks, we will open the call to your questions. Please limit questions to one and one follow-up if necessary. Now I will turn the call over to Gary Philbin, Dollar Tree's President and Chief Executive Officer.

Thank you, Randy, and good morning, everyone. Sales for the fourth quarter were strong for both banners. Our results demonstrate the increasing strength of the Dollar Tree brand and accelerated progress on the Family Dollar turnaround as Family Dollar delivered its strongest quarterly same-store sales growth of the year. Our merchants at both banners have delivered a 2019 plan that we believe overcomes the effect of most tariffs at the 25% level and provides opportunity in the back half of the year if tariffs are not increased. In Q3, we had announced plans to renovate at least 1,000 Family Dollar stores in 2019. These renovated stores will include new price impact sections, including $1 Dollar Tree merchandise assortments. Approximately 200 Family Dollar stores will be re-bannered to Dollar Tree. We accelerated our family dollar closings in Q4, closing 84 stores, as we are aggressively optimizing our store fleet to gain traction towards our inflection points. We plan to close as many as 390 family dollar stores this year. Excluding the discrete charges, the combined company performed well for the quarter. Our results for the fourth quarter included Sales that were $6.21 billion at the top end of our guidance range, excluding the 14th week from the prior year's quarter, sales increased 4.2%. Consolidated same-store sales increased 2.4%, up from the 1% in Q3. And by segment, the Dollar Tree segment delivered a positive 3.2 comp, and family dollar same-store sales increased 1.4%, This was the strongest quarterly comp in 2018 for Family Dollar, and on a two-year stack basis, represented an acceleration of 130 basis points from Q3. On a GAAP basis, diluted loss per share was $9.66. On an adjusted basis, excluding the discrete items Randy outlined for Q4, diluted EPS was $1.93 within the high end of our guidance range. This was an increase over the prior year's adjusted $1.89 per share in the 14-week period. Excluding the 21 cents per share from the extra week in last year's Q4, the adjusted EPS increase was 14.9%. I consider the Dollar Tree brand to be the most unique, differentiated, and defensible business model in the U.S. value retail sector. evidenced by achieving our 44th consecutive quarter, that's every quarter since 2007, of positive comps without moving our price point. Customers continue to choose Dollar Tree for the values they are able to get for only $1 for every item, leading our sector in operating margin at 12.8% for fiscal 2018 and delivering extremely consistent gross margin performance. Through all types of environments and cost scenarios, nine out of the past ten years, including 2018, Dollar Tree's annual gross margin has been in our sweet spot, between 35 and 36 percent. Values, assortments, categories, product introductions, product specs have all improved, but most importantly, our customer loyalty to the Dollar Tree brand continues to grow. Our merchandising team, which recently returned from another successful overseas buying trip, is second to none in sourcing high-quality, great-value products while managing and protecting product margins. You've heard us say it before. We are in control of our margins, even with a fixed price point. Since the family dollar acquisition, we have taken the necessary actions to stabilize the business, capture synergies in both brands, rebuild the leadership team, introduce and develop the shared services infrastructure, integrate systems, create smart ways for our customers to save, improve on store standards, invest in labor and price, and importantly, to repay more than $4 billion worth of debt, earning our investment grade rating. We are now at the stage to be able to invest in and reposition the Family Dollar brand for future success through an acceleration of renovations, rebanners, and store closings. As demonstrated by our improved sales performance, our strategy to optimize the Family Dollar real estate portfolio is delivering results. We are seeing meaningful improvement in operational performance across the footprint of renovated Family Dollar stores and those that we have re-bannered to Dollar Tree. Our fourth quarter comp performance, a positive 1.4, was the strongest of the year. We are excited with the results of our renovation program, both with traffic and the diversity of locations. And as announced at the end of Q3, we are accelerating this initiative in 2019. As new and renovated stores become more significant part of the store base, we expect these stores to contribute more to our top-line comps and store sales productivity. Our renovations over the past two quarters continue to outperform earlier versions, and we are delivering average comp lifts exceeding 10%. We accelerated store closings of underperforming Family Dollar stores with 84 in the fourth quarter. For fiscal 2018, we renovated 522 Family Dollar stores, re-bannered 52 stores to the Dollar Tree brand, and closed 122 underperforming Family Dollar stores. Given the results we're seeing from our store optimization initiative, we are confident it will allow us to drive substantial improvement in the quality of performance of the Family Dollar portfolio and create long-term value. In fiscal 2019 of Family Dollar, we plan to complete at least 1,000 store renovations and 200 rebanners. We are further accelerating store closings and expect to close as many as 390 underperforming stores that, because of age, layout, location, unfavorable lease terms or other factors, are not expected to provide an adequate return on investment for the cost of renovation. Final number of actual stores closures will be affected by ongoing lease negotiations. Sales highlights for the fourth quarter. Dollar Tree saw balanced increases in both traffic and ticket. At Family Dollar, ticket was up and traffic was down for the quarter. Importantly, Family Dollar's traffic comp improved 120 basis points from Q3. Geographically, all regions for both banners comp positively. Our cadence of comps through the quarter, November represented the softest comp month across both segments. December was the best monthly comp for Dollar Tree as the merchandising team delivered on seasonal assortment and impact, while January was the strongest month at Family Dollar, benefiting from a strong start to the month and early release of SNAP benefits. Dollar Tree continues to deliver solid, relatively balanced positive comps, in both consumable and discretionary sides of the business. The consumables business drove traffic and sales at FamilyDAR, with comps exceeding 2.5%. Discretionary sales comped negatively at FamilyDAR, but improved more than 100 basis points from Q3. At Dollar Tree Canada, the team delivered mid-single-digit positive comps for the quarter and for the year, with increases in both traffic and ticket. Traffic was a bit stronger in Q4 than it was in Q3. Consumables outperformed discretionary. Top-performing categories included food, floral, beverages, and Christmas seasonal. The Canada team achieved its operating income plan for both the quarter and the year. For Dollar Tree Direct, our Loyalty Club membership now surpasses 1 million members. We produced and mailed 700,000 holiday catalogs to our existing and prospective customers. Darktree Direct is much more than a selling website for it. It's communicating with and enhancing the relationship with our most loyal customers. And we continue to have momentum in our Family Dollar app and Smart Coupon program as more than 8.8 million customers have now opted into the program. Smart Coupons continue to provide our shoppers with the value that builds loyalty and provides us with greater customer insight, allowing us to merchandise to them more effectively. For real estate in the fourth quarter, we opened a total of 143 new stores, 83 Dollar Tree, 60 Family Dollar. We relocated or expanded 14 stores, 10 Dollar Tree, 4 Family Dollar. We renovated 34 Family Dollar stores as part of the renovation initiative, and we've re-bannered five former Family Dollar stores to Dollar Tree. for a total of 196 projects during the quarter. We completed 522 Family Dollar renovations in fiscal 2018. We've also added freezers and cores into 95 Dollar Tree stores during the fourth quarter, bringing our total of Dollar Tree stores with freezers and cores to 5,664. And during the quarter, we closed 94 stores, 10 Dollar Trees, and the 84 Family Dollar stores. We ended the year with 15,237 stores, 7,001 being Dollar Tree, 8,236 Family Dollar. Before I turn the call over to Kevin, I'd like to provide you an update on tariffs. As I mentioned on our call last quarter, our merchandising teams for both banners have done an extraordinary job in tariff mitigation. While the increase in Section 301 tariffs from 10% to 25% as of March 1st has been postponed, we will continue to monitor the situation. The outlook Kevin will share is based on tariffs going to 25%, as was the expectation when we built our annual business plan and bought product for the back half of the year. If tariffs do not increase, we could see margin opportunity primarily in the back half. to provide updates as this situation evolves. Now I'll turn the call over to Kevin to provide more detail on our Q4 and our initial outlook for 2019. Kevin?