Dollar Tree, Inc.

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

Thank you, Shelby. Good morning, and welcome to our call to discuss Dollar Tree's performance for the third quarter. With me on today's call will be our President and CEO, Mike Witinski, and our CFO, Kevin Wampler. Remarks that we will make today about future expectations, plans, and prospects for the company represent forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Results may differ materially from those indicated by these forward-looking statements due to various factors included in our earnings release, 8-K, 10-Q, 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. Following our prepared remarks, we will open the call to your questions. Please limit your questions to one and one related follow-up question. Now I will turn the call over to Mike Witinski, Dollar Tree's President and Chief Executive Officer.

Thank you, Randy. Good morning, everyone. 2020 has proven to be the most unpredictable and unique year in my 40 years in retail. Nearly every business, family, and person has had to adapt and react to what is currently a new normal. My heart goes out to every family that has been impacted to some degree by the coronavirus. I would also like to give a shout-out to all the medical professionals, frontline workers, and others who are working tirelessly to ensure that we stay safe and healthy. In an environment where individuals are concerned about their health and exposure, about their income and jobs, and about their not knowing what is next, I firmly believe that Dollar Tree and Family Dollar are part of the solution. Our 15,000-plus stores are close to home and easy to shop, providing great convenience, and we offer a broad assortment of tremendous values to meet both needs and wants. I am incredibly proud of our team's effort in the third quarter to continue serving customers effectively while driving operational improvements in both banners through this extremely dynamic retail environment. The team delivered an earnings per share increase of 28.7% compared to the prior year's quarter. These enterprise results were comprised of a 5.1% same-store sales increase, 150 basis point improvement in gross profit margin, and 130 basis point increase in operating profit margin. Our Dollar Tree segment delivered its strongest same-store sales performance in the past 10 quarters with a 4% increase. Gross profit margin improved 70 basis points to 34.9% versus Q3 a year ago. And operating margin increased 50 basis points to 12.7%, which represents a 300 basis point improvement from Q2. The quarter included $28.6 million in COVID-related costs. Geographically, comp sales were positive in all zones. For the quarter, discretionary delivered a positive 10.2% comp, and consumables were down approximately 2.6. We did see sequential improvement in consumables throughout the quarter as inventory flow of high-demand products improved. Categories performing well included crafts, party celebrations, household products, kitchenware, and even early Christmas seasonal. The performance of Crafter's Square offering that was rolled out into approximately 2,000 400 stores in Q1 of this year has been outstanding. We plan to add Crafter Square to the remainder of the Dollar Tree stores in early 2021. The Halloween seasonal sell-through was our best ever. Overall, the fall harvest and Halloween seasonal categories delivered a combined 9.4% comp for the quarter. Our merchants continue to hit a home run on identifying and sourcing great products that customers love at the dollar price point. Customers are continuing to shop early to celebrate events and holidays. Our sales continue to be delivered by average ticket, which increased 19% as consumers continue to consolidate trips. Our 12.6% transaction count decline was a 300 basis point plus improvement when compared to 15.9% drop that we saw just a quarter ago. We believe this is directly related to shopper mobility. Many people are working from home, learning from home, or simply not going out as often. But when they do visit the store, they are filling their baskets. Ticket was up 19% this quarter and 22.6% last quarter. We continue to like the results we are seeing with the Dollar Tree Plus, and we are pleased to announce we are expanding the program to a total of approximately 500 stores beginning in the spring. Based on our learnings, we have continued to test, refine, and improve this initiative since the initial launch in mid-2019. The merchant and store teams have done a tremendous job. Our customers are buying these products and sales of our multi-price items continue to grow. In fact, we are seeing that when multi-price items are included in the basket, the average transaction value is approximately twice the size. Recently, we've been seeing phenomenal sell-through of Dollar Tree Plus items and seasonal merchandise. We are expanding our discretionary assortment to focus on sales and margin-driven categories that do not cannibalize current sales, are accretive to the business, and bring great value to our customers. These $3 and $5 items will also be leveraged through our Family Dollar stores when it makes sense. This is an example of harnessing the power of two brands by bringing Dollar Tree and Family Dollar together. We now have a new merchant team dedicated to these multi-price items that will benefit both banners. Family dollar sales highlights for the third quarter included the 6.4% same-store sales increase was on top of the 2.3% count in Q3 a year ago. This was comprised of a 21.3% increase in average ticket, partially offset by a 12.3% decline in transaction count. The ticket and traffic trends are relatively balanced throughout the quarter. The sales strength was broad-based geographically, with each zone delivering positive comps ranging 4.7% or better. Categories performing well are many of the discretionary categories that we have been focused on improving, including home decor, household products, toys, electronics, and apparel. Both rural and urban family dollar stores delivered mid-single-digit comp increases, with rural slightly outpacing urban. Regarding the cadence of comps, each month's increase was greater than 5.5%, with September being the strongest month and October slightly better than August. The consumable side of the business delivered another positive quarterly comp at 4.1%, and the discretionary comp was strong at 14.6%. On our March call, I discussed the challenge and opportunity to enhance the discretionary performance at Family Dollar through improved product assortment, sharper price points, and greater values. Customers are noticing and they are responding. In Q3, discretionary as a percent of a net sales at Family Dollar increased 140 basis points to 21.5% of sales. Our discretionary grew two times faster than the total market in Q3. During the quarter, we launched the ability to sell product directly on our website at FamilyDollar.com, providing customers another way to access great values. Additionally, we are early in the test phases of the following initiatives, buy online, pick up at store, and delivery options through Instacart and Shipt. There will be more to come on future calls. As I mentioned on our call three months ago, it's a new day at Family Dollar. I continue to be very pleased with the team's overall progress. We are three-quarters into 2020 with an operating margin of 5.1% compared to 2% three-quarters into 2019. The key elements of our improvement plan include improved merchandising and marketing, raising store in-stocks, upgrading brand standards, creating a selling culture, and refining our format strategy. I would also like to recognize Dollar Tree Canada. Our Canada President and Chief Operating Officer, Neil Curran, and his team are hitting on all cylinders. During Q3, Dollar Tree Canada opened two new stores, bringing the total to 230 stores north of the border. Canada exceeded its plan of sales, gross margin, and operating income, delivering low double-digit comps in both consumables and discretionary, including very strong seasonal sales on fall harvest and Halloween. And they have improved on store manager turnover and internal promotion as a result of their continued focus on people development. Regarding real estate, The team completed more than 550 projects in the quarter, including 143 new stores, 34 relocations, 371 Family Dollar H2 renovations, and we had 16 store closings. We ended the quarter with 15,606 stores. I'll now toss it to Kevin to provide more detail on the Q3 performance.