Dollar Tree, Inc.

Q3 2021 Earnings Conference Call

11/23/2021

spk_0: the day and welcome to the dollar tree third quarter twenty twenty one earnings conference call today's call is being recorded at this time i would like to trim a conference over to read the giler please go ahead
spk_1: like a pretty good morning and welcome to our call to discuss result for doubters third fiscal or two thousand twenty one with me on a goal or mike would empty and kevin locklear before we begin i would like to remind everyone that various remarks that we will make about our expectations plans and prompted for the company he got to to forward looking statements for the purposes of the safe harbor provisions under the private securities litigation reform act of ninety ninety five the statements are subject to risk and uncertainty and are actual results may differ materially from those indicated in these forward looking statements for information on the risks and uncertainties that could affect our actual results please see the risk factors isn't it and management's discussion and analysis of financial condition and results of operations sections in our annual report on foreign thin k five march sixteen two thousand twenty one or cornton you for the most recently ended fiscal quarter or most recent press release and form a cane and other filings we will make from time to time with the securities and exchange commission we caution against reliance on these forward looking statements made today and we just playing any obligation to update or revise the statement except answered
spk_2: fireball
spk_1: falling are prepared remarks will open a call to your questions please limit your questions to whine and one related but what if necessary l now trying to call over to mike would have the dollar tree president and chief executive officer thank you radio the morning thank you for joining us on today's call i would first like to take a moment to recognize our store associates distribution centre staff are filled with the field leadership and are world class merchants are teams are working around the clock to do everything they can to defend against the current inflationary environment keep ourselves stock and provide customers with undeniable value and great service and easy this job close to home store locations they are hard work and dedication is critical to our company's success and i'd like to extend sincere thanks for their unwavering commitment to our customers we experienced a strong finish to the third quarter as shoppers are increasingly focused on value in simply disinflationary environment we continue to see accelerated progress in our key strategic initiatives including dollar tree plus campbell stores and our age to format during the past quarter free cause were significantly higher than expected our fourth quarter outlook which can will provide later in the call reflects the higher costs structure we experienced in the third quarter oliver r e p s for the third quarter was at the higher end of the range as a performer to the rest of the business offset these higher free costs right and supply chain disruptions of course continue to be our biggest challenge in the near term by far and the impact will continue for a while but this challenges transitory as we did detailed last quarter our team continues to take robust bus action to mitigate the impact of for a cost and supply
spk_3: chain disruptions
spk_1: we believe that based on the steps we have taken we will benefit meaningfully of these challenges of been the dollar tree segment delivered a cap sales increase of sixty base points against it's toughest quarterly comparing nearly three years on a two year compstat base is this was a sequential improvement of one hundred and seventy basis points from the prior quarter discretionary continues to perform well with a three point two percent count for the quarter consumable as were impacted by assortment constraints and past dues our three dollar and five dollar plus assortment continues to resonate well with our shoppers as we had tremendous self you are how the merchandise and follow gore and for the year are multi price point merchandise will exceed our sales plan and we will end this fiscal year with dollar tree plus india lee six hundred stores exceeding our previous target of five hundred stores by the end of the year family dollar delivered a positive two point seven percent camp against the six point four percent increase a year ago this represented the third consecutive quarter the family dollar to your compstat has exceeded nine percent the consumer side of the business can't overthrow percent while discretionary was slightly negative as we cycled stimulus dollars from the prior year we are extremely pleased with the family dollar brand as the business can take years to go to gain share cops are both banners were driven by an increase in average ticket partially offset by a decline and transaction call the last month and a quarter october represented the strongest car for both banners our digital offerings continue to evolve why will file we are steadfastly focus on best meeting our customers changing needs and october we announce our expanded partnership with as the card to now include same day delivery from nearly seven thousand dollar tree stores nearly one hundred million us households now have delivery options from thirteen thousand of our store locations we are very pleased with the initial results from the latest expansion turning to they won twenty five price point our leadership team has been planning for the expansion of this initiative since late summer as you know and september we announce our plans to add price points above a dollar to all dollar tree plus doors and on a test and learn basis to select a legacy dollar tree stores as a result of a positive customer feedback and store performance during the initial phase we have introduced the initiative to nearly two hundred additional legacy dollar tree stores and today's press release we now for the first time and allergies thirty five year history we are lifting the one dollar price point cap and all dollar tree stores and the majority of our assortment a dollar twenty five price point enhances our ability to the cheerily expand assortments interviews new products and sizes and provide families with more other day resurgence you are greater flexibility to continue providing incredible value and help customers get the everyday items may need and celebratory and seasonal products that dollar tree is best known for additionally we are now reintroducing many customer favors and key traffic driving domestic and consumable products that dollar tree had previously discontinued due to the constraints of a one dollar price point the new price point will also enable us to mitigate historically high merchandising cost increases including freight and distribution costs as well as higher operating costs costs such as wage increases our teams are focus on speed execution and customer research and are shoppers are responding favorably when survey the majority of our customers indicated they were already aware of the previously announced new price point and not surprisingly many of also indicated they are seeing price increases across the market and then dollar tree is still providing the products they needed an undeniable value we are extremely focused on flawless execution and are providing our leadership team out in the field of tools to support a seamless transition actions include providing cheese with a conversion checklist to ensure consistently exceed across markets and stores dedicate adequate store hours to complete the preparation tasks including removing the signage and display elements referring to the everything's a dollar implementing the new signage regarding that one twenty five price point and displays and caps and shell scripts throughout the store hosting clear communications to customers in edgeways and at the checkout and we're putting our store teams with messaging for responding to customer inquiries we have closely monitored of that the performance of the test doors and shopper reaction through extensive customer intercepts and third party survey since our initial test began we will continue to gather feedback throughout the process to ensure we remain fiercely committed to our brand promise of providing customers with extreme value everyday along with more thrills more fun and more new items every week or thirty five years we've been able to manage to inflationary periods to maintain does everything for one dollar philosophy that distinguish dollar tree and made it one of the most successful retail concepts for three decades however we strongly believe this is the appropriate time to shift away from the constraints of the one dollar price point in order to continue offering extreme value to our customers if the independent surveys a shoppers across us have indicated that seventy seven percent of the shoppers warmups almost immediately aware of the price point changed and and other seventy seven percent thirty one percent already knew before they visited the store and seventeen percent became people immediately upon entering the store while twenty nine were twenty nine percent world where within minutes of entering the store critically ninety one percent of those surveyed indicated they would shop with the same or increase with frequency we will continue to monitor the success of these initiatives and we believe we will see improvement in the serving results sense now we have the ability to further expand the product offering and reintroduce t traffic driving items
spk_4: time validating a store execution
spk_1: customer section and the performance results were as an anticipated we expanded the program to nearly two hundred additional stores across three major markets and we are pleased to say the results have been relatively consistent as expected we're seeing willis and cap sales partially offset by smaller decline in unit sales we are seeing an initial left to product margins that will normalize overtime and are merchant teams evolve or assortments importantly we expect this initiative will enable us to mitigate the higher for eight other inflationary costs in order to return to our store gross margin of thirty five to thirty six percent and fiscal twenty twenty two while improving the merchandising we're providing for our customers all the steps i mentioned at set a solid foundation to streamline the execution of this important milestone and a company's history we have been working hard to prepare this for this key strategic understood to ensure that we are providing customers with great products while unlocking long term shareholder value we are focused on aggressively executing up and to roll out the new price point across the entire footprint of legacy dollar tree stores our teams will be introduced introducing the new price point and more than two thousand additional legacy dollar tree stores and december and complete the roll out to all stores by the end of the first quarter and fiscal twenty twenty two concurrently our companies merchants are working to continually enhance the offerings to drive traffic capture market share and further growth customer loyalty we are working with our suppliers and we have already begun introducing new items every week including seasonal crafts party supplies food essentials and more beyond the changes that are legacy dollar tree stores were also continued to expand the availability of a three dollar and five dollar plus assortment as i noted a few moments ago we will exceed our previous goal of now adding the plus concept and nearly six hundred stores by the end of the year we play and add the plus a sudden the to another fifteen hundred stores and fiscal twenty twenty two and complete at least five thousand stores in total by the end of fiscal twenty twenty four we are enthusiastic about the opportune improved performance of dollar tree i continued deliver extreme valued or customers as a new dollar twenty five price point driving camp sales and improving stuart productivity enhancing flexibility to better manage the overall business in an inflationary environment and as previously mentioned returning dollar tree gross margins back to the change historical thirty five to thirty six percent and your range and fiscal twenty twenty two i will now hand the call over to cabin to provide details and que three performance and our outlook
spk_5: thanks mike and good morning a third quarter you ps of ninety six cents per share with near the high end of our eighty eight percent to ninety eight said guidance range
spk_1: consolidated net sales increased three point nine percent to six point four two billion dollars comprise the three point four two billion dollars a dollar tree and three billion dollars of them dollar and a same store sales increased one point six percent as recycled a five point one percent increase from a year ago
spk_5: representing a six point seven percent increase or two years tax basis cause for the dodgers segment increased point six percent them a dollar same store sales increased two point seven percent cycling a strong six point four percent increase from last year
spk_1: i to your stack basis dodgy cops increased four point six percent which will they hundred and seventy basis by improvement from que to at them a dollar increased nine point one percent
spk_5: tree cop was comprised of a one point eight percent increase in average ticket partially offset by one point one percent decline in traffic i'm a dollar twenty five point eight percent increase in average ticket partially offset by three percent decline in traffic gross profit was one point seven six billion dollars for the quarter gross margin was twenty seven point five percent compared to thirty one point two percent the priors quarter
spk_1: the profit margin for dollar tree segment decline four hundred and seventy basis points to thirty point two percent with compared to the prior years quarter factors impacting the segments gross margin for farmers included merchandise costs including frame increased four hundred seventy five basis points given by higher freight cars and lower little mark on partially offset by favorable legs from increase sales of higher margin discretionary merchandise
spk_5: activity costs increased ten basis points as a result of loss of leverage due to a lower comparable store that sale increased and higher real estate tax expense distribution costs increased ten basis points from higher depreciation costs related to to new distribution centers and higher hourly wages partially offset by lower covered my came related expenses
spk_1: a drink improved point five basis points related to favorable emitter results by decrease in the schrenker cool right gross profit margin for the family dollar segment declined to hundred forty basis points to point four point four percent le third quarter the year over year delta included the following merchandise costs including freight increased two hundred twenty basis points related to hire break cause distribution costs increased twenty basis points compared to the prior quarter due to higher wages partially offset by lower covered nineteen related expenses bart doubt cause increased twenty basis points primarily due to higher clearance wiped out
spk_5: activity costs increase five basis points on early earlier to hire real estate taxes and shrink for thirty days with points related to favorable and the probe salts and a decrease in the trunk of glory consolidated selling general and administrative expenses and for one hundred basis points to twenty two point seven percent of total revenue compared to twenty three point seven percent and que three last year we cycled thirty five point three million dollars and cover nike related costs or fifty seven days points in the prior quarter for the third quarter the at a rate for the dollar tree segment as a percentage of total revenue improved fifty basis points to play one point seven percent compared to the prior quarter
spk_1: harrell cost him for thirty basis points primarily due to lower carbon nineteen related store payroll cost a lower and set of compensation expenses partially offset by minimum wage increases and higher health insurance costs
spk_5: and other as a decrease by twenty five basis points his life and about that associate with the settlement of a contractual disputes and the real realization of certain tax credits for family dollar the third quarter sj rate as a percentage of total revenue improved eighty basis points to twenty one point four percent compared to twenty two point two percent in the priors court harold costs increased sixty five basis points primarily due to lower cover nineteen or latest or peril costs and lower and set of compensation expenses partially offset by minimum wage increases
spk_1: what a silly cause decrease three basis points primarily due to lower repair and maintenance expenses and lower telecommunication expenses
spk_5: preciation and ot amortization expense increased five basis points dude expenditures associate with the store optimization program and other es una expense increased toy basis points primarily due to increases in advertising and travel expenses and an increase in insurance costs related to general i built it claims corporate support and other expenses as a percentage of total revenue decreased pots like thirty basis points compared to the prior year quarter primarily due to low and said compensation operating income was three hundred and ten point five million dollars or four point eight percent of total revenue in the third quarter
spk_1: or not operating expenses total thirty three point six million dollars comprised primarily net interest expense
spk_5: or back to tax rate was twenty one point seven percent to twenty one eight percent in the prior quarter company had net income of two hundred sixteen point eight million dollars or nice except for those share this compared to net earnings of three hundred and thirty million dollars or one dollar thirty nine cents privilege and the priors court by cash and cash equivalents a quarter and totaled seven hundred one point four million dollars compared to one point four two billion at the end of the skull twenty point outstanding debt as of october thirtieth with three point two five billion dollars company did not repurchase shared your in a quarter as of preparing for the announcement at launch of it's one dollar twenty five cent price point initiative across without restores be currently have two point five billion dollars remaining on or share repurchase authorization inventory for dollar tree a quarter and increased fifteen point two percent from the same time last year consistent primarily have a significant increase in good on the water year over year
spk_1: cops store in the toys are down six point four percent compared a year ago when they were down seven point four percent
spk_5: in the toy for family dollar quarter and increased twelve point four percent from the same period last year cop story inventories are up seven point two percent after being down thirteen point two percent and twenty twenty devil managers were two hundred ninety five point six million dollars in the third quarter versus to and thirty eight point seven million and cute three last year
spk_3: the fiscal two thousand and twenty one we expect to consolidate cap actual the apartheid one point one billion dollars
spk_1: preciation and amortization total one hundred seventy eight point five million dollars for you three compared to one hundred and seventy point one million for the third quarter last year
spk_5: for fiscal two thousand and twenty one we now expect consolidated depreciation and amortization the approx my seven hundred and fifteen million dollars
spk_1: are i'll to the remainder of two thousand and twenty one includes the following exceptions
spk_5: we had forecasted continued pressure on wages do the current shortage of workers available for stored and distribution centers expect shrink will continue to be a tailwind but not have the same rate as we're cycling improved results from the prior year
spk_1: higher sales lowest your inventory levels technology and better processes continue to drag better results
spk_5: that interest expensive expected to be approximately thirty three point six million dollars and queue for and approx my one hundred thirty three million dollars for fiscal two thousand and twenty one
spk_1: we have to make consolidated net sales for the fourth quarter will range from seven point zero two billion dollars to seven point one eight billion dollars based on a in with is an increase in same store sales with the combined enterprise
spk_5: limited earnings per share estimated be in the range of one dollar sixty nine cents to one dollar seventy nine cents
spk_1: as like mentioned earlier red cross or significantly higher than expected in the third quarter or fourth quarter outlook reflects the expectation of higher transportation costs it costs will be offset by the benefit of the dollar tree stores that are transition to the one dollar twenty five cent price point that at one time costs to implement that change
spk_5: it's saw they did that feel for fiscal year two thousand and fourteen one are expected range from point six point two five billion dollars to point six point four one billion dollars based on a low single digits increase in same store sales and three point three percent square footage growth the company now estimates to the original per share will range from five dollars and forty eight cents to five dollars and fifteen cents great cause for fiscal two thousand and twenty one are now expected to be apartment two dollars higher than before two thousand and twenty expressed in terms of the impact undiluted earnings per share or much of the focus is that i'm trans pacific ocean containerized we are being impacted by asked aspects of freight including higher costs for england transportation by truck and rail and hired you will pass disclaimer third quarter we moved more containers and original plan which required udall utilizing spot market rate higher than forecasted lack of makes comments rate continues be our biggest challenge in the near term we bleed majority of the freight challenges are trans transitory the rest of the business performing much better in the near term
spk_4: or outlook assumes a tax rate of twenty two point one percent for the fourth quarter and twenty two point seven percent for fiscal two thousand and twenty one
spk_1: weighted average you to share counts shown to be too and it's like by point nine nine shares for que for and two and twenty eight point nine nine cheer for the full year
spk_5: or outlook does not include any share repurchases we have two point five billion dollars remaining on i'm listing share repurchase authorization not alter the call back over the mike
spk_1: thanksgiving as i mentioned earlier on the called we ended the third quarter with momentum in the business and that is certainly continued in both segments through the end of last week order to date or cops were running at a four point nine percent increase in family dollar and a three percent increase of dollar tree and we are seeing positive trend as customers are planning to gather in person with family and friends to celebrate the holidays this year the combination of shopper seeking value and the inflationary environment along with the acceleration of the companies initiatives including cobblestone worse and dollar tree plus bode well for the continued traction and store productivity and twenty twenty two we planned implementing the three and five dollar plus assortment and to fifteen hundred more dollar tree stores we will also be adding four hundred kabul stores through new or renovated stores and we plan to renovate eight hundred legacy family dollar stores into the each to form additionally lifting the one dollar constrain represents a monumental stuff for organization and we are enthusiastic about the opportunity to meaningfully improve our shoppers experience and unlike value for stakeholders we will be relentless in our commitment to offer our customers the best value possible i'll be in a different price points while guided by dollar tree same founding principles we are extremely excited and confident about the opportunities and twenty twenty two and beyond we are very focused on the acceleration of initiatives aero braking force and are operating with clarity focus and speed as i previously mention we do expect dollar tree banner to return to isn't it just store called angel range of thirty five thirty six present gross margin and fiscal twenty twenty two before we got into queuing i would like to make a brief statement we appreciate that many of you are focus on the form thirteen be filed by mental ridge to friday's ago so we will make a short statement about that but would not entertain any questions on the topic we believe mantle rage has made a very smart investment as we said dollar trees board of directors and management team are always open to listen to input and engaging with our shareholders and we evaluate any ideas for constructive value creation with the best interest of all shareholders and stakeholders in mind and keeping with our practice not to comment publicly on a private discussions with individual investors we will not take any questions regarding my tolerance we appreciate your understanding cooperation
spk_0: operator will now ready to take questions
spk_6: thank you sir if you would like to ask a question we signal by pressing star one on your telephone keypad if you're using a speaker phone please make sure your me function as turned off told wow your signal to recharge equipment
spk_0: again that a star one to ask a question again and interest of time we do ask that you please limit yourself to one question and one related follow up will now pass for just a moment to while one the opportunity to signal for questions
spk_7: thank you are first question will comes from map you boss with jp morgan so maybe first that a dollar tree banner two years fact comes back to meet single digits in the third quarter november ah holding the momentum despite apply to supply side constraints still remaining i guess could you just help speak to drivers of the people as nation what your confidence also in that thirty five to thirty six percent gross margin
spk_1: for next year meaning do we need of material reset in free or is the driver of this the pricing change across a fleet that you outline today yeah the morning that thanks for the question i would say them limit them main driver of that is as cannon said inside that forecast for next year we are anticipating freight to pretty much look like it did this year so the major change would be a dollar twenty five price point as the key and am able or to mitigate that and and it's also going to give us the opportunity to bring in new items and a new assortment of one drive traffic and dollar tree
spk_7: ah and and with that will help offset work with last traffic this year historically
spk_8: and then mike a as a follow up on family dollar what you believe the concept takes from this pandemic meaning are you seeing new customers when initiative do you have to retain some of the new footsteps that you're seeing and on the as we think about kind of where we go
spk_7: from here
spk_1: what do you think the sustainable com for the family dollar concept multiyear is from here as we that the pandemic
spk_9: yeah thanks man so on the family dollar side we we believe it based on you know the fundamental changes are merchants of made in our price points and in our assortment of discretionary side along with the continue growth we see on the consumable side we believe that we will sustain our growth
spk_1: beyond the pandemic as we exited and it's it's evident in our three quarters in a row over nine percent to your stack of comp sales and we're seeing our customers really gravitate to are so about our assortment either get her to say our consumable side as copping well and are buying more the discretionary side as we get it in our stores and we believe that long term we can sustain that most single digit growth and it's really evident in our kabul stores and r h to format so we're here we're going to exceed our twelve hundred and fifty eight to renovations and we continue to see a ten percent increase when we when of a both stores but more importantly is that kabul store that breathe easy to great companies together allow us to drive a great format and rural america and there's three thousand towns we've identified and we're going to grow and next door out my more than four hundred and as we shared on the last quarter and i think we have posted on our website are cobbles stores deliver seventeen percent more than half a former than our new store expected they grow twenty three percent more money renovated and when we roll of relocate him it's a forty percent per cent increase
spk_10: so those things are really driving not on it top line but our margin a stronger and is translating into a more productive store so i think our initiatives i think the foundational things that we've fixed family dollar and then what are key initiatives going forward one able us to continue to girls single store guy
spk_6: that's great how best of luck
spk_11: thank you are next question comes from john
spk_12: find battle with guggenheim to my let me start with family you think of be twenty the one twenty five price point will apply you said majority but yeah and what do you think that will apply to in terms of the the assortment one number one of the number two i'm tied to that ah i know of you're getting a lift on price you know is ready way to do what you've seen on of impact to a volume on those items specifically and then also a
spk_1: the stores a whole of the other other than their downed we do you must have a sense of how much they're down yeah thanks so on the or them the majority of the stores will be at the one twenty five price point just like as today we're dollar tree as everything's for a dollar but there are categories and food in candy bars of the front register in our greeting cards and in some poster board where there are lower than a dollar so you can imagine everything is just breathe reset in that same footprint at the dollar twenty five and then those categories and items will be at the dup remain at the dollar price point so it's it's the majority of of footprint and side of our store
spk_3: and and we will share as we continue to roll this south wouldn't we will share more details about the cab left in the margin but we see enough evidence that the cop between the can't lift and the margin expansion will help mitigate this bird mouth rate we're experiencing this year and get us
spk_5: back to that historic thirty five to thirty six percent gross profit range
spk_12: and then maybe just as a follow up to that added you guys think about know marketing the one twenty five right up he bought people to experience it naturally right on the you wanna call attention to it unduly so it was is that is basically just yeah all see it when i come in the store
spk_1: or otherwise you're not going to really do a lot of your tv radio print around that the strategy or have you attack that yeah historically dollar tree did not do a lot of external marketing everything was in the store and the excitement in the value of the product and the and it's really good them because our assortment is always moving and never flowing so we wanna we wanna talk more about the great value that we can brain at that one
spk_13: twenty five price point and they'll see that assortment of they they see when they're in our store
spk_1: and our customers gave us and that you know they gave us credit for that when we get our customer research and customer intercepts they were tell us that even at the dollar twenty five they're still great value and are going to continue shopping year and then we can tell and some of the unit decline and some of the categories where our intuition we knew that we needed to improve some of our assortment and valued and certain categories so are merchants are working extremely hard at identifying those and getting those products flowing and that was a new products and new product next will be flowing through certainly the first half of the year
spk_0: as they change their mixed panda every the get everything aligned to the new dollar twenty five price point
spk_14: thank you thank you are next question comes from my aunt last or with u p s
spk_1: good morning they thought the automated take my question to you had a dollar tree plot for a couple years he didn't planning process for the mood to one twenty by price point
spk_14: on the in the summer the moved to the full rollout is factored then the mood to dollar tree play abby the you seeing a lot of inflation so
spk_1: he probably putting these you how do you manage the read that consumers are going to push back they become cut new fact the dollar for dollar price point in the you have to manage around that the cannibalization at the time you do have a lot of going on into next year how do you ensure that you're going to get consistency in your execution and you're implementing more initiative than you have had in point in time yeah well as the dollar twenty five years of it is our team has been very focused to bring clarity to it we've gotta a very detailed plan for our operation teams and in the you know the key to it is going and and cleansing the store so we got a team that has our were doing that and we come in and we clearly side and we're putting signage throughout the entire store so that customer understands the dollar twenty five and then at the same time or merchants are working hard today and they have been working actually and their last by trip it was with the intent of the dollar twenty five price point so our assortment is better than ever and winner or so excited and the hard work that on merchant team is doing and fact they've already looked at and reviewed over seven thousand of our core items out so it's almost seven thousand five hundred of our core items they put him on a table they've done a coffee shop so they bring him product from other competitors to make sure that at a dollar twenty five this product still has a unbelievable value for our customers and it resonates well with them and then the ones that don't want we're working hard on and were attacking and we're bringing in those new items and then the that will bring in end additional items that we have to discontinue in the past so now those items would be calm and customers responded to very favorably in the past and we believe that will drive traffic and most of those items are you and your consumer side of the business where we've seen softness over this year where we've been limit added to the dollar price point with love lost some items and will bring real the bring meaningful value of the dollar twenty five and are frozen section and in our our food section so we're really excited about a plan at and then the to in our dollar tree plus if the way we think about it we've that sit in and about over six hundred of our stores and it's it's you know about ten to twelve percent of the space in our stores two hundred linear feet and a team is very good at they've been delivering that all year so next year we're just going to deliver an expansion of that such just grow same exact product assortment you know different seasonal items of course but the same categories of same square footage of we've done to six hundred stores this year so it's something we've already done we already know what it takes to get it done and our stores are executing a very well and our customers understand it in a store it will be a one twenty five now or three and five dollars that's clearly marked and the responding very very well the the three and five dollar items and then if you think about that's in twenty twenty two and then and twenty twenty three for our dollar tree plus the growth will be twofold we will go more store cow but then also are merchants next year while the rolling out the same to footprint of fifteen hundred stores next year the it seems at the same time the merchants or to be worked really hard him more categories more assortment can you go from a ten percent year store to twenty percent your store what kind of items can we really bring in at that three and five dollars that will really drive more business to the stores
spk_14: still are lifted six percent as reefs and it's still hovering around that six percent we think it can be more as we grow was gone forward so the dollar twenty five we got a great answer and we're we're going to go with with a clarity and focus and speed from a marketing and in store execution and an armored it's are working hard that analyzing every item to make sure it's got that great value and then we're going to grow the the dollar tree plus as we did the six hundred stores now with focus understood my bottle question is on your expectation to get to a thirty five to thirty six percent group margin in your dollar tree business new banner next year
spk_1: it seems like that that will drive of need to increase at least in your gross profit dollars based on that of what type of he did improvements would you be looking for work as you probably can see anything in the car leverage in
spk_5: if you're gonna rule a dollar twenty five great point and free pressure potentially rolled over when you actually let your groove profit margin for the dollar tree banner the about thirty six percent if all that come together at the time where would you looked her mean that the upside back into the business thing yeah michael i think of the way we think about it obviously of is we are investing back into that product and i we're going to live by
spk_1: the role that we've been was the mainstay of dollar tree which is the product have to be an unbelievable value in the marketplace and that's what the company was built upon and that's what will continue to be built upon shit the price point has changed so tear question about the margin i obviously it's it's a little early at this point talk about next year and others who have a lot more information is shared when we talk again on march third for and of the year to be able to get a better direction a lot of moving pieces right now we want to make sure we capture them all and and give everybody the in the true picture of of all the those moving pieces that we do obviously see a clear path to the thirty five thirty six percent margin gross margin for dollar tree next year i think that the most important thing that we can quickly give you today obviously with more details to calm as the albums moving pieces get i just reiterate what going to predict bl unlocking and moving to the dollar twenty five give us the flexibility that we need to be able to manage and mitigate the high cost of as you saw the four hundred basis points and margin that dollar tree and at the same time really bring more value greater items and a better assortment that will drive traffic and top line sales for our customers that they're so used to a dollar tree stump as kevin stated we're going to be more focused on getting assortment right
spk_15: and driving traffic and long term growth
spk_0: and we can do that and confidently think we can get to the thirty five to thirty six percent range
spk_1: and very much thank you as a reminder and interest the time we do as to please limit yourself to one question and one related follow up on next question comes from edward kelly with false fargo
spk_16: i morning as i was up into the title of it more about the yeah the testing process on the dogs my by price points of far into the initial release that you point out had a dollar twenty five and a dollar fifty and release i was curious mr you know what what that was about
spk_1: when you did the task for all of the test just take most of the so much with our twenty five a risk their some variation there and then to do help us understand what the impact of elasticity is on the lions are looking like yeah thanks that so we yeah we are closely monitored it the majority of the stores read the dollar twenty five and that's what our focus is because that's really the price that we need to really bring great value and a meaningful differentiation and are so many and the consumer will side of the business of would drive traffic so we are very focused on that and we've been watching the sensitivity and the sales of in the units in the response from the customer every week in every store and every market and as we shared that's been consistent across stores and markets and where we see the unit decline well that's where we expected it to be and that's where the merchants at work and really really hard on bringing in that new assortment and that new assortment will be layering and as i said overtime so it it's good read over the next six months to bring them for the assortment of on those side to drive traffic and then while we work in the results the stores and monitoring units and margin and car at the same time we were doing and depth consumer research and listening to our customers and and doing customer himself to intercepts and not one on one surveys with the customers and hearing their response and they have a lot of trust dollar tree and ace believe that as a dollar twenty five and still going to be an undeniable value because a what they're singing out in the marketplace and they know the dollar tree has raised its price of thirty five years so they've given us credit and now that we are buyers are going to take that trust and make sure they deliver undeniable and a great assortment that that new price point and will monitor that as we do our ways we dated a dollar and and or help drive the business bring the white him then discontinue items and managed to the business accordingly at the just a quick follow up on on that bob how powerful is it be a brain i was back east discontinued overtime or to be ah to introduce new items and then just getting back to the dollar fifty because it was in your paralyzed is that a price point that might make sense as you start introducing new items that share well right now we can bring in very meaningful items that we discontinue the dollar twenty five and and they are on the food and consumable side word you get a repeat customer and more frequency so it's important to us and when we we announced we just wanted to have we have flexibility out there that we we gave examples of a dollar twenty five and a dollar fifty an hour three and five or we didn't say specifically that we would use know so right now we're we feel confident and out in the dollar twenty five the three and five and as weeks
spk_16: that that you know on our dollar tree plus we're accelerating of fifteen hundred but by twenty twenty four worth five thousand stores that will be at a dollar twenty five three and five that will be able to deliver meaningful assortment and it gives us the flexibility that we need to manage and mitigate these costs and
spk_0: deliver great products and driver business
spk_17: right thank you take my question think you next question comes from cape mcshane with goldman sachs
spk_1: i could morning thanks for taking your question just a question with regards to and any kind of activity thought from ah more inflationary headwinds and customers trading down and how you anticipate that to look in the fourth quarter round had to ice on the third quarter yeah we'll definitely that the customers are feeling the inflation it's it's twofold right now i'm in our customers are benefiting from you know child tax credit stimulus and know in october they had a huge increase a snap benefits and they're experiencing increase in hourly wages the you're seeing across the the industry so i think our customers are in a pretty good position but they are also feeling a lot of pressure on other costs the gas and fuel prices and energy for their home so i think right now more than ever that are going to be relying on great value and that's why i think dollar tree and family dollar a great position to be a law firm that do on and fifteen thousand locations are conveniently located
spk_0: as far as trading down we're still not seeing a lot of trade down there is not a lot of promotion out there a national brands private brands are not a steady as they were throughout the the field of first half of the year
spk_18: so it's we haven't seen a big shift right now from the customer
spk_16: thank you
spk_1: thank you are next question comes from brad thomas with keep bank capital markets hi good morning thanks for taking my question i'm i'm so been asked that labour a little bit more and helping like you could talk a little bit about ah you're dealing with you know getting good people now and and any seasonal staff you've you've brought on board and then just ah tickets here talk about dollar tree side of the business on how you are planning for some that incremental complexity and you roll out the one twenty five price went up from labour prospectus thanks thanks brat so yeah there are still pressures of the know it's market driven both and are just abuse and centers of we've had to increase our our the wages in our disease and have done so and and that's embedded in our fourth quarter outlook and and we've made me mix there and and i say that we're seeing the same thing in our stores in markets we've followed our we had to that increase our labor rates to attract associates in our stores and as you've seen or across retail or people are still sitting on the sidelines and in not working so we are working hard and driving benefits and we're raising our our our the wage where we need to and been a convenient place to work through other things have been are having their schedule on their phones having a program called daily pay were they can get their pay it off the way for their paycheck and our associates are liking that a lot of there's a high use of that so we're doing a lot of things to attract the our the word out there in our stores to operate our stores effectively but yet it still is a tough the women out there and we have seen a little bit of a slip in our store manager turnover were last year during the pandemic we get our lowest turn over ever in store manager and now there's i think there's a little bit of the deegan and it's creeped up a little bit on us what our teams are working hard
spk_4: and filling those roles and attracting the delaware need
spk_1: regarding managing the one twenty five other is as kevin said in our fourth quarter know the one time costs of cleansing the store and then we marketing and resigned store
spk_19: but once that have set aside it's really running the same play they unload the truck may put it been the shelf it's killer clearly marked already so there really isn't any additional labor hours needed
spk_20: and then on our dollar tree plus
spk_0: as we've ruled that out to six hundred stores we have not had to add any additional labor and those stores because the majority those products are common in pre priced the sections in the store are clearly marked three and five dollar items and and now they'll be a dollar twenty five three and five so there really isn't any additional labor
spk_16: ver are needed and know stores either right thanks so much like
spk_1: thank you are next question comes from semi to get month with morgan stanley against this is michael kessler unfair for some an extra your questions and i'm like a badass not that a guys that mattered to beat up a broken dry or with with the price point like it's better sweden one more curious why not be more diverse with the price point it sound like you're really sticking to you way one twenty five you could perhaps you know the even more precise with place point and managed to different skewed and category some traits know what way the that decision process and i a interpreting i guess the the strategy with price point correctly in in that regard and then bigger picture on that your is very it even longer term vision of perhaps yeah price points going up across the store and the get a separate initiative with plus it even higher price point of perhaps even melding these initiatives together expanding plus even more the store you see with a a long term vision would be would be at issue here but as well yeah thanks for the question so first of all moving off the one dollar price point gives us the flexibility to manage our business and really dry the assortment in our customers are used to and bring value and simplicity to them so the reason we moved to the dollar twenty five is it allows us to do all three of those things are are merchants i believe the best in the industry and they've been able to fan and get great product at a dollar and we know the type of product we can get it that dollar twenty five a will be able to bring in exciting great product that will drive the business and drive traffic into our stores and enable us to get back to that thirty five to thirty six percent margin and it gives us the flexibility to manage our business going forward and it really brings simplicity simplicity still very important to us you know as it is a single price point our customers understand it and our our our shoppers our customers and our associates understand so
spk_21: we'll manage is going forward i think at first we're going to go to a dollar twenty five and and enough will be carrying that dollar twenty five or into our kabul stores as well so our kabul stores baseline will be in a dollar twenty five going forward
spk_1: i will be wrapped around that dollar tree brian and then have a great products in the family dollar on that side of the business as well
spk_21: so moving off the dollar gives us the flexibility to make changes we need to gone into the future
spk_1: okay great and and quit follow up on traffic i could you guys said it was down it at both banners i guess is that as if surprised you at all that we haven't seen more of a read on in traffic relative to last year is it have any concern or it's not because tripping of ticket is up the eat know better than one
spk_4: and are setting their the traffic declines and going forward especially with higher price pointed at core dollar tree
spk_1: you know is it him would be if they're expectation that traffic could remain down to be more than offset by ticket or you're talking about that oh we think traffic is gonna come back a dollar tree keep in mine he is kevin said with are we still have passed dues as there are four and a half times greater than what we normally have a dollar tree so there's mm toy that we wish we had that would dry that excitement and sales and traffic insider dollars
spk_22: tree and then we have had some items with added disconnected and discontinue it would be traffic driving that where we were limited at the dollar price point so we think looking forward
spk_0: go under the dollar twenty five bringing in new assortment and i much we move beyond this transitory frame
spk_9: logistics issues of we have getting that assortment that we want inside our store the combination of those two things will get will get back to driving traffic and our dollar tree
spk_1: format make me thank you would you have time for one last question our final question comes from pot the genus what city hey guys thanks i'm curious if you bring back some these discontinued items you expect a total skew count to grow over those be replacing existing scuse and then separate could just talk about your average ticket a dollar tree and how consistent that has been over time as you move to this one twenty five price point where your expectations for to that average ticket yeah and then on the assortment you know that's the beautiful thing about dollar tree we do not have planted rams are merchants go out and get them very best product at the dollar twenty five price point we surprise and delight our customers we bring different products and depending on the seasons in the and the front end of our store changes like the leaves on the tree so we will continue to use that flexibility and and drive the assortment we need that will be meaningful to our customers and in the key categories the drive traffic and then where they can celebrate their lives and live their lives and decorate their homes so those are the that's how we manage the business before and that's i will manage and gone for now like kevin talk about the the average ticket but since the pandemic our average ticket at at the dollar tree has been elevated and it's been consistently elevated of throughout the think that this dollar twenty five will will help of that yeah the girl just as a pointer referencing a pre
spk_23: pandemic the dollar tree price point has hovered right around there a dollar and fifty cent range and be a sense the pandemic it's it's been closer the ten dollar mark
spk_0: i think as we go forward
spk_1: with the one dollar and twenty bucks and price point either go or main elevated it also at the the question is i bet as traffic returned would we see the average ticket come down and up to this point thing you'll ever seen that aspect but overall i think in general that the the price of the average the ticket will remain elevated as we go forward
spk_0: and you the bad
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