Dollar Tree, Inc.

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

Thank you, Ashley. Good morning and welcome to our call to discuss results for Dollar Tree's fourth quarter and full year 2021. With me on today's call are Mike Wojcicki and Kevin Walkler. Before we begin, I would like to remind everyone that 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 harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, and our 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, business, and management's discussion and analysis of financial condition and results of operations sections in our annual reports on Form 10-K, filed March 16, 2021, our Form 10-Q for the most recently ended fiscal quarter, and our most recent press release in Form 8-K and other filings we make from time to time with the SEC. We caution against reliance on these forward-looking statements made today, and we disclaim any obligation to update or revise these statements except as may be required by law. Following our prepared remarks, we will open the call to your questions. Please limit questions to one and one related follow-up. I will now turn the call over to Mike Witinski, Dollar Tree's President and Chief Executive Officer.

Thank you, Randy. Good morning, and thank you for joining us on today's call. I am extremely proud of the team's strong performance during our transformative fourth quarter. We delivered comparable sales increases at Dollar Tree and Family Dollar, both representing improvements from the prior quarter on a two-year stack basis. Our EPS of $2.01 exceeded our $1.69 to $1.79 guidance range. Importantly, we recently completed a successful conversion to a $1.25 price point across all Dollar Tree stores in the United States, more than two months ahead of schedule, which significantly enhances our ability to provide a meaningful assortment at extreme values to our shoppers. We continue to have terrific performance on other key strategic initiatives, including the expansion of our $3 and $5 plus assortments to another $1,500 Dollar Tree stores as well as our combo stores and H2 renovations at Family Dollar. The Dollar Tree segment delivered a comp sales increase of 3.1%, cycling a 2.4% increase from the prior year's quarter. A 5.5% two-year stat quarterly comp was our best of the year and represented a sequential improvement of 90 basis points from Q3. Discretionary continues to perform extremely well at a 5.4% comp. We are continuing to experience record sell-throughs of our seasonal and holiday merchandise. The strongest performing categories included candy, Christmas seasonal, party celebrations, crafts, and stationery. For the quarter, Discretionary represented more than 57% of our sales, up 130 basis points, from the prior year's quarter. For the Dollar Tree banner, December was the strongest comp month of the quarter, as we were cycling a slight negative from the prior year. November was a low single-digit positive comp, and January was our lowest comp month as we cycled the strongest comp month of the prior year's quarter. Family Dollar delivered a positive 1.7% comp against the 8.1% increase a year ago. This represented the fourth consecutive quarter the Family Dollar two-year comp stack exceeded 9%. The consumable side of the business comped just below a positive 3%, while the discretionary was a low single-digit negative as we were cycling stimulus dollars from the prior year. The Family Dollar business continues to gain share. The strongest performing categories include pet, candy, and snack and beverage. For the quarter, Consumables represented just over 73% of sales. At Family Dollar, November was our strongest comp month of the quarter, closely followed by December. Both periods were above the quarterly comp of 1.7%. January was a negative comp as we cycled a double-digit comp from the prior year related to the release of stimulus dollars. Additionally, 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 credit advanced payments. The comps at both banners were again driven by an increase in average ticket, partially offset by a decline in transaction count. Last week, we completed the rollout of our $1.25 price point initiative to every Dollar Tree store across the U.S., more than 70 to 800-plus stores. This milestone, completed more than two months ahead of our targeted date, is a testament to the commitment and teamwork between our support teams, our merchandising organizations, and our field leadership teams, demonstrating our ability to execute. This strategic endeavor will enable Dollar Tree to ultimately drive store traffic and productivity, customer loyalty, and operating performance. while enhancing our ability to navigate the business through higher periods of higher cost. We have been considering this move for some time. In recent years, we have lost many items that are customer favorites and key traffic-driving consumer products from our assortment due to the constraints of the dollar price point. Additionally, we have been operating through a higher cost environment as it relates to inflation, tariffs, supply chain, and labor costs. The new $1.25 price point enhances our ability to materially expand our assortments, introduce new products and sizes, and provide families with more of their daily essentials at a great value. In preparation for this move, our merchandising teams have taken on the Herculean task of reviewing thousands of products, SKU by SKU or item by item, to reassess the value through comp shops of our competitors. Many of our products, especially on the seasonal and discretionary side, are still considered to be an extreme value at the new $1.25 price point. For those products that are considered new or to be reinvested in with larger quantities or package sizes, 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 revested in products to be in the store by mid-year. Example of the products already in the stores are carbonated beverages and salty snacks, all at the $1.25 price point. I could not be more proud of our team's smooth execution of 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. Then we expanded to nearly 200 stores across three metropolitan markets. And starting in December, we embarked on seven waves of multi-state introductions. The signage, training, and talking points equipped our field leadership teams to execute the store's checklist to complete the transitions. The teams embraced the project, rolled up their sleeves, and got it done. 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. 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 in performance across various demographics, geographies, and store sizes. Among our findings are the following. Our new and reinvested SKUs are driving improved performance in their categories, including in the food, snack, and beverage, which are all very important traffic-driving categories. Our seasonal and discretionary continue to outperform consumable, but we believe this can balance out as we continue to modify the assortment on the consumables and deliver greater value for our customers. As you would expect, we are seeing comp lift sales to the stores that have transitioned to $1.25 partially offset by a decline in unit sales in the teens. 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. 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, even with the continuation of elevated freight costs. And as we reinvest in the key categories to deliver extreme value, we expect to see improved traffic and productivity as we move throughout the year. I've shared much about the $1.25 price point as it is where many investors are focused and it is transforming our company. 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 660 stores, well beyond our original target of 500 stores. At Dollar Tree, our $3 and $5 plus assortment will be expanded to another 1,500 stores in Fisco 22. Customers are responding very well to holiday, seasonal, and discretionary categories, and we will continue to grow and improve this initiative. At Family Dollar, our combo stores are working. Customers love shopping the best of Family Dollar and Dollar Tree in one easy to shop local store in their community. 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. We ended the year with 3,815 family dollar stores in the H2 format. We are planning for another 800 H2 store renovations in fiscal 2022, which we believe will bring our store fleet current and will enable us to reallocate time, effort, resources, and capital from the renovation program to other value creating initiatives as we move forward. I will now hand the call over to Kevin to provide details on Q4 performance and our outlook for fiscal 2022.