Dollar Tree, Inc.

Greetings, and welcome to the Dollar Tree Q2 2025 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad, and we ask you to please ask one question, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bob LaFleur, Senior Vice President, Investor Relations.

Bob, please go ahead. Good morning and thank you for joining us today to discuss Dollar Tree's second quarter fiscal 2025 results. With me today are Dollar Tree CEO Mike Creeden and CFO Stuart Glendening. Before we begin, I would like to remind everyone that some of the remarks that we will make today about the company's expectations, plans, and future prospects are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated by our 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 section in our annual report on Form 10-K, filed on March 26, 2025, our most recent press release in Form 8-K, and other filings with the sec we caution against reliance on any forward-looking statements made today and we disclaim any obligation to update any forward-looking statements except as required by law also during this call we will discuss certain non-gap financial measures reconciliations of these non-gap items to the most directly comparable gap financial measures are provided in today's earnings release available on the IR section of our website. These non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, we will refer to our financial results on a GAAP basis. Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations and all comparisons discussed today for the second quarter of fiscal 2025 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website. Following our prepared remarks, Mike and Stuart will take your questions. Given the number of callers who would like to participate in today's session, we ask that you limit yourself to one question. I'd now like to turn the call over to Mike.

Thanks, Bob. Good morning, everyone, and thank you for joining us today. With the closing of the Family Dollar sale, the second quarter represents an important milestone in the evolution of the Dollar Tree story. In addition to closing the sale, I'm proud to say we delivered another strong quarter, with results exceeding the high end of our expectations and reflecting a high level of execution across the board. The timing of the impacts of tariffs and our mitigation activities played out differently than we originally anticipated. with some of the net positive benefits of our mitigation initiatives coming earlier in Q2 and the tariff impact shifting to later in the year. Having said that, we are pleased with our momentum and our team's ability to adapt to a rapidly changing landscape. The second quarter unfolded against a volatile backdrop for both the consumer and retail industry as the economy continued to adjust to elevated tariffs, persistent cost pressures, and a static labor market. In today's environment, customers are seeking value and convenience more than ever, and Dollar Tree is uniquely positioned to deliver both. Whether it's a mom stretching her grocery budget, a college student outfitting a dorm room, or a higher income shopper attracted to an expanded assortment of everyday essentials, our stores are increasingly the destination of choice. This context is important because our Q2 performance was not just about exceeding a set of earnings expectations, It was about gaining share, expanding our relevance to a broader base of customers, and proving once again that Dollar Tree thrives when customers focus on value. So let's walk through the Q2 highlights. Net sales increased 12.3% to $4.6 billion, driven by a 6.5% comp sales growth, which is a solid result in a quarter without major traffic driving events or holidays. Importantly, comp growth was nicely balanced between traffic and ticket and between consumables and discretionary. In fact, it's been two years since we've achieved a discretionary comp this high. Additionally, unit growth was positive, even with the limited pricing actions we took in the quarter. The bottom line was strong with adjusted EPS of 77 cents coming in ahead of our outlook. Stuart will walk you through the details of how Q2 benefited from some timing issues and how those should flow through the balance of the year. This positive momentum and consistency of execution demonstrates our growing appeal as a value retailer in periods of increased volatility. More importantly, we believe the customer gains we've made are sustainable, a belief underscored by our growing understanding of the dynamics driving these gains. Our dollar and unit share gains accelerated in Q2, providing additional evidence that our value proposition is resonating with customers. Our strong performance was led by seasonal items, party, balloons, and personal items, as customers find more items through our expanded assortment to help them live and celebrate their lives. As of the end of Q2, we have added 2.4 million new customers on a last 12 months basis. consistent with our pace in recent quarters. And nearly two-thirds of those new customers came from households earning $100,000 or more. Underscoring growing engagement, the number of shoppers visiting three or more times a month increased by 11% in Q2, a sequential improvement from the 9% growth we saw last quarter. While sales growth was strong across all income cohorts, we continue to see especially strong performance from middle and higher income customers, with households earning over $100,000 per year providing a meaningful portion of our Q2 growth. The strength of these results reflects how our value, convenience, and discovery proposition is resonating with more and more customers and leading to increased trade-in activity. The increasing relevance of our expanded assortment is helping us attract and more importantly, retain a broader range of shoppers. To support the rollout of our expanded assortment, we completed 3,600 3.0 format store conversions through the end of Q2 and remain on track to reach our target of approximately 5,000 stores by year end. Recall that last quarter, we said the distinctions amongst our various multiprice and non-multiprice store formats were beginning to blur as we roll out certain aspects of the expanded assortment across all store formats. And since the flexibility of multiprice is increasingly embedded across all our stores, the relative performance among the various formats is less meaningful. As you can see from our aggregate comp this quarter, the business is doing exceptionally well. and we continue to be pleased with positive contribution from our expanded assortment. Expanding our assortment to include items at a variety of price points is fast becoming the standard Dollar Tree model. It enhances our flexibility, whether through larger pack sizes, better quality items, or entirely new categories. The ability to shop for $1.25 snacks and $3 to $5 home decor items in the same trip makes Dollar Tree more compelling than ever. Our expanded assortment makes us more relevant, broadens our customer base, and increases our flexibility in responding to tariffs and other cost pressures. Tariffs remain a source of ongoing volatility and operating in an environment where rates change frequently remains one of our largest challenges. A quarter ago, we told you we were forecasting the balance of the year based on our expectation that China tariffs would be 30% and the rest of the world would be closer to 10%. Today, tariff guidelines for China have yet to be finalized and currently remain at 30%, but countries like Vietnam, India, and Bangladesh are meaningfully higher than they were in June when we provided our last outlook. We are adapting to this volatility and have several strategies in place across the business to address multiple cost pressures, including tariffs. Over the past few quarters, we've detailed what we call our five levers to mitigate these cost pressures. To review, these levers include negotiating with our suppliers, respeccing products, shifting country of origin, dropping non-economic skews, and finally, and as a last resort, pricing. As we demonstrated in Q2 and expect will be true over the balance of the year, these levers are effective mitigation techniques. Using all five levers helps us to achieve the lowest landed cost possible and keep delivering compelling value to our customers. As many of you saw in our stores, our price initiatives started in late Q2 and will continue rolling out across the balance of the year. Following the selective pricing actions that we've taken so far, we are pleased with the understanding and resilience of our customers and the effect on unit volume has been less than we initially expected. This again demonstrates the power of our value proposition and validates multi-price as a structural advantage as we navigate a challenging tariff landscape. In a few minutes, Stuart will share more details on our tariff mitigation efforts in Q2 and for the rest of the year. Beyond the P&L, execution was strong across the business. Our inventory levels are healthy heading into the fall and holiday seasons. Supply chain performance remains solid with strong in-stocks favorable freight compared to last year, and efficiency gains from D.C. realignment projects in Odessa and Ocala. In real estate, we have opened 254 new stores so far this year, including 42 former Party City locations, and are on track to hit our full-year target of approximately 400 stores. Additionally, we have converted 26 former Family Dollar Combo stores to full Dollar Trees and expect to convert the remaining 31 stores by year-end. we remain pleased with the outperformance of our new stores, particularly the 99 cent only conversions. Elsewhere in real estate, the renovation of legacy Dollar Tree locations continues to enhance store conditions and improve the overall productivity of our fleet. Additionally, our expanded preventative maintenance program is reducing downtime and lost business, including a 15% year over year reduction in store close days due to maintenance issues. That is on top of a 50% improvement last year. On August 28th, we announced a new partnership with Uber Eats. I'm very excited about this partnership as it represents the next logical step in meeting our customers where they are and helping them shop the way they want to shop. Importantly, this agreement gives us access to Uber Eats' 25 million customers, which is a newer and younger demographic that Dollar Tree has yet to fully tap into. While it's still early days, we are encouraged by the initial response to the launch. In short, we are executing on growth, productivity, and cost control simultaneously. Dollar Tree has always thrived in tough times. From our founding in 1986 to today, our formula has been remarkably consistent, deliver value convenience and discovery for our customers. With our newly expanded assortment, we can now offer more compelling products and be more agile in navigating tariffs and other cost pressures, all while offering our customers more discovery at still affordable prices. Our ability to adapt not only positions us to withstand volatility, it positions us to gain share in the face of it. Dollar Tree is built to win in these conditions. offering prices that customers value, pack sizes that help them manage tight budgets, and a range of products, from everyday essentials to the joy of the perfect treasure hunt find. Taken together, our ability to drive traffic, ticket, comp, and market share in a volatile environment highlights the resilience of our model and the ever-increasing agility of our organizations. Before I turn things over to Stuart for more detail on our financial results and outlook, I'd like to acknowledge the extraordinary efforts of our associates. In every store, every distribution center, every support function, our people are the reason Dollar Tree continues to perform at such a high level and in a challenging and unpredictable environment. I'd like to give a special shout out for all the hard work that went into the Family Dollar sales process. This was a massive effort that involved nearly every aspect of the business, and I'm especially grateful for the efforts of everyone involved. The Dollar Tree team's dedication to serving customers and executing our initiatives with urgency delivers great outcomes and will drive our success for many years to come.