C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
DollarTree(DLTR)EarningsReport:Q32015
ConferenceCallTranscript
ThefollowingDollarTreeconferencecalltookplaceonNovember24,2015,09:00AMET.Thisisa
transcriptofthatearningscall:
Co mpanyPar t ic ipant s
RandyGuiler;DollarTree;IR
BobSasser;DollarTree;C EO
KevinWampler;DollarTree;C FO
GaryPhilbin;FamilyDollar;President,C O O
Ot he r Par t ic ipant s
MatthewBoss;JPMorgan;Analyst
StephenGrambling;GoldmanSachs;Analyst
DanBinder;JefferiesLLC ;Analyst
MichaelLasser;UBS;Analyst
ScotC iccarelli;RBC ;Analyst
PaulTrussell;DeutscheBank;Analyst
MANAGEMENTDISC USSIO NSEC TIO N
Ope r at o r :
WelcometotheDollarTreeIncorporated'sthird-quarterearningsconferencecall.
Today'sconferenceisbeingrecorded.
Foropeningremarksandintroductions,IwillturntheconferenceovertoMr.RandyGuiler,VicePresident,
InvestorRelations.Pleasegoahead,sir.
RandyGuile r (IR):
Thankyou,O perator.GoodmorningandwelcometoourconferencecalltodiscussDollarTree's
performanceforthethirdquarterofFY15.
Participatingontoday'scallwillbeC EO BobSasser;C FO KevinWampler;andFamilyDollar'sPresident
andC hiefO peratingO fficer,GaryPhilbin.
Beforewebegin,Iwouldliketoremindeveryonethatvariousremarksthatwewillmakeaboutfuture
expectations,plans,andprospectsfortheC ompanyconstituteforward-lookingstatementsforthe
purposesoftheSafeHarborprovisionsunderthePrivateSecuritiesLitigationReformActof1995.
Actualresultsmaydiffermateriallyfromthoseindicatedbytheseforward-lookingstatementsasaresultof
variousimportantfactors,includedinourmostrecentpressrelease,mostrecentcurrentreportonForm
8-K,quarterlyreportonForm10-Q ,andtheannualreportonForm10KwhichareonfilewiththeSEC .We
havenoobligationtoupdateourforward-lookingstatements,andyoushouldnotexpectustodoso.
Andtheendofourpreparedremarks,wewillopenthecallforyourquestions.Pleaselimityourquestions
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page1of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
tooneandonefollow-up,ifnecessary.NowIwillturnthecallovertoBobSasser,DollarTree'sC hief
ExecutiveO fficer.
Bo bSas s e r (C EO ):
ThankyouRandyandgoodmorning,everyone.Thismorning,weannouncedresultsforthethirdquarter
ofFY15.Totalsalesincreasedto$4.95billionandsame-storesalesincreased2.1%onaconstant
currencybasis.AdjustedcashEPSincreased30.4%to$1.33pershareversus$1.02pershareintheprior
year'sthirdquarter.
Despitewhatcontinuestobeviewedbymanyasachallengingretailenvironment,I'mverypleasedwith
ourthirdquarterperformanceandespeciallywithourcontinuedprogressinintegratingourrecent
acquisitionofFamilyDollar.Therehavebeennosurprisesthatwouldchangeouroutlookonthis
strategicrationale.
Thereisonlyincreasedexcitementabouttheopportunitiesthatlieaheadasalarger,strongerandmore
diversifiedorganization.Weareonlyonefullquarterintotheintegrationandbothourteamsarealigned
strategicallyandcollaboratingtodeliversolidresults.Accomplishmentsofthethirdquarterinclude
anothersolidquarterfortheDollarTreebanner.Asexpected,DollarTreedeliveredlowsingle-digit
positivesalescomp.
Same-storesalesonaconstantcurrencybasisincreased2.1%andthatwasontopofastrong5.9%
increaseinthethirdquarterlastyear.Thiswasthemostdifficultquarterlycomparisonfortheyear.O na
two-yearstackedbasis,oursame-storesalesacceleratedfromthesecondquartertothethirdquarter
justastheyhaddonefromthefirstquartertothesecond.SalesgrowthinQ 3wasdrivenbyincreasesin
bothtrafficandaverageticket.
We'remakingmeaningfulprogressonintegratingtheFamilyDollarbanner.O nlyonefullquarterin,the
storesarecleaner,theshelvesarebetterstocks,we'vecleanedupoldinventory,andtheendcapsare
morecompellingandrelevant.Thefeedbackwe'rereceivingfromstoreteamsandcustomershasbeen
positive.
WehaddevelopedandannouncedplanstorebannerourDealslocations.O urfullresourcesandenergy
arebeingfocusedonaretwoprimarybanners,DollarTreeandFamilyDollar.AndonNovember2,we
announcedthesuccessfulcompletionofourrequireddivestitureof330FamilyDollarstores.
I'mextremelypleasedwiththeconsistentgrowthandstrengthoftheDollarTreebusiness.Thiswasthe
31stconsecutivequarterpositivesame-storesales.Thirdquarterresultscontinuedtovalidatethe
relevanceoftheDollarTreebrand.Ascustomersareshoppingwithusmoreoften,weareattractingnew
customerseverydayandwhenthecustomersareinthestore,theyarebuyingmore.
DollarTreecontinuestobepartofthesolutionformillionsofconsumersastheystrivetobalancetheir
householdbudgets.Weserveaveryloyalandgrowingcustomerbase.O urcommitmentistocontinue
servingourexistingcustomersbetterwhiletakingeveryopportunitytogainnewcustomersineverystore
everyday.
O urmerchantsdoagreatjobsourcingproductthatexceedscustomerexpectationsforwhat$1canbuy
atacostthatfitsourmarginrequirements.Andourstoreteamsarefocusedonprovidingaclean,full,fun
andfriendlyshoppingexperience.O urmerchandisevaluesarebetterthanever.
SeasonalenergywashighbeginninginAugust,withback-to-school,inadditiontodominantdisplaysof
back-to-schoolbasics.Thecustomersrespondedfavorablytobrightlycoloredfashionstationary,teacher
supplies,classroomessentialsandlunchboxvalues,allpricedat$1.
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page2of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
InSeptember,wecelebratedDollarTree's29thanniversary,withbonafidesandwowitemsforour
customers.Keycategoriesincludedcleaningsupplies,home-officeessentials,snacksandabroad
assortmentofspecialvaluesfromourmillion-dollarbrands.O urstoreswerefilledwithwell-known
nationalbrandsandhigh-valueprivatelabelsthroughouttheevent.
Seasonally,ourstoreteamstransitionedefficientlyfromback-to-schooltofallharvestandHalloween.In
September,DollarTreebecameHalloweenheadquarters,withmajorstatementsinHalloweencostumes,
makeup,homedecor,candyandpartysupplies.C ustomersrespondedenthusiasticallyandoursellthroughwasimprovedoverlastyear.
DollarTreestoresarenowsetandpreparedforC hristmasandfourth-quarterholidayshoppingseason.
Forthethirdquarter,same-storesalesincreasedasaresultofgrowthinbothourbasicconsumablesand
discretionaryproducts.
Thetop-performingcategoriesinthequarterincludedsnacksandbeverage,candyandfood,household
supplies,andbeautyandeyewear.Geographically,DollarTreesame-storesalesgrowthwasstrongestin
theMidwest,followedbytheMid-Atlantic,Southeast,andNortheast.Allsixgeographiczonesproduced
positivesame-storesalesforthequarter.
Lookingforward,theDollarTreesegmentispositionedforincreasedrelevancetoourcustomers,
sustainedgrowthandimprovedprofitability.Wehavemultipleopportunitiestocontinuegrowingand
improvingourbusinessthroughopeningmorestoresandincreasingtheprofitability--theproductivityof
allofourstores.
Inthethirdquarter,weopenedatotalof118newDollarTreestoresandrelocatedorexpanded16stores
foratotalof134projects.Additionally,duringthequarter,werebannered143FamilyDollarstoresto
DollarTreestoresandwearepleasedwiththeresults.Wearenowtargetingatotalof200conversionsin
thisfiscalyear.
TotalDollarTreesquarefootageincreased9.9%comparedtotheprioryearandweendedthequarter
with5,841DollarTreestoresinNorthAmerica.Inadditiontonewstores,wecontinuetoexecuteour
strategytoimprovetheproductivityofourexistingstores.Someofourdrive-the-businessinitiatives
includecategoryexpansions,customersrealizingmorevalueaswerationalizeandexpandassortments
inourpetsupplies,hardware,healthcare,beautyandeyewearaswellashomeandhouseholdproducts.
Seasonalrelevance,ourstorefrontschangewiththeseasons.AtDollarTree,wewanttoowntheseasons
atthe$1pricepoint.Merchandiseenergyandthethrillofthehunt.ThroughoutthestoreatDollarTree,
youalwaysfindanunexpectedvalue.Andbeingfirstofthemonthready.Weplacespecialemphasison
basicconsumables,coreitemsatthebeginningofeachmonthwhenmanycustomersareshoppingfor
basicneeds.
Additionally,wearecontinuingtheexpansionofourfrozenandrefrigeratedcategory.Inthethird
quarter,weinstalledfreezersandcoolersin135additionalstoresforatotalof390storesyeartodate.
Wecurrentlyofferfrozenandrefrigeratedproductsin4,148storesandgrowing.
Wecontinuetosupportplannedgrowthwithinfrastructureanddistributioncapacityaheadoftheneed.
C onstructiononournewestDC andC herokeeC ounty,SouthC arolinaiswellunderway.This1.5million
square-footautomatedfacilitywillprovidecapacityandincreasedefficiencytosupportcontinued
profitablestoregrowthintheSoutheastandMid-AtlanticregionsoftheUS.Weplantohavethefacility
operationalinQ 3of2016.
Additionally,tosupportcontinuedgrowthinourC aliforniamarkets,weareexpandingourStockton
DistributionC enterfrom525,000to820,000squarefeet,anincreaseof55%.Thisprojectisscheduledto
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page3of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
becompletedbytheendofoursecondquarterin2016.
Again,I'mextremelypleasedwithourC ompany'saccomplishmentsinthethirdquarter.O urDollarTree
segmentcontinuestodeliversector-leadingoperatingmargins,ourcustomerbaseislargeandgrowing,
andweareonschedulewithourintegrationofFamilyDollar.Wehaveanincredibleopportunityahead
ofusasacombinedorganization.Iviewthestrategicrationaleasmorecompellingthanever.
Intheearlydaysofintegration,wehavefoundnothingthatdiminishesourvisionandplansforvalue
creation.Infact,I'mevenmoreenthusiasticabouttheopportunitythismergerpresentsforourcustomers,
oursuppliers,ourassociatesandourshareholders.O urprimaryareasoffocusforFamilyDollarareonthe
customer,theshoppingexperienceandthevalueequation.
Inthethirdquarter,wekickedoffourredtagclearanceeventwhilecontinuingthereviewofour
merchandiseassortmentsandcategoryflow,refiningrealestateplans,reviewingandrefiningmarketing
plans,anddefiningthetablestakesinourstores.Withourredtagclearanceevents,wehaveidentified
markdownandclearedoutold,slow-movingandnon-productiveinventory.Indoingso,wereclaimedour
endcapstomakewayforfreshnewandseasonalmerchandiseandtorefreshourdiscretionarysections
andapparel,homeandseasonal.Alloftheseareimportantcategoriesasweentertheholidays.
Theredtageventwaswellexecutedacrossstores.C ustomersrespondedtotheadditionalsavingsand
wehaveclearedmorethan$135millionatretailinagedtonon-productiveinventory.
Merchandiseassortmentsareunderreview.O urfocusisonprovidingproductandvaluethatbestmeets
ourcustomers'needs.Wearepayingspecialattentiontoopeningpricepoints,nationalbrandpricing,
privatelabelproducts,androleswhilerationalizingSKUsforincreasedproductivityandafocusonbasic
in-stocklevels.
Inrealestate,weareanalyzingportfoliodatatogainabetterunderstandingofcustomerand
demographictargets.Thisisassistingintheidentificationofadditionalstoresthatwouldhavebetter
DollarTreedemographicsforpotentialrebannerandidentifyingmetricsforimprovingnewstore
productivityandourreturnoninvestment.
Weareextremelyfocusedonopportunitiestoimprovethecustomerexperience.Thetablestakes
requirementsarebeingrefined,quantifiedandrolledoutfortesting.Tablestakesincludesstore
standardsandconditions,thecustomerexperience,merchandiserelevance,andcustomerengagement,
tonameafewofthekeymetrics.
Manyofthesemetricsarelessaboutinvestmentandmoreaboutdisciplinesandbenchmarks.C ustomers
arealreadyseeingcleaneraisleswithlessclutter.Fortablestakesinitiativesthatrequireinvestments,we
plantomanagewiththesamedisciplinedapproachthatwehaveusedatFamily--atDollarTreefor
manyyears,identifyingandpayingspecialattentiontothecustomer-facingmetricswithafocuson
returnoninvestmentandproductivityenhancement.
We'remakinggreatprogressondeliveringannouncedsynergies.Wehaveconfidenceinourabilityto
deliveratleast$300millioninannualrunratesynergiesbytheendofthethirdfullyearpost-closing.In
fact,I'llbedisappointedifwedon'texceedthisnumber.
Asareminderthesesynergieswillbedriventhroughfourprimaryavenues:sourcingandprocurement,
ourrebannerprogramforoptimizingstoreformats,distributionandlogistics,andoverheadand
corporateSG&A.Asannounced,weexpecttospendapproximately$300millioninone-timecoststo
achievethesesynergies.
Westillhavealotofworkaheadofusbutatthisstage,weareclearlyontracktoachieveouryearone
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page4of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
milestoneofatleast$75millioninrunratesynergies.Plansandprocessestocapturesourcingand
procurementsynergiesarewellunderway.O urexactmatchinitiativetoprovidethelowestcoston
identicalitemsacrossbothbannersisnearlycomplete,withexpectedresults;nosurprises.
Thereviewofsimilarmatchitemscontinues;positiveresultsaregrowing.Weareachievingpaymentterm
parodywithsavingsfromharmonizingpaymentterms.Auctionsareappeasedandaformalbidprocess
arewellunderwayonexpenseitems.O ursavingscontinuetobuildtowardsexpectations.
Duringthethirdquarter,werebanneredanadditional143FamilyDollarstorestoDollarTree,bringing
ourtotalofconvertedstoresto147.WearecontinuingtorebannerstoresintoNovemberandfourth
quarterandwe'renowtargetingatotalof200conversionsforFY15.Thepreliminaryresultsaremeeting
expectationsandfeedbackfrombothstoreteamsandcustomershasbeenpositive.
Wearewellonourwaytowardsfinalizingthesupplychainroadmapandinitiatingthemulti-banner
supplychainproject.Withacrossorganizationalfunctionalteam,weareintegratingourwarehouse
managementsystems.Andwe'remakingplanstorationalizethefleetofcombinedDC s,analyzingspace
needsbybanner,anddeterminingourabilitytoshipbothbannersoutofallfacilities.Thisisaverylarge
projectwithsignificantopportunityforlong-termsynergies.O urfirstpilotfacilitiesplantobeoperational
inthirdquarterof2016.
Wecontinuetomakeprogressonreducingcosttooursharedservicesmodel.Wearecombiningbackofficefunctionstosupportbothbannersthroughasharedservicesorganization.O vertime,theseshared
serviceswillincludehumanresources,finance,informationtechnology,supplychainandlogistics,legal
andstrategicplanning,andinternalaudit.O urgoalistoprovideconsistent,efficientsupportofour
businessinitiativesacrossthecombinedorganizationthroughamorecost-effectiveapproach.
O nO ctober13,weannouncedplanstorebannerall222Dealslocationsin2016.Fornearlyadecade,our
committedteamofDealsassociateshasdoneagreatjobofconsistentlyprovidingcustomerswithterrific
values.
WiththeacquisitionofFamilyDollar,weareconfidentthatwecanprovidemorefocusandbetterserve
ourDealscustomersinmarketsthroughourprimarybanners,DollarTreeandFamilyDollar.Wewillbegin
theconversionofDealsinJanuary,withplanstocompletetherebanneringofallDealsstoresbytheend
ofJuly2016.
O nlyafewmonthsintotheintegration,we'vemadegreatprogress.Therearesomequickandeasywins
andsomethatwilltakemoretimeandagreatdealofwork.
ThetimingofsomewillbedependentonourITintegration.O urstrategyisnottotoucheverythingat
oncebuttoprioritizeourareasoffocustogetitrightthefirsttimeandbuildtheoverallbannersbusiness
forthelongterm.Itisaprocessthatwilltakemorethanafewmonthsbutthereturnisworthit.
NowIwillturnthecallovertoKevintoprovidemoredetailonourfinancialperformanceandouroutlook
fortheremainderof2015.
Ke vinWample r (C FO ):
ThanksBobandgoodmorning.Asaresultoftherecentacquisition,year-over-yearcomparisonsforthe
nextseveralquarterswillbeverycomplex.However,wehadaddedtablestothepressreleasewhichwe
believewillbehelpfulinunderstandingtheongoingbusiness.
Totalsalesforthethirdquartergrew136%,or$4.95billion,whichincludesourfirstfullquarterofFamily
Dollarsales.DollarTreesegmentsalesincreased8.4%to$2.27billion,whileFamilyDollarsegmentsales
increased6.1%to$2.67billion.
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page5of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
Same-storesalesonaconstantcurrencybasisincreased2.1%versusaverystrong5.9%intheprior
year'sthirdquarter.Theincreasewasdrivenbybothtrafficandticketincreases.Adjustedfortheimpact
ofC anadiancurrencyfluctuations,same-storesalesgrew1.7%.
PleasenotethatalloftherecentlyacquiredFamilyDollarstoresandnewlyrebanneredstoresare
considerednewstoresandarenotincludedinoursame-storesalescalculation.
WewerepleasedwithFamilyDollarsalesduringthequarter.Wesawlowtomid-singledigitpositive
same-storesaleseachmonthduringthequarter.Septemberwasthestrongestmonthdrivenbythe
timingofourredtagclearanceevent.Geographically,salesstrengthwasrelativelybalancedbyregion.
Grossprofitforthecombinedorganizationincreasedby$674.7million,or93%,to$1.4billionforthethird
quarterof2015comparedtolastyear'squarter.ThemajorityofthedollarincreasewasdrivenbyFamily
Dollar'sgrossprofitof$627.8million.
Afewfactorstonoteare:duringthequarter,$38.4millionwasamortizedtocostofgoodssoldrelatedto
theinventorystep-upthatnegativelyimpactedgrossmarginresults.Thisamountwashigherthan
originallyprojectedbasedoninventorysell-through.Thetotaldollaramounttobeamortizedhasnot
changed.
Wecurrentlyestimateanadditional$11millionwillbeamortizedtocostofgoodssoldinQ 4.Duringthe
thirdquarter,wetookanadditional$13millioninmarkdown-relatedexpenseintheFamilyDollarbanner
forourredtagclearanceevent.Weoptedtotakeadvantageofthesuccessintrafficoftheclearance
eventtoclearadditionalinventorythatwasdeemedtonon-goforward.
GrossprofitmarginfortheDollarTreesegmentwas34%duringthethirdquartercomparedwith34.6%in
theprioryear'sthirdquarter.The60basispointdecline,asapercentofsales,wasprimarilydrivenbya
decreaseinmarkonrelatedtoincreasedthird-partyproducttesting,increasedfreight,andhigher
DistributionC enterlaborcosts.
GrossprofitmarginfortheFamilyDollarsegmentwas23.5%duringthethirdquartercomparedwith24.3%
inthecomparableperiod--comparableprior-yearperiod.Excludingthe$38.4millionofinventorystepupamortizationandthe$13millionofadditionalclearancemarkdowns,grossprofitmarginwas24-25.4%forthequarter.
Theimprovementof110basispointsonacomparablebasiswasdrivenbyimprovedmarkon,lower
markdowns,improvementinfreightanddistributedcosts,partiallyoffsetbyhigheroccupancycosts.
Selling,generalandadministrativeexpensesinthequarter,forthepriorcombinedorganization
increased132.7%to$1.18billionfrom$505.6millioninlastyear'sthirdquarter,themajorityofthe$670.7
millionincreaserelatedto$628.99ofFamilyDollarexpense.
Q 3SG&AexpensefortheDollarTreesegmentforthepercentofsaleswas24.1%,consistentwiththe
prioryear'squarter.Thecurrentyearincludes$20.3millionofacquisitionandintegration-relatedcost
whiletheprioryearincluded$14.3millionofacquisition-relatedcosts.Excluded--excludingthesecosts,
adjustedSG&Aimprovedto23.3%forQ 3comparedto23.5%fortheprioryear'squarter.This20basis
pointimprovementwasdrivenprimarilybylowerincentivecompandlegalfees.
SG&AexpensefortheFamilyDollarsegment,asapercentofsales,was23.5%comparedto23%in
theprioryear'squarter.Thecurrentyearincludes$6.8millionofintegrationanddivestiturecosts,$19.8
millionofdepreciationforharmonizationofpoliciesandfairmarketvalueadjustments,and$19.2million
offavorableleaserightamortization.
Theprioryear'scomparableperiodincluded$30.6millionofrestructuringchargesand$9.7millionof
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page6of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
acquisition-relatedcosts.Excludingthesecosts,adjustedSG&Aincreased40basispointsasa
percentofsalesto21.8%from21.4%intheprioryear.
Theincreasewasprimarilydrivenbyincreasedrepairandmaintenanceexpenseforthequarter.
Adjustedoperatingincome,excludingacquisitionandintegrated-relatedcostsforDollarTreesegment,
increased$11.1millionto$245.1million.Asapercentofsales,adjustedoperatingincomedecreased40
basispointsto10.8%comparedto11.2%ofsalesintheprioryear'sthirdquarter.
AdjustedoperatingincomefortheFamilyDollarsegmentincreased$23.1millionto$96.1million.Asa
percenttosales,adjustedoperatingincomeincreased70basispointsto3.6%comparedto2.9%ofsales
intheprioryear'scomparableperiod.Non-operatingexpensesforthethirdquartertotaled$99million
andwerecomprisedprimarilyofnetinterestexpenseof$98.4millioninthequarter.
Forthethirdquarter,theC ompanyhadnetincomeof$81.9million,or$0.35perdilutedshare.Adjusted
earningspershare,asdetailedinthepressreleasetables,was$0.49perdilutedshare.
O nanadjustedcashEPSbasis,earningspershareforthequarterincreased30.4%to$1.33pershare
comparedto$1.02pershareinlastyear'sthirdquarter.Inourearningsreleaseissuedthismorning,we
providedadetailedreconciliationofnetincometoadjustedEBITDA,adjustedcashearningsand
adjustedcashearningspershare.
O urtax--oureffectivetaxrateforthethirdquarterwas34.3%comparedto36.5%intheprioryear's
quarter.ThelowerratewasprimarilyattributabletoanincreaseinWorkO pportunityTaxC redit,or
WO TC ,inrelationtoincomeforthethirdquarterandadecreaseinstatetaxexpense.
C ombinedcashandcashequivalentsatquarterendtotaled$1.1billioncomparedto$407.6millionat
theendofthethirdquarteroflastyear.InventoryfortheDollarTreesegmentatquarterendwas12.1%
greaterthanatthesametimelastyearwhilesellingsquarefootageincreased9.9%.Inventoryperselling
squarefootincreased2%.
Webelievethatcurrentinventorylevelsareappropriatetosupportschedulednewstoreopeningsand
oursalesinitiativesforthefourthquarter.FortheFamilyDollarsegment,weareextremelypleasedwith
ourclearanceeventwhicheliminatedagedandnon-productiveinventoryandattheendofthequarter,
inventorydecreased0.3%comparedtotheprioryear.Wearecontinuingtoreviewmerchandise
assortmentsanduntilourcurrentinventorylevelsareappropriateforthefourthquarter.
C apitalexpenditureswere$169.5millioninthethirdquarterof2015versus$94.2millioninthethird
quarterlastyear.ForFY15,weareplanningforcapital--consolidatedcapitalexpenditurestorangefrom
$505millionto$525million.
C apitalexpenditureswillbefocusedonnewstoresandremodelsincludingadditionalfeedevelopment
stores,rebannerselectFamilyDollarstorestoDollarTreestores,theadditionoffrozenandrefrigerated
capabilitytoapproximately425stores,ITsystemenhancements,aconstructionofournewC herokee
C ounty,SouthC arolinaDistributionC enterandtheexpansionofourStockton,C aliforniaDistribution
C enter.
Depreciationandamortizationtotaled$168.7millionforthethirdquarterversus$50.9millioninthethird
quarterlastyear.ForFY15,weexpectconsolidated,depreciationandamortizationtorangefrom$470
millionto$490million.AsdiscussedwithQ 2,thisrangeincludesincreasesoverthetraditionalrunrateof
depreciationandamortizationexpenseforFamilyDollarfortwoitems.
First,itincludes$46millionofdepreciationabovethehistoricalrunrateforFamilyDollarasaresultof
harmonizingthedepreciablelivesaccountingpoliciesofthetwocompaniesandtheincreaseinthe
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page7of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
valueofassetsbasedonpurchasepriceallocation.Secondly,itincludes$45millionfortheamortization
offavorableleaserightsforthepurchasepricevaluationofFamilyDollarleases.
O urguidancethentakesintoaccountouractualperformanceforthefirstthreequartersof2015aswell
asourvisibilityandforecastfortheremainderoftheyear.O urguidanceconcludesthefollowing
assumptions.Iwouldliketoreiteratethatoursame-storesalescalculationexcludesrecentlyacquired
FamilyDollarstoresandexcludesstoresthatwererebanneredfromFamilyDollartoDollarTree.
Thesestoreswillbeincludedinoursame-storesalescalculationwhentheyhadbeenownedbyDollar
TreeoropenedasaDollarTreefor15months.Wewillcontinuetoexperiencesomedegreeof
cannibalizationtoDollarTreecompsaspartofourrebannerefforts.Thiscannibalizationexpectationwas
plannedandfactoredintobothourrebannerstrategyandanalysisandouroutlookforsame-storesales.
InO ctober13,weannouncedour2016planstorebannerallofourDealsstorelocations,sothatwecan
placeallofourfocusonourtwoprimarybanners,DollarTreeandFamilyDollar.Theconversionprocess
willbesimilartothatweareusingtoconvertFamilyDollarstorestoDollarTrees.Weexpecttohavethis
initiativecompletedbytheendofJuly2016.
O urguidanceincludes$12.5millionofmarkdownreserves,accelerateddepreciationandother
rebanneringexpense.ThisrepresentsourbestestimateatthistimetocompletetherebanneringofDeals
storestoDollarTreestores.
O nNovember2,justafterourthirdquarterended,weannouncedthesuccessfulcompletionofour
requireddivestitureof330FamilyDollarstores.These330storesrepresentedapproximately$45.5million
inannualoperatingincome.Intermsofthesaleshavenotbeendisclosedandtheneteffectofthe
divestitureonDollarTree'sassetsandliabilitieshasbeenreflectedintheconsolidatedbalancesheet.
Thedivestiturewillhavetwoeffectsonourfutureincome.Inadditiontolosingtheoperatingincome
associatedwiththese330stores,wealsoexpecttoincur$5millionto$10millionintransactionclosing
costsandset-upcostsrelatedtotransitionservices.O veraperiodexpectedtobenomorethan24
months,wewillbeprovidingcertainsupportandtransitionservicesandexpecttobereimbursedbythe
buyerforthesedirectoperatingcostsandsupportservices.
Theexpectedfinancialeffectofthedivestitures,whichincludesthelossoftheoperatingincomefromthe
330storesalongwiththecostofthetransitionservicesagreement,isincludedinourguidance.O ur
guidancealsoassumesataxrateof37.9%forthefourthquarter.
Weightedaveragedilutedsharecountsareassumedtobe235.8millionsharesforQ 4and223.5million
sharesforthefullyear.Forthefourthquarter,weareatforecastingtotalsalestorangefrom$5.32billion
to$5.42billion.ForFY15,wearenowestimatingtotalsalestorangefrom$15.45billionto$15.55billion.
Bothoftheseestimatesarebasedonalowsingle-digit,same-storesalesincrease.Wehaveattachedto
ourpressreleaseareconciliationoftheforecastedQ 4rangeofnetincometoadjustedEBITDAand
adjustedcashearningspershare.
Weareforecastingnetincometorangefrom$213.2millionto$242.2millionandadjustedcashearnings
perdilutedshareof$2.32to$2.51forthefourthquarter.IwillnowturnthecallbackovertoBob.
Bo bSas s e r (C EO ):
Thankyou,Kevin.ThestrategicrationalefortheFamilyDollaracquisitionismorecompellingthanever.
Thisisanextremelylargeandcomplextransaction,involvingmorethan13,000retailstorelocations,
180,000people,and23distributioncenters,whichbasedonstorecount,isthelargestofanyprevious
retailmerger.
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Whileweareveryearlyintheintegrationprocess,I'mpleasedwithourprogress.Wehavegreat
confidenceinourabilityandtheopportunityandtheabilitytoachieveatleast$300millioninannual
runratesynergiesbytheendofyearthree.Thesesynergieswillbeachievedthroughacombinationof
loweringcostsinbothdirectandindirectsourcing,banneroptimization,logisticsandoverhead.
Wewillemployadisciplinedapproachtodrivingkeystrategicinitiativestothecombinedorganizationto
improvecommunication,analysis,collaborationandincentives.We'reconfidentthatplacingourinitial
emphasisintheseareascanmateriallyenhanceoperatingperformanceoftheFamilyDollarbrand
throughimprovementsinsales,margins,expensecontrolandgreatercustomersatisfaction.
IwillclosethepreparedremarksbysayingthattheDollarTreebusinessmodelispowerful,flexible,and
morerelevantthanever,providingextremevaluetocustomerswhilerecordingrecordlevelsofearnings.
O urmodelhasbeentestedbytimeandvalidatedbyhistory.For31consecutivequarters,DollarTreehas
deliveredpositivesame-storesalesincreases.Throughgoodtimesanddifficulttimesandallretailcycles,
consumersarelookingforvaluenomatterthestateoftheeconomy.
Whileourpricepointremainsat$1,ouroperatingmargincontinuestoleadthediscountsector.Withthe
additionofFamilyDollar,wearealarger,strongerandmorediversifiedbusinessandbetterabletoserve
morecustomers,inmoremarketswithexactlywhatthey'relookingfor:greatvalue,ineverystore,every
day.Andwehavemanyyearsofgrowthaheadofus.
O perator,wearenowreadyforyourquestions.
Q UESTIO NS&ANSWERS
Ope r at o r :
Thankyousir.
(O peratorInstructions)
MatthewBosswithJPMorgan.
Mat t he wBo s s (Analyst-JPMorgan):
Thanks.C ongratsontheprogresstodate.
SoafirstquestionIjustwantedtoaskismorearoundFamilyDollar.Is--Iguess,first,istheinventory
clearancenowcomplete?Secondly,havethepositivecompscontinuedintothefourthquarter?
AndthenBob,ifyoucouldjusttalkaboutthecategoriesthatyou'vebeenabletotouchsofar?Andhow
youwouldlikeustojudgeyouduringtheholidayandintoearlynextyear?
Bo bSas s e r (C EO ):
Well,Matt,thankyouforthequestions.Iwilltellyouthatwehadgreatsuccesswithredclearanceand
theinitialplansonthathavebeenprettymuchcompleted.We're--wehadgreatcleanuponthat.AsI
saidinthepreparedremarks,$135millionworthofinventoryatretailmovedout.
WestillwillhavesomeC hristmastocome.O bviously,we'regoingtobebetterservedingettingridofthat
duringtheC hristmasseason.Sothat'ssmallerdollarsbutthat'sstillyettocomeinthefourthquarter.
Thesecondquestionwasfourthquartertrends,IwilltellyouthatI'mreallyjazzedaboutfourthquarter.
WearenotgoingtoreportfourthquarterforawhilesoIcan'tstarttalkingtoyouaboutthesalesand
specificitybutallinall,we'reexcitedaboutourplansatFamilyDollar.Again,we'veopenedupallof
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thoseendcapsandallofthatspaceforourseasonalmerchandise.Theseasonalmerchandiselooks
reallyterrificandweareexcitedaboutouropportunitiesthere.Andthirdquestionwascategories?
Gar yPhilbin(President,C O O ):
C ategoriesandtouch.So,Matt,thisisGary.Letmejustmaybeaddalittlecolor.Aswesteppedinto
drivingthebusiness,steponewastogettheredtagclearanceeventgoing.Thatdidacoupleofthings
forus.Itgotridofunproductiveinventory.
ButIwouldsayitalsogotourselvessetupfortheholidaytherightwaywhichisveryimportantforus.The
categoryreviewsareongoingbuttheprioritygoingintothefourthquarterwasjusttomakesurethatour
holidaymerchandise,alotofourdiscretionarycategorieswereinplace.Soduringthefourthquarter,
you'renotgoingtoseewholesalechangesincategories.
WearefocusedpurelyongettingtheholidaymerchandiseoutinfrontofthecustomerandIthinkwe
haveourbestopportunitythisyeartohaveagreatsellonlotsofseasonalrelevantitems.Now
merchandisingreviewswillbeongoingaswegointoFY16andyouwillseethosechangesaswerollthem
out.Butourfocusnowthroughtheholidayisjustpurelytosellalloftheholidaymerchandiserelatedto
ThanksgivingandC hristmasthatwecan.
Mat t he wBo s s (Analyst-JPMorgan):
Great.Andthenjustonequickfollow-up.Aswethinktonextyear,there'sbeenalotoftalkoutthere
aboutnegotiationsandwages.Bob,IknowyouarenotgivingformalguidanceintoFebruarybut
anythinglargerpicturethatyouhaveuncoveredthathassurprisedyousofarasyoudugintoFamily
DollarandanyhelparoundthebestwaytothinkaboutfundingandwagesIthinkwouldbereally
helpful.
Bo bSas s e r (C EO ):
Well,Iwillsharewithyouthis.O neofoursynergieswastoworkwithourvendorpartnerstoalignthecost
ontheexactmatchitemsandalsotobeginworkonthesimilarmatchitemsandwearereallywellinto
thatandI'mreallyexcitedabout--weareachievingwhatweexpectedinthat.Asfarasworkingwithour
vendorsgoingforward,ourplanistoworkwiththemtoprovidethebestproducttoourcustomers,tosell
it.
Wewanttodriveproductsalesfromourvendorpartners.Thewaywegotomarket,wepreferinmany
casestotakethoseincentivesandapplyittothecostofthegoodsinsuchawaythatwecansharethat
valuewiththecustomer.We'regoingtomakemoneybysellingproduct,notbycollectingfunds.
Nowhavingsaidthat,wedon'texpectthefundstogoaway.Weexpecttoworkwithourvendorpartners
tousetheminsuchawaythatwecandrivemorecartons,morecasesoftheirproductthroughourdoors.
SoI'mexcitedaboutthetransition.
Ithinkyoucangetasaretailer,andmanyretailers,Ithink,gettoofocusedoncollectingfundsandnot
focusedenoughonthecustomerandnotfocusedenoughondrivingvalueforthecustomer.Andweare
justexactlyaswe'vedoneatDollarTree,wearealwaysfocusedonthecustomer,gettingthebestprice
thatwepossiblycan;thatincludesgettingourshareofthefundingwherepossible.
Butgettingthelowestpricepossiblesothatwecanpricetheproductappropriatelyanddrivemore
chasesalesthroughthefrontdoorsandourvendorpartnershavethesamegoal,bytheway.Sowe're
completelyalignedonthatstrategy.Ithinkthattheplansarecomingtogethervery,verynicely.
Mat t he wBo s s (Analyst-JPMorgan):
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Great.Bestofluck.
Bo bSas s e r (C EO ):
Thankyou.
Ope r at o r :
WewillgonexttoStephenGramblingwithGoldmanSachs.
Bo bSas s e r (C EO ):
HiSteve.
St e phe nGr ambling(Analyst-GoldmanSachs):
Goodmorning.Thanksfortakingthequestion.SoIguesschangingthefocustotheDollarTreebusiness
asyoulookatthegrossmarginline,IthinkthatKevinmentionedtheincreasedthird-partyproduct
testingandincreasedfreightcost.
C anyoujustelaborateonsomeofthedriversofbothandhowweshouldbethinkingaboutthese
impactsgoingforward?AndthenIguessmaybeabiggerpicturequestion,justyourlonger-term
expectationsfortheDollarTreesegmentmargin?Thanks.
Bo bSas s e r (C EO ):
Yes,Stephen,that'safairquestion.IcantellyouthatthetwothingsthatKevinmentioned,thereare
thingsthatwedointhenormalcourseofbusiness.Wehavedoubledownonourtesting,testingmore
times,especiallyonsomeofthecategoriesthataremoresubjecttocomplianceissuesandtheideaiswe
don'twanttofail.
Wewanttomakesurethatweareprovidingasafeproductforourcustomersandwedoubledownonour
testing.Ithinkthat'saonetime,notthatwe'regoingtocontinuetestingbutwhatyousawtherewasa
littlebitofabubblebasedonachangeandthewaywearedoingourtesting.Thatwillsmoothoutover
time.
Ihavegreatconfidencewewillbeabletomanagethatforthelonghaul.Thesecondthingwasthe
largestimpactwasourDC productivitywaslowerinthethirdquarterandthere'sacoupleofthingsthere
andtheyareall--youcanpointtothem.Wecanidentifythemandwecanfixthemovertime.
ButwearehereatpeakinventorytimesatDollarTree.Wearereceivingalltheproductsfor--inthethird
quarterforourthirdquarteraswellasourfourth-quartersales.It'sthepeakinventorytimeandatthe
sametime,wedecidedtorebanneracouplehundredFamilyDollarstorestoDollarTree.
Andwe'vescrambledaroundtobuytheproductsandinsertthatintotheinventoryequation,receivingit
intheappropriateDC s,andmaybesigningthingsalittledifferently,movingthingsaround,aswellas
rebanneringourDealsstoreswhich,overtime,we'renotgoingtostartthatuntilJanuarybutjustthe
planningandgettingthingspositionedforthat.
Reducedouroverallproductivityatatimewhenourbuildingsareatabsolutelymaxpeakcapacity.AsI
mentionedacoupleoftimes,wearebuildinganewdistributioncenterof1.5millionsquarefeet.We
alwaysbuildaheadoftheneedbutjustaheadoftheneed.
InSouthC arolina,toserveMid-AtlanticandSoutheasternDollarTreestoresAswellasexpandingour
StocktonDistributionC enter--over50%fornextyear.Sowe'reopeningupmorecapacitywhilewe're
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doingalotofthingsinadditiontowhatwehadoriginallyplannedinourdistributionmodel.
Theresultwaswehadsomedistributionproductivitylag;atthesametimeouroutboundtransportation,
whichissomethingwe'vetalkedaboutbeforewasalsoalittlehigherthanithasbeeninthepast.Soall
inall,thingsareidentifiable,opportunitytoimproveandwewillimproveonthosebutthatwasreallythe
maincomponentsofthedragonthegrossprofitnumberinthethirdquarter.
St e phe nGr ambling(Analyst-GoldmanSachs):
Great.Andjustafollow-upthere.WasjustonthemarginpathgoingforwardforDollarTreesegment,
which--itsoundslikefromputtingthataltogether,itwouldbetheoretically,youwillseesomeofthat
evenoutandbeup.Isthatfair?
Bo bSas s e r (C EO ):
Yes.Imean,weare--asIsaid,weareputtingthishugecompanytogetherthrough--intoashared
servicesmodel.O vertime,we'regoingtobecombiningbothbannersunderonesupplychain,withallof
ourbuildings,supplyingproductforallbannersandwiththeabilitytosupplymerchandiseforall
banners.
Atthesametime,wearelookingatrationalizingourbuildingsandalsoidentifyingwherethecapacity
needsaregoingtobeforthefuture.Allofthatisgoingonrightnow.Whatthatmeansthoughisover
time,wewillhavelowersupplychaincosts.We'relookingformoreproductivityoutofourbuildings.
We'relookingforreducingstemmilesaswe'reabletoservicebothFamilyDollarstoresandDollarTree
storesoutofthesamebuilding.Sothere'salotofopportunitytolowercostsgoingforward.Andto
improveourservicetoourstoresthroughthecombinedpowerofthiscombinedsupplychain.
St e phe nGr ambling(Analyst-GoldmanSachs):
Great.Well,thanksfortheanswersandgoodluckfortheholiday.
Bo bSas s e r (C EO ):
Letmeaddonemorething.Idon'tthinkIgaveyouanansweronthemarginforDollarTreegoing
forward.MerchandisemarginforDollarTreegoingforward,Idon'tthink--wearealwaysincontrolofthat.
It'smoreaboutthemixthanitistheitemsbecausewedon'thavetohaveanything.
I'llsayagain,wechangedalotofourproducteveryyearandourbuyersgotomarketwiththesame
goal,thatistoofferthebestvaluefor$1atamarginthatfitsourmarginrequirements.Wearestillin
controlofouroperating--ourmerchandisemarginatDollarTree.
Wehaveonequarterwherewe'vegotsome-alittlenoiseinthere,frankly,butlikeIsaid,that's
identifiable.That'sfixable.We'regoingtoimprovethatovertimebutthemerchandisemark-upatDollar
Treeisstillabsolutelyinourcontrol.AndIdon'tseeanypressurestochangethat,frankly,sourcing
opportunitiesareimprovedwithboththesizeofourstencilaswellastheeconomicconditionsaround
theworldespeciallyC hina.It'sreallyabuyers'marketouttherenow.
St e phe nGr ambling(Analyst-GoldmanSachs):
Thankyou.
Ope r at o r :
Again,ladiesandgentlemen,justareminder.Pleaselimityourselftoonequestionandonefollow-up.We
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willgonexttoDanBinderwithJefferies.
DanBinde r (Analyst-JefferiesLLC ):
Hi,goodmorning.It'sDanBinder.Iwasjustcuriousifyoucouldgiveusalittlebitofcoloronyour
thinkingforFamilyDollarstoregrowthnextyearandjustreminduswhatthisshouldlooklikeforthisyear
netoftheclosingsandrebrands.
Bo bSas s e r (C EO ):
We'relookingatthatrightnow,Dan,asalways.WeannouncedourstoregrossattheJanuary--atthe
Marchcallafterourfourthquarter.Andwe'regoingtodothatagain.Thereisplentyofroomtogrow.Iwill
tellyouthatontheDollarTreeside,I'vealwayssaidforyears,anyway,I'vesaid7,000storesintheUS
DollarTreestoresandanother1,000inC anadamakesit8,000.
TheFamilyDollar,talkingtothem,theyhavesaidforsometime12,000FamilyDollarstoresintheUS.So
there'sapotential20,000storesthere.We'vegotalittleover8,000now.Sothere's13,000now.Sothere
isplentyofroomtogrow.We'reputtingtogetherourplansfor2016.Iwilltellyouthatweare-directionallypullingbackonthenumberofstores,FamilyDollarstores,fornextyear.
We'renotreadytoannouncethatnumberyetbecausewe'restillworkingonbudgetsandallthethings
thatC apExandallthatgoeswiththat.AndwewouldplantocontinuetogrowourDollarTreebanner
nextyearbutagain,I'mnotgoingtogiveyouthenumbersuntiltheMarchcall,sothat'scertain
directionally,howwe'rethinkingaboutit.Wewillsharemorewithyouwhenwe'vegotmorefirmnumbers
onthat.
DanBinde r (Analyst-JefferiesLLC ):
Andthenmyfollow-upquestionwaswithregardstothefourthquarterguidancethatyouprovided.Ifwe
thinkaboutthebreakdownbetweentheFamilyDollaroperatingmarginversustheDollarTreeoperating
margin,I'mnotsureifyoucouldjustmaybecommenttotheDollarTreeoperatingmargin,howdoyou
thinkaboutthatforQ 4?
IsasimilarcontractioninQ 4aswesawinQ 3ordoyouthinkit'sclosertoflatorjustdirectionally,how
youthinkitplaysout?
Bo bSas s e r (C EO ):
Dan,aswethinkaboutit,obviously,becauseofthe--whatyou'vegottotakeintoconsiderationisthe
Dealsinformationwegavetodaywhichisa$12.5millionestimatedcost.Sothatisabigpieceofthatis
markdowns,whichisgoingtoaffectthegrossmargin.
Excludingthat,IthinkwewouldpotentiallyseemaybealittlepressurefromfreightandDC costinthe
quarter.IexpectSG&Acosttoleverage,obviouslyinthequarter,justendedonbasicallya2%
comp.Weleveraged20basispoints,whichfeltlikeaprettygoodperformancewitheverythinggoingon.
SoIthink,ingeneral,IthinkflattishoperatingmarginsfortheTreeisareasonablethoughtprocess.I
thinkontheFamilyDollarside,Ithinkit's--asIthinkaboutit,it'sreallyaroundhowdoestheholidaysellthroughgo?
AndGarytalkedabouttheholidaymerchandiseandthefocusonthatandthatwilldetermine,Ithink
howthatplaysoutattheendofthe--weareveryexcitedaboutitandhavehighexpectationsbutthat
willbeabigpieceofit.
IthinkonFamilyDollar,ontheSG&Asideingeneral,myexpectationwouldbetoshowimprovement
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fromwherewewereinQ 3.InQ 3,wewereup40basispointsyearoveryearandIwouldn'texpectitto
necessarilybeup40basispointsbutifwecangettosomewhereclosertoflat,wewouldbeinabetter
position,Ithink.
DanBinde r (Analyst-JefferiesLLC ):
Thanksforthecolor.
Ope r at o r :
WewillgonexttoMichaelLasserwithUBS.
Mic hae lLas s e r (Analyst-UBS):
Thankyoufortakingmyquestions.O ntheSG&AfortheFamilyDollarbusiness,howmuchofthe
increasethatyousawinthequarterthatyou'reimplyingforthefourthquarterisacostofdoingbusiness
andhowmuchismoreone-timeinnature.
Ithinkthemarketistryingtounderstandwhatthetruthunderlyingoperatingincomeproductionof
FamilyDollarmightbeandthenwecanlayeronwhatourexpectationsandsynergiesandotherfactors
mightbeoverthelongterm.Rightnow,it'sdifficulttocomprehenditatthispoint.
Bo bSas s e r (C EO ):
Well,Ithinkobviously,giventhecolor,thatwe'relookingfortheSG&Atobeflattomaybeslightly
up.We'reobviouslyoperatinginrealtime.There'salotofmovinglevers;nosurprisethereattheendof
theday.
We'rearebeingprescriptivethewaywelookatthingsonanoverallbasis.We'vetalkedabouttheneed
topotentiallyinvestinthestoressoyousawrepairsandmaintenancebeingupinQ 3;nottotally
surprising.Sosomeofthatwasnormalcourse;someofthatwascatch-up.
Wedon'tnecessarilybreakittotallydownthatwaywhenwe'relookingatitsowe'rerunningthe
businessinrealtime.Welooktocontrolthecostswherewecan.Wedon'tjustspendmoneythatwe
don'thaveto;it'sveryprescriptiveinthewaywedoit.Iknowthatreallydoesn'tansweryourquestion
butIdon'tknowthatItrulycanansweryourquestioninasenseofhowmuchofitisonetimeversus
ongoing.
That'sreallywhatwetrytodointhequarter,inasenseofstrippingoutalltheunusualthingsand
gettingbacktoamorebaselineanalysisofshowingitup40basispointswiththebasically,themain
componentbeingrepairsandmaintenance.Again,it'saworkinprocessandwewillcontinuetogo
forward.
Mic hae lLas s e r (Analyst-UBS):
Letmeaskyoufromadifferentperspective.Soifyoulookbacklastyearonastandalonebasis,Family
Dollardidabout$0.5billioninoperatingincome.Isthereanythingthatyou'reseeinginthebusiness
nowtosuggestthatstructurally,thewayyou'regoingtorunthebusiness,thatcompleteoperating
incomeproductionwillbelowerasaresultofinvestmentsthataregoingtoneedtobemadeorother
changesmovingforward?
AndIwanttoabidebythespiritofthequestions,soandalsolooselytiedtothat,canyoutalkaboutthe
interestexpenseoutlookforthefourthquarterandisthatasustainablerunrate?Thankyou.
Ke vinWample r (C FO ):
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Interestrateforthefourthquarter,asinourguidance,isprojectedat$98.4millionifyoulookatthe
table.Ibelieveit'sthelasttableintheSchedulestothepressrelease.Itdetailsouttheexpected
interestexpensesothatnumberiswhatwewouldexpectwithoutanyrateincreasesonanoverall
standpoint.
Asfarasoperatingincome,wehavesaid,generallyspeaking,ourbeliefisthatwecanovertime,get
FamilyDollarbacktohistoricaloperatingmarginswhich,Ithinkwe're--ifyoulookatthelast10-year
period,theywerebasically7%to8%foravastmajorityofthattimeframe.Thereisnobeliefthatwecan't
dothat.Ithinkthat'sreallythewaywe'refocusedonitasopposedtoaspecificnumberof$500millionor
whatever.
It'sreallymoreaboutcontinualimprovement.It'sthewaywethinkabouttheDollarTreebusinessand
we'rethinkingabouttheFamilyDollarbusinessthesameway;continualimprovement.Howdowe
continuetomakethemerchandisemorerelevant?Haddoweruninthestoresbetter?
Howdowecontrolourcostsandhowdowebringittothebottomlineattheendofthedaysothere's
differencethere.Butthereisnothingstructurallyorcompetitive-wisethatwouldprecludeusfrom,over
time,gettingbacktothat7%to8%range.
Mic hae lLas s e r (Analyst-UBS):
O kay.Thanksforthecolorandhaveagoodholiday.
Ke vinWample r (C FO ):
Thankyou.
Ope r at o r :
(O peratorInstructions)
WewillnexttoScottC iccarelliwithRBC C apitalMarkets.
Sc o t Cic c ar e lli(Analyst-RBC ):
Higuys.First,aclarificationandthenaquestion.Kevin,justtobeclear,thereconciliationforthequarter
thatyoudisclosed,thatthe$0.49,thatstillincludestheroughly$66millionofexcessamortizationyou
previouslyhighlightedinyour8-K;isthatright?Soit'smorelikea$0.67EPSnumber?
Ke vinWample r (C FO ):
Well,basicallywhatwedid,Scott,iswithit--whatwe'vedonehereistakenourreportedincomebefore
incometaxesandreallyadjustedforitemsthatwehadnotpreviouslygiventheStreet.
TheStreethadbeengivendetailedinformationviaoursecondquartercallaswellasan8-Kthatwe
subsequentlyfiledinregardstoreallythethreebiggestitemsbeing:inventorystep-upamortizationas
wellasthedepreciationfortheharmonizationofthepoliciesaswellasthefavorableleaseright
amortization.
We'vegivenyouallthoseinformationsoweassumethatwouldbeinournumberbecausewe'vegivenit
toyou.Whatwe'vedonehereisbasicallyreconcilethethingsyoudidn'tknowsotheinventorystep-up
wasactually$38.4millionasopposedtothe$26.9millionwehadgivenyou.Sowe'veadjustedforthat
$11.5milliondifference.
Wetookanadditional$13millionofmarkdownsforourredtagclearancesalessowe'veadjustedforthat
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andthenacquisitionfeesandtheintegrationofdivestiture-relatedcosts,whichontheStreet,couldnot
havepredictedorwedidnotgiveanynumbersaround.Sothat'sthewaywethoughtaboutit.It'sreally
tryingtoreconcileournumberbaseduponinformationthatisnotbeenpreviouslygiven.
Sc o t Cic c ar e lli(Analyst-RBC ):
Gotyou.Allright.That'svery,veryhelpfulforeverybody,Ithink.Iguessthequestionthatyouguyshave
beengrowingDollarTreesquarefootageat7%formanyyears.O bviously,you'reverycomfortablewith
that7%growthcadencebutnowwe'redoingtherebanners.
Wehavethependingdealwithrebanners.Acouplewithwhat'scalledthegreenfieldstoregrowth.C an
youtalkaboutyourthoughtsontheDollarTreestoregrowthcannibalizationandhowthatmayplayout?
Bo bSas s e r (C EO ):
Wehavelookedatthecannibalization.Thereissomedegreeofcannibalizationthisyearfromthe200
storesthatwe'rerebannering.Therewillbesomecannibalizationnextyearfromtheadditionalrebanner
storesaswellastherebanneringoftheDealsstorestoDollarTreeandsomeofthemtoFamilyDollar.
Sotherewillbecontinuetobesomecannibalization.Therealwaysiswhenwelookatthesestoresto
rebanneraswellaswhenwelookatnewstores.Welookatthesalesprojectionsfortheparticularstores.
Wealsolookatthe--anycannibalizationthat'sgoingtooccurinthemarketsowelookatsurrounding
storesandwedefinewhatwethinkthecannibalizationsaregoingtobe.
Wethenlookatthemarketreturnswhenwe'reopeningupthenewstores.We'regoingtocontinuetodo
that.We'vedoneitwiththerebannerstoresforFamilyDollar.We'redoingitwiththeDealsstoresgoing
toDollarTree.We'lldoitwithourFamilystores.C annibalizationisjustpartofitafteryouopenupthefirst
store,yougetthesecondstoreandthere'scannibalizationinthemarket.
So--butIwilltellyouwe'vedoneourhomeworkonit.Wearepleasedwiththeresultsthatweare
gettingalsofromtheoneswe'vealreadyrebannered.TheDealsstoresthatwe'regoingtorebannerwe
builtthatonmodelof--arealestatemodelforDollarTreesothatisoneofthereasonsthatmostofthose
areturningintoDollarTreestoresbecausetheywillserveourinterestbetterthanwithhigherreturnsas
DollarTrees,thanifyouweregoingtoFamilyDollar.
Socannibalizationispartofit.Wewilltalkaboutit.We'llpointitoutbutit'sreallythegrowthinthe
marketandthegrowthinthebusinessfortheC ompanythat'smostimportant.
Sc o t Cic c ar e lli(Analyst-RBC ):
Aswewindupgettingthefourthquarterguidanceandtheoutlookfor2016,isthatsomethingyoumight
beabletodefinefortheStreetalittlebitbetter?
Bo bSas s e r (C EO ):
WewillitincludeinourguidanceandIthinkthat'sthebestwaywecanshareitwithyouisthataswe
giveguidance,we'veincludedallthethingsthatweknowincludingcannibalization,includinganything
thatwouldcomeinthere.
Sc o t Cic c ar e lli(Analyst-RBC ):
Great.Thanksalotguys.
Bo bSas s e r (C EO ):
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page16of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
Thankyou.
Ope r at o r :
We'lltakeourfinalquestionsfromPaulTrussellwithDeutscheBank.
PaulT r us s e ll(Analyst-DeutscheBank):
Hi,goodmorning.Iwantedtoaskaboutpricing.FamilyDollarsales,obviously,werestronginthequarter
andIbelieveyoumentionedabout$135millionofexcessinventorythatyouwereabletogetoutofthat
whichIthinkisabout500basispointsofadd-onesales.Howdowethinkaboutyourpricingstrategy
goingforwardwithinthisbox?
Youmentionedlookingatsomeprivatelabelinserts,someopenpricepoints,butinparticular,onthe
nationalbrandedgoodswhereIknowthattherewas,atleasthistorically,abitofaspreadtherebetween
themandpeers.
Bo bSas s e r (C EO ):
Well,Paul,IwanttosaycouplewordsandI'llpassittoGarybecauseheislivingandbreathingthisevery
day.Butobviously,weintendtobecompetitivelypricedonournationalbrandproducts,wherewe
intendtoofferaselectionofprivatelabel,namebrandequivalentproductsthatisavaluetothe
customeratlowerretailsthanthenationalbrandbutequivalentquality.Wethinkthere'sabig
opportunityforourcustomer.
Ithinktheywillappreciatethevalueofbeingabletobuyanamebrandequivalentproductthatcosts
30%less,forexample,or20%lessorlessthanthenamebrand.Sothecombinationofnamebrands
comparedwiththepricenamebrandequivalentproductsatanicediscounttothenamebrandpriceas
wellassomespecialopportunitiesinallthethingsthatwecandowithoursizetotakeadvantageof
opportunitiesthatexistthroughouttheyear.Gary,wouldyouliketoaddanything?
Gar yPhilbin(President,C O O ):
Paul,letmemaybestartwithyourfirstcommentonthe$135million.Keepinmind,thatwastheretail
valuebeforewestartedthemarkdowns.Sowestartwithacadencethatwasalreadydiscountedinstores
somewherebetween10%,15%,20%offandthenwestartthemarkdowncadenceof50%,75%,90%.
Whenyouthinkabouttheunitsthatweclearedout,theactualretailsalesthatwewerereceivingfrom
thatpileofgoodswasfairlystaticoverthattime.Ithinkthegoodnewsontheclearancewaswhenfolks
cameinforthatevent,theytendtobuysomethingelsein-storeatourregularretails.
AndsoIthinktheenergyandjustgettingourstorescleanedupabit,gettingourendcapsreclaimed,
organizingaclearanceeventwhichisnosmalltasktomakeitlooklikesomething,allserveduspretty
well.MaybejusttotagontoBob'scomments,thereisanartandsciencetopricingandthesciencepiece
iswedowanttobegroundedagainstourstrategyoncompetition.
Youalwayshaveaneyeonthat.Butwhatwe'rereallyfocusedonatFamilyDollariswhat'smeaningfulto
ourcustomers.Whatisitthattheyneedforfirstofthemonth?Whatisthebasketsettheyarelookingto
buyonaweeklyandmonthlybasisandsoourstrategyisonethattalkstowhatisonpromotionandwhat
isonshelves.
TheadditionforFamilyDollarofaprivate-labelprogramthatcouldbepolishedupandreallyenhanced,
openingpricepointsandsomeoftheassortmentgapswehaveisagreatone,nottomentionthe
additionof--wehaveagreatimportprogrambutthatcanalsodriveadditionalvalueintothestore.
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Page17of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
Sowereallyseeallthosearrowsinourquiveraswegetrootedinwhatdoweneedtobecompetitive.
ButreallystayfocusedonwhatourFamilyDollarcustomerneedstodrivevalueandintoherbasketona
weeklyandmonthlybasissothat'stheapproachwe'retakingaswegothroughourcategoryreviewsand
lookinginto2016.
PaulT r us s e ll(Analyst-DeutscheBank):
That'sveryhelpfulcolor.Thankyou.Andjustafollow-uptoclose.Bob,maybeifyoucanjusttouchonthe
consumeroverall.Ithinkthatyourbetter-than-expectedrevenuecomesontheheelsofsomeother
discounters,perhapsbeatingsomeexpectations.Isyoursensethatyourcorecustomerisabitmore
confidentnow,hasalittlebitmoremoneyintheirpocketorareallofyourgainsmoremarketshare
driven?
Bo bSas s e r (C EO ):
Paul,Ithinkthecustomer,especiallyourcustomeraremiddleincome,lowmiddleincometolowerincome
customersarestillunderpressureandtheyareconcerned.Theyhaveseenthelowergasolinepricesand
that'shelpful.Butatthesametime,it'snotenoughtogearthatlowerincomecustomer.It'snotenough
tomakeachangeinyourshoppinghabits.
Andatthesametime,they'veseenlowergasolineprices.They'veseenhigherfoodprices.They'veseen
higherrentprices.They'veseenhigherhealthcarecosts.They'veseenhighertaxes.Sotheyarestill
concerned;they'restillunderpressure.
TheconceptofDollarTreeandatFamilyDollarofservingthosepeopleisservinguswell.AtDollarTree,
we'vesaidthatwearerightforalltimes.Wehavegreatproductsthatpeopleneedeveryday.C onsumer
products,thingsyou'vegottobuytolive,thingsyouhavetohaveeverydayandthepriceisonly$1.
Alongsidethingsthatmaybediscretionarythatyouwouldliketohavebuteverythingis$1.Through
goodtimesanddifficulttimes,we'vetendedtodoverywell,usuallybetterthanthemarketatDollarTree.
AtFamilyDollar,withthatlowincomecustomer,themorewefocusonwhatthatlowerincomecustomer
needs,offeringthegreatvalue,improvingourinstockandgivingthebettershoppingexperience,
exceedingtheirexpectationswhentheygointoourstores,thebetterservedwe'regoingtobe
especiallyduringdifficulttimesbecausethe--thatlowerincomecustomerreallyneedsusatFamily
DollarandDollarTreeinordertomakeendsmeetthroughoutthemonth.
Sotoansweryourquestion,Ithinkthey'regratefulthatgasolinepricesarelowerbutnotmuchelseisin
theirworld.Andthey'vegottocomealongwayreallytogettheirheadbackabovewater,manyofthem.
PaulT r us s e ll(Analyst-DeutscheBank):
Fairenough.Thankyou.Goodluck.
Bo bSas s e r (C EO ):
Inclosing,I'djustliketomakeonecommentinregardtothatlastquestion.Iwillclosewiththisbutasa
combinedorganization,bothbanners,ourfocusisongrowingourearningspowerforyearstocome.
There'salotofthingsthatwe'redoingrightnowthatareinregardtogettinguspositionedandforthe
future.
O urdecisionsarealwayswithoureyesonthehorizonbutmanaginginreal-timesowhatyou'regoingto
seefromusisourdecisionsaregoingtobemadeforthelonger-term.NowI'mnottellingyouit'sgoingto
takeforevertomakethe--tobringvalue.I'mjustsayingourdecisionsarebasedonbuildingthislarge
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page18of19
C ompanyName:Do llar T r e e St o r e s
Inc
C ompanyTicker:DLT R
Sector:Se r vic e s
Industry:Re t ail
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:16.0 6B
PriceasofEventDate:74.16
entity,combiningtwogreatbanners,forthelongterm.
Butwearededicatedtomanagingthebusinessinrealtimeandthatmeanseverymonth,everyday,
everyquarter,itmeanseveryexpenselineontheP&L.Itmeanslookingatourcustomerintheeye
andtryingtodelivertheproductthattheyneedfromusandidentifyingthepositionthatweholdinthe
market,usingoursizeandourleveragetoofferthegreatestvaluesforthatcustomer.
Sowe'regoingtodoboth.AndIthink,I'dliketotellyouthatmyexpectationsaswe'regoingtocontinue
toimprovequarteroverquarter.Thisisthefirstfullquarterthatwe'vehadthecombinedcompany.Ithink
wehadonemonthinthelastearningsreleasebutit'sthefirstfullquarterthatwe'vehadandwe've
shownimprovement.
Andsomeslightimprovement,mindyou,butimprovementandIthinkIwouldtellyouthatIexpectthatto
continuequarteroverquarter.Wewillshowimprovement.We'regoingtosharewithyouallthe
informationthatweknowthatispertinenttowherewe'regoingwiththisthing.
We'renotgoingtosurpriseanybodywithit.Butwe'renotgoingtogiveyouinformationuntilwecan
absolutelygetourarmsarounditandsharewithyouhowthatlooksgoingforward.Thankyouforyour
timeandbeforeIturnitbacktoRandy,Ijustwanttosaythankyouforyoursupportandhopeeverybody
hasagreatThanksgiving.
RandyGuile r (IR):
O urnextquarterlyearningscalliscurrentlyscheduledforTuesday,March1,2016.Thankyouandhavea
goodday.
Ope r at o r :
Ladiesandgentlemen,thankyouforyourparticipation.Thisdoesconcludeourconference.
Allrightsreserved(c)2014TheStreet,Inc.
Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"Provided
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