DOLLAR TREE, INC. Q1 FY2025 earnings call

• Mike Creedon thanked associates for strong first quarter results, noting Q1 comps and net sales exceeded outlook, with expanded assortment driving traffic, ticket, and comp. The company opened its 9,000th store. Adjusted EPS from continuing operations was $1.26, $0.01 above the outlook. Noncomp store revenue contribution from the former 99 Cents Only portfolio was up nearly 90% year-over-year.
• Discussed the multi-price strategy's impact on traffic, ticket, and comp. Addressed tariff mitigation using 5 levers: negotiating with suppliers, respeccing products, moving country of origin, dropping noneconomic items, and leveraging multi-price.
• The Family Dollar sale received U.S. regulatory approval and is on track to close in early summer, which will sharpen operational focus, strengthen the balance sheet, and be cash flow accretive.

In the first quarter, Dollar Tree's revenue from continuing operations increased by 11.3% driven by a 5.4% comparable store sales growth and a 7.4% increase in square footage year-over-year. Adjusted operating income was $388 million, a 1.4% increase from the prior year. The adjusted operating margin declined 80 basis points, with a 20 basis point increase in gross margin due to lower freight costs, improved mark-on, and sales leverage, offset by a 100 basis point increase in the adjusted SG&A rate. First quarter adjusted EPS from continuing operations was $1.26, exceeding the outlook range of $1.10 to $1.25.

• Updated full year adjusted EPS from continuing operations to $5.15 to $5.65. Reiterated net sales range of $18.5 billion to $19.1 billion and comparable same-store sales growth of 3% to 5%.
• Anticipate gross margin improvement of 50-75 basis points, with Dollar Tree segment SG&A expected to have 100-110 basis points of year-over-year deleveraging, while corporate SG&A will increase before TSA reimbursement.
• CapEx is expected to be in the range of $1.2 billion to $1.3 billion, including approximately 400 new store openings and DC reconstruction. Expect net proceeds from the Family Dollar sale and cash tax benefits to enhance the cash position.

• Volatility in the tariff landscape and cost inflation pose challenges. Timing issues with cost mitigation efforts may lead to near-term profitability impact, with some products arriving subject to higher tariffs before full mitigation efforts are deployed.
• Uncertainty regarding the duration and full impact of tariff changes, leading to potential disruptions in product flow and processing.

Q: Given the about $110 million of unanticipated cost in Q2, what will offset this in the back half?

A: Mike Creedon and Stewart Glendinning discussed using the 5 levers to mitigate tariffs over time, with near-term disruption but long-term offset through negotiation, respeccing products, moving country of origin, etc.

Q: Dollar Tree has operated at a 35-36% gross margin, can you maintain that despite tariffs?

A: Stewart Glendinning and Mike Creedon mentioned merchants' efforts in assortment and using the 5 levers to maintain the gross margin, with confidence in mitigating tariff impacts through strategic actions.

Q: Can you talk about the composition of inventory and management into the second half?

A: Stewart Glendinning noted inventory increased by 10% due to higher mark-on, inventory receipts, and more stores, with Mike Creedon emphasizing focus on ensuring product availability and great customer experience for back-to-school, holidays, etc.