美元樹 (DLTR) 2013 Q4 法說會逐字稿

Good day and welcome to the Dollar Tree Incorporated's fourth quarter earnings conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Vice President of Investor Relations, Mr. Tim Reid.

Please go ahead.

Thank you, Noah.

Good morning and welcome to the Dollar Tree conference call for the fourth quarter of fiscal 2013.

Our call today will be led by Bob Sasser, our Chief Executive Officer, who will provide insights on our performance in the quarter and recent developments in our business.

Kevin Wampler, our Chief Financial Officer, will provide a more detailed review of our fourth quarter financial performance, and provide our guidance for 2014.

Before we begin, I would like to remind everyone that various remarks that we will make about future 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.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors included in our most recent press release, most recent Current Report on Form 8-K, Quarterly Report on Form 10-Q, and Annual Report on Form 10-K, all of which are on file with the SEC.

We have no obligation to update our forward-looking statements and you should not expect us to do so.

As a reminder, the 2012 results -- last year's results -- include the impact of the 53rd week, which contributed approximately $125 million of sales, $17.8 million of net income, and $0.08 earnings per share.

Also, in September of 2012, Dollar Tree, Inc.

sold its ownership interest in Ali's Holdings, Inc.

That sale had a favorable impact on 2012 earnings with an increase to net income of $0.16 per diluted share.

At the end of our planned remarks, we will open the call to your questions, which we ask that you limit to one question and one follow-up question, if necessary.

Now I would like to turn the call over to Bob Sasser, CEO of Dollar Tree.

Bob?

Thanks, Tim.

Good morning, everyone.

This morning we announced results for the fourth quarter 2013.

Our comp store sales increased 1.2% as a result of equal growth in both traffic and ticket.

Net sales were $2.235 billion and earnings were a record $1.02 per diluted share.

Comparing the 13-week fourth quarter in 2013 against the 14-week fourth quarter in 2012, this represents a 1% increase.

On a comparative three-week basis, quarterly earnings increased 9.7%.

For the full year 2013, comp store sales increased 2.4%, largely as the result of increased traffic.

Net sales grew to $7.84 billion and earnings for the full year were a record $2.72 per share.

The improvements in 2013 were achieved on top of record 2012 results that included $60 million of income from the sale of Ali's and $125 million incremental sales from the 53rd week last year.

The combined benefit of these two events accounted for $0.24 earnings-per-share in 2012.

And, of course, we did not have those two events in our results for 2013.

It was a challenging quarter best characterized as a short selling season and persistently bad weather.

Because of these unusual events, I am going to give you a little more color and detail on the quarter than I normally give.

We had a great plan that was well-executed.

When the stores were open and customers could shop, our results were more accurately reflective of the underlying strength of our business.

In November, I will remind you that we had two calendar shifts that negatively affected results.

This year, Halloween sales moved out of November and out of fourth quarter and back to third quarter, and Thanksgiving moved a week later.

As a result, we lost six selling days between Thanksgiving and Christmas.

These two calendar shifts combined represented a $30 million sales challenge to fourth quarter and specifically to November.

With the Thanksgiving shift as expected, comp sales were lowest in November but above our plan, as we were able to offset some of the impact of the calendar shifts through merchandising initiatives.

Moving forward in the quarter, a succession of major winter storms impacted significant portions of North America, beginning the week of Thanksgiving and continued throughout January.

To add some color, out of the full 91 days in the quarter, 33 days were negatively affected by winter storms that forced a large number of store closures or partial openings, and even a larger number of stores that opened, but sales were negatively impacted by the poor conditions.

In December, more than 700 store selling days were negatively impacted by store closures.

In spite of this, December was our strongest month of the quarter.

Comp sales grew nearly 4% in December and we would have done better, if not for the days lost to the winter storms.

I am extremely proud of our store teams who have worked tirelessly to adjust to the lost days, and provide a great seasonal presentation and outstanding execution throughout the holidays.

In January, the pattern of severe weather continued.

The number of store selling days negatively impacted by store closures increased from more than 700 in December to more than 2000 store selling days in January, almost triple.

In spite of this, January comp store sales were still slightly positive.

When you look at the weather by region, as you would expect, the best performance was in the Southeast, followed closely by the Southwest.

However, even in the southern regions we were impacted.

I'm sure everyone saw TV coverage of the weather disruption in Dallas, Atlanta, Charlotte, Raleigh, and other southern cities, as winter storms caused power outages and created havoc on the highways.

As you would expect, the lowest comp sales performance was in the Midwest and in the Northeast, as these areas were the hardest hit by the winter storms.

Reflecting continued success of strategies that were implemented earlier in the year, top-performing categories in the quarter were our checkout and impulse department, frozen and refrigerated products, stationery, candy, and party supplies.

The holiday promotional plan was tightly coordinated and well-executed.

In November, our stores transitioned quickly from Halloween to Christmas.

The store teams worked late on the evening of October 31 to make sure the storefronts shouted Thanksgiving and Christmas upon opening for business November 1.

Our wow table at the front of the store was focused each week on basic needs for the holidays.

These were things -- key items like foil pans, turkey basters, and foil wraps.

End caps were built to promote catering, food storage, kitchen gadgets, and seasonal baking needs.

Our fall leaves tabletop promotion including glassware, dinnerware, napkins, and placemats, was a big hit and an early sellout in many of our stores.

Christmas decor was set to promote early sales.

With the selling season compressed by the calendar shift, we wanted to exploit the early opportunity.

In early December, right after Thanksgiving, our wow table was again focused on tabletop, with beautiful holiday dinnerware, glassware, stemware, charger plates, table runners and placemats: everything to set the best holiday table imaginable.

The product was picture-perfect and, of course, everything was just $1.

A new event was created for December called the last 10 days.

The idea was to bring all the last-minute categories together and re-merchandise the front of the store with a purpose.

With a short holiday season, the intention was to make sure our customers' needs were met at all times.

The Last 10 Days event focused on wrap it, box it, and bag it.

Our seasonal wall converted to Christmas gift bag headquarters with everything you need to bag that perfect gift, including the related tie-ins like tags and tissue.

Major displays of roll wrap, gift boxes, bows, tags, tape, and scissors were merchandised upfront along with the novelty boxes, cookie tins, and gift jars.

Last-minute gifts were all grouped together and our stocking stuffer toy selection rounded out the effort.

Displays were full, fun, and exciting, and relevant to our customers' needs, and our customers responded favorably.

I am especially pleased with our inventory management this year and in the fourth quarter.

With 321 more stores at year-end, combined with the sales challenges of the fourth quarter, we ended the year with less average inventory per store than last year.

Through the superb efforts of our merchant and logistics teams, the inventory was appropriately allocated, replenished, and delivered to the stores.

As a result, our seasonal sellthrough was good, our basic in-stock was maintained, and when the customers were out shopping, our stores were ready.

We started fiscal 2014 on plan with clean inventories well-prepared to support new store openings and sales plans in the first quarter.

In addition to inventory management, I am very pleased with expense management in fourth quarter.

SG&A expenses fell in the quarter from 21.7% to 21.3%.

Much of this was accomplished by the terrific performance of store operations.

Through initiatives focused on great productivity and keeping the sales floor full, proper scheduling to the needs of the customer, and emphasis on properly recovering the store every day, and against a tough sales backdrop including three major resets of the front of the store, the store teams were able to increase productivity, improve store conditions, and improve the customer experience.

This quarterly performance speaks to the value and relevance of our merchandise; the power, strength, and flexibility of our model; and a day by day execution of our strategy across the organization.

Despite challenges, we grew topline sales, we grew comp store sales, and we grew earnings per share.

Looking forward, we are positioned for continued relevance to the customer, sustained growth, and increased profitability.

We have room to grow and the ability to grow in many different ways: by opening more stores, by opening better, more productive stores, by increasing the productivity of all stores, and developing new formats, new markets, and new channels as growth vehicles.

During the fourth quarter this year, we opened 51 new stores and relocated and expanded another four stores.

For the full year 2013, we added 343 new stores and expanded or relocated 71 existing stores for a total of 414 projects.

Selling square footage increased 6.9% and we ended the quarter with 4992 stores.

For the full year 2014, our plan includes approximately 375 new stores and 75 relocations for a total of 450 projects across the US and Canada.

Square footage is planned to increase 7% over fiscal 2013.

In addition to opening more stores, we have plans to open better and more productive stores.

This has been the result of a coordinated process, concentrating on improved site selection, rightsizing our stores, expanding our assortments, improved staffing and building a bench of qualified store management.

In 2012, new store productivity reached its highest level since 2001.

Our 2013 class came in slightly below last year, but historically strong.

We believe the stores that we opened in Q4, especially the ones affected by the winter storms, will continue to annualize at a higher sales per foot as we continue through the year.

Elements of the strategy to increase store productivity can be seen throughout the chain.

In recent quarters we have described some of our category-specific initiatives to drive sales.

In all stores, customers are seeing more powerful seasonal and party presentations.

We continue to rationalize and expand assortments across the chain of stationery, candy, health and beauty care, and home and household products.

Store associates are emphasizing more effective customer engagement and working to drive sales of related items through cross-merchandising and through suggestive selling.

And we are rolling out freezers and coolers at a faster pace.

In the fourth quarter, we installed freezers and coolers in 42 additional stores for a total of 608 store installations for the year and exceeding our plan.

We now offer frozen and refrigerated products in 3157 stores.

This year we intend to add freezers and coolers to 320 additional stores and to expand the size of the department in 50 existing frozen and refrigerated stores.

This category serves the current needs of our customers, drives traffic into our stores, and provides incremental sales across all categories, including our higher margin, discretionary products.

Another key component of our growth strategy is the expansion of Deal$, Dollar Tree Canada, and Dollar Tree Direct.

Our Deal$ format extend our ability to serve more customers with more categories and increases our unit growth potential.

Deal$ stores deliver low prices on everyday essentials, party goods, seasonal and home product.

By lifting the restriction of the $1 price point at Deal$, we are able to serve more customers with more products at value prices every day.

Consistent with our plan, we opened 29 new Deal$ stores in 2013, including four new stores in the fourth quarter.

We ended the year with a net total of 214 Deal$ stores.

Our Canadian integration and expansion continues.

We opened 41 new Dollar Tree Canada stores in 2013, including five new stores in the fourth quarter, ending the year with 180 stores in Canada.

Store count grew by almost 29% for the year, slightly more than our stated plan of 25%.

Leveraging the buying power of Dollar Tree, our merchants are sourcing higher-value product and our Canadian customers are finding broader, more exciting assortments and better values in the stores.

We see enormous potential in Canada.

As we grow and improve, we believe the Canadian market can support up to 1000 Dollar Tree stores.

This is in addition to the 7000-store potential for Dollar Tree in the United States, plus additional growth in our Deal$ format.

Our goal is to be recognized by customers as the leading retailer in Canada at the single price point of $1.25, just as we are in the US at the $1 price.

Adding to our growth strategy, Dollar Tree Direct, our e-commerce business, is expanding rapidly.

Dollar Tree Direct provides an opportunity to broaden our customer base, drive incremental sales, expand the brand, and attract more customers into our stores.

Some key milestones achieved in 2013 include a 20% growth in the site traffic, which exceeded 6 million unique visitors in the fourth quarter.

This includes a 67% increase in customer traffic via mobile devices during the fourth quarter.

Dollar Tree Direct and Deal$ Direct now have over 3800 items available online, including more than 1700 unique items that can be purchased in less than case quantities, an increase of 50% versus the same time last year.

Now, I would like to turn the call over to Kevin, who will give you more detail on our financial metrics and provide guidance.

Thank you, Bob.

As Bob mentioned, the Company reported diluted earnings per share of $1.02 for the fourth quarter of 2013.

This represented a 1% increase versus the 14-week fourth quarter of 2012, and a 9.7% increase on a comparative 13-week basis.

As we look at the income statement, please keep in mind that the extra week in the fourth quarter last year contributed $125 million of sales and about $0.08 to earnings per share to the fourth quarter of 2012.

Our gross profit margin was 36.9% in the fourth quarter of 2013 compared with 37.9% in the fourth quarter last year.

Substantially all of the decrease was driven by occupancy and distribution expenses, reflecting the loss of the benefit of the extra week of sales last year, lower leverage from a 1.2% comp, and the incremental expense associated with the ramp-up of our new DC in Windsor, Connecticut, while maintaining a high level of service to stores as we realigned DCs consistent with our added capacity.

Merchandise margin was similar to the same period last year, driven by continued improvements in initial markup, reflecting a 60-basis-point shift towards discretionary product, and continued improvements in sourcing.

These improvements were partially offset by a 10-basis-point increase in shrink expense, which remains below 2% of sales.

SG&A expense was 21.3% of sales for the quarter compared with 21.7% reported in the fourth quarter last year.

Payroll-related expenses declined by approximately 50 basis points due to lower expenses for performance-based incentive compensation earned and retirement plan contributions, as well as improved store labor productivity compared with the last year.

Operating and corporate expenses increased by 5 basis points, driven by higher utility costs, and depreciation increased 10 basis points, primarily reflecting the impact of the extra week last year.

Operating income of $348.2 million in the fourth quarter was $15.3 million less than the record $363.5 million in operating income for the 14-week fourth quarter last year.

Operating margin was 15.6% compared with operating margin of 16.2% in the fourth quarter last year, which included a 40-basis-point benefit from extra week.

For the full year 2013, operating income increased $50.2 million and our operating margin was 12.4% compared with 12.4% last year.

The tax rate for the quarter was 37.2% versus 37% in the fourth quarter last year.

For the full fiscal year, the tax rate was 37.5% compared with 36.7% in 2012.

Looking at the balance sheet and statement of cash flow, cash and cash equivalents at year-end totaled $267.7 million versus $399.9 million at the end of fiscal 2012.

During 2013, we invested $1.1 billion for share repurchase, including a $1 billion accelerated share repurchase program.

As you may recall, in September, the board of directors authorized a $2 billion share repurchase program.

Under the new authorization, the Company invested $1 billion for share repurchases through the accelerated share repurchase program that was launched on September 17.

The ASR was funded by $250 million of available cash and $750 million from the private placement of a senior notes completed in September.

We received 15 million shares as part of the ASR in 2013, all during the third quarter.

No shares were delivered in the fourth quarter.

All additional shares repurchased under the ASR will be delivered to the Company on or before June 2014.

The diluted weighted average shares outstanding for the fourth quarter were 209.3 million.

We will update you on any additional shares delivered as part of the ASR when we report results for the first quarter.

Our consolidated inventory at year-end was 6.6% greater than at the same time last year, while selling square footage increased 6.9%.

Consolidated inventory per selling square foot decreased 0.3%.

This includes inventory on the water and in our distribution centers related to the later Easter, our Spring Fling promotion, and our first-quarter store openings.

We entered 2014 with leaner store level inventory that last year, reflecting our inventory management plan.

We believe that current inventory levels are appropriate to support scheduled new store openings and our first-quarter sales initiatives.

Capital expenditures were $46 million in the fourth quarter of 2013.

This compares with $75.5 million in the fourth quarter of last year.

For the full year 2013, capital expenditures were $330.1 million compared with $312.2 million in 2012.

For 2014, we are planning consolidated capital expenditures to be in the range of $350 million up to $360 million.

Capital expenditures are focused on new stores and remodels, including additional fee development stores; the addition of frozen and refrigerated capability to approximately 320 stores; IT system enhancements; the expansion of our Joliet, Illinois distribution center; and the beginning phases of work on our 11th distribution center.

Depreciation and amortization totaled $50.3 million for the fourth quarter versus $46.9 million in the fourth quarter last year.

For the full year, depreciation was $190.7 million, a 5 basis point increase from last year.

For 2014, depreciation and amortization is estimated to be in the range of $200 million to $210 million.

Our guidance for 2014 includes the following assumptions.

First, in regard to freight expense, we will soon be negotiating new ocean rates that become effective on May 1. As always, we cannot predict the outcome of those negotiations, nor can anyone accurately predict the direction of diesel prices for the next year.

For this reason, our guidance assumes that ocean freight rates and diesel prices will be similar to their current levels, on average, throughout fiscal 2014.

Second, Easter is three weeks later this year.

This represents an $8 million sales opportunity in the first quarter.

Also, as we look ahead to the fourth quarter, this year there will be -- there is one additional selling day between Thanksgiving and Christmas, which returns us to a more normal pattern than last year.

Our guidance also assumes a tax rate of 38.4% for the first quarter and 38.2% for the full year.

Weighted average diluted share counts are assumed to be 207.9 million shares for the first quarter and 206.7 million shares for the full year.

While we still see share repurchase as a good use of cash, our guidance assumes no additional share repurchase other than the expected completion of share deliveries related to the ASR.

With that in mind, for the first quarter of 2014, we are forecasting sales in the range of $1.98 billion to $2.04 billion, and diluted earnings per share in the range of $0.63 to $0.68, which would represent a 9% to 17% increase compared to the first quarter of 2013 earnings of $0.58 per diluted share.

The sales range implies a low single-digit comparable store sales increase and 6.7% square footage growth.

For the full year 2014, we are forecasting sales in the range of $8.35 billion to $8.58 billion, based on a low single-digit increase in comparable-store sales on 7% square footage growth.

Diluted earnings per share expected to be in the range of $2.91 to $3.13.

This represents an increase of 7% to 15% over 2013 earnings per share of $2.72.

With that, I'll turn the call back over to Bob.

Thank you, Kevin.

In summary, during 2013, our comp store sales increased 2.4% and total sales grew 6% to a record $7.8 billion.

We achieved 12.4% operating margin and earnings per share increased to $2.72.

2013 was a year of great accomplishment.

We opened 343 new stores in 2013, expanded and relocated 71 stores, and ended the year with 4992 stores and square footage growth of 6.9%.

We expanded frozen and refrigerated product to 608 stores for a total of 3157 stores across the US.

We opened a new 1 million-square-foot fully automated distribution center in Windsor, Connecticut, ahead of schedule and under budget.

And we expanded capacity at two other DCs: San Bernardino, California, and Marietta, Oklahoma.

As we enter our 28th year, Dollar Tree can be proud of its record of steady growth and continuous reinvention while maintaining and remaining true to our core concept.

Everything is still $1 at Dollar Tree stores in the US.

The Dollar Tree business model is powerful and flexible.

It has been tested by time and validated by history.

The Dollar Tree model is now more relevant than ever, providing extreme value to customers, while recording record level of earnings.

Customers know that even in a difficult economy, at Dollar Tree, you can still splurge.

Everything is only $1.

We saw plenty of evidence of this in the fourth quarter.

With the worst weather winter in decades, our traffic was up.

When people were out shopping, they came to Dollar Tree.

I believe that Dollar Tree can do even better in the future and there is much more opportunity ahead of us than behind us.

We have multiple platforms for growth.

As we focus on serving the customer, our plans are to grow and expand the Dollar Tree brand in the US through more stores and better stores.

The Deal$ brand is serving more customers with more categories.

Dollar Tree Canada is positioned for profitable expansion in the new geography.

And Dollar Tree Direct continues to broaden its search and its reach to new customers throughout North America.

We have plenty of opportunities to grow our business, a vision of where we want to go, and the infrastructure and capital to make it happen while generating substantial free cash.

And we continue to manage our capital for the benefit of long-term shareholders.

We invested more than $1.1 billion for share repurchase in 2013 and have another $1 billion authorization remaining.

I am especially proud of our Dollar Tree associates from every department in the Company who work hard to deliver on our promise of great value merchandise and stores that are full, fun, and friendly for every customer, every day.

As we enter 2014, our inventories are clean and fresh, the shelves are full of terrific merchandise for the spring, St.

Patrick's Day and early Easter shoppers.

Our stock rooms are in great shape and our merchandise values have never been higher.

We will now address your questions.

So that we can accommodate as many callers as time permits, we ask that you limit your questions to two.

(Operator Instructions) Dan Wewer, Raymond James.

Two questions.

The comment you made on new store productivity was very helpful.

Can you update us on how new stores are ramping in sales growth, let's say in the following three years after they are opened?

Well, they always ramp up after the first (multiple speakers).

Well, I know that.

The first year, we -- I don't know that we've -- have those numbers in front of me right now.

But just anecdotally, we ramp up the next year.

Kevin, do you have a --

Yes.

You know, Dan, as we look at it, and we track them by class or year opened, the -- obviously, the first three years is when we get the biggest increase in sales.

And -- but the more interesting thing from my perspective is the fact that, if you go back and we track it from the classes 2000 going forward, every class continues to comp positive.

So these stores, even when they are seven, eight, ten years old, they continue to comp as a class positive.

So it is kind of counterintuitive, and you don't see that necessarily in all retail concepts.

But as we have continued to become more productive as an overall Company, as we continue to broaden assortments and categories and continue to be relevant to the consumer, we have been able to grow our productivity across all the stores.

But, you are right; the first three years you will see higher productivity from a comp perspective, which is typically 2 to 3 times what the rest of the average class is doing.

Yes.

I was just trying to think, given 21% of your selling space is three years of age or less, is that giving you, say, a 2% comp sales gain in your hip pocket every day you go to work, just for that maturation of those young stores.

No, I mean, obviously, they do provide a bigger part of the overall comp.

But from our perspective the more important thing is to keep all categories -- all category of classes going forward and comping positive.

Then, my second question, Bob, historically, during years that minimum wage increase has correlated with very strong same-store sales growth for the value retailers, now there is discussion about bumping the minimum wage up to $10.10.

How would you see that impacting Dollar Tree's comp sales prospects?

As well as, I guess, your expense rate would increase with higher payroll.

Yes.

It is sort of hard to predict, Dan.

We don't know, first of all, if or when the rate will change.

And, of course, the proposal out there with $7.25 going to $9 in 2015 and $10.10 in 2016, we've looked at that and what the impact might be.

The most recent federal minimum wage increase was in 2007, 2008, and 2009, and we really saw little impact from that, that we could measure at that time.

I would think that a little more money in a lower income person's pocket would find its way into a Dollar Tree store.

We are always striving to offer great values at only at a $1 price point.

The cost impact, you know there would be some cost impact in the first year, depending on when it is.

We are higher than the minimum wage anyway.

There is 20 states now that have minimum wages greater than $7.25.

So it would be after -- if and after a change in the minimum wage, the first year would likely be little or no impact on the cost side.

And it just depends on where it goes from there.

But I feel confident that we can manage to wage pressures and wage increases.

We have been able to do so, so far, and I think we have a good plan to do that going forward with increasing productivity of our stores, increasing our sales productivity, and facing -- whether it is minimum wage price -- cost increases, or other cost increases that have come along.

I think we have a pretty good history of being able to manage through those.

Great.

Thanks.

Matthew Boss, JPMorgan.

So, on same-store sales, look, we have seen the model generate mid-single-digits during good and bad times; more recently, a low single-digit track here.

What is the underlying multi-year run rate we should be thinking about?

I mean, do you guys believe that anything has changed?

Is anything slowing?

I mean, do you think that we could eventually get back to some of the comps we have seen in the past?

You know, Matt, our guidance is how we are thinking about it for the next quarter and next year.

I will tell you that nothing has changed functionally.

Structurally, nothing is broken.

I will point to the most recent quarter that was really hard to see the underlying strength of our business many weeks of the quarter, because of all of the comparison changes with the shift in the calendar and last year's 53rd week.

And now we go into the severe weather as we had, I think, 14 named storms.

I didn't even know they named them.

I think they just started naming them this year.

But, seven in December and seven in January, and that really did disrupt a large swath of not only our business, but I assume everyone else's, too.

But, structurally, we are always looking to continue to drive the comp store sales increases.

We have initiatives in place that we think will continue to have healthy comp store sales increases.

We will continue to manage our gross margin as we have for years, and we will continue to manage our expenses for contingent growth in our operating margin.

Great.

And then, on the gross margin line, I mean, clearly, some noise in this quarter, but how should we think about that line going forward?

And particularly parsing out the merchandise margins.

Do you see continued opportunity on that line?

Matt, I'm going to let Kevin talk about parts of the gross profit.

But I just want to say, though, that the merchandise markup, we, again -- once again delivered maybe a little better than our plan on the merchandise markup.

We are in control of that piece of it because we go to market with -- for two purposes.

One, to offer the most value for the dollar at a margin we are willing to accept.

So our initial markup -- our merchandise margins are always well-controlled through good times, through tough times, through recessionary times, through inflationary times we have always been able to manage that.

I will let Kevin talk.

There are a few other components a gross profit fourth quarter that I would like Kevin to describe for you.

Yes.

So obviously, coming through the fourth quarter, good performance on the product margin side from the standpoint of really product margin, again, increased.

The gains there were offset a little bit by increased shrink.

We have seen our shrink increase this year, not unlike some other retailers.

So obviously, we are focused on getting that back to where we would like it to be.

We were at historical rates -- historically low rates a couple years ago and, obviously, we have teams that are very focused and that is a big goal for the teams here to make that happen.

As we look at the distribution costs, obviously, with the opening of Windsor this year, that has created some headwinds as far as being able to leverage our distribution costs as well as we have in the past.

We will obviously cycle that in this Q2 going forward this next year.

So that obviously gives us an opportunity to hopefully see less deleveraging there going forward.

Occupancy, as always, we have shown historically that probably at a 3% or even a little less, we can potentially leverage occupancy.

As we go into -- what the guidance really basically, I think, assumes, just to give you guys some color on that in general, is the fact that we are really looking for gross profit to be relatively flat year-over-year; improvement in SG&A.

We obviously believe we can continue to drive improvement there.

And then the other factor affecting us next year is a higher tax rate.

So we are being affected in 2014 by the fact that the Work Opportunity Tax program has not been renewed at this point in time.

That has happened other points in time over the lifecycle of it.

Given -- we have got a pretty integrated process.

Our tax department has created a pretty integrated process with our -- with a third party where we do a really good job of screening and qualifying people for that.

So it's become more important to us.

Historically, they have -- they put the program back into place potentially later in the year and it would potentially be record retroactive, is historically how we have seen it happen.

So we may get -- if that would happen, we would see the tax rate come down later in the year, but that is a little bit of a headwind as well within the P&L as we go into -- through 2014.

That's great color.

Thanks a lot.

Best of luck.

Charles Grom, Sterne, Agee.

Just to clarify the guidance for the first quarter of low single-digit comps, is that where you guys are tracking quarter to date?

Well, our guidance assumes everything that we know, Chuck.

So we have included our quarter to date this year into our guidance.

Okay, okay.

Fair enough.

And then, in 2013, you guys installed a lot of new initiatives throughout the store -- the front end and increased SKUs in certain categories that obviously paid off, particularly in the front half of last year.

I am just wondering if you guys could shed some light on what you guys have in store for 2014.

It looks like the cooler number is going to be a little bit lower; just wondering if there are other parts of the store you guys are going to be particularly focused on.

You know, there is a lot we are focused on a broad swath, and it is really staying focused on the customer and the customers' needs and the things that they want.

So we continue to focus initiatives on in-stock home basics, things they need every day, and exceptional value.

When they come to shop, we want to have those needs-based products so that they can complete their shopping trip.

And when they are in the store, we want seasonal energy.

We want them to see the changing of the seasons with the new season, the next season, fun things, color, exciting things; things they didn't expect.

We always strive -- point a lot of initiatives at full, fun, friendly stores that are well-stocked and customer engagement in our stores.

We have an initiative that continued to -- we work with our store associates to greet our customers.

We are self-service to a large degree, but when you see a customer and you are within range, smile and greet them and make sure that their needs are being met.

And all the way through to the front end where, as they are going out, our cashier is smiling, thanking them for their trip, offering them something else -- a new item that they may not have seen.

So customer engagement initiatives are on our plate.

We want stores that our first of the month ready.

A lot of our customers get extra cash in their pocket at the first of the month.

We want to make sure that our displays are chunky at the first of the month.

We want fully well-stocked stores.

We're going to continue to roll out our frozen and refrigerated.

It is high value.

It is a category that does offer a reason for a customer to come to our stores more frequently.

And, as I said, we were planning 320 new frozen and refrigerated stores and expanding it in another 50 stores this year.

Throughout last year, was the largest rollout that we have had, I believe, in any one year; 608 stores or something like that.

So we began with a plan and we saw the opportunity to expand it, and we continue to expand our frozen and refrigerated.

Our category expansions, what we call our drive the business initiatives, continue with drive the business in stationery and party, candy, snacks, and a lot of our drive the business initiatives in our home department.

We are expanding for more wow.

I believe that with our buying power now, and our merchants are finding the ability to leverage that buying power into more value, bigger sizes, bigger savings, so increasing the value.

It is still $1 but you get more for the buck than you have ever gotten before.

And then, the last thing I will just point to is what we call initiatives around operational excellence.

We like to offer the same great experience in every store to every customer every day.

And we are doing a lot of work around that -- a lot of training, retraining, coaching, and the like, around our store experience because that is the point of engagement for our customers.

Great.

That was helpful.

Thanks.

Good luck.

Paul Trussell, Deutsche Bank.

Thank you for all the color you have given to date on the call.

It has been very helpful.

Just wanted to move to the Deal$ stores and Canada.

If you can just give -- shed a little bit more light on the top line and margin trends you are seeing in those smaller segments, so as those pieces of your story grow a bit bigger, just want to know how that will impact the model.

You know, I am pleased with where we are with our Deal$ model.

We continue to improve.

We continue to refine the assortment.

In the fourth quarter, we had one of our strongest seasons in some of the new categories -- the expanded categories like toys.

We had the expanded assortments of party and catering in our Deal$ stores that performed very well.

And our basic home area continues to perform well.

The topline growth in our Deal$ stores and the margin, we really don't break that out from the rest, but I am pleased with it.

I think we have opportunity to continue to drive more topline growth in our Deal$ stores.

Typically, we are aiming those at the more urban environment -- those environments that may be underserved, that have a lot of customers that need the kind of products that we sell at the value prices.

From that, we are experiencing higher volume sales, higher sales per square foot.

The margin is lower.

The margin rate -- they have a lot of initiatives around improving the margin rate in our Deal$ stores as we go forward, because I think it is there to be done, frankly.

But, Deal$ is moving along as planned.

We have a huge opportunity.

We have not quantified how many stores Deal$ can be, but I can tell you that it is going to be a large number at the time that we have it right.

Canada has been really three years now, and it has been three years of investment in Canada.

We have invested in infrastructure.

We have put all of our -- virtually all of our systems and all the ones that make a difference in Canada, we put all of those in.

We have invested in people and store teams.

We have invested in the re-bannering of all of the Dollar Giant stores now are bannered Dollar Tree Canada.

That was completed in last year, 2013.

We are investing in the assortment planning process.

And really the key to Canada now is all about the merchandise and it is all about the stores.

And it is about offering the best value for [CDN1.25] in the country.

And we are capable of doing that.

We are seeing some great excitement from the customers when we do that.

We can do better.

We continue to find our way a little bit on some of the consumer products.

But I am pleased with our ability to get where we need to be in stock, in business, with our basics every day surrounded by all those great seasonal and unexpected values that you find, as you do in Dollar Tree US.

So Dollar Tree Canada, we think we can run over time up to 1000 stores in Canada.

We expanded this year dramatically; a big percentage, almost 29%.

Our continued plan is to continue expanding at about a 25% rate in Canada, store count.

That's helpful.

And then, just a question on what you are seeing from lower income consumers.

Obviously, you have a unique model with the single price point.

But as you kind of parse through the data, is there any different behavior you are noticing from the customers that do use EBT?

Within your stores, are they choosing, for example, the 30-pill private-label headache medicine instead of the four pills of Advil?

Is their basket size changing at all?

Any color you could provide on trends per income demographic would be helpful.

All right.

Well, we take SNAP and we take food stamps.

And of late, obviously, the food stamp programs have been reduced.

I think it hit average customer, SNAP customer, SNAP recipient, like $35 in their monthly food stamp.

We haven't really felt that.

If you look at the numbers, our percent of SNAP transactions is running pretty consistent.

It is a small number anyway, as I have always said it, but I haven't seen any impact on the percentage of our SNAP benefit.

In reality, I do know there is a pressure -- there has to be a pressure when you take your lowest income consumers and take $35 out of their pocket.

There is an impact from that.

As far as the basket size, we really haven't noticed any changes in that, but there continues to be pressure on the consumer.

They continue to be burdened and worried and I think that we all see that in our stores.

There are some signs of improvement in the economy, but the pressure still remains.

Unemployment is still stubbornly high.

It is still a higher cost of living impact with fuel and food and taxes, and now health and heating costs.

With the cold winter, I think there can be -- obviously there's going to be more pressure on that and, really, just the anxiety of uncertainty in the future.

All of that remains a real strain on the family budget.

Our job at Dollar Tree is to be part of the solution.

We strive to provide products for our customers across the income spectrum.

It gives them a balance of things they need, things they want, tremendous values, just a dollar; clean, bright stores; friendly people in our stores.

Every customer, every store, every day being greeted and treated especially well.

So I can't tell you that I see any of the numbers in our business.

I will tell you the pressures still remain.

We are still focused on providing the solution (technical difficulty).

And we have time for a couple more questions.

Meredith Adler, Barclays.

Thanks for taking the question.

I respect the fact that you guys are always very conservative.

But other than the tax rate, I am kind of scratching my head to understand why you are really expecting pretty modest increase in net income, because I mean, it is possible that we have another terrible winter next year.

But it is hard to imagine that it is worse than what we have now.

And it is really modest growth when you look at the second through fourth quarters.

I understand the first quarter is being pressured again by weather.

But I know you have said there is no change in the underlying business, but by putting the guidance out so low, it is as if you are saying you do think that there are some kind of underlying issues.

So I'm a little bit confused.

Meredith, I guess I would start with -- I don't think the guidance we have given is a whole lot different than traditional, in the sense of the increase in earnings per share in that 7% to 15% range.

That has been pretty consistent with the last couple of years, I believe, if you go back and check.

So I don't think that is necessarily significantly different.

As we sit here today, obviously, the third and fourth quarter where we had our lowest comps in 2013, that is a ways out there.

And, as we go through the year, obviously we will have the opportunity to adjust accordingly if there is reason to.

But I do feel that, as we put our guidance together and work through it, that we are fairly comfortable with that low single-digit comp increase.

We did a 2.4% this year.

We obviously want to do better and are striving to do better, but there's a lot of different things going on out there.

You heard Bob speak to the consumer and the pressures that continue to be there, and all the uncertainty.

We have to take that into consideration.

Obviously, what we are going to focus on is, again, doing what we do best, which is growing the brand, opening new stores.

We have got 450 projects on the plan for this next year, the most we have done maybe ever, I guess, in a single year.

So we think that is important, if we can continue to think about that and how we can continue to improve our new store productivity.

There is a lot of things that we are working on that hopefully at the end of the day we will be able to exceed the guidance.

But at this point, we are very comfortable with where we are at with it.

And I think that is kind of the background of how we got to it.

Okay.

That's fair.

And if I could just ask a question about distribution.

You said that you were going to start work on the 11th distribution center and also expand Joliet this year.

I was wondering if you will -- will that continue to have an impact on distribution costs as a percentage of sales?

Or the fact that you have got the new DC open which is going to shorten the stem miles a little bit, do they sort of offset each other?

Well, Meredith, first of all, we are expanding our distribution network to provide capacity to support our new store growth as well as our continued comp store growth.

So we will seek to be expanding Joliet this year.

We are also looking at DC 11.

So we wanted to share with you -- I wanted to share with you that we are looking at DC 11.

It will be late in the year and there may be not much spent actually this year, but certainly DC 11 is coming up.

We do plan to continue to grow.

We continue to expand our store base as well as expand our productivity of our existing stores.

So, as we grow, we have to have capacity.

So we are building to our capacity.

We are also considering costs.

We are considering stem miles inbound, where those vendors are and how much it costs to get it in the doors.

We are considering stem miles to our stores as we go forward and as we always have.

So as we open up these new distribution centers, stem miles typically will be reducing, so that will provide some positive aspect to our distribution costs.

Stem miles inbound may or may not reduce.

That's the product that where the vendors lie.

So all in all, as I would expect, DC 10 to do continue to get more efficient, to deliver our product, receive and deliver our products to our stores more efficiently.

As we expand Joliet, we are also going to be looking for efficiencies in the expansion to improve how we -- and we looked at also how we are delivering the product.

So that is my expectation.

Providing for capacity, number one; number two, continuing to reap the benefits of decreasing our stem miles.

Okay.

Great.

Thank you very much.

Matt Nemer, Wells Fargo Securities.

Two quick follow-ups.

First, could you talk to the sustainability of the payroll expense improvements that you talked about in the fourth quarter as we look forward to the next few quarters?

And then, secondly, the cooler/freezer expansion number was quite a bit lower than last year.

How much upside do you think there is to that 300-ish number?

And could you just remind us how many of your existing stores would be eligible for freezer and cooler expansion?

Thanks.

Matt, that freezer/cooler number changes every year because we keep opening new stores every year.

We put it in most of the stores that we open as long as there is no restriction in the location, as long as the store size is such that it will fit in; sometimes we open a smaller store than we will put that in, and also stores of a volume.

So there is a few criteria.

We usually meet those.

The restrictions, though, however, are -- they do take us out of putting them in all those new stores.

So as we go forward, we will have more.

Every year, as we open up new stores, we will have more freezer/cooler stores.

It will not be all the new stores, typically, but it will be some of those.

And then we are always going back and looking to the existing fleet for those same type of criteria, because we open up a store and it may be of a volume that we are not putting the freezer/cooler in, but it grows over time.

So, as it comps up year-over-year, and it reaches our volume, then we may drop it in for those reasons.

So it is hard to say exactly how many it can be because we keep growing.

I think we characterized it as about 300 a year to do a while.

And for this year, it is 320.

There is also opportunity that we are finding, as our business continues to grow, to go back and expand some doors in some existing stores.

And we are doing 50 of those this year.

So I think the frozen refrigerated is going to be with us as a growth category for quite some time.

We are growing the store base faster than we are putting it in, for the ones that (inaudible).

In regards to your question, Matt, in regards to wages and the continued productivity, we -- just like the rest of our business, we have initiatives there to help our stores and help them become more efficient.

And if you look over the last number of years, we have had initiatives around store task scheduling to make things consistent across stores and help them understand what needs to be done when and so forth.

We have got automated scheduling systems now that help them as far as making sure we have the right number of people at the right times of day in the stores.

And we have done things from a merchandise standpoint.

You have heard me speak in the past about flow of inventory and how it makes us better when we flow it at a more even level and try to take out what we refer to as the violent peaks, such that they can handle it in a much better way.

So that not only helps the DCs, it also helps the flow to the stores and allows them to get it to the floor much faster at the end of the day and in a much more efficient way.

So the interesting thing, I think, is if you look at maybe the last 10 years, we have seen our average hourly wage go up maybe a little less than $2 an hour.

But we have actually seen our wages as a percent of sales go down about 200 basis points.

So we have obviously gotten more productivity.

Obviously sales productivity helps that, but also just the many initiatives that we consistently work towards to help our overall ability to affect that line item.

And it is an important line item, because it is the biggest line item of expense on our P&L at the end of the day.

That's helpful.

Good luck this year.

And this does conclude the question and answer session.

I would now like to turn the call back over to Tim Reid for any additional or closing remarks.

Thank you, Noah.

Thank you all for participating in the call, for your interest in the Company and especially for your investment in Dollar Tree.

Our next conference call is scheduled for May 22, 2014.

Thank you.

This does conclude today's conference.

Thank you for your participation.