美元樹 (DLTR) 2014 Q1 法說會逐字稿

Good day, and welcome to the Dollar Tree, Inc.

first-quarter earnings conference call.

Today's conference is being recorded.

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

Please go ahead.

Good morning, and thank you, Levi.

And welcome to the Dollar Tree conference call for the first quarter of fiscal 2014.

My name is Tim Reid.

I'm Vice President of Investor Relations for Dollar Tree.

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 first-quarter financial performance, and provide our guidance for the remainder of 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.

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.

And now I'd like to turn the call over to Bob Sasser, CEO of Dollar Tree.

Bob?

Thanks, Tim, and good morning, everyone.

This morning, we announced our results for the first-quarter 2014.

Comp store sales on a constant currency basis increased 2% in the quarter, driven primarily by increased traffic, with a small increase in average ticket.

Adjusted for the impact of Canadian currency fluctuations, the comp store sales increase was 1.9%.

This was on top of a 2.1% comp in the first quarter last year and a 5.6% comp the year before.

Total sales were 7.2% to $2 billion.

Operating income increased by $15.4 million or 7.1%.

Operating margin was 11.6%, matching last year's all-time high first-quarter operating margin.

Net income increased 3.6% to $138.3 million.

And earnings per share increased 13.6% to $0.67 compared with first-quarter 2013 earnings of $0.59 per share.

We believe that our model is right for all times.

We offer the customer a balanced mix of consumable merchandise they need every day, alongside assortments of high-value seasonal and basic discretionary product, and all at $1.00.

Our sales growth in the first quarter was the result of increased sales in both consumable and discretionary products, with our seasonal and discretionary product growing at a slightly faster rate, as planned.

Top-performing categories included candy, check-out and trend products, stationery, Valentines and Easter seasonal merchandise, and frozen and refrigerated products.

As was the case in the fourth quarter, we were not immune to the impacts of the unusually long and harsh winter.

Weather impeded customer traffic well into March, created snarls in our merchandise flow, and resulted in higher-than-planned freight logistics and utility costs.

It's not surprising then that, in terms of geography, performance in the first quarter was strongest in the southern zones, led by the Southwest and the Southeast, followed closely by the Midwest.

Our performance was weaker in the Northeast.

Sales strengthened throughout the quarter, with our strongest comps in April, reflecting the Easter calendar shift and our strong Easter seasonal performance.

We ended the quarter with increasing sales momentum that has continued into May.

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.

We're growing by opening more stores, by increasing the productivity of all stores, and by developing new formats, new markets, and new channels of growth vehicles.

During the first quarter this year, we opened 94 new stores, and we relocated and expanded 28 existing stores for a total of 122 projects.

Total square footage increased 6.8%.

We ended the quarter with 5080 stores, and we're on track with our plan for the full-year, which includes 375 new stores, and 75 relocations and expansions, for a total of 450 projects across the US and Canada.

As a reminder, square footage for the full-year is planned to increase 7% over fiscal 2013.

In addition to opening more stores, we continue to develop our strategy to increase productivity in all stores.

Some of our sales initiatives include category expansions.

Our customers are finding more value as we continue to rationalize and expand assortments in candy, stationery, health, beauty, and eyewear, as well as home and household products.

Across the chain, customers are seeing more powerful seasonal and party presentations that create excitement and a fun shopping experience.

We plan for our storefronts to change like the leaves on the trees, creating seasonal energy in our stores.

In the minds of our customers, we want to own the seasons at the $1.00 price point.

Store associates are emphasizing more effective customer engagement throughout the store and at the front-end, to drive sales of related items across merchandising and suggestive selling.

Our goal is to provide value and a shopping experience that exceeds the expectations of every customer in every store every day.

We're doubling down on being first-of-the-month-ready, with an increased emphasis on chunky displays of basic consumable core items.

We are reintroducing our See What $20 Buys, along with our Stretch Your Dollar campaign through in-store promotions and digital media.

And to satisfy basic needs and to drive increased shopping frequency, we continue to expand our frozen and refrigerated category.

In the first quarter, we installed freezers and coolers in 112 additional stores.

We now offer frozen and refrigerated product in 3269 stores.

And we're on track with our plan to add freezers and coolers to 320 additional stores, and to expand the frozen and refrigerated sections in 50 stores this year.

This category continues to serve the needs of our customers, and it's a reason to come into the store more often.

This increase in shopping frequency provides the opportunity to increase sales across all categories, including our higher-margin discretionary product.

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

Our Deal$ format extends 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 products.

By lifting the restriction of the $1.00 price point at Deal$, we are able to serve more customers with more products at value prices every day.

We ended the quarter with a total of 217 Deal$ stores and growing.

Our Canadian integration and expansion continues.

We opened 11 new stores in the first quarter under the Dollar Tree Canada brand, and ended the quarter with 189 Canadian stores, well on our way to achieving our growth plan for the year.

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 $1.00 price point.

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

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

Our customer traffic continues to grow as we expand the breadth of assortment and points of contact with customers online.

Dollar Tree Direct and Deal$ Direct now have over 4000 items available online, an increase of 50% versus the same time last year.

This increase in assortment is showing up in our customer visits.

In the first quarter, our online traffic increased 19% over the first quarter last year.

We've expanded the functionality of our mobile platforms, adding the ability for shoppers to post reviews of products and to share their Dollar Tree stories via their mobile devices.

Over 2.2 million people visited the mobile version of our site in the first quarter, an increase of more than 34%.

Dollar Tree Direct is gaining customers every quarter, and we expect to see sustainable growth in our Dollar Tree Direct sales.

Check us out online; there's always something exciting going on at Dollar Tree.

As you know, we've always planned to support our growth with investments in infrastructure and distribution capacity ahead of the need.

We recently broke ground on a 250,000 square foot expansion of our distribution center in Joliet, Illinois.

This project will bring the total size of the facility to 1,450,000 square feet, an increase of 21%.

The project is scheduled for completion by year-end.

We're also in the early stages of work on our 11th distribution center.

We'll provide more details on this project as the plans are finalized.

Now I'd 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, our diluted earnings per share increased 13.6% in the first quarter to $0.67 per share.

This reflects our sales growth, expense control, and the impact of share deliveries in the first quarter as part of our $1 billion accelerated share repurchase program.

Starting with gross profit, our gross profit margin was 34.8% during the first quarter compared with 35.2% in the first quarter last year -- a change of about 35 basis points.

The decrease resulted from higher freight and distribution expenses.

Freight expense increased by 30 basis points, reflecting higher trucking rates, driver shortages, and weather-related disruptions on inbound trucking, impacting deliveries to our DCs and reducing the opportunities for backhauls.

Excluding the freight impact, merchandise margin was slightly higher than the first quarter last year.

Distribution expenses increased 25 basis points, primarily driven by the expense associated with our new DC in Windsor, Connecticut.

This facility opened in June of last year.

We should annualize the year-on-year expense impact of this additional facility in the second half.

These two items were partially offset by reduced shrink expense, leverage on occupancy cost, and continued improvements in initial mark-up.

SG&A expenses were 23.2% of sales for the quarter compared with 23.6% in the first quarter last year.

Payroll-related expenses declined by approximately 50 basis points, reflecting lower expenses for incentive compensation, medical benefits, retirement plan contributions, and Workers' Compensation.

We also had lower expenses for legal fees, as well as leverage associated with the comparable store sales increase.

These reductions were partially offset by increased utility costs related to the colder weather, which affected both usage and rate.

Operating income increased $15.4 million compared to the first quarter last year, and operating margin remained at 11.6% compared with the 11.6% operating margin in the first quarter last year.

The tax rate for the quarter was 38.2%.

This compares with a 38.1% tax rate in the first quarter last year.

Cash and investments at quarter-end totaled $387.1 million compared with $383.3 million at the end of the fiscal first quarter 2013.

As you may recall, in September of 2013, the Board of Directors authorized a $2 billion share repurchase program.

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

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

We received 1.9 million shares as part of the ASR in the first quarter.

Subsequent to the end of the first quarter, on May 15th of 2014, the Company received an additional 1.2 million shares, completing the ASR.

All together, the Company received a total of 18.1 million shares under the $1 billion accelerated share repurchase program.

The Company has $1 billion remaining on its share repurchase authorization.

The diluted weighted average shares outstanding for the first quarter was 207.7 million.

Our consolidated inventory at quarter-end was 3.3% greater than at the same time last year, while selling square footage increased 6.8%.

Consolidated inventory for selling square foot decreased 3.3%.

Our inventory turn increased in the first quarter, and we expect continued improvement in inventory turns for the full-year.

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

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

Capital expenditures were $71.9 million in the first quarter of 2014 versus $103.2 million in the first quarter last year, reflecting our investments to expand distribution capacity.

For the full-year of 2014, we are planning consolidated capital expenditures to be in the range of $350 million 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 in the first quarter totaled $50.8 million versus $45.1 million in the first quarter last year, an increase of approximately 10 basis points.

We expect depreciation expense to be in the range of $200 million to $210 million for the year.

Our guidance for 2014 takes into account the actual performance in the first quarter, and except for small refinements to the share count and the tax rate, is unchanged from that which we issued on February 26th.

It includes the following assumptions.

First, we were pleased with the results of our May 1st ocean freight negotiations, which were consistent with the assumptions in our previous guidance.

As always, we cannot predict the direction of diesel prices for the next year.

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

We also cannot predict future currency fluctuations.

We have not adjusted our guidance for changes in currency rates.

And as we look ahead to the fourth quarter, this year 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 second quarter and 38.3% for the full-year.

Weighted average diluted share counts are assumed to be 206.7 million shares for the second quarter and 206.9 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.

With this in mind, for the second quarter of 2014, we are forecasting sales in the range of $1.97 billion to $2.02 billion, based on a low-single digit comparable store sales increase and 7.2% square footage growth.

Diluted earnings per share are expected to be in the range of $0.58 to $0.64, which would represent a 3.6% to 14.3% increase compared to the second-quarter 2013 earnings of $0.56 per diluted share.

For the full fiscal year of 2014, we are forecasting sales in the range of $8.37 billion to $8.54 billion, based on a low-single digit increase in comparable store sales and 7% square footage growth.

Diluted earnings per share are expected to be in the range of $2.94 to $3.12.

This represents an increase of 8.1% to 14.7% over 2013 earnings per share of $2.72.

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

Thanks Kevin.

In summary, during the first-quarter 2014, comp store sales grew 2%.

Customers are visiting our stores more often, and we are attracting new customers every day.

Both traffic and average sale were positive, with the results being driven primarily by increased customer traffic.

Our sales strengthened throughout the quarter, with the highest comp sales in April.

Sales momentum has continued into May.

Total sales grew 7.2% to a first-quarter record $2 billion.

We achieved 11.6% operating margin, tying our first-quarter record set last year.

And earnings per share increased 13.6% to $0.67.

We opened 94 new stores, expanded and relocated 28 stores, and ended the quarter with 5080 stores and square footage growth of 6.8%.

We expanded frozen and refrigerated product to 112 additional stores for a total of 3269 stores across the US.

Our inventory is balanced and increasingly productive.

Our turns increased in the first quarter, and we entered the second quarter well-prepared for new store growth and customer demand.

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

We invested more than $1 billion for share repurchase over the past four quarters, and have another $1 billion authorization remaining.

Now in our 28th year, Dollar Tree has built an exemplary record of consistent profitable growth.

This performance has been the result of the collaborative efforts of tens of thousands of Dollar Tree associates working together to deliver value to every customer at every store every day.

As I look into the future, I see even more exciting opportunity.

Our balance sheet is strong; the Dollar Tree business model is powerful, flexible, and more relevant than ever, providing extreme value to customers while recording record levels of earnings.

It has been tested by time and validated by history.

We have multiple platforms for growth.

The Dollar Tree brand is a benchmark of value for our customers.

And there's great opportunity to grow and expand the Dollar Tree brand in the US, through more stores and more productive stores.

The Deal$ brand is serving customers with increased value on even more categories.

Dollar Tree Direct continues to broaden its reach to customers throughout North America, and we are working to build, expand and improve the Dollar Tree Canada brand.

We remain committed to a concept that customers love, and we are positioned to continue growing profitably for many years ahead.

We have a vision of where we want to go, and the ability to execute with the infrastructure, capital, and most importantly, a talented management team that has a long history of retail success.

It's a great time to be Dollar Tree.

As we enter the second quarter, our inventories are clean and fresh, the shelves are full of terrific merchandise, our stock rooms are in great shape, and our 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.

Levi?

(Operator Instructions).

Scott Ciccarelli, RBC Capital Markets.

A little bit more -- I was wondering if you could give us a little bit more, Bob, on the cadence of the quarter?

First of all, how large was the volatility -- you know, kind of when you look through the quarter?

And then number two, any idea kind of how to size the -- any kind of weather impact?

And general thoughts on how much weather may have impacted the sales trends.

Thanks.

Yes, Scott.

Well, basically, as I said earlier, the sales strengthened throughout the quarter.

April was the strongest.

There was the shift of Easter, as you know, which helped April, as well as the weather continued to improve a little bit as we got into April.

The quarter was terrifically impacted by named storms.

Just as a little reminder, you know, we had 26 named storms across the season last year; 11 of those were in first quarter.

As we moved into February, there were six in February.

There were four in March, almost one a week; and then one in April, the very first week of April.

So, as we moved through the quarter, as weather improved and as we got closer to the Easter holiday, our sales strengthened.

And that momentum has continued into May.

Both consumables and our discretionary categories grew.

Both were comp-positive, with the discretionary business only slightly growing at a faster rate.

In terms of geography, as you might guess, the southern zones did better.

Our sales were led in the Southwest, followed by the Southeast; then the Midwest and, of course, the Northeast, which was the most impacted by the negative weather, was -- lagged along.

Top-performing categories, we already talked about were our candy, and our check-out, and our trend.

Our stationary business was very strong.

Valentine, Easter seasonal -- even Valentine, even with the horrible weather, the weaker Valentine's Day, we had an acceptable Valentine's Day season.

So we were pleased to have come out of that as we did.

And, of course, we continue to grow our frozen and refrigerated as well as our snacks and beverages.

But Bob, was the Northeast negative in the quarter?

You know, I think -- we don't -- I'm not going to break it out, but I would characterize it as -- it was the -- lagging, I guess.

But that -- specifically, the Northeast recovered as we got through kind of April and into May?

Absolutely.

It was weather.

The Northeast, as you know, was the most impacted by weather.

Valentine's Day, we had storms; we had all the bad stuff that went on there.

So, I'm not trying to give you a weather report; just trying to share with you the cadence of the sales.

The -- our sales strengthened -- because of weather improving and because of getting closer to Easter, as you went through the quarter, our sales strengthened, February into March and then into April, with April being the strongest.

Understood.

Thank you.

You're welcome.

Matthew Boss, JPMorgan.

Hey, guys, on the gross margin front, can you speak to underlying drivers of the core merchandise margin being positive here?

Opportunities going forward?

And what you're seeing on the sourcing front today?

Yes.

The -- as I've always said, we are in control of our merchandise margin.

And we -- our merchants and -- have managed that just terrifically over the years.

Our basic purchase mark-up, I guess, on our margin was solid and slightly better.

The shrink also improved as a component of our gross margin.

The sort of the drag was the transportation cost component of our gross margin.

Great.

(multiple speakers)

(multiple speakers) Kevin, would you like to add anything?

Yes.

I mean, I think just to give maybe a little color on the transportation costs.

If you look at it, the weather definitely impacted us.

Definitely where we saw the biggest impact was in the Port of New York, which got backed up significantly.

Big disruption there.

First, the weather backed it up, but then there was a lack of equipment because truck chassis were not being returned and put back into use within the business.

So that was a big problem and, as well as the fact that in Vancouver, we had some disruption from the truckers' strike for a period of about a week to two weeks roughly.

So those are definitely things that were not expected.

To move freight, we had to pay some higher rates to make sure we could keep things moving.

So there are some one-time costs there.

I would tell you in general, though, as we go forward, we are seeing -- and it's built within our guidance, is the idea the fact that there are some pressures on freight costs within our business.

You know, there is a somewhat shortage of truckers out there in some regards.

They changed the rules of operations for truckers last summer.

So, the amount of hours they can spend on the road and so forth.

And that does have a direct impact on the industry at the end of the day.

So -- but that is built into our model and into our -- in our guidance.

But we could see some continued pressure there as we go forward.

Great.

And then one quick follow-up.

On capital allocation, you guys have talked to comfort operating with more leverage on the books.

The ASR is now complete.

Can you just talk about priorities on the capital front?

Sure.

I mean, I think, as you've heard me say before, as we look at it, obviously, the best use of a dollar is build another Dollar Tree store.

We have plans to open 375 new stores this year and 75 relocations.

So, 450 projects there.

So that's always our first and foremost.

We're actually going to continue to work on our infrastructure from the standpoint of we're expanding DC3 for us, which is in Joliet.

We are looking at DC11, trying to put that on the board and plan that out accordingly.

So those are going to be uses of capital as we continue to go forward.

After that, as we've always talked about, there's acquisitions which, historically, the last one we did was Canada.

So it's not -- nothing going on there.

Then you get into dividends.

And the Board of Directors basically has looked at that in the past, and we've talked about that.

And we really feel like we want to put our money towards growing the Company.

And then returning to shareholders through our share repurchase program, which is where we've been -- a good way for us to return value to our shareholders at the end of the day.

So, I don't think our overall thought processes have changed any in any regards in that way.

And again, the ASR has been complete.

And we'll go from there.

Great.

Best of luck.

Joan Storms, Wedbush Securities.

Congratulations on a great quarter.

Thanks, Joan.

So I had a question on your merchandising and your -- the nondiscretionary -- I mean, the discretionary categories have done pretty well.

I know for competitive reasons you don't want to disclose a lot about that, but can you hint anything about what is going on there going forward?

And also, on the comp scene, tell us what you think about the consumer these days?

And the multiple has been hit a little bit for a low-single digit comp versus a mid-single digit comp.

And what does it take to get sort of back to that?

Okay, Joan.

I'll give it a shot here.

You know, we always talk about our merchandise assortment; it's a balanced mix of things people need and things people want.

So, basically, the things you need every day, the faster turning merchandise creates traffic in our stores.

It's a reason to shop Dollar Tree.

You go there for all the great values on paper goods and HBC, and household supplies, and all the things that you need that you consume on a frequent basis.

And that adds shopping trips to our stores.

It also serves our customer needs very well.

Alongside that, we always strive to sell a balanced mix, which is also the discretionary merchandise.

We are very proud of our party business, our seasonal business.

And we talk about it as changing like the leaves on the trees.

And what that means is, the fronts of our stores are always changing.

We place great -- we place a lot of importance to our shopping experience at Dollar Tree.

People -- customers shop Dollar Tree because we have great values on things they need and it's a fun experience.

They always find something that they didn't expect.

They find things for the party, they find things for the season, they find toys for the kids.

And, as we say, everybody leaves happy because, at Dollar Tree, you can still afford to splurge even in tough times and buy those things for your kids.

So we always plan to sell, and we manage our business appropriately, mixing out that balance between products needed and products that are discretionary.

It's about a 49% to 51% discretionary to needs, and sometimes it goes 50%/50%, and it's plus or minus in that range.

And that's the way we plan our business.

It's not by accident.

It's by plan.

It's one of the reasons that our operating margin is the highest in our sector and always has been.

We strive to exceed the expectations of our customer, not only with the values that they need, but also the shopping experience.

You come to Dollar Tree because I enjoy shopping Dollar Tree.

I really like to go to Dollar Tree.

I take my kids and I can buy them things that I couldn't buy them at other places.

And you hear those kinds of experiences from our customers.

As to the customer, I think the customer is still burdened and worried.

And it's just been -- you know, it seems like there's some signs of improvement out there, but the pressure remains and it's just been a long, stubborn period of high unemployment, and high costs, and anxiety over uncertainty.

So, it's been a real strain on family budgets.

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

So, once again, we try to offer the things our customers need.

As they need more of the consumable products, we've increased that in our mix in our stores -- again, striving for that balance.

And then to exceed their expectations for what they can buy on each visit, every customer every store, every day.

All right.

Thanks a lot, Bob.

You're welcome, Joan.

Paul Trussell, Deutsche Bank.

Great quarter, guys.

Thank you.

I want to just ask about new store productivity.

It was a little bit lighter than we had modeled and kind of your historical average.

But you also opened up a few more stores than we modeled for 1Q.

So just wanted to ask about maybe the timing of the openings, if that had any impact?

And just what you think about new store productivity moving forward?

Well, you know, I'm not concerned about it.

It's a little lower than you might have expected.

We have changed our cadence a little bit.

The weather had an impact on that.

We opened up, in the first quarter, fewer of our urban stores, which are typically the higher-margin, higher sales-per-square-foot stores.

We got -- still got those coming, but we didn't open any in the first quarter.

Weather had an impact; delayed some of our openings in the first quarter, and as well as impacting customer traffic.

So having said that, I mean, it's all annualized numbers.

So we've got very few weeks and days, in some cases, to use in our annualization, but it's not concerning.

We still believe in the concept.

And our customers, when they can get out, they are shopping in our stores.

And I believe we are going to see the productivity rise as we go through the year.

That's helpful.

And just, Bob, we've had pretty mixed results across a lot of retailers year-to-date.

I just wanted to get your thoughts on the health of the consumer today.

Obviously, Dollar Tree is positioned well, regardless of where we are heading from an economic standpoint.

But what are you sensing as you hear from customers and walk stores?

Do you believe that the environment is improving a bit?

Or is it still a very challenging marketplace for your core consumer?

You know, I believe it's still challenging, Paul.

The -- and the lowest demographic -- income-demographic consumers have especially -- the low-middle and the lowest have especially been pressured with less in their food stamps and less in their entitlements.

And then the talks about it, you know?

There is still the unemployment issues.

It remains high.

There is always concern about how long the benefits are going to last until I get a job.

So it's a worried and concerned consumer.

I believe that we're as well-positioned as you can be.

Again, we strive to offer that balanced mix.

Everything is $1.00 at Dollar Tree, so you can come to Dollar Tree and you can buy the things you need every day, and for only a little bit of money.

So, that's -- I don't think that has changed.

It feels to me like things are improving, but it doesn't feel like the consumer has actually bought -- and they may never buy into that, Paul.

I mean, I think we've gone through a time where people have been forever touched by, in some way, either through high unemployment or just the ability to run their families or run their businesses, and all that goes with the down economy, I think that they've been forever changed in their habits.

We continue to see new customers.

Our traffic continues to grow.

Some of it is more frequent shopping by existing customers.

Some of it are still those people that come in and say how much is this?

Which is a clue that they haven't been there before, because obviously the answer is $1.00.

Thank you.

You're welcome.

Charles Grom, Sterne, Agee.

Great quarter here.

So, Bob, when you take a look back at the improvement in your sales per square foot over the past six or seven years, it's pretty impressive.

I think we'd all agree on that.

But since the third quarter of 2012, comps have been in the 2% range.

Traffic is positive, but certainly not what you were doing five or six years ago.

And I guess my question is, when you look out over the next 5 to 10 years, and you look at the opportunities within the four walls of the store to improve productivity, where do you think it can go?

And I guess what's the pace of that?

And I guess how do you get there?

You know, it's -- those are (laughter) -- 5 and 10-year questions today are really tough to answer.

I can tell you what we're doing.

I can tell you how we think about running our business.

And I can tell you how we're going to continue to improve our sales per square foot.

We are always about running better stores.

We are always focused in our stores with initiatives that speak to increasing average ticket, increasing customer engagement, being the friendly, fun place to shop.

And we are always -- again, we continue to expand assortment in our stores based on customer needs.

And you can see it in our sales, as we've gone through.

So the areas that we've expanded assortments, expanded SKUs you can see are coming up at the top end of our sales.

So, you know, you can't have -- there are ebbs and flows to any business.

Stacking comps on top of comps on top of comps, I think if you look at our three-year stacks, you feel a lot better about it.

And I believe that comps can continue to improve.

But they are all obviously going to have to be the review of the overview of the last three years, the last five years, and that's the next year's comp to that.

So, we are going to keep driving our business.

Our customers love what we are doing.

We are in a market that value is of the utmost importance.

And we are clearly people that have the value that we've built the business based on value.

Everything is $1.00.

You just can't beat that for value.

As we've gone through time, we've continued to expand what you can buy for $1.00, and we will continue to do that, adding even more value as we go forward.

So, over the next five years, we're going to continue to grow.

We've got a lot more new Dollar Tree's that we can open in the US.

We have our Deal$ stores that we are using largely in our urban high-density markets, because we think that by lifting the restrictions of the price point, we can have even higher sales productivity and serve those customers in those urban markets better.

We have Dollar Tree Canada, which is coming along.

We are expanding that business.

We are up at, I think, 189 stores, somewhere around there, from the 86 that we bought.

So, we continue to grow Canada.

There's just a terrific amount of space that we can build new stores, whether it be geography or Deal$ new type store, or our Dollar Tree Direct business alongside of our Dollar Tree business.

So, more stores, continuing to focus on sales per square foot, better stores.

And over the next five years, our growth trajectory is still going to be amongst the highest in retail, I believe.

Okay.

And just one follow-up on your comments there, and also the comment follow-up on Matt's question earlier about capital allocation, just want to attack it from a little bit of a different angle, in that -- of the three major Dollar Stores, you guys have historically been the most acquisitive.

You did Deal$ several years ago.

You went into Canada a couple of years ago.

Is there anything on the horizon that you guys are looking at to plug into to enhance that growth, in addition to the success you guys have had with the Deal$ stores?

And you have a lot of cash on the balance sheet.

You are arguably a little bit underlevered.

Is there anything you would look to do to accelerate that growth?

You know, we're always looking for good companies and we are looking for opportunities to enter new businesses.

I don't see anything right now, but we are very focused on -- you know, our last acquisition was in Canada, and we really standing that up and getting that going in the right direction.

And we've got a lot of energy and focus towards that -- as well as our Deal$ business.

So -- but we are always looking.

We are always open to good opportunities.

Okay.

Great.

Best of luck and thanks.

Anthony Chukumba, BB&T Capital Markets.

Good morning and congrats on the strong quarter.

Thank you.

So I just had a question about sourcing.

Just wondering if there's anything that you're seeing different from a positive perspective, negative perspective, particularly given the slowdown in the Chinese economy?

Thanks.

You know, we just keep driving our business.

And about 40% of our product comes from somewhere other than the US, mostly from China.

I did not make the last trip but the results of it, the April trip, were -- continue to be strong.

We hit our margin targets again.

The market really is open to our kind of business.

And as much as we go and we actually place orders, and lay down orders, and we stand by our commitments, we've spent years building relationships with our Chinese, and as well as all of our vendors to continue to grow.

As we've gotten larger and placing larger orders, we've involved more factories and developed more relationships.

So, that is, I would characterize our foreign sourcing as being really unchanged and really a strategic advantage that we have over many, especially since we aspire to continue to thrill our customers with the types of products that are ? that we can find offshore, the things like our toy business and our party business, and our seasonal business, and all of our stationary business.

There's a lot of that product that comes from somewhere else.

Domestically, we continue to drive those businesses too.

We are very proud of our relationships at home.

Obviously, more of our business comes from the US than comes from anywhere else -- 60%.

So, continue to drive those businesses.

We enjoy a terrific relationship with many of the large consumer product companies across the country.

And I believe that as we continue to grow and the consumer continues to seek value, that part of our business is going to continue to improve and excel.

That's helpful.

Thank you.

Dan Wewer, Raymond James & Associates.

I wanted to ask you when you benchmark your performance in Canada against Dollarama, what would be the puts and takes?

I know you won't give any specifics on comps or margins, but how much of a differential in kind of qualitative terms you'd be willing to give us?

Well, you know, as we benchmark against Dollarama -- that is a terrific company, by the way.

And we're the new guy on the block, so to speak.

We are the largest in the US at what we do.

But as we go into Canada, we are very humble and we realize that we aren't the largest there.

So the first thing is, they have the size.

They are the large company that's been there a long time.

So, the growth, I think, is important for us in Canada -- more stores, the brand.

Building the brand in Canada, many Canadians know Dollar Tree in the US.

But that's just -- that's not good enough.

I mean, you have to be in Canada and you have to be their store of choice.

So we are building the brand in Canada.

We are growing, we're building size in Canada.

And all the while we are building store teams and people, and the ability to run the Canadian business.

There are desires in Canada, there are consumer needs.

We are paying very close attention to that.

There are things that we don't know still that we are very -- again, we are very humble, and we are willing and eager to continue to evolve to serve that Canadian customer.

It's not a Dollar Tree from the US in Canada; it's a Dollar Tree Canada.

And so building that assortment.

But, as we benchmark there, we are the smallest guy.

We are growing.

We have a big idea.

And again, we're the only single -- the largest single price point operator in Canada, and that's the message that we are trying to get to our consumer.

Okay.

And Kevin, when you look at your expenses per square foot, that's actually declined now -- it declined two consecutive years.

Typically, you talked about needing a one or a two comp to maintain a flat expense rate.

But you're obviously doing a lot better than that.

But it's not -- it doesn't appear to be sustainable in the long run.

But I wanted to get your thoughts on the sustainability of the 1%, 2% drop in expenses per foot.

Sure.

I mean, you know, as I've said before, I know that's a metric that many of you folks use out there.

We tend not to use that so much.

We always look at, as I've said, a line item by line item.

And I think part of it, as we've continued to grow over the last four or five years, part of it is scale.

Part of it is technology.

Part of it is initiatives surrounding certain expenses and how can we do it better?

And again, when everything is $1.00, the pennies count.

And everybody realizes that's part of our culture.

It's built in from day one.

Everybody realizing that the expense side of the ledger has to be a strict focus as well.

So, again, I think as we have said, a one, two comp typically would help us -- get us flat on our SG&A.

But we are always working to try to leverage things.

You know we've got some benefit in Q1 from our medical benefits.

Last year, we had huge claims.

We had more large claims than ever.

It was a really unusual year.

Those things tend to be cyclical for some reason, and so maybe this year is going to be a better year.

You can't always say.

But that's something I can't rely on at the end of the day.

But you know, as we look at things, we always believe there's room for improvement, you know?

We always talk about continuous improvement, continuous ways to improve our business, as -- and as well as the processes around.

I mean, that's really the way we go about it day in and day out.

And as I said, more on a line item basis or a detailed line item basis as opposed to looking at it on a per-square foot basis.

But you had called out incentive comp.

Given that the second quarter same-store sales are starting stronger than that low-single digit guidance, if that were to continue, would it be probable that your incentive comp would increase year-over-year in the second quarter?

Well, first, I would say your first statement relating to business going forward being stronger than our low-single digit comp, I don't know that I would agree with that.

So let's start there.

At the end of the day, let's make sure we have that right.

We were just saying that -- (multiple speakers)

I thought you said it was -- April was better than 2%?

(multiple speakers) And then May momentum was good?

We said basically that the strongest period was April but obviously part of that's the fact that Easter shifted later into April.

And I think what we're talking about in general is as it relates to our guidance that we've given.

So let's start there.

And then I think, as we think things like incentive comp, it depends upon -- we have high expectations that we will improve our business.

And part of that is at the store level, and another big part of it is here in the store support center.

So, as we look at those things, if business improves, yes, those expenses may go up; but the hope would be that because we're beating sales guidance, and you actually leverage them in the long run.

So I think it's kind of two components there that go into it over time, which is kind of the way I would look at that.

Okay, great.

Thank you.

And we have time for a couple more questions today.

We'll go to our next question from Dan Sinder with Jefferies.

Please go ahead.

Hi, it's Dan Binder.

Usually it's Dan Binder; today it's Dan Sinder, but (laughter) --.

Yes, we know who you are, Dan.

So I had a couple of questions.

Just first on a point of clarification around the whole Easter shift in April business.

When you adjusted the Easter shift, did you still see sequential improvement April versus March?

And then my second question was around the pricing environment.

You heard from Target that they are going to -- they're getting more promotional.

They already have.

Walmart's been pretty competitive since last fall.

Just curious your thoughts on the pricing environment, if you need to react at all?

Dan, since I'm the one that said what I said about the sales building throughout the quarter, let me just say again, sales strengthened throughout the quarter, first quarter, and momentum continued into May.

All of that's in our guidance.

We're not giving you new guidance with that comment.

We did consider all that in the guidance that we gave for second quarter.

As far as the competition, you know, we see all that.

I think our values are up too.

You know, with our price is still $1.00.

But the way we -- as you know, Dan, run our business is, we offer the most value that we can at the dollar at the margins we are willing to accept overall.

And I think if you shopped our stores right now, you'd find some terrific values for $1.00.

It's still $1.00, but we add more to the product from time to time.

We have our wow items out there.

More wow items than ever.

I believe that we are very competitive.

And having said that, we are just different than the other guys anyway.

Our price is $1.00 yesterday.

It will be $1.00 tomorrow, it's $1.00 today.

And it's all about offering the most value for that dollar.

And as long as we can do that, then we'll be successful.

We feel pretty good about our position.

Yes.

One of the things I've noticed in retail over the last several months, and just generally speaking, is that as retailers have experienced softer sales, you can see it in sort of the way they are staffing the stores.

The labor has come out.

And then you get these inflection points where weather improves and they seem a bit unprepared for the volume.

And just in terms of longer lines or out of stocks, or whatever.

I'm just curious if you can give us a little color on how you've been managing labor in your stores?

(laughter) Well, it's pretty much the way we've managed it for years.

We've looked at on a productivity basis.

And, of course, we are always looking to employ techniques and labor plans, and support our stores in a way that allows us to leverage and improve the productivity of our labor in our stores.

We measure it, report on it; our stores have goals that they are trying to meet.

As you do more sales, you get more labor, but you are trying to leverage that.

And that's pretty much the way we've done it for the past 10 to 15 years.

I don't think you'll see any longer lines in our stores than you have seen or will see.

And frankly, right now, I believe our stores are in as good a position -- merchandise standpoint, from a stock rooms in the best shape they've been in a long time.

Our store teams have really done a terrific job of running and improving the standards in our stores, while at the same time, being more productive, and driving the sales in the stores that can support the labor.

So, we are going to continue to do that.

Our stores know how to do that.

And I'm real proud of whenever they come up with a better labor number, because I know it just didn't happen.

Because the plan is because of initiative, it's because of focus.

And they're actually -- you know, they are doing the right things.

Great.

Thanks.

And we'll take our final question today from Patrick McKeever with MKM Partners.

Please go ahead.

I had a question on the impulse initiative.

And just -- you called it out as -- check-out as the stronger area of the store during the quarter.

So I'm just wondering how much of that ties into what you're doing with impulse merchandise, and how that initiative is evolving?

I know you had talked about doing more suggestive selling at the register, if you're still doing that.

And if you look at that initiative, how would you rank it in order of the various comp drivers for the year, including, let's say, the cooler program?

It's one of the more powerful initiatives that we have I think for a couple of reasons.

It's the first thing -- when you walk in the store, the front end of the store is the first thing you see, and it's the last thing you see.

So if you remember a year or so ago, we were talking about cleaning up our front-end, lowering the profile so you could see the cashiers, the cashiers could see the customers; lowering the profile, re-merchandising that whole front-end.

And we've re-merchandised our check lanes, first of all, with things that you need on the way out.

You might not have thought about it, but why not buy a pack of gum or something that you need, a pocket comb.

You know, there's hundreds of items up there.

But that's the idea -- is to offer them one last chance to buy something on that check-out.

And in that front aisle there, you'll find new products; you'll find seasonal products; you'll find what we call trend merchandise.

And we're always looking for something that's new, unique.

It might be seasonally-relevant.

It might be trend-relevant.

You'll find fun, exciting things on the front-end designed to come in and be bought and go away.

It adds to our sales and it also adds to the customer experience in the store.

So, those are two big initiatives that we've been working with, and will continue to drive comp sales for us as we go forward.

And the last thing you asked about is what we call our drive item.

And that is, our cashiers -- we have an Item of the Week and a drive item each week.

And our cashiers across the country as you check out are engaging you; hopefully smiling at you, asking, have you seen our new whatever pen or whatever hand sanitizer; or this just came in; or how would you like to buy another candy bar?

Or things like that.

So our cashiers are doing a couple of things.

One, we know that our customers like being engaged personally at the front-end.

So it accomplishes that.

And it's just that one last chance to get another item in their shopping bag as they go through.

So, go through, test it.

By the way, if they offer it to you, buy it.

It helps us enforce the fact that it's really important.

We'd appreciate some help with that.

And for the impact on -- it's obviously more of an impact on average ticket than traffic, right?

Did you talk about the average ticket during the quarter?

You said it was up a little bit, right?

It was up slightly.

Most of our increase was due to traffic.

So, you've got some puts and takes there.

So you're improving your front-end, you are improving the impulse sales.

At the same times, there are pressures on consumers from time to time where they're maybe buying less more frequently.

I think that's happening.

We saw some things with bracelets and some food stamps, not a big number for us, but our traffic on food stamps was about unchanged, but the average sale on food stamps was a little less.

I think that's tied directly to the fact that they are getting less food stamps now.

That program has been cut back.

So you always have some puts and takes, Patrick.

You know, some things -- we are always driving our sales.

And for instance, in this case, are right up there towards the top of our comp with our front-ends and our check-outs, and our trend merchandise.

But there are always puts and takes in this business.

And every plus is not 100% plus.

Sometimes it's one plus one equals 1.5.

So, that's my answer for that.

Okay.

Thank you, Bob.

Thank you.

And that concludes today's question-and-answer session.

Thank you, Levi.

And thanks, all of you, for your participation in today's call, for your interest in our Company.

And, as always, most importantly, thank you for your investment in Dollar Tree.

Our next conference call is scheduled for August 21st, 2014, when we will discuss our results for the second quarter.

Thank you.

And this does conclude today's conference call.

We appreciate your participation.