美元樹 (DLTR) 2017 Q1 法說會逐字稿

Good day, and welcome to the Dollar Tree, Inc.'s First Quarter Earnings Conference Call.

Today's conference is being recorded.

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

Please go ahead, sir.

Thank you, Christina.

Good morning, and welcome to our conference call to discuss Dollar Tree's performance for the first fiscal quarter of 2017.

Participating on today's call will be our CEO, Bob Sasser; CFO, Kevin Wampler; and Enterprise President, Gary Philbin.

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 8-K, most recent 10-Q and annual report on Form 10-K, which are all 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 the first quarter, the receivable balance from Dollar Express related to the transition services agreement for the divested stores was $50.9 million.

As discussed in our press release and financial tables, the company has impaired the entire receivable.

An additional receivable of $2 million or more from Dollar Express is expected in the second quarter, which we anticipate will also be impaired.

The company plans to take all appropriate actions, which we expect to include litigation, to enforce our rights.

Thus, we are unable to provide further details or take any questions related to this matter.

Unless otherwise noted, all SG&A, operating income, net income and earnings comparisons presented today do exclude the impact of the $50.9 million receivable impairment charge for the first quarter of 2017.

Please refer to the table in today's press release for a reconciliation of the GAAP financial measures to the non-GAAP financial measures that exclude the impairment charge.

At the end of the -- our prepared remarks, we will open the call to your questions.

(Operator Instructions)

Now I will turn the call over to Bob Sasser, Dollar Tree's Chief Executive Officer.

Thanks, Randy.

Good morning, everyone.

This morning, we announced our results for the first quarter of fiscal 2017.

Consolidated sales for the first quarter increased 4% to $5.29 billion.

Same-store sales increased 0.5%.

By segment, same-store sales for the Dollar Tree banner increased 2.5%; and for the Family Dollar banner, same-store sales decreased 1.2%.

Our combined gross margin rate improved 20 basis points to 30.8%.

Consolidated operating income increased 5% to $439.7 million.

And our year-over-year consolidated operating margin improved from 8.2% to 8.3%.

Total net income for the quarter was $232.1 million, and our adjusted EPS of $0.98 met the high end of our range of guidance.

Excluding the onetime tax planning benefit of $0.09 per share in the first quarter last year, our EPS grew by 10.1% from the adjusted $0.89 a year ago.

I am extremely pleased with the first quarter performance for our Dollar Tree banner and with the continued progress in rebuilding the Family Dollar business.

For the combined banners, total sales were near the midpoint of our range of guidance.

Same-store sales were positive for our 37th consecutive quarter.

Consolidated gross margin and operating margin rates improved, SG&A expenses across both banners were well managed, and importantly, our adjusted EPS met the high end of our range of guidance at $0.98 per diluted share.

Performance of the Dollar Tree banner continues to be strong and consistent.

Same-store sales increased 2.5%.

Sales mark-on, including freight expense, improved; shrink declined; and our sector-leading operating margin grew 50 basis points to 12.3%.

Our Dollar Tree merchants and operators continue to raise the bar for sales and profitability.

At Family Dollar, our customers are seeing cleaner stores, better product assortments, greater values, more consistent in-stocks and an elevated level of customer service.

I'm confident that each of these elements over time contributes to winning back repeat visits and share of wallet.

But that's just the beginning.

We are in the early stages with many of our key initiatives that are expected to bring continued improvement.

Our re-merchandising and renovation programs have just begun as we enter second quarter, and we're confident that our customers will be thrilled with the merchandise energy and excitement in our stores as these initiatives gain traction.

Our strategy is consistent and increasingly relevant: to deliver great values and convenience to our shoppers every day.

With more than 6,400 Dollar Tree and more than 8,000 Family Dollar stores, we have the unique opportunity in value retail to serve more customers through all types of markets.

I believe we are in the most attractive sector in retail.

Shoppers today are focused on value and convenience now more than ever.

And that's exactly what Dollar Tree and Family Dollar store provide: value and convenience.

Looking forward, our banners are positioned for increased relevance to our customers, sustained growth and improved profitability.

We have multiple opportunities to continue growing and improving our business.

Our real estate and finance teams recently completed a rigorous analysis assessing the current store opportunity for each of our banners.

As a result of their efforts and analysis, we're now confident in our opportunity to operate more than 10,000 Dollar Trees and more than 15,000 Family Dollars across the United States.

With a combined store count currently of approximately 14,200 stores in the U.S., we have many years of growth opportunity ahead.

In addition to opening more stores, we're keenly focused on increasing the productivity of all of our stores.

By leveraging our buying and operational synergies across banners, we have continued opportunity to increase sales, improve margin and manage expenses.

With a keen focus on the customer, our goal is to maintain relevance in the market, offer extreme merchandise value and convenience while operating stores with a full, fun and friendly shopping experience.

We plan to operate and grow both banners.

At Dollar Tree, everything is $1.

Family Dollar is your neighborhood discount store.

We have the opportunity to serve customers with one or the other or both banners, depending on the market and customer demographics.

Our Dollar Tree Canada business continues to perform extremely well.

Our merchant and store teams in Canada are doing a terrific job in managing their business.

Their efforts in serving our Canadian customers are resulting in annual improvements in store productivity.

Comp sales in our Canadian stores outpaced our company average in the first quarter, driven by increases in both average ticket and customer count.

Leveraging the size and scale of Dollar Tree, our merchants continue to source higher-value product, and our customers are finding broader, more exciting assortments and better values in Dollar Tree Canada stores.

We want to be recognized by customers as the leading retailer in Canada at the single price point of CAD 1.25, just as we are in the United States at the $1 price point.

We now operate 225 stores in Canada and believe we have an opportunity for 1,000 stores over time.

In addition to Dollar Tree, Family Dollar and Dollar Tree Canada, our online business at Dollar Tree Direct is growing in size and performance.

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

While Dollar Tree Direct is a relatively small component when compared to our overall business, I continue to be very pleased with the year-over-year trends we are seeing in both traffic and sales, and we're seeing a material increase in the number of visits from mobile devices.

We strive to run world-class stores and engage with our customers via conventional and digital marketing channels such as e-mail, Facebook, Pinterest how-to craft videos, Twitter and more.

I invite you to check us out at dollartree.com.

In April, we announced the location for Dollar Tree's 12th distribution center.

It will be in Warrensburg, Missouri, less than 60 miles southeast of Kansas City.

We plan to break ground soon on our new 1.2 million-square-foot facility, which will be operational by the end of second quarter 2018 and will support our continued store growth in the Midwest.

This $110 million project will create approximately 375 jobs for Johnson County, Missouri and surrounding communities within 3 years.

Now I'll turn the call over to Gary to provide more detail on our performance and our priorities.

Thank you, Bob.

Good morning, everyone.

We're pleased with our overall performance for the first quarter as we met the top end of our EPS guidance range.

While we know we're certainly capable of doing better, the retail environment was dynamic, and we saw a number of factors impact our business.

This included delays in tax refunds and a shift in the timing of Easter.

We continue to focus our efforts to achieve continuous improvement and drive our key business initiatives that are aligned to deliver a better in-store shopping experience, top line sales growth, margin enhancement and effective cost management.

For the quarter, our enterprise same-store sales increased by 0.5%.

For the Dollar Tree banner, total sales in Q1 increased 7.9% to $2.57 billion, and same-store sales increased 2.5%.

This was achieved through increases in comp transaction count and average ticket.

Gross profit margin improved 50 basis points over Q1 last year, and first quarter operating margin was 12.3%, an improvement of 50 basis points over last year's 11.8%.

Dollar Tree highlights for the quarter include sales in the top-performing categories: snacks and beverage, candy, toys, seasonal products and health care products.

Sales performance was led by our consumables line of business, and both consumables and discretionary comped positively for the quarter.

As we expected, April, which benefited from the Easter shift, was the strongest same-store sales of the quarter.

Geographically, Dollar Tree same-store sales growth was strongest in the Midwest, Northeast and Southwest.

And each of our operating zones delivered positive comps greater than 1%.

The Dollar Tree business continues to be strong, consistent and growing.

This represented our 37th consecutive quarter of positive same-store sales, and our operating margin continues to lead the value sector.

Our first quarter performance continues to validate the relevance of the Dollar Tree brands.

Customers continue to shop for value and convenience.

For the Family Dollar banner, total sales increased 0.5% to $2.72 billion, and same-store sales decreased 1.2%.

The first quarter represented our toughest prior year comp comparison we will face in 2017.

On a 2-year stack basis for the first quarter, comps were positive for the Family Dollar banner.

Gross profit margin declined 30 basis points to 26.9%, and operating margin was 4.6%.

For Family Dollar, the highlights for the quarter include the sales in our top-performing categories: snacks and beverage, health and beauty care and men's apparel.

Our comp performance was driven by consumables, which comped positively slightly in the first quarter.

Timing of sales through the first quarter was impacted by various factors, including the material delays in the timing of tax refunds, a later Easter holiday and cycling of the SNAP benefit reductions from 2016.

As a result, our comps by month varied from mid-single-digit negative for February to mid-single-digit positive for April.

Geographically, Family Dollar same-store sales growth for the quarter was relatively balanced, with the West, Mid-Atlantic and Mountain West zones being the strongest.

Less than 2 years into our integration, we continue to make meaningful progress at Family Dollar around the key foundational elements that will drive performance: our store table stakes, our focus on merchandising value and the consolidation of shared services.

Our efforts are focused towards our customer-facing initiatives that our shoppers continue to give us credit for, and we are working to improve and scale these across all 8,000 stores.

Our customers are seeing cleaner, better-merchandised stores that have more compelling end caps with products they need for everyday basics and holiday wants.

And while we have more to do at Family Dollar, we are on the right track with our continued investment in the basics of our Family Dollar banner.

These customer-facing programs to drive and show value throughout the store continue to lead the momentum for our Smart Ways to Save marketing program.

Our customers continue to respond to the value and savings across all of these elements, delivering value for our Family Dollar customer.

Our Smart Ways to Save messaging reflects the values and the execution of the merchandising in our stores.

This includes our EDLP pricing on everyday value; sale items that reflect most meaningful value on key items; $1 Wow that drives the surprise in opening price point throughout the store; Compare and Save to shout out the excellent value of our private brands; Price Drop, great value on the items our customers buy most often; and Smart Coupons, the easy way to find additional savings.

We believe our customers are giving us credit across the store on our Smart Ways to Save and that gives us flexibility to drive value and convenience for our customers filling the shopping truck.

In particular, our customers are continuing to respond and embrace Smart Coupons, with more than 2.5 million customers enrolled since our Labor Day 2016 kickoff.

For our regular shoppers, this program provides a no-hassle shopping experience to find national and Family Dollar exclusive offers.

We are seeing a measurable lift in average ticket for the transactions where a Smart Coupon has been applied.

For Family Dollar, it's a great way for us and our suppliers to reach a customer demographic that is uniquely served by Family Dollar.

It enhances the delivery of our Smart Ways to Save message.

Over the past 18 months, we've invested a significant amount of time, test-and-learn effort to improve our Family Dollar store layout.

We are pleased with the results we are seeing.

And now this is the format we will be utilizing for both our new stores and current renovation program.

We believe our customers will respond enthusiastically to this format as we roll it out in the months ahead.

Elements of the layout include improved adjacencies and more productive end caps; expanded beverage and snack, including immediate consumption coolers near checkout; expanded assortment of food in coolers and freezers; an updated hair care assortment; expanded adult beverage in some stores; an efficient power alley to promote $1 Wow items; and a faster checkout process for the customer.

Our first renovations have started in earnest in Q2, and we look forward to making progress on our target of 250-or-more renovations this year.

As performance becomes measurable and predictable, we have the ability and intention to ramp up accordingly.

Most new stores will now open with our assortment and adjacencies that reflect our latest thinking of our new format.

Another key element of driving improvement in the Family Dollar business is the development of our private brand program.

We are in the process of moving away from family-branded labels such as Family Wellness, Family Gourmet and Family Chef, with the intention to drive relevant brand names with new and improved packaging to refresh our assortments.

Some of these examples in our stores today, you will see HOMELINE replacing the Family Dollar brand in household products.

You will also see we're transitioning from our private-brand candy assortment from Family Gourmet, where you will now see Catawba Candy Company.

In the months ahead, we'll be transitioning labels in several other product lines mainly in the consumables categories.

These private brands are being developed to provide national brand comparable quality and terrific values to support the Compare and Save component of our Smart Ways to Save program.

Each of our brands will contain 100% customer satisfaction guarantee.

We look forward to providing you updates on our progress in the quarters ahead on this important program.

While we have more to do, our team at Family Dollar is motivated and energized to be the best at delivering value to our shoppers that are unique in many ways and often underserved.

Our stores serve a customer that counts on us and responds when we deliver value, convenience for quick trips in a small format and a Family Dollar shopping experience that backs up our promise of friendly service.

Now looking at real estate in the first quarter.

We opened a total of 164 new stores: 89 Dollar Trees, 75 Family Dollars.

We relocated or expanded 51 stores: 35 Dollar Trees, 16 Family Dollars, a total of 215 projects during the first quarter.

We also added freezers and coolers into 131 Dollar Tree stores during the first quarter, bringing our total of Dollar Tree stores with freezers and coolers to 4,918.

During the quarter, we closed 16 stores: 5 Dollar Trees and 11 Family Dollars.

And we ended the first quarter with 14,482 stores.

6,444 were Dollar Trees and 8,038 were Family Dollars.

I will now turn the call over to Kevin to provide more detail on our first quarter performance and our outlook for Q2 and the full year.

Kevin?

Thank you, Gary.

I would like to remind everyone that our discussion, as previously noted, excludes the effect of the $0.13 per share receivable impairment charge, unless otherwise noted.

Total sales for the first quarter grew 4% to $5.29 billion.

Dollar Tree segment total sales increased 7.9% to $2.57 billion, and Family Dollar segment total sales increased 0.5% to $2.72 billion.

Enterprise same-store sales increased 0.5%.

Canadian currency fluctuations had minimal impact on our comps during the quarter.

On a segment basis, same-store sales for the Dollar Tree banner increased 2.5% and, for the Family Dollar banner, decreased 1.2%.

As expected, we experienced incremental cannibalization from Family Dollar and Deals stores that have been converted to Dollar Tree stores.

We estimate the incremental cannibalization impact to the Dollar Tree banner comp to be approximately 30 basis points for the quarter.

Gross profit for the combined organization increased 4.7% to $1.63 billion for the first quarter 2017 compared to the prior year's quarter.

As a percent of sales, gross profit margin improved 20 basis points to 30.8% versus 30.6% in the prior year's quarter.

Gross profit margin for the Dollar Tree segment was 34.9% for the first quarter, a 50 basis point improvement compared with the prior year's first quarter.

Factors impacting the segment's gross margin performance during the quarter included lower merchandise costs, favorable freight costs and lower shrink as a result of favorable inventory results, partially offset by higher distribution and occupancy costs as a percentage of net sales, resulting primarily from the -- from our Cherokee County, South Carolina DC opening in Q2 of last year.

Gross profit margin for the Family Dollar segment was 26.9% during the first quarter compared with 27.2% in the comparable prior year period.

The 30 basis point decrease was primarily due to higher markdown and shrink expense in the quarter, partially offset by improved merchandise costs.

Consolidated selling, general and administrative expenses as a percentage of net sales in the quarter increased to 22.5% from 22.3% in the same quarter last year.

Q1 SG&A expense for the Dollar Tree segment as a percentage of sales was consistent when compared to the prior year's quarter at 22.6%.

Higher store payroll costs and stock compensation were offset by lower health insurance costs, lower store supply and professional fees as a percentage of sales.

SG&A expense for the Family Dollar segment as a percentage of sales was 22.3% compared to 22.1% in the prior year's quarter.

The increase was a result of higher payroll costs resulting from loss of leverage from the comp sales decrease and higher advertising costs, partially offset by lower depreciation costs and lower store repairs and maintenance costs.

Operating income for the enterprise increased to $439.7 million compared with $418.7 million in the same period last year.

Operating income margin increased to 8.3% for the quarter from 8.2% in last year's first quarter.

Operating income margin for the Dollar Tree segment improved 50 basis points to 12.3% when compared to the prior year quarter.

Operating income for the Family Dollar segment decreased $13.7 million to $124.3 million, a 50 basis point decline as a percentage of sales when compared to the prior year's quarter.

Nonoperating expenses for the quarter totaled $75 million, which was comprised primarily of net interest expense.

Our effective tax rate for the first quarter was 36.1% compared to 29.8% in the prior year's quarter.

Prior year's quarter included a onetime benefit related to state tax planning.

For the first quarter, the company had net income of $232.1 million or $0.98 per diluted share compared to the reported net income of $232.7 million or $0.98 per diluted share in the prior year's quarter.

The prior year included a $0.09 onetime benefit to EPS from a lower-than-anticipated tax rate, as previously noted.

Excluding the $0.09 onetime benefit from the prior year quarter, diluted earnings per share improved 10.1% from the adjusted $0.89.

Combined cash and cash equivalents at quarter end totaled $1.15 billion compared to $866.4 million at the end of fiscal 2016.

Our outstanding long-term debt is approximately $6.3 billion.

Inventory for the Dollar Tree segment at quarter end was essentially flat to the same time last year, while selling square footage increased 6.5%.

Inventory per selling square foot decreased 6.1%.

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

Inventory for the Family Dollar segment at quarter end decreased 3% from the same period last year and decreased 4.2% on a selling-square-foot basis.

We continue to be pleased with the progress we are seeing in our in-stock levels on key items.

We are continuing to review merchandise assortments and believe our current inventory levels are appropriate from the second quarter.

Capital expenditures were $110.3 million in the first quarter 2017 versus $175.9 million in the first quarter last year.

For fiscal 2017, we are planning for consolidated capital expenditures to range from $760 million to $780 million.

Capital expenditures will be focused on new stores and remodels, including fee development stores; renovating 250 Family Dollar stores in 2017; the addition of frozen and refrigerated capability to a total of 400 new and existing Dollar Tree stores; the expansion of frozen and refrigerated for 300 Family Dollar stores' IT system enhancements and integration projects; start-up construction of our new Dollar Tree banner distribution center in Warrensburg, Missouri; and the continued buildout of a new office building for the store support center here in Chesapeake, Virginia.

Depreciation and amortization totaled $153.9 million for the first quarter.

Depreciation and amortization expense was $162.3 million in the first quarter of last year.

For fiscal 2017, we expect consolidated depreciation and amortization to range from $610 million to $630 million.

Our updated outlook for fiscal 2017 includes the following assumptions.

Fiscal 2017 includes a 53rd week.

The extra week in the fourth quarter is expected to add $400 million to $430 million to sales and $0.19 to $0.22 to earnings per diluted share, both of which are included in guidance.

We expect continued pressure on store payroll based on states increasing minimum wages and general average hourly rate increases.

We have budgeted higher import freight costs than a year ago, starting in Q2, and higher diesel costs for the year.

Net interest expense will be approximately $75 million per quarter in Qs 2 and 3 and approximately $81 million in Q4 due to the extra week.

Our guidance does not include any share repurchase for 2017.

And we cannot predict future currency fluctuations, so we have not adjusted our guidance for changes in currency rates.

Our guidance also assumes a tax rate of 36% from the second quarter and 36.5% for fiscal 2017.

Weighted average diluted share counts are assumed to be 237.7 million shares for both Q2 and the full year.

For the second quarter, we are forecasting total sales to range from $5.18 billion to $5.28 billion and diluted earnings per share in the range of $0.80 to $0.88.

This represents an increase of 11% to 22% over the $0.72 reported EPS for Q2 last year.

These estimates are based on a slightly positive to low single-digit same-store sales increase and year-over-year square footage growth of 3.4%.

For fiscal 2017, we are now forecasting total sales to range between $21.95 billion and $22.25 billion compared to the company's previously expected range of $21.94 billion to $22.33 billion.

The company now anticipates diluted earnings per share for fiscal 2017 will range between $4.17 and $4.43, which includes the $0.13 receivable impairment charge.

Excluding the $0.13 impairment charge, the top of the guidance range is consistent with our prior guidance.

These estimates are based on a slightly positive to low single-digit same-store sales increase and 3.9% square footage growth and includes the benefit of the 53rd week occurring in Q4 fiscal 2017.

I'll now turn the call back to Bob.

Thanks, Kevin.

Again, I'm extremely pleased with another terrific first quarter performance at Dollar Tree, and I'm equally enthusiastic about what lies ahead of us at Family Dollar.

The teams have worked incredibly hard at rebuilding the foundation for a very successful and profitable business.

I believe that we are well positioned in the most attractive sector of retail to deliver continued growth and increased value for our long-term shareholders.

Dollar Tree is now a diversified combination of a 6,000-store chain and an 8,000-store chain, each with its unique ability to effectively serve more customers through all types of markets.

With the combination of these 2 great brands, we have great flexibility in how we choose to grow while expanding our opportunity to grow.

We will continue to focus on providing greater values to our customers while delivering superior returns to our long-term shareholders.

The Dollar Tree business model continues to grow and improve.

It's powerful, flexible and more relevant than ever, providing extreme value to customers while recording record levels of sales and earnings.

While our price point has remained the same, $1, for the past 30 years now, our operating margin continues to grow and lead the discount sector.

As always, we will continue to employ a thoughtful, disciplined approach to driving key strategic initiatives to the combined enterprise through improved communication, analysis, collaboration and incentives.

Most importantly, we will maintain a laser focus on the customer, maintaining relevance to their needs and, above all, delivering value, convenience and a full, fun and friendly shopping experience.

Our fundamentals have been tested by time and validated by results.

We are confident that continuing to place our emphasis in these areas can materially enhance the operating performance of Family Dollar, with improvements in sales, margin, expense control and greater customer satisfaction.

Through good times and difficult times in all retail cycles, consumers are looking for value and convenience no matter the state of the economy.

At Dollar Tree and Family Dollar, we have both.

It all starts with our associates.

Our merchandise teams and our field management and leadership teams are talented, experienced, energized and incredibly motivated.

It's a great time to be Dollar Tree.

Operator, we are now ready for questions.

(Operator Instructions) We'll take our first question from Alan Rifkin with BTIG.

Bob, could you maybe just provide an update on where you are with respect to synergies now that you're almost 2 years through the acquisition?

I recall your original guidance being $300 million, and even just last quarter, you said you remained comfortable with that number.

Could you please give us an update there?

Well, absolutely, Alan.

We are confident with the $300 million that we have guided to.

We feel very -- we feel like we're squarely in the zone where we need to be at this time.

As you remember, there was $300 million run rates spread synergies by the end of the third full year with an investment of $300 million to achieve those.

So I can tell you that we are right on target to achieve the $300 million.

Okay.

And could you just tell us, the Missouri DC that will be added, will that emulate the St.

George DC, which was fulfilling both banners?

And now that you've had some time to take a look and evaluate St.

George, what's the prognosis for further DCs supporting both banners, which I believe would give you significant supply chain savings?

Alan, it's another good question.

The Missouri DC will -- we will be using Catalyst, which is the WMS that we use in our Family Dollar DCs.

It's also the one that we modified in St.

George, Utah in order to ship both banners.

So we're taking the modified version of the St.

George WMS, and we're going to open the new Missouri DC with that WMS.

That will be our go-to WMS as we open and continue to expand or convert distribution centers as we go forward.

And we'll take our next question from Michael Lasser with UBS.

After you've put in all the hard work with Family Dollar to have cleaner stores, just in in-stock, elevated levels of customer service, surely, you didn't expect to comp down 1.2% this far into your experience with this business.

Why do you think it's not better than it is?

Michael, this is Gary.

I think the tale of Q1 really speaks to a bit of what happened in the marketplace, especially on the tax refund.

So just to give a little color, obviously, everyone knows the tax refunds were delayed.

In particular, the earned income tax credit was delayed to the week of the 27th.

In fact, you could see by day when it actually hit.

And so when you take a look at the quarter, period 1, the month of February, not only was impacted by the -- really the discretionary piece of the business that our customers sort of wait on to get that tax refund to spend what really becomes a capital investment for them, and that was delayed until really the last week.

And while we saw that pop, compared to a year ago, that was probably a 2-week shift and go back 2 years, and really, it was the entire month of February.

As we went through March, with the -- even with the shift in Easter, we were on track with where we thought sales would be for March.

And I think Easter at Family Dollar was in the target zone, too.

So as we got back to a regular cadence, we could see our customer respond.

So clearly, we're never happy when we see a negative comp, but what we could measure, quantify and see both across just top line sales and as you go down to the lines of business was this delay in the earned income tax credit that our customer experienced in the month of February.

I don't think it's anything structurally different with the business.

We continue to invest, I think, in the right things in our business, invest in cleaner stores, get exciting merchandise on end caps and on the front end of the stores, give our folks a reason to drive comp store sales.

Those are the things that we're going to build over the long run that's going to drive the business.

So we are very focused as we go into May and the second quarter.

Business is back to focused on what's going to happen in the summer season.

And for Family Dollar, that means grow out.

For Dollar Tree, that means we're in the midst of just passing Mother's Day.

Graduations are in full bloom.

Memorial Day's ahead of us.

We have the right product in the store to drive Q2 business, and we're focused on doing that across both banners.

My follow-up question is, first, do you think the Easter shift -- and can you quantify how much the Easter shift contributed to the mid-single-digit comp that you experienced at Family Dollar in April?

And now that we're -- now that the SNAP drag from last year has been anniversary-ed, do you think that's causing some improvement in the business that should continue into the second quarter and beyond?

Michael, I missed the second part of the question.

Was it...

Cycling SNAP drag.

Cycling SNAP.

Thank you.

Well, the first part, I think Easter -- listen, a later Easter helps Dollar Tree tremendously and Family Dollar.

Not only is it the Easter holiday.

It really becomes the kickoff to spring.

So while we haven't quantified it for the enterprise, both banners had a better Easter than a year ago because of just warmer spring weather.

And at Family Dollar, that also means some of our other categories outside of pure Easter, apparel, health and beauty, responded the right way.

Secondly, on SNAP benefits, it -- I've told you before, at Family Dollar, I view it as sort of the canary in the mineshaft.

Listen, it's a small piece of our business.

To me, it gives us a great every first of the month, how we're doing.

And while we know the benefits have left the market at the Family Dollar banner, we've seen it hold consistently to last year.

At Dollar Tree, penetration's down a little bit, but I think that speaks to a little more of Dollar Tree was doing first of month and getting ready for it.

And at Family Dollar, that's really been our focus now.

So I think it shows up in our SNAP benefits, and it gives us confidence that we're getting ready on first of month in a better way across our stores.

They have -- it's spread out by state differently, but those first 10 days are still so important for our Family Dollar customer, getting ready, being in stock and having our folks ready to give great service.

Our next question comes from Stephen Tanal with Goldman Sachs.

I guess my -- I'd be most focused to start on the Family Dollar margin rate.

And I'd be curious to know kind of how you're thinking about both the level in Q1 and how the year-on-year should trend over the balance of the year.

And then any comments maybe on the longer-term levels that are achievable in that business would be helpful.

Let me start off, Stephen.

Q1 was -- besides the sales and the items that impacted us a year ago, we were coming out of our cleanup of inventory.

We got the benefit of both the fact that we started off with great shrink at the beginning of 2016.

We've just cleaned up a lot of the dribs and drabs that had accumulated in-store.

We also came out of the wintertime with -- basically cleaned up in a nice way on apparel, too.

So what you saw on some of the margin piece is just maybe back to a normal cadence, it can always do better, but a normal cadence of where we are on shrink and our markdowns in Q1.

But again, the one thing that was really different in period 1, because of the tax refunds being late, was the mix shift and the impact on what our customer buys.

Our consumables were slightly positive for the quarter.

They bought what they needed to get by.

The difference of what they wanted to buy across the discretionary departments was really what we felt in period 1 that we could measure that impacted margin in a big way for the quarter.

So that was the story for Q1.

And I'll let Kevin take a comment on the forecast, but, obviously, we've put everything that we know at this point into our forecast for the balance of the year.

Yes.

So I think consistent on a consolidated basis with what we've said last quarter, if you would look at our range of guidance, the midpoint of our operating income is roughly an 8.8% or an 8.9%, basically, and obviously, that compares to a -- I think about an 8.2% last year.

So obviously, we're overall expecting improvement.

As part of that, we do expect to see the Family Dollar business, as we go through the year, improve upon where we were in Q1.

So I think there is an expectation overall that the business will improve there and as we go forward.

So it's had some -- as Gary has mentioned, some various timing things that affected Q1 a little bit more than maybe expected, but we're looking for some better things as we go forward.

Got it, that's helpful.

And then as a -- just as a follow-up, thinking through the synergies and maybe the onetime costs there that are flowing through OpEx, can you give us an update?

Was that a net benefit or a net drag year-on-year?

And how that'll play out as well?

Well, I don't know how to speak to it from a drag or a benefit.

I think honestly, the costs that we're going to be spending that we're aware of are in our forecast as always, along with the associated synergies that we're expecting this year.

So that's no different than any other time.

I think from an overall standpoint, we said $300 million to achieve and a little bit more front-end loaded.

And again, that was true.

If you remember, right, we re-bannered basically 300 stores, 300 Family Dollar stores.

We re-bannered 200 Dollar Tree -- or Deals stores to Dollar Tree.

So there was a lot of CapEx costs associated with that in the first 1.5 years basically.

So that was a big part of it.

As I've said before, when we started this process, we said that the $300 million, our best guess was half OpEx, half CapEx.

And as I've said, as we went through this, it's probably been a little bit more CapEx at the end of the day and a little less OpEx.

But again, still within our targeted range of what we've expected from the beginning from an achievement standpoint as well as a cost to achieve.

(Operator Instructions) Your next question comes from Vincent Sinisi with Morgan Stanley.

You said earlier in the call that you feel like you've gotten kind of the -- basically the [dove] format for Family Dollar in place now that you'll kind of use going forward.

Can you just give us a sense for, do you think that in terms of the pricing versus competition, you feel like you kind of have the majority behind you and that you're in good shape going forward there; of course, tweaks and whatnot, but maybe just around pricing?

And then also, just in terms of the buying synergies, any sense for kind of, between the 2 banners, how much overlap there is in there and how much maybe more is to be realized?

Vinny, this is Gary.

Let me comment on the pricing.

I think, okay, we're in retail, we're going to pay attention on just about a weekly basis.

And so clearly, while we're pleased with what the format does because I think it makes some logical adjacencies for our customers to shop at Family Dollar in a more productive and easier way for the customer that shows value, but when it comes to pricing, we still are going to highlight the Smart Ways to Save, which our customer responds to across all the elements I've been talking about.

We've got to show great everyday prices on the shelf.

We're going to have Price Drop sale items that resonate with them on the things they buy most often.

Compare and Save, we're excited about this private-brand redo and makeover because we have a pretty good private brand program, but the values that we can show our customer, and now we're freshening up the labels, we think will go a long way.

But the pricing piece will continue to be something we watch now and going through -- it's just the nature of the beast as we make sure that we have the right retails on shelf and gives us flexibility with the Smart Ways to Save, with either through electronic with Smart Coupons or on the shelf.

Synergies, I would tell you, the merchants work together on a couple of different elements.

One, we basically think about it in 2 ways.

One, it's our domestic suppliers, so what we have, maybe about a 10% overlap of -- between SKUs, it's bigger than that when we consider some of the similar items we buy.

So aluminum foil might be the poster child, with [5 25] square feet at Dollar Tree, bigger size for Family Dollar.

But I would tell you, on the import side, is also an opportunity that we only cycle through those buying trips 4 times a year.

So we get sort of 4 chances to get our integration going and have the merchants talk about what's going to be bought for the following year.

So keep in mind, as you're taking a look at some of the import side, the lead time is longer, which starts to show up in the synergy, takes that amount of time for us to review our assortments, buy it, ship it, take it through the holidays, and we revamp and redo for the following season.

We'll have more of it.

There's certainly more opportunities for us to continue above and beyond what we had targeted to drive synergies.

And I would say, as much as anything, reviewing assortments and driving excitement inside the assortment.

That's helpful, Gary.

And maybe just a fast follow-up.

Just now with the Family Dollar format kind of fully in place, any qualitative or quantitative way we should kind of think about footage growth annually by banner, more of the split in there kind of post this year?

We haven't really spoken to that.

I would just tell you, maybe what excites us from a customer perspective is the way they shop the store across the categories that we've invested in.

I have mentioned immediate consumption, our front end that's more productive, the fact that you can -- party and toys and gift cards are now in similar adjacencies, that a mom who comes into the store can buy newborn infant, toddler apparel next to the diapers.

So just some maybe retail 101 items that I think just drive better business and make it easier for our customer to shop.

And our next question comes from Joseph Feldman with Telsey Group.

So wanted to go back also on the Family Dollar business.

I guess, can you help us understand when we should start to see the operating margin improvement, I guess, accelerate?

I think certainly, there are some out there, including myself, that would have thought that we'd be seeing a little bit better margin improvement, not necessarily gross but just overall operating margin improvement at the Family Dollar business at this point.

And I just wanted to get your sense of timing on that.

I think it's a -- Joe, I think a couple of combinations.

I think you've heard us talk about the foundational things that we're putting in.

We've said we're in this for the long run.

And we're going to -- we've done the things that we think get us on the right path for running better stores, better assortments, better value on shelf.

I think what we're describing with the renovation program now, is something that's maybe a little bit more visible for our customer to see, which also is going to be one of the engines that helps us drive an overall margin growth.

So as we do our 250 renovations this year, as the new stores come out with the new format, now our customer is going to see something in a physical way in a store that's cleaner, fuller, fresher.

And that's really another piece to the puzzle here that we've been focused on to say, "Let's change the complexion of the fleet of stores." And that's what you're going to see in the back half of this year.

And I'm anxious to get those out of the ground because I think those are the elements that combine with all the things we've been talking about: table stakes, merchandising energy in-store, assortment.

But we also have to touch the physical plant, too, of these facilities to make sure our customer sees a nice, new, fresh store when they're going to make a decision of where they're going to shop.

So it's hand-in-hand.

We got to do both.

You've heard us talking about really the first portion up to this point, and the renovation and new store program is really the next piece of this.

Got it, that's helpful to explain.

And then just as a follow-up, with regard to some of the clearance activity you're -- or I guess not clearance, but with the rebranding of the private label, I guess, I'm curious how that will impact the clearance of the older inventory and how that's baked into your outlook.

I would say, in most cases, we're just flowing it behind as a -- whether it's the candy or whether it's the trash bags, most of these are consumables.

It turns pretty quickly.

And while we may have some, it's all baked into our forecast.

Most of these are going to flow-throughs with the existing SKU on the shelf being replaced by a new package.

And our next question comes from Alvin Concepcion with Citi.

Last quarter, I think you mentioned you hadn't seen much change in the past 1.5 years from a competitive promotional environment.

Did you see that stability continue into 1Q and further into the second quarter?

Alvin, I think competition's always part of our life.

I watch intensely as does our field operators and our merchants and what other -- what the competitors are doing, from a couple of points of view, what are they doing with merchandise mix and businesses that they're driving as well as price, the pricing statements that they're making.

So we continue to shop.

We see a lot of -- there's a lot of new competition out there or coming in, especially in the grocery business.

We're not a grocery store, but we still sell some food, and we sell beverage and snacks and those types of products.

So we're watching that intensely.

But at the same time, we remain focused on our customer, what our customers' needs are, how do we put together that value equation for our customer.

As Gary was speaking at Family Dollar, the -- all the different ways to save with our ad prices and our everyday prices and our price drops, which are surprising price value to our customers.

So we're going to stay focused on that.

We're going to watch what the competition does.

We're going to shop the price on key items, name-brand items as we always have diligently.

It's different by market.

We pay attention across the country.

And we're going to evolve our business based on what our customers need.

This new renovation program is just rolling out in second quarter, and we're really excited about it because it does take a lot of the -- it takes all of the components that we've been talking about and testing in different stores and puts them together.

So our new stores are starting to roll out with the new adjacencies, with the new mix of product, with the new store designs as well as going back and renovating.

Right now, we're seeing 250 stores.

Obviously, based on performance, we'll -- we've got our foot on the accelerator if it exceeds expectation, and we certainly would jump all over it.

And then the other thing is with that, we roll out the renovations, the things that we find that are really compelling to the customer in those new stores, we still have the ability to roll pieces and parts out to the existing fleet where we know it's going to be a home run.

So competition is retail; retail is competition.

I have great respect for all of them.

We're going to keep watching them.

And we're especially going to stay focused on the customer and how they respond to what we offer in our stores.

Great.

And just a quick follow-up on the comps.

It sounds like you're seeing more normalized trends in the second quarter, enough to give you confidence in the annual number.

Just wondering if you could give us some more color on what you're seeing in second quarter since there were many issues in 1Q you called out.

Yes.

I wish I could tell you exactly, but it's early.

So yes, we feel good about our guidance.

We have it -- all that we know embedded into our guidance for the second quarter.

We have a lot to -- still, we're just early on in the quarter, Mother's Day was good.

This weekend is the Memorial Day holiday, and we're expecting big things from that.

And of course, graduation, especially in our Dollar Tree business, is a big idea, then heading into Father's Day and beyond.

At Family Dollar, it's all those things plus a bigger seasonal summer offering because at Family Dollar, we sell fans.

So when it gets hot, we're going to sell lots more fans and beach supplies and coolers and charcoal grills and all the things for cooking out.

This should be a big weekend for that as well as the apparel business at Family Dollar.

As our weather warms, as we get bright, blue, sunny skies, we're seeing the apparel business take off.

So there's a lot of bright spots.

And just to step back a minute, I will tell you that the big issue once more in first quarter on sales at Family Dollar was the delay in the tax refund checks.

You could -- they were late, and the business was -- in February was stubborn and difficult.

But when the check's hit, you could see it day by day, and you could see improvement in the sales.

And then we came into March, where we lost Easter, at pretty good marks, and it met our expectations.

We had a good Easter, but we could not make up what we lost in February.

And that's the story that you see.

Our discretionary business is what suffered.

Our consumer, the things that they needed, even with a bad -- with getting the checks late, they bought what they needed, so our consumable business was slightly up over the quarter, but our discretionary business is where all of the comp decrease was.

So that really is the story of what happened at Family Dollar.

It wasn't structural.

It wasn't anything to do with our new assortments.

It was more to do with just the way things fell on those tax checks, especially for that low-income customer, which we have a lot of at Family Dollar.

These tax checks, to those lowest-income customers, they wait for them, they count on them, and that's when they buy things like clothing, and that's when they buy the things that they'd like to have but just can't afford to have other times of the year.

We have time for one more question.

We'll take that question from Patrick McKeever with MKM Partners.

I'll just ask a couple of big-picture questions.

First of all, on the border-adjusted tax, just wondering, I know it's very iffy as to what happens there, but is that something that you're thinking about?

And is there any kind of contingency planning, that sort of thing, around it if it were to come to be?

And then second question is, just, Bob, I know the past few conference calls, you've had somewhat cautious comments about the economic well-being of the -- of your core customer.

I know that later tax refunds were a big issue in the first quarter, but just thinking about your core customer, do you -- are you still feeling a little cautious?

Do you feel like things are getting better there?

Well, to answer that, first of all, the border-adjustable tax is still out there, still being debated in Congress.

I was watching last night, night before last, the reruns on C-SPAN of the House Ways and Means Committee and as they were talking to some retailers about the border-adjustable tax and trying to get more facts and frame their position on that.

It's still up in the air.

It's not -- until we know what it is, we really don't know how to organize around it.

I think we're doing exactly what we should be doing, is paying attention to it and trying to understand it as well as where it's going, talking to our congressmen, talking to our senators, working through RILA and the other groups that are out there supporting retail and putting our position forward.

So that's what we're doing, and we're -- we've actively been doing that, and we'll see how it goes.

I don't want to sit here and prognosticate one way or another what Congress will do.

But I think at the end of the day, hopefully, they'll get it right, and we'll have a good result to this.

The -- so there are no initiatives going on right now, what if this and what if that.

There's too many what-ifs and too many open questions to make anything meaningful right now.

So we're doing exactly what we need to be doing right now, Patrick.

On the health of the consumer, we serve the lowest consumer up through middle-income consumers.

So we serve a broad swath of consumers out there, and I believe what I've said in the past that the -- was that the consumer was under pressure and concerned.

I still think that's the case.

And I think some of the -- whether it's the economic questions that are out there with health care and health care reform and tax reform and all of the issues that we're working with in Congress, I think all of those had uncertainty.

As long as there's uncertainty, then the American consumer is -- they're focused on paying the light bill, they're focused on paying the rent, the house payment, car payment, all the things.

Employment, will I have a job?

Do I have a job?

Until they get confident in their position that they do have a job and that they can pay the bills, there's going to be -- continue to be uncertainty.

At Dollar Tree and at Family Dollar, we work hard every day to be one of the answers to their issues.

As they strive to balance their budgets, as they try to take their paycheck and spread it across the month or the week or whatever the pay cycle is, we want to be part of the solution to their issues.

We want to help them balance their budget by having the things they want at great prices, great value, surprising value.

And at Dollar Tree, you can splurge because everything is still $1.

Yes, you can afford it at Dollar Tree.

You can go in and you can have a great party, birthday party for the kids and for the family, buy your seasonal product and still pay only $1.

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

Mr. Guiler, at this time, I will turn the conference back to you for any additional or closing remarks.

Great.

Thank you, Christina.

Thank you for joining us for today's call and for your continued interest in Dollar Tree.

Our next quarterly earnings conference call to discuss Q2 results are tentatively scheduled for Thursday, August 24, 2017.

Thank you, and have a good day.

This concludes today's call.

Thank you for your participation.

You may now disconnect.