Dollar Tree Stores Earnings Call Insights: Low-End Consumers and Seasonal Analysis

Dollar Tree Stores (NASDAQ:DLTR) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Low-End Consumers

Matthew Boss – JPMorgan: Can you update us on your view for the health of the low-end consumer; particularly do you believe we’re seeing any initial signs of underlying improvement after the fiscal cliff uncertainty. And you talked to improvement in April. Have you seen this continue into May and what are the drivers of the improvement in the back half of the quarter?

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Bob Sasser – President and CEO: We are starting with the consumer just anecdotally I can tell you that we still think they are concerned and burdened and I’d add just a bit weary from all of this going on, they are now facing higher taxes and meaning overall less money to spend and add to that the job concerns that are still there and uncertainty around the economy and the gas prices are down a little bit but they are still high, they are stubbornly high. So, the consumer is under pressure. At Dollar Tree again we think of ourselves as a part of the solution and a destination for those customers, when you are cash strapped you can come to Dollar Tree to balance your budget, we got things you need, things you want, exciting place to shop, everything is still at Dollar. So, we think our stores and merchandize assortment is more relevant than ever. The other part of your question spoke to what’s driving our business, in my earlier remarks we talked about Stationery, Party on HBC and all of those things we had great seasonal Valentine’s Day, it was a terrific event for us as it generally is, Easter was a big holiday although early. We had a nice sell-through on our Easter business. The sales were driven by balanced mix basically between comps and average ticket in the first quarter. And we were comp positive all three periods of the first quarter, February, March and April with April being the best comp of the first quarter.

Matthew Boss – JPMorgan: And then second, can you elaborate on your gross margin performance in the quarter particularly you spoke to the IMU benefit. Is this something you are seeing from a sourcing perspective as we look forward, how should we think about it in the back half of the year?

Kevin S. Wampler – CFO: Well, Matt, I think as we look at we talked about higher IMU in many categories for a while now. So, this is in my opinion is just the continuation of our merchants continuing to source just unbelievable values out there to help our consumer along. So I don’t think that’s anything necessarily different. I think what changed a little bit was obviously the mix changed a little bit from an overall consumable and discretionary, and as Bob noted in his comments, discretionary grew faster than consumables, which is the first time we’ve seen that in a while, and we think that’s a good thing. We are a general merchandise variety store. It’s where our heritage is, it’s where we kind of – where our roots are and at the end of the day, that’s a good place to be. So we continue to focus there and believe that can be important for us. As we look to the year, we’ll continue that way. We think that – we think the trend in our guidance as we look to Q2, and take some of that trend into consideration in the sense that we think our discretionary business will continue to be do well. That doesn’t mean we’re trying to sell less consumables. So at the end of the day, we’re still – we have plenty of consumables and we’ll continue to try to grow that business as well.

Seasonal Analysis

Stephen Grambling – Goldman Sachs: Just a follow-up on what Matt was referencing, and on the discretionary side, maybe can you expand on some of the – or at least quantify some of the SKU additions there and maybe how that’s helped the comp?

Bob Sasser – President and CEO: Well, in first quarter, we had a terrific seasonal set, again, Valentine’s Day, terrific comp on our Valentine’s Day this year. Our balloon business, our party business, all of the seasonal things that go with Valentine – our candy business, we did very well. Our customers – with the early Easter and the really cold weather around Easter, they responded favorably to our Easter assortments, and we had a nice sell-through on that. And then we came in after Easter like the day after in our stores and our merchants and our distribution people just did a terrific job of really falling in the day after Easter on the first and setting up for Spring Fling, which is sort of a new promotion that we plugged in, because Easter was so early and by Easter being early, (indiscernible) from Mother’s Day. So we took that opportunity and then put in Spring Fling, and Spring Fling was all the things you needed for spring and it was colorful and exciting and variety and mix of variety and consumable products that our customers really responded well to. So that drove sales in April, that drove sales, drove margin in the quarter, and really got us off to a good start for second quarter.

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Stephen Grambling – Goldman Sachs: And then just as a quick follow-up maybe changing gears. Last year you had noted Canada was still in the midst of a transition and was weighing on sales and margin. Can you maybe update us on the contribution from that region?

Bob Sasser – President and CEO: Canada still was – cost us probably a penny in the quarter. For the year we think it could be breakeven this year. We’re making great progress. We love our stores, our customers like what they are seeing, we’re rebranding still, we’re finishing up by the end of third quarter rebranding to West. Ontario is completely rebranded to Dollar Tree Canada and relaid with new layouts and new merchandise. The West is underway right now, but we do have the infrastructure in place, we’ve got the technology, the system, the processes. Our buyers are leveraging the power of the Dollar Tree (pencil), we’re adding in things from the Canadian market that are relevant to the Canadian market and the Canadian stores, and we’re having great success in the product. So, customer’s responding favorably. We are excited about our business in Canada.

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