Dollar Tree Stores Earnings Call Nuggets: Discretionary & Consumables Comps, Back Half Outlook

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

Discretionary & Consumables Comps

Stephen Grambling – Goldman Sachs: Given the aggressive cooler rollout, I thought it was interesting that the discretionary continues to outperform consumables. Can you maybe talk about the cadence of the comps in discretionary and consumables as the quarter progressed? Then maybe as a follow-up, any initial thoughts on the back-to-school season so far?

Bob Sasser – President and CEO: We don’t break any of that out separately, and I can’t really comment on the back-to-school season, but I’m going to try to give you some color of the comps were consistent throughout the quarter. June was the highest comp in quarter. I believe our variety business comp consistently higher than the consumer business throughout the quarter, that’s the result of plans. Stephen, we’re a variety store and we’ve always been a variety store. We service slightly higher demographic than others in our sector, $40,000 and up versus $40,000 and down. So we’ve always had a discretionary portion to our mix that we aspire to that – one of the reasons we’re amongst the highest in margins in our sector because of our variety mix. It’s a balanced mix, it’s about 50-50, sometimes it’s 51-49, sometimes it varies a little bit, but it’s typically a balanced mix. Our consumable business has grown a lot faster over the past several years for a couple of reasons. One is, the rollout of the cooler (indiscernible) we went from basically zero to a lot of coolers the whole brand new business during that time frame. We added and expanded a lot of the consumer product categories over the past – almost all of them over the past 10 years and certainly a lot of them over the past five years. So, that was our newer businesses to us. But again, we are always striving to strike that balance, not only because it’s what we are, it’s what we do, it adds excitement in our stores with the seasonal product and the variety of mix and it also contributes a lot of margins. So, we are very happy with the balance as it is. I would expect going forward you’ll see some bouncing back and forth as we continue to drive sales and serve our customers in these difficult times and you’ll see a little bounce back and forth. But all-in-all, when you look at the big picture it’s somewhere in that 51-49 or 50-50 range.

Stephen Grambling – Goldman Sachs: And I guess one quick follow-up would just be on the gross margin line and on the distribution cost, in particular. Are there still cost that you’ll have to incur in the second or into the back half of the year, maybe any color you can give in terms of how gross margin is playing in the guidance?

Bob Sasser – President and CEO: Well, on distribution cost, Stephen, I’ll just share with you that I would expect the pressure to continue a little bit through third quarter on distribution cost. I would expect it to mitigate somewhat in fourth quarter. That’s just our feelings right now. We opened DC10 earlier, which is a good thing. We are simply proud. We opened it earlier and ahead of budget. But we did bring all those costs online earlier than anticipated. And the other thing is with our distribution, we run a very high level of service all the way up until the time we bring on a new distribution center. We don’t sacrifice service to our stores or in-stock in our stores or any of that in anticipation of bringing new DC online. So what that does is, we have DCs running – servicing our stores at a high level and then we bring a new DC online. We bring the cost up on that, but we haven’t really brought down some of the costs in existing DCs, where we are realigning now. So, it’s not just bringing a new DC out of the ground, it has been realignment of the entire network as it now shakes out with different service areas for different DCs. So, that’s what you are seeing. This is the first brand new DC, we’ve done probably in five years, I’m estimating. I can get back – get the facts, but the others have been replacements over the past several years. This is the first brand new that we’ve opened in sometime. It’ something we expected, but again we weren’t willing to give up service level to our stores in order to improve the distribution cost.

Back Half Outlook

Scot Ciccarelli – RBC Capital Markets: This is a little bit of a broader picture, I guess. We have seen some shaky results from some other retailers and your traffic was up pretty nicely in the quarter. Can you kind of think about what happened to you guys in the back half of last year? How do you think about how – to your stacks have kind of flow-through, is there any reason that you can identify at this point that to your stack comps should start to flow in the back half?

Bob Sasser – President and CEO: We certainly in third quarter against our easiest comparison I hesitate when I say easy in this environment, but our easiest comparison to last year is in the third quarter. So, our expectation is that we are going to continue to grow our top line. We are going to continue to grow our comps. I haven’t really looked at and don’t have those stacks in front of me right this minute for the rest of the year. We are excited about our third quarter business and the comparisons are much easier than they’ve been in some time…

Scot Ciccarelli – RBC Capital Markets: Can you just comment on cadence of new store openings. Was it pretty much normal pace or was there anything back-end loaded. The new store productivity you commented it was good, but might be a little bit lower than I think we’ve been modeling?

Bob Sasser – President and CEO: I think – there have been a few changes and the jury is still out and I get to see the granularity, and of course, we did report the granularity and that’s where my statement is coming from. But we did – in the first half; we opened a few less stores than we did in the first half last year. Opened 175 new stores, I believe that’s 12 less than we opened in the first half last year. But we also opened 25 new stores in January this year, which are really in last year’s numbers. But ordinarily this is the first time we had opened stores in January. We used to stop before the holidays and pick up with these store opens in first period – February this year, we were able to accelerate our plan to get stores opened quicker and instead of holding on to them we just open them up. So there was another 25 stores, if you added those into the first half, I think you’d find that we’re actually ahead of the game. The real question though is for the rest of the year, as I look at the rest of the year, we’re on target and on plan to open all the stores that we guided to. We opened a few less in the first half than last year, and we opened a little bit later in the first half than last year. One other thing I’d just want to point out to you on the productivity, there is a pretty good range now between stores that we open up productivity in our urban markets and more densely populated markets and in our suburban and rural markets. So, when you’re looking at a small number, mid-year sort of a snapshot of a 175 stores with others on the way, it really – these stores can make a big difference if you open and sales productivity if you open them up a few more urban stores in the mix versus a few less suburban stores that makes a big difference. If you do it the other way that makes a big difference. As I look at where we are I am very comfortable with and happy with our productivity so far this year and I expect it to end up with another great year in sales productivity in our new stores.