dollar tree (dltr) earnings report: q4 2015 conference call ...stores made a swift transition to...

CompanyName:DollarT reeStoresIncCompanyTicker:DLT RSector:ServicesIndustry:Retail

EventDescription:Q42015EarningsCallMarketCapasofEventDate:19.17BPriceasofEventDate:81.817

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

DollarTree(DLTR)EarningsReport:Q42015ConferenceCallTranscriptThefollowingDollarTreeconferencecalltookplaceonMarch1,2016,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

RandyGuiler;DollarTree,Inc.;InvestorRelationsBobSasser;DollarTree,Inc.;CEOKevinWampler;DollarTree,Inc.;CFOGaryPhilbin;DollarTree,Inc.;FamilyDollar

OtherPart icipants

MichaelLasser;UBS;AnalystScotCiccarelli;RBC;AnalystStephenGrambling;GoldmanSachs;AnalystDanWewer;RaymondJames;AnalystJosephFeldman;TelseyAdvisoryGroup;AnalystTrishaDill;WellsFargo;AnalystJohnZolidis;Buckingham;AnalystMatthewBoss;JPMorgan;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometoDollarTree,Inc.'sfourth-quarterearningsconferencecall.

Asareminder,today'sconferenceisbeingrecorded.

AtthistimeIwouldliketoturntheconferenceovertoMr.RandyGuiler,VicePresident,InvestorRelations.Pleasegoahead,sir.

RandyGuiler (InvestorRelations):

Thankyou,operator.GoodmorningandwelcometoourconferencecalltodiscussDollarTree'sperformanceforthefourth-quarterandfull-yearfiscal2015.Participatingontoday'scallwillbeourCEOBobSasser,CFOKevinWampler;andFamilyDollar'sPresidentandChiefOperatingOfficerGaryPhilbin.

Beforewebegin,Iwouldliketoremindeveryonethatvariousremarksthatwewillmakeaboutfutureexpectations,plansandprospectsfortheCompanyconstitutesforward-lookingstatementsforthepurposesoftheSafeHarborprovisionsunderthePrivateSecuritiesLitigationReformActof1995.

Actualresultsmaydiffermateriallyfromthoseindicatedbytheseforward-lookingstatementsasaresultofvariousimportantfactorsincludedinourmostrecentpressrelease,mostrecent8-K,quarterlyreporton10-QandannualreportonForm10-KwhichareonfilewiththeSEC.

Wehavenoobligationtoupdateourforward-lookingstatementsandyoushouldnotexpectustodoso.




Attheendofourpreparedremarkswewillopenthecalltoyourquestions.Pleaselimityourquestionstooneandonefollow-upquestionifnecessary.

NowI'dliketoturnthecallovertoBobSasser,DollarTree'sChiefExecutiveOfficer.

BobSasser (CEO):

Thanks,Randy.Goodmorning,everyone.

Thismorningweannouncedresultsforthefourth-quarterandfull-yearfiscal2015.Totalsalesforthequarterincreasedto$5.37billionandsame-storesalesonaconstantcurrencybasisincreased1.7%.

Totalsalesforfiscal2015whichincludednearlysevenmonthsofFamilyDollarsaleswere$15.5billion.Netincomeforthequarterwas$229millionandadjustednetincomewas$239.4million,nearthehighendofourrangeofguidance.EPSwas$0.97andadjusteddilutedEPSwas$1.01.

I'mextremelypleasedwithourCompany'saccomplishmentsinthefourthquarter.Salesweresolidandatthemidpointofourrangeofguidance.SG&Aexpenseswereleveragedandwell-managed.

OurDollarTreesegmentcontinuestodeliversectorleadingoperatingmarginsandearningswereverynearthetopofourguidance.Ourcustomerbaseislargeandit'sgrowingandwecontinuetomeetourmilestonesandremainonschedulewithourintegrationofFamilyDollar.

Wehavetrulyanincredibleopportunityaheadofusasacombinedorganizationandthestrategicrationaleforthecombinationcontinuestobeascompellingasever.Intheearlystagesofintegrationtherebeennosurprisesthatdiminishourvisionandplansforvaluecreation.Infact,asweimproveretailoperationsthereisincreasedenthusiasmfortheopportunitytogrowandtoservemorecustomersinmorewaysasacombinedCompany.

WehaveconfidenceinourdisciplinedapproachtocontinueimprovingthecustomerexperienceatFamilyDollarandinourabilitytocapturesynergiesforthecombinedorganization.Withafocusonmanagingourbusinessinreal-timeoureyesareonthehorizonaswedevelopthefoundationforalarger,strongerandmorediversifiedbusinessthatwillgeneratecashandbuildshareholdervalueforyearstocome.

Onlytwoquartersintotheintegrationourteamsarealignedstrategicallyandcollaboratingeffectivelytodeliversolidresults.Accomplishmentsinthefourthquarterwerenumerous,includinganothersolidquarterforourDollarTreebanner.AsexpectedDollarTreedeliveredalowsingle-digitsame-storesalesincrease.

Same-storesalesonaconstantcurrencybasisincreased1.7%andthatwasontopofastrong5.6%increaseinthefourthquarterayearago.Same-storesalesincreasedasaresultofgrowthinbothbasicconsumablesanddiscretionaryproductsandsalesgrowthwasdrivenbyincreasesinbothtrafficandaverageticket.

Top-performingcategoriesincludepartysupplies,beautyandeyewear,snacksandbeverageandcandyandfood.GeographicallyDollarTree'ssame-storesalesgrowthwasstrongestintheNortheastandMidwest.

I'mextremelypleasedwithaconsistentgrowthandstrengthoftheDollarTreebusiness.Thiswasthe32ndconsecutivequarterofpositivesame-storesales.That's32straightquarters,eightstraightyearsofcompgrowthandeverythingisstilladollar.

Cyclingcompsof5.6%lastyearandthroughadifficultconsumerenvironmentfourth-quarterresults




againvalidatetherelevanceoftheDollarTreebrand.Customersareshoppingwithusmoreoftenandwearetrackingnewcustomerseveryday.

Andwhenthecustomersareinthestoretheyarebuyingmore.Bothtrafficandaverageticketincreasedforthequarter.

DollarTreecontinuestobepartofasolutionformillionsofconsumersastheystrivetobalancetheircouncilbudgets.Weserveaveryloyalandgrowingcustomerbase.Ourcommitmentistocontinueservingourcustomer,ourexistingcustomersbetterwhiletakingeveryopportunitytogainnewcustomersineverystoreeveryday.

Ourmerchantteamsdoatremendousjobsourcingproductsthatexceedcustomerexpectationsforwhat$1canbuyatacostthatmeetsourmarginrequirements.Merchandisemarginincreasedinthefourthquarter.

Ourstoreteamsarefocusedonprovidingaclean,full,funandfriendlyshoppingexperience.MerchandisevaluesatDollarTreearebetterthanever.

AsweenteredfourthquarterstorepresentationsboldlycommunicatedamessagetoourcustomersthatDollarTreewasthego-tostoreforbasicsandyourholidayneeds.InearlyNovemberwefocusedonfirstofthemonthbasicconsumablesandThanksgiving-relatedfoodslikechickenbrothandvegetablesandsoups.

Weplacedemphasisontakingcareofcustomerneedsrelatedtoholidaymealswithbakingbasics,mixingbowls,foilpans,turkeybastersandfoodstoragecontainersandweaddressedthecustomers'needsrelatedtoholidayentertainingwithcateringtrays,bowlsandservers.

Ourhomefortheholidayspromotionfeatureddinnerware,glassware,tablelinensandsnackfoodslikecookiesandmintsandpartymixandeverythingwasjust$1.ImmediatelyfollowingThanksgivingourstoresmadeaswifttransitiontoChristmasholidaydecorations,toylandandgreatgiftideas.Andthemerchantsandstorescontinuetobuildonourlast10-daystrategybybringingallofthelast-minutecategoriestogetherandre-merchandisingthefrontofthestorewithapurpose.

Ourgoalistobetogiftsupplyheadquartersforitemslikeholidaytins,giftbags,tissue,wrappingpaper,scissorsandtape.Ourcustomersunderstandthatifyouneedtowrapit,bagit,boxitortagitDollarTreeisthestoreforyou.Ifyouarebuyingyourwrappingsuppliesanywhereelseyouarepayingtoomuch.

InadditiontoourseasonalenergycustomerscontinuetolookatDollarTreefortheirbasicneeds.Throughoutthequarterourstorescontinuedtohighlightandpromoteourmillion-dollarbrands.ThesearebrandsthattheyknowandtrustlikePringles,Nabisco,Scotties,Cresttoothpasteandmanymore.

LookingforwardtheDollarTreesegmentispositionedforincreasedrelevancetoourcustomers,sustainedgrowthandimprovedprofitability.Wehavemultipleopportunitiestocontinuegrowingandimprovingourbusinessthroughopeningmorestoresandincreasingtheproductivityofallofourstores.

Inthefourthquarterweopenedatotalof63newDollarTreestores.Werelocatedorexpanded11DollarTreestores.Werebannered58FamilyDollarstorestoDollarTreestoresandwerebannered52Deal$storestoDollarTreestoresforatotalof184DollarTreeprojectsduringthefourthquarter.

TotalDollarTreebanneredsquarefootageincreased10.3%comparedtotheprioryearandweendedthefiscalyearwithatotalof5,954DollarTreestoresacrossNorthAmerica,anincreaseof587storesthisyear.

Inadditiontonewstores,wecontinuetoexecuteourstrategytoimprovetheproductivityofourexisting




stores.Someofourdrivetobusinessinitiativesincludecategoryexpansions.Customersarerealizingmorevalueaswerationalizeandexpandassortmentsinpetsupplies,hardware,healthcare,beautyandeyewearaswellashomeandhouseholdproducts.

We'redrivingthebusinesswithafocusonseasonalrelevance.Ourstorefrontschangewiththeseasons.Wewantourcustomerstoknowwhatseasonitiswhentheycomeinthefrontdoor.AtDollarTreewewanttoowntheseasonsatthedollarpricepoint.

We'redrivingthebusinessbycreatingmerchandiseenergyandthethrillofthehuntthroughoutthestore.AtDollarTreeyoualwaysfindanunexpectedvalue.

Andwe'redrivingthebusinessbybeingfirstofthemonthready.Weplacespecialemphasisonbasic,consumablecoreitemsatthebeginningofeachmonthwhenmanycustomersareshoppingforbasicneeds.

We'recontinuingtheexpansionofourfrozenandrefrigeratedcategory.Infourthquarterweinstalledfreezersandcoolersand142additionalDollarTreestores.Wecurrentlyofferfrozenandrefrigeratedproductin4,287storesandgrowing.Ourplanistorolloutfreezersandcoolersto400additionalstoresin2016.

We'reonschedulewithourplannedconversionsofourDeal$storelocations.AsweannouncedinOctober,weplantodedicateourfullenergyandresourcestoourtwoprimarybanners:DollarTreeandFamilyDollar.

Asplannedtherebanneringofour222Deal$storescommencedinJanuary.Andwe'reontracktocompletethisprojectonschedule.

Wecontinuetosupportplannedgrowthwithinfrastructureanddistributioncapacityaheadoftheneed.ConstructiononournewestDCinCherokeeCounty,SouthCarolinaisonscheduleandonbudget.This$1.5million--excuseme,1.5millionsquarefootautomatedfacilitywillprovidecapacityandincreasedefficiencytosupportcontinuedprofitablestoregrowthintheSoutheastandMid-AtlanticregionsoftheUS.WeplantobeginshippingproductfromthisnewfacilityinJuly.

TosupportcontinuedgrowthinWesternmarketswe'reexpandingourStockton,Californiadistributionfacilityfrom525,000to820,000squarefeet,anincreaseof55%.Thisprojectisalsoscheduledtobecompletedbymidyear.

TurningtotheFamilyDollarbanner,wecontinuedtomakemeaningfulprogressontheFamilyDollarintegration.InfourthquarterFamilyDollarstorescompletedtheclearanceofnon-go-forwardproductatthebeginningofNovemberandquicklymovedtotheimpactoftheholidaymerchandiseset.

EndcapswerereclaimedfortheholidayperiodandfortheJanuarypromotionalresets.Systemsonhandsarecleanerandourservicelevelscontinuedtoimprove.

Justovertwoquartersinthestoresarecleaner,theshelvesarebetterstocked,wehavecleanedupoldinventoryandtheendcapsaremorecompellingandrelevant.Thefeedbackwe'rereceivinghasbeenpositive.Ourcustomersatisfactionscoreshaveimproved,validatingthatcustomersaretakingnotice.

Regardingsales,forthequartertheFamilyDollarbannerdeliveredalowsingle-digitpositivecompstoresalesincrease.Same-storesalesincreasedastheresultofgrowthinbothtrafficandaverageticketwithtrafficleadingtheway.Same-storesalesincreasedinbothdiscretionaryandconsumableswithslightlyhighersalesgrowthinconsumables.

SaleswerepositiveeachmonthwiththestrongestsalesincreasesinDecember.Geographically,




comparable-storesalesatFamilyDollarwerestrongestintheWestandtheMid-Atlantic.

Forthefourthquarter,weopenedatotalof65newFamilyDollarstoresandwerelocatedorexpanded42FamilyDollarstoresforatotalof107projects.Additionally,duringthequarterwerebannered58FamilyDollarstorestoDollarTree.

Wecompletedtherequireddivestitureof325storestoSycamorePartnersatthebeginningofthefourthquarter.Weendedthefiscalyearwith7,897FamilyDollarstoresandatotalFamilyDollarandDollarTreecombinedstorecountof13,851storesacrossNorthAmerica.

JustlikeDollarTreeourprimaryareasoffocusforFamilyDollarstoresareonthecustomer,theshoppingexperienceandthevalueequation.Merchantsandstoresareworkinghardtobefirstofthemonthreadyandweekendready.We'repayingspecialattentiontoopeningpricepoints,nationalbrandpricing,theroleofprivate-labelproductswhilerationalizingSKUsforincreasedproductivityandafocusonbasicin-stocklevels.

Additionally,we'reintheprocessofrollingoutoursmartwaystosaveprogram.Thevalueelementsofsmartwaystosaveareacombinationofeverydaylowpricingelementsanditems,strategicallyplannedsalesandpricedroppromotions,incredible$1wowitemsandanenhancedassortmentofnamebrands,privatelabelnamebrandequivalentsandvaluebrands.

InordertoearnbackourFamilyDollarcustomers'confidenceandfrequencyofvisitwe'recommittedtoimprovingthecustomerexperience.Thereisakeenfocusontablestakesincludingstorestandardsandconditions.Wewantthemtobebright,cleanandfreeofclutter.

Thecustomerexperience:fullin-stockstores,easytoshop,trustedvalue.Focusonthemerchandiserelevance.Wehavetohavewhatourcustomersneedandwant.

Andwe'refocusedoncustomerengagement,friendlyandinformedassociates.Byidentifyingandestablishingappropriateretellingdisciplinesandbenchmarkscustomersarealreadyseeingcleaneraisleswithlessclutter.I'mverypleasedtoreportthatrecentresultsfromourcustomersatisfactionsurveysareshowingmeaningfulimprovementinfourthquarterversusprior-yearcustomerscoresineachofourfourprimarysurveycategorieswhicharestorecleanliness,productassortment,customerserviceandspeedofcheckout.

ContinuedimprovementsineachofthesemetricswillcontributetoFamilyDollarbecomingtheneighborhoodstoreofchoiceforourcustomers'shoppingtrips.WewillmanageinvestmentsintablestakeswiththesamedisciplinedapproachthatwehaveusedatDollarTreeformanyyears,identifyingandpayingspecialattentiontothecustomerfacingmetricswithafocusonreturnoninvestmentandproductivityenhancementwhilereducingcost,leveragingoursharedservicesandbackofficefunctionsandreinvestingsomeofthesesavingsinthecustomer.AswehavedoneatDollarTreewewilltestandlearnandwewillinvestprescriptivelywhilemeasuringreturnonourinvestments.

AsalwaysourP&Lwillcontinuetobemanagedlinebyline,quarterbyquarterwithakeeneyeonROI.Ourquarterlyguidancewillreflectourexpectations.

Wecontinuetohavegreatconfidenceinourabilitytodeliveratleast$300millioninannualrunratesynergiesbytheendofthethirdfull-yearpost-closing.Andaspreviouslydisclosed,thesesynergieswillbeachievedwithone-timecostof$300million.

Asareminderwehaveidentifiedsynergiesinfourprimaryareas:firstofall,sourcingandprocurement;second,ourrebannerprogramforoptimizingstoreformats;third,distributionandlogistics;andforth,overheadandcorporateSG&A.Westillhavealotofworkaheadofusbutatthisstageweare




clearlyontracktoachieveourfirst12monthsmilestoneofatleast$75millioninrunratesynergies.

Plansandprocessestocapturesourcingandprocurementsynergiesarewellunderway.Ourexactitemmatchinitiativetoprovidethelowestcostonidenticalitemsacrossbothbannersiscompletewithexpectedresults.Nosurprises.

Thereviewofsimilarmatchitemscontinueswithoutstandingresults.Thereismoretocomehere.

Weareachievingplannedsavingsfromharmonizingofpaymentterms,.Auctions,RFPsandaformalbidprocessarewellunderwayonexpenseitems.Oursavingscontinuetogrowandmeetexpectations.

Duringthefourthquarterwerebanneredanadditional58FamilyDollarstorestoDollarTree,bringingourtotalofconvertedstoresforfiscal2015to205stores.Thisslightlyexceededourtargetof200conversionsfortheyear.

Thepreliminaryresultsaremeetingexpectationsoverallandfeedbackfromcustomershasbeenpositive.Wehaveplanstoconvertanadditional100FamilyDollarstorestoDollarTreesin2016andouranalysiswillcontinue.

Ultimatelyourstrategyistohavearightbannerinthebestlocationtoserveourcustomers.We'refinalizingthesupplychainroadmapandwe'llsoonbepilotingourfirstco-bannereddistributioncenter.Withacrossorganizationalfunctionalteamweareintegratingourwarehousemanagementsystemsandwe'remakingplanstorationalizethefleetofcombinedDCs,analyzingspaceneedsbybanneranddeterminingourabilityandthemeritsofshippingbothbannersoutofallfacilities.

Thisisaverylargeprojectwithsignificantopportunityforlong-termsynergies.OurfirstpilotfacilityinSt.George,Utahisplannedtobeoperationalbeforethethirdquarter.

Wecontinuetomakeprogressonreducingcostforasharedservicesmodel.We'recombiningbackofficefunctionstosupportbothbannersthroughasharedservicesorganization.Overtimethesesharedserviceswillincludehumanresources,finance,informationtechnology,supplychainandlogistics,indirectsourcingandprocurement,realestateandconstruction,legal,strategicplanningandinternalaudit.

Ourgoalistoprovideconsistent,efficientsupportofourbusinessinitiativesacrossthecombinedorganizationthroughamorecost-effectiveapproach.We'relessthanayearintotheintegrationandwe'vemadetremendousprogress.Westillhaveagreatdealofworkaheadofus.

ThetimingofsomewillbedependentonourITintegration.Ourstrategyisnottotoucheverythingatoncebuttoprioritizeourareasoffocus,togetitrightthefirsttimeandbuildtheoverallbusinessforthelongterm.It'saprocess.

We'reemployingawell-planned,thoughtful,lowriskstrategicapproachthatwillbenefitourlong-termshareholders.NowIwillturnthecallovertoKevintoprovidemoredetailonourfourth-quarterfinancialperformanceandourinitialoutlookfor2016.

KevinWampler (CFO):

Thanks,Bob,andgoodmorning.Asaresultoftheacquisitionyear-over-yearcomparisonsaredifficult.However,wehaveincludedtableswithourpressreleasewhichwebelievewillbehelpfulinbetterunderstandingthecomponentsofourbusiness.

Totalsalesforthefourthquartergrew117%to$5.37billionwhichincludesoursecondfullquarterofFamilyDollarsales.Thiswasatthemidpointofthesalesguidancerangeof$5.32billionto$5.42billion.




DollarTreesegmentsalesincreased8.6%to$2.69billionwhileFamilyDollarsegmentsalesdecreased2.7%to$2.68billion.

Year-over-yearsalescomparisonsforFamilyDollarwereimpactedby205rebanneredstoresand325divestedstores.Same-storesalesonaconstantcurrencybasisincreased1.7%versusaverystrong5.6%intheprioryear'sfourthquarter.Theincreasewasdrivenbybothtrafficandticket.

AdjustedfortheimpactofCanadiancurrencyfluctuations,same-storesalesgrew1.3%.AlloftherecentlyacquiredFamilyDollarstoresandnewlyrebanneredFamilyDollarandDeal$storesareconsiderednewstoresandareexcludedfromoursame-storesalescalculation.

Grossprofitforthecombinedorganizationincreasedby$734.5million,or80%to$1.65billionforthefourthquarterof2015comparedwiththeprioryear'squarter.ThemajorityofthedollarincreasewasdrivenbyFamilyDollar'sgrossprofitof$673.7million.

GrossprofitmarginfortheDollarTreesegmentwas36.4%duringthefourthquartercomparedwith37.1%intheprioryear'sfourthquarter.Approximatelyone-halfofthe70basispointdeclineasapercentofsaleswasrelatedtoactualandaccruedmarkdownsassociatedwiththeplannedconversionofallDeal$storeslocations.

Otherfactorscontributingtotheyear-over-yeardeclineingrossmarginratewasoccupancycosts,higherdistributioncostsandshrinkpartiallyoffsetbyimprovedmerchandisecost.GrossprofitmarginfortheFamilyDollarsegmentwas25.2%duringthefourthquartercomparedwith25.1%inthecomparableperiodprior-yearperiod.

Includingthe$15.9millionofinventorystep-upamortization,grossprofitmarginwas25.9%forthequarter.Theimprovementof80basispointsonacomparablebasisdrivenbyimprovedmarkonandlowermarkdownspartiallyoffsetbyhigheroccupancycost.

Selling,generalandadministrativeexpensesinthequarterforthecombinedorganizationincreased121%to$1.18billionfrom$534.5millioninlastyear'sfourthquarter.Themajorityofthe$648.4millionincreaserelatedto$608.4millionofFamilyDollarexpense.

Q4SG&AexpensefortheDollarTreesegmentasapercentofsaleswas21.4%,a20basispointasapercenttosalesimprovementcomparedtotheprioryear'squarter.Thecurrentyearincludes$3.3millionofacquisitionandintegrationrelatedcostswhiletheprioryearincluded$6.7millionofacquisitionrelatedcosts.

ExcludingthesecostsadjustedSG&Aimprovedto21.2%forQ4comparedto21.3%fortheprioryear'squarter.This10basispointimprovementwasdrivenprimarilybypayroll-relatedcostsincludingretirementplancontributionsandstorebonusesandwaspartiallyoffsetbyhigheroperatingandcorporateexpensesincludinglegalfeesandcostsassociatedwiththeDeal$storeconversion.

SG&AexpensefortheFamilyDollarsegmentasapercentofsaleswas22.7%comparedto20.6%intheprioryear'squarter.Thecurrentyearincludesa$19.3millionforfavorableleaserightsamortization,$16millioninadditionaldepreciationforusefullifeandfixedassetrevaluation,$8.9millionofseverancecostandintegrationcosts.Theprioryear'scomparableperiodincludes$10.8millionofacquisition-relatedcosts.

ExcludingthesecostsSG&Aincreased70basispointasapercentofsalesto20.9%from20.2%intheprioryear.Theincreasewasprimarilydrivenbyincreasedincentivecompensation,repairs,professionalfeesanddivestiture-relatedcosts.

Adjustedoperatingincomeexcludingacquisition-andintegration-relatedcostsfortheDollarTree




segmentincreased$17.4millionto$[407.7]million.Asapercentofsalesadjustedoperatingincomedecreased60basispointsto15.2%comparedto15.8%ofsalesintheprioryear'sfourthquarter.

AdjustedoperatingincomefortheFamilyDollarsegmentincreased$1.9millionto$134.0million.Theyear-over-yearcomparisonwasimpactedby205rebanneredstoresandthedivestitureof325FamilyDollarstores.

Asapercentofsalesadjustedoperatingincomeincreased10basispointsto5%comparedto4.9%ofsalesintheprioryear'scomparableperiod.Non-operatingexpensesforthefourthquartertotaled$117.2millionandwerecomprisedprimarilyofnetinterestexpenseof$114.9millioninthequarterwhichincludedanaccelerationof$19millioninnon-cashdeferredfinancingcostsassociatedwithourprepaymentoflong-termdebtof$1billioninJanuary.

ForthefourthquartertheCompanyhadnetincomeof$229millionor$0.97perdilutedshare.Adjustednetincomeandadjustedearningspershareasdetailedinthepressreleasetableswere$239.4millionand$1.01perdilutedshare.

Oureffectivetaxrateforthefourthquarterwas35%comparedto36.4%intheprioryear'squarter.ThedecreasewasprimarilyattributabletoanincreaseintheWorkOpportunityTaxCreditinrelationtotheincomeforthefourthquarterandadecreaseinstatetaxexpense.

Lookingatthebalancesheet,combinedcashandcashequivalentsatyear-endtotaled$736.1millioncomparedto$864.1millionattheendofQ4.Andasnotedwedidmakea$1billiondebtprepaymentinlateJanuary.Ouroutstandinglong-termdebtisnowapproximately$7.5billion.

InventoryfortheDollarTreesegmentatquarter-endwas18.9%greaterthanatthesametimelastyearwhilesellingsquarefootageincreased10.4%.Inventorypersellingsquarefootincreased7.7%.Theprimarycontributorstotheyear-over-yearincreaseininventorylevelsrelatetotheWestCoastportdisruptionsweexperiencedayearago,anearlierEasterin2016andanearlierChinesenewyear.Webelievethatcurrentinventorylevelsareappropriatetosupportschedulednewstoreopeningsandoursalesinitiativesforthefirstquarter.

FortheFamilyDollarsegmentend-of-yearinventoryonasellingsquarefootbasisincreased0.6%comparedtotheprioryear.Wearepleasedwiththeprogressweareseeingonin-stocklevelsofkeyitems.Wearecontinuingtoreviewmerchandiseassortmentsandbelieveourcurrentinventorylevelsareappropriateforthefirstquarter.

Capitalexpenditureswere$144millioninthefourthquarterof2015versus$71.2millioninthefourthquarteroflastyear.Forfiscal2016,weareplanningforconsolidatedcapitalexpenditurestorangefrom$650millionto$670million.

Capitalexpenditureswillbefocusedonnewstoresincluding350newDollarTreestoresand200newFamilyDollarstores;theremodel,relocationorexpansionofapproximately200stores;therebanneringofapproximately100FamilyDollarstorestoDollarTreestores;andtherebannerofthe158remainingDeal$storesforatotalofmorethan1,000storeprojectsin2016.Inaddition,we'lladdfrozenandrefrigeratedcapabilityforapproximately400DollarTreestores.

WewillhaveITsystemenhancementsandintegrationprojects,thecompletionofournewCherokeeCounty,SouthCarolinadistributioncenterandthecompletionofourStockton,Californiadistributioncenterexpansion.

Depreciationandamortizationtotaled$174.9millionforthefourthquarter.Thisincludespurchaseaccountingrelatedcostsof$19.3millionforfavorableleaserightsamortizationand$16millionin




depreciationforusefullifeandassetrevaluation.

Depreciationexpensewas$54.4millioninthefourthquarterlastyear.Forfiscal2016,weexpectconsolidateddepreciationandamortizationtorangefrom$630millionto$640million.ThisrangeincludesincreasesoverthehistoricalrunrateofdepreciationandamortizationexpenseforFamilyDollarfortwoitemswhichareincludedinourguidance.

First,itincludes$8millionforQ1and$5millionforQ2ofdepreciationabovethehistoricalrunrateforFamilyDollarasaresultofharmonizingthedepreciablelivesaccountingpoliciesofthetwocompaniesandtheincreaseinthevalueoftheassetsbasedonthepurchasepriceallocation.

Secondly,itincludes$18.7millionforQ1and$74millionforfiscal2016fortheamortizationoffavorableleaserightsforthepurchaseaccountingvaluationofFamilyDollarleases.

Turningtosalesandearningspershareguidance,formodelingpurposesourinitialoutlookfor2016includesthefollowingassumptions.AsareminderatthebeginningofQ42015wedivested325FamilyDollarstoresthatrepresentedapproximately$500millioninannualsalesand$45.5millioninoperatingincome.

Oursame-storesalescalculationexcludesFamilyDollarstoresandexcludesstoresthatarerebannered.Thesestoreswillbeincludedinoursame-storesalescalculationswhentheyhavebeenopenedasaDollarTreefor15months.

WewillcontinuetoexperienceahigherthannormaldegreeofcannibalizationtoDollarTreecompsaspartofourrebannerefforts.Thiscannibalizationexpectationwasplannedandfactoredintobothourrebanneredstrategyanalysisandouroutlookforsame-storesales.

Wewillcontinueourinitiativestorebannerstores,firstfocusingonrebanneringallDeal$storesandthenweplantoconvertanadditional100FamilyDollarstorestoDollarTrees.Easterwillbeoneweekearlierthantheprioryear.Thisrepresentsanestimated$10millionheadwindtosales.

Inventorystep-upamortizationwillbeapproximately$6millioninQ1and$2millioninQ2.Wearebudgetinglowerdieselfuelcoststhanayearagowiththefirsthalfprovidingthemostbenefit.Interestexpensewillbeapproximately$90millionperquarterin2016andwedonotanticipateanysharerepurchasesin2016.

Wecannotpredictfuturecurrencyfluctuations.Wehavenotadjustedourguidanceforchangesincurrencyrates.

Ourguidancealsoassumesataxrateof36.6%forthefirstquarterand36.8%forfiscal2016.Weightedaveragedilutedsharecountsareassumedtobe236.4millionsharesforQ1andforthefullyear.

Forthefirstquarterweareforecastingtotalsalestorangefrom$5.05billionto$5.12billionanddilutedearningspershareonaGAAPbasisintherangeof$0.75to$0.83.Theseestimatesarebasedonthelowsingle-digitsame-storesalesincreaseandyear-over-yearsquarefootagegrowthof132%.

Salesandearningspershareoutlookforthefullfiscalyear,weareforecastingtotalsalestorangefrom$20.76billionto$21.11billionanddilutedearningspershareonaGAAPbasisintherangeof$3.35to$3.65.Theseestimatesarebasedonalowsingle-digitsame-storesalesincreaseand4%salessquarefootagegrowth.

IwillnowturnthecallbackovertoBob.

BobSasser (CEO):




Thanks,Kevin.IwanttoclosebysayingthestrategicrationalefortheFamilyDollaracquisitionisascompellingasever.Thisisanextremelylargeandcomplextransactioninvolvingmorethan13,000retailstorelocationsand23distributioncenters.

WhilewearestillintheearlystagesoftheintegrationprocessI'mverypleasedwithourprocessandourprogress.GaryPhilbinandtheleadershipteamatFamilyDollarareworkingtheplaneffectivelyandefficiently.Wecontinuetohavegreatconfidenceinourabilitytodeliveratleast$300millioninannualrunratesynergiesbytheendofyearthree.

Ibelievewecanexceedtheseexpectations.Thesesynergieswillbeachievedthroughacombinationofloweringcostsandbothdirectandindirectsourcingbanneroptimization,logisticsandoverhead.I'mextremelyproudofourcombinedFamilyDollarandDollarTreeteams.Theyhaveaccomplishedextraordinaryfeatsinaveryshorttimebutthisisjustthebeginning.

There'smuchmoretodoandIwilltellyouthatasalwayswewillemployadisciplinedapproachtodrivingkeystrategicinitiativestothecombinedorganizationthroughimprovedcommunication,analysis,collaborationandincentives.We'reconfidentthatplacingourinitialemphasisintheseareascanmateriallyenhanceoperatingperformanceoftheFamilyDollarbrandthroughimprovementsinsales,margins,expensecontrolandgreatercustomersatisfaction.

IwillclosethepreparedremarksbysayingtheDollarTreebusinessmodelispowerful,flexibleandmorerelevantthaneverprovidingextremevaluetocustomerswhilerecordingrecordlevelsofearnings.Ourmodelhasbeentestedbytimeandvalidatedbyhistory.For32consecutivequarterstheDollarTreebannerhasdeliveredpositivesame-storesalesincreases.

Throughgoodtimesanddifficulttimesandallretailcyclesconsumersarelookingforvaluenomatterwhatthestateoftheeconomy.Whileourpricepointremains$1ouroperatingmargincontinuestoleadthediscountsector.

WiththeadditionofFamilyDollar,wearelarger,strongerandmorediversifiedbusinessbetterabletogrowinmoremarketswhileservingmorecustomerswithexactlywhattheyarelookingfor:greatvalueineverystoreeveryday.Ourfuturehasneverbeenbrighter.

Operator,wearenowreadyforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

MichaelLasser,UBS.

MichaelLasser (Analyst-UBS):

Goodmorning,thanksalotfortakingmyquestion.It'sonthecoreDollarTreebusiness.Thisisthethirdquarterinarowwherethecompswerebelow3%.

Areyouseeinganyindicationsthatyou'rerunningintosomeofthelimitationsofyourmerchandiseflexibilitywiththesinglepricepointmodel?Andalongthoselines,whatareyouanticipatingonthemerchandisingsidetoseethebenefitgivenwhatsomeoftheAsiancurrencieshavedoneandgivenhowmuchthatyousourceyourproductoverseas?AndthenIhaveaquickfollow-up,thanks.

BobSasser (CEO):




Michael,thanksforthequestion.Tothefirstpartofthequestionwe'renotlimitedbythemerchandiseassortmentorthepricepoint.Wehavemoreassortmentthanever.

Ourvaluesarebetterthanever.Ourstoresarelarger,theyaremoremerchandiseandmoreassortmentthanwe'veeverhad.Sothereisnolimitationtothat.

Ifyoulookatfourthquarterlargelywe'reupagainstaverybigfourthquarterlastyear,5.6%compandtheyearbefore.Sobasicallyinsortofatougheconomyweareupagainstafairlydifficultcomparison,5.6%.AndIthinkthe1.7%compthatyouseeisadmirableconsideringwhatwefacedwiththatcomplastyear.

AstoChina,oursourcingcontinuedtobestrongandvibrant.Westillimportalotofproduct,about40%ofourbusinessisinproductthatweimportandthatcontinues.OurpricingoutofChinahasbeenverypositive.

We'vebeenabletonotonlyimprovevaluesinourproductbytakingthelowercostandturningthatintomorevalueforthecustomerbutalsowe'vebeenabletoreducecostsonthingsthatwebuyeveryquarter,everyyearthatwekeepinourstoresallthetime.Sothebasicswe'vebeenabletoreducecostsonthat,especiallyonthelasttrip.Soyouhadafollow-upquestion?


Yes,myotherquestionwasontheguidancefortheyear.Whathaveyouassumedonwageincreases,additionalinvestmentsinthestoresandthecosttoharvestthesynergieswithinyouroutlookfortheupcomingyear?Thankyousomuch.

KevinWampler (CFO):

SoMichael,asweworktoputourguidancetogetherforthefullyearwe'llobviouslytakeallthosethingsintoconsideration.Obviouslyfromawageperspectivethereare,continuetobecertainstatesintheUSaswellasprovincesinCanadathatcontinuetoraisetheirindividualminimumwages.Andobviouslyweputthoseintothemixaswelookatourbusinessnodifferentthananyotheryear.

Andtothepointwe'vehistoricallysaidwe'recompetitiveinthemarketswe'reinandthat'simportantbecauseyouhavetobetogetgoodemployeesattheendoftheday.SoIdon'tthinkthat'sreallychangedbutitiswithintheguidance.

Asyoulookatthesynergiesandyoulookatthecosttoachieveobviouslywehaveanexpectationthatwewillachievesynergiesthisyear.Therearesynergiesbakedin.Wehaven'tspecificallysaidthedollarsandpartofthatisduetothetimingisalittlebithardtonailspecificallydown.

Wearewellonourwaytomeetingorbeatingthefirst-yearrunrateof$75millionofsynergies.SoIthinkwe'vebakedthingsinaccordingly.Butstillalotofworktobedonetomakethathappenbutwefeelgoodaboutwherewe'reattoday.


Okay,thankyousomuchandgoodluckwiththeyear.

Operator :

ScotCiccarelli,RBCCapital.

ScotCiccarelli(Analyst-RBC):




Hey,wegotCiccarellithere.Goodmorning,guys.

Thefirstquestionisisthereanestimatethatyouguyshaveintermsoftheimpactofcannibalizationinthequarter?Obviously,Kevin,youmadethatreference,Ithinkyouguystalkedaboutitlastquarteraswell.

KevinWampler (CFO):

Ithinkaswelookatitandweobviouslyanalyzeitandweanalyzeditgoingintoitaswesaidwithinthepreparedremarksthattheexpectationwastherewasgoingtobesomeeffect.AnditwasalittlelessthanhalfapercentbutIthinkdirectionallythat'sexactlywhereweexpectedittobe.

Soinsomeways,andthatwasallrelatedtorebannering,soinsomewaysIguessyoucouldsaywithoutthatwewouldhavebeenabovea2.ButIthinkweallknowthatfortheimprovementofthebusinesswe'redoingtherightthingswiththeserebannerings.

Theyaregoingtobegreatstores,greatopportunitytoputthebeststoreinthebestlocationforourcustomersandputourbestfootforward.Anditwillshowinthebottomlineaswegoforward.SoIthinkthat'sthewaywethinkaboutit.


Okay,that'shelpful.Thenisthereasynergynumberthatwecankindofthinkaboutforthequarterthat'sjustcompleted?Oristhebulkofthat$75millionreallygoingtohappeninthefirsthalfof2016justgiventhetimingissuesthatyoualreadymentioned?

KevinWampler (CFO):

Ithinkaswethinkaboutitit'sprobablymoretothebackhalfalittlebit.Thereisalittlebitwithinthefirstquarterbutwe'renotreallygoingtospeaktoaspecificnumberatthispointintime.Butitisbuiltintoourguidance.


Andwasthereanythingthatyouwereabletocaptureinthefourthquarterthatyoucanoutline?

KevinWampler (CFO):

IthinkobviouslytherewasalittlebitinthefourthquarterasitrelatestotheexactmatchprocessthatBobspoketoinhiscomments.Themerchantsworkedhardonthatandtherewassomeofthatthatdidgointoeffectinasense.

Whatyou'vegottorememberisyou'vealreadygotmerchandiseonhandbasicallyatthepriorprice.Soittakesawhiletoworkthroughthesystemtoseethebenefit,iskindofthewayyouneedtothinkaboutthat.


Soinotherwords,justafinalclarificationhere,thebulkofthesynergiesforfirstyearwe'rereallygoingtostarttoseeacceleratein2Qof2016?

KevinWampler (CFO):

Ithinkthat'swhenwewillstarttodefinitelyseesomethingshittingthatwillmakeadifference.





Gotit.Thanksalot,guys.

Operator :

StephenGrambling,GoldmanSachs.

StephenGrambling (Analyst-GoldmanSachs):

Hey,goodmorning,thanksfortakingthequestionsaswell.Justafollow-upontheguidance,canyoujustprovidealittlemorecoloronhowyouthinkabouttheprofitabilitybysegmentmaybeexcludingthesynergies?Justwhateverthehigh-levelputsandtakestothinkaboutare.

KevinWampler (CFO):

Youknow,atthispointwe'regoingtogiveguidanceasacombinedCompany.IthinkasyoulookatitatthemidpointofourguidanceouroperatingmarginforQ1basicallygivesaboutImid-7%number.

Ifyoulookatitforthefullyear,you'reatthehigh7%sapproaching8%.We'regoingtogiveguidanceasacombinedCompany,wewillgiveyoucolorattheendofeachquarter,butthat'showwe'regoingtofactorthataswegoforward.


Okay,fairenough.Thenisthereanydetailyoucanprovideonwhatyou'reseeingfromtheserebanneringsasitrelatestotheproductivitysofarandprofitability?Andthenanyothercoloryoucanprovideonthenextgroupofstoresandhowtheymaydifferfromthefirstset?

BobSasser (CEO):

Yes,Iwilltellyouthattherebannersaremeetingourexpectations.Westartedoffasyouknowwithananalysisofthesestoresthatwethoughtcouldbebetterserved,betterservethecustomersasaDollarTreethanaFamilyDollarandFamilyDollarsthatwereunderperformingfrankly.BecauseobviouslywecanimprovetheperformanceofthoseFamilyDollarstoresbyturningthemintoaDollarTreewe'dliketotakealookatdoingthat.

WemodeledagainstreallytheFamilyDollarortheDollarTreemodeltocomeupwithalargelistandthenwewentthroughtheprocessofreviewingthosestores,actuallygoingoutandsendingpeopleouttovisitthesitesandputtheireyesonitaswellashavingtheanalysis.Sofromthatishowwepickedthefirst200,300storesnow.

We'llcontinuetheanalysis.IwouldtellyouthatIhaven'tlearnedawholelotdifferentfromwhatwefirstdidinregardtoanalyzingtheFamilyDollarstores.AgaintheywereunderperformingFamilyDollarstoresthatweputthroughtheDollarTreerealestatemodelandfromtheDollarTreerealestatemodelwecamewithasalesprojectionandfromthatweknewwhatwecoulddo,whatwethoughtwecoulddoasaDollarTree.

Sothat'showwechosethem.Idon'tthinkit'sreallyearly.Oneofthereasonswearedoing100thisyearinsteadofmaybemoreisthefactthatIwouldliketoletthefirst200sortofburninandhaveafewmonths,someofthemwe'veonlyhadafewweeksonwithresultsandmostwe'veonlyhadafewmonths.

SowithalittlemoretimethenIthinkwe'llprobablyfindsomemoreopportunitytoimprovethatmodelandtoimprovethelocationandtherebanneringproject.ButIwilltellyouit'sexciting.

Rebanneringisabsolutelyhittingourexpectationsofwhatwecandeliver.Andbytheway,IthinkbyrunningbetterstoresthenobviouslywecanimproveaswedoinallDollarTreestoresfromopeningto




reallygoingafterthecustomerinthosemarketsandrunninggreatstoresforthoseneighborhoods.


Thanks.AndonelastoneifIcan'tthenIwillyield.

ButonthetransitionserviceagreementIthinkyoutalkedaboutwiththedivestedstoreswasthatinplaceinthequarter?Andisthereanywaytohelpussizethat?Thankyou.

KevinWampler (CFO):

TheTSAwasinplaceinthequarterobviouslyfromthestandpointofwedivestedofthe325storesatthebeginningofthequarter.WedosupportSycamorePartnersforthesestoresonanongoingbasis.Andagainaswecalledoutlastquarter,therearecertaincoststhatweareincurringandexpecttoincuraspartofthat.

OntheflipsideofthatwedogetsomereimbursementaspertheTSAforsomeofthoseservicesprovided.Itwassoonago-forwardbasismyexpectationisthatitwillbehopefullyfairlyneutral,butit'snottotallyknownbaseduponallthoseservicesthatwehavetoprovide.Butwewillbeprovidingaccountingservices,themerchandiseisstillboughtanddistributedbyustothose325stores.

We'rereallyaccountingservicesandHRservicesandvariousthingslikethat.Soit'safairlyinvolvedprocessrealistically.


Great,thankssomuch.Bestofluckthisyear.

Operator :

(OperatorInstructions)DanWewer,RaymondJames.

DanWewer (Analyst-RaymondJames):

Thanks,hey,goodmorningBob.

BobSasser (CEO):

Goodmorning,Dan,howareyou?


Good.Howareyoudoing?

BobSasser (CEO):

I'mterrific.


Onthe1%to2%same-storesalesgainatFamilyDollar,wereyouinitiallythinkingitcouldbeabitbetterthanthatgiventhatyou'vetakenthe200underperformingFamilyDollarstoresoutoftheircompbaseandasyoualludedtothein-storestandardsarebetter,in-stocklevelsarebetter?ItseemsliketheFamilyDollarsegmentcouldhaveachievedalittlebitbettersame-storesalesgrowth.

BobSasser (CEO):




It'sjustearly,Dan.Ithinkwecanachievebetter,moreconsistentsame-storesalesgrowthatFamilyDollar.

Buttherewasalotofthingsgoingonthere,includingaclearanceeventthatwasendingsometimeearlyNovemberandchangingaroundthestore,theendcaps,gettingridofoldmerchandise,workingonimprovingthein-stockposition,settingholidaymerchandisethathadalreadybeenboughtanddisplayingthatappropriatelyandjustengaginginthecustomer.

SotheyreallyaccomplishedalotofthingsattheFamilyDollarbusinessearlyoninadditiontoallthesynergyworkthat'sbeingdonethereandcombiningwiththesharedservices.

Soalotwasaccomplishedthere.I'mpleasedwithwherewecamefromwiththeFamilyDollar,frankly,businesswherewedivested325stores,$0.5billioninsales,thatwerebannered205stores.Allthosemovingpieceshaveaneffectonthebase.

It'salittlebit--it'salottodoforanorganizationinashortperiodoftime.Andatthesametimethebusinessenvironmentinthefourthquarterforconsumersjustwasn'tasrobustasyoumighthavewantedittobe.Solet'sgiveitalittlemoretime.

Iexpectit'sgoingtocontinuetoimproveandIhavegreatconfidenceinthemanagementteamtodothethingstofocusonthecustomerandengagewiththecustomer,providemorevalueinthatbusinesswhichthat'swherewe'reputtingourfocus.JustlikeDollarTreewe'regoingtorungreatstores.WewillwinbyrunninggreatstoresatFamilyDollar.


Andthenafollow-upalsorelatedtorevenues,whenyoulookatthecoresegmenttheDollarTreestoresalespersquarefootisnowthehighestIbelievesince2002.Ofcoursebackthenyourstoreswereonly,theprototypewasonlyhalfthesizethatitiscurrently.

Withthatinmind,it'smathematicallyit'sreallydifficulttogetto3%and4%same-storesalesgrowthbecausethedenominatorissolarge.Sogoingforwarddoyouthink2%iskindoftheappropriatebogeyforthecoresegmentsame-storesales?

BobSasser (CEO):

Iwouldn'tagreeonthe3%to4%notbeingoutofreachorevenmore.It'sreallyabouthowwellweservethecustomer.Andtherearesomeheadwindsouttherefromtimetotimeintheeconomyandtheeconomicenvironmentandemploymentandallthosethingsthatwesortofwhineaboutthatwecan'tdomuchwith.

Butatthesametimetheycyclein,theycycleout.AndoverthelongerhaulwecandomoreinourDollarTreestores.Oursalesproductivityperfootisnotatthepeakofwhereitcanbe.

There'salways,therealwaysarethingsthatwecandobyexpandingcategoriesthataregrowing,bypullingbackoncategoriesthataredeclining,byincreasingthevalue.TheideaofbuyingbetterwithacombinedlargerCompanyandleveragingthepowerofourpenciltobuybetter,todistributegoodsbetter,thelogisticscostweoughttobeabletoleveragethoseforbothbannersandprovidemoreefficientandbettersupplyofmerchandisetoyourstores.

Somodelasyouwish.ButforthelonghaulIbelievethatourDollarTreebusinessisgoingtoremainvibrantforyearstocome.





Doyouthinkthatyouareatapointwheremaybeyouneedtoreinvestsomeofthatindustry-leadingmarginintheDollarTreesegmentbackintomarketshareinitiatives?

BobSasser (CEO):

Weshouldalwaystakealookatthatandweshouldalwaysletthecustomermarketandthecustomerbeourguideonwhatthevalueequationneedstobe.Everythingis$1.Otherretailerswillraiseorlowertheirprices.

AtDollarTreewechangetheproductwewilleitherimprovethevalueortakealittlemoreinmargin.Sowewillcontinuetodothat.

Iwilltellyouthis,though,thereisreallyroom,there'salotofroominoperatingmargintoimproveit.OneofthethingsI'mmostproudofisthesectorleadingoperatingmargin.Andthere'safewthingsthatwecandotoimprovethat.

Eventhoughit'ssectorleadingwecancontinuetogrowthat.Wedon'thavetotakeawayfromittoinvestinthecustomer.Wecanrunourbusinessbetterstill.

Anditisdrivenbyjustafewfactors.Firstofall,we'vegottoimproveourDCcosts.ByimprovingourDCcostswe'llbeabletoimproveouroperatingmargin.

ByimprovingbytheuseofbetterstaffingmodelsandleveragingengineeredstandardsandwecanimproveourDCcost.Ourshrinkishigherthanitshouldbe.It'sgrownoverthelastcoupleofyears.

Wecanimprovethat.We'vealwaysbeenabletorunaverywell-managedshrinkcomponentinourbusiness.AndIexpectthatwe'regoingtogetbacktoabettershrinknumber.

Unfortunately,shrinkasyouknowhasatail.Onceyouknowitandseeitthenalltheinitiativesthatyoudotobringitbackinlinesortofdon'tshowupuntilyoucyclethroughsomeinventoriesandthelike.Butwe'reontopofitandwecanimproveourshrink.

Wecanalsoimprove--we'llleverageouroccupancywithourcompstoresalesincreases.We'vehad32straightquarters.Whetherit's2%or3%or4%wewillcontinuetoleveragethosefixedcostswithourcompsalesincrease.

Anotherbigthingisbyleveragingthecombinedcompaniesasindividualbanner,1plus1doesn'tequal2here.Aswestartbringingtogetheroursharedservicesforbothbannerswe'regoingtolowercostsacrossbothbannersinthebackofficefunctions.Sothere'sroomforustocontinuetogrowourcompsales,there'sroomforustocontinuetoinvestinourcustomerandberelevantandofferthebestvaluesinthebusinessfor$1andatthesametimeimproveouroperatingmargin.


Great,thankyou.

Operator :

JosephFeldman,Telsey.

JosephFeldman (Analyst-TelseyAdvisoryGroup):

Higuys,goodmorning.Iwantedtoask,youmadeacommentabouttheintegrationofsystemsandtechnology.AndIguessIjustwantedtogetanupdateonwherethatdoesstandbecauseandhowyou'replatformingacrossthetwobusinesses?




BobSasser (CEO):

Joe,wellwe'vegotaplan,we'vegotaroadmapthatsortofwe'renotdoingeverythingatonetime.Somethingshavetobedonebeforeyoucandothenextstepbytheway.Butwehaveaplanforthatforoverthenextthreeyearsofsystemsintegration.

We'redoingalotofworkaroundbringingtogethersharedservicesasapriority,beingabletoforexamplegeteveryoneonthesamefinancialsystemsothatwecanpayallthebillsthesamewayusingthesamesystem.We'recurrently--youheardmereferenceSt.George's,Utah--we'recurrentlyworkingoncombiningandintegratingtheWMSsystems.

We'retakingaFamilyDollarbanneredDCinSt.George's,Utahandwe'redoingthatrightnow.We'llstartreceivingsometimeApril,MaytheDollarTreemerchandisealongwiththeFamilyDollarmerchandise.

Andwe'llstartshippingandtestingthatshortlyafterthatistheplan.AndofcoursewhenwegetthatrightandwehaveconfidencethatwecandothatotherplacesthenwewillbeginrollingoutandcombiningsomeothersDCsasappropriatetodotwothings.

One,istogiveusmorecapacityinthebuildingsthatweownwhetherit'sFamilyDollarthatneedsthecapacityorDollarTreethatneedscapacitybybeingabletoshipbothbannersoutofanybuildingwillenableustousethecapacitybetter.Secondly,toimprovethecoststructurebyrationalizingtheDCnetwork,gettingtheDCsintherightplacestoservetherightbanners.

Sothat'ssomeoftheprioritiesthatwehave.We'regoingtokeepthemerchandisingseparate.Therearesomeofthebackofficethingstodowithmerchandising.

We'lltrytoleveragebutFamilyDollarbuyersaregoingtobebuyingandusingFamilyDollarsystemsandDollarTreelikeusingtheDollarTreesystems.Asfarasretailpurchasingrightnowwe'regoingtocombinesomeofthebackofficethingsandleverageourinternationalsourcing,leveragingfreightratesacrossbothbanners,leveragingourinternationalorganizationacrossbothbanners,ourQA/QC,allofthosethingswe'llbeleveraging.

Sothatsortofgivesyoucolor.Thereisaroadmapfortheentirenetworksystembysystemanditspansforthenextthreeyearswiththemostimportantthingstogetcleanthemostvaluetheearliestatthefrontend.


Gotit.Thanks.Thenjustasafollow-up,canyouhelpdimensionalizemaybethis$300millioninsynergies?

Iknowthere'sthefourbucketsandIknowwe'vetalkedaboutsomeofthemerchandisingonesprobablycomingearlierintheprocessofthethreeyears.Butlikehowshouldwethinkabouthowbigeachbucketisgoingforward?

KevinWampler (CFO):

Aswe'vetalkedtothemthefourbuckets,thebiggestonebyfaristheprocurementbucketwhichincludesbothmerchandiseandthenon-merchandisespendbasically.Andthat'sroughly,it'sover60%basicallyoftheoverall$300million.

Sothat'svery--it'sawidenetasyoumightimaginenotonlywhenyouthinkaboutallthethingswebuy.Somerchandiseismerchandisebutwhenyoulookatalltheservicesandgoodsthatwebuyasorganizationsbeingabletoleveragethatacrossbothorganizations,streamlineprocesses,determine




thebestwaytogoforwardforbothbannersisreallyveryexcitingandverypowerful.Sothatbyfaristhebiggestbucket.

Thesecondbiggestbucketthatwe'vespoketointhepastistherebanneringprocessandtakingunderperformingstoresandturningthemintostoresthatareperformingatahigherlevelatanaverageDollarTreerate.Sothat'sthesecondone.

Andthethirdandfourthbucketsaresmaller.We'vealwayssaidthatthedistributionlogisticshasachancetobeabignumberbutit'salonger-termproject.

SotoBob'spointwhenhewasspeakingtotheworkbeingdonetodayonlookingatsystemsandhowdoyoushipbothbannersoutofonedistributioncenter,thatpotentiallyhassomebigpaybackbutit'salittlefurtherdowntheroad.Sothat'skindofdirectionallyhowtothinkaboutit.


That'shelpful.Thanks,guys.Goodluckwiththisquarter.

Operator :

MattNemer,WellsFargoSecurities.

T rishaDill(Analyst-WellsFargo):

Goodmorning,thisisactuallyTrishaDillinformat.SoIjusthadaquestionfirstonthecoreDollarTreeoperatingmarginthatcameinalittlelighterthanweexpectedanddownversuslastyearcomparedtoIthinkyourexpectationswererelativelyflatevenex-theDeal$markdowns.

AndSTOcameinalittleaboveourexpectationssoIwasjustwonderingifyoucouldcommentonwhatwasdifferentthereversusyourexpectationsinbothsegments?AndthenIjusthadafollow-upafterthat.

KevinWampler (CFO):

IthinkontheDollarTreesideoftheequationIthinkobviouslytheDeal$markdownswereaknownnumberandthatwasbyfarthelargestportionofthedecreaseinourgrossprofit.Onalowercompwedon'tgetasmuchleverageonoccupancyanddistributionaswenormallywould.Andagaintothepointofwhatwe'retryingtodothereandtoBob'sspeakingtoweknowwecandobetterfromadistributionstandpoint.

Andthenshrinkbeingtheotheritemwhichwe'renothappywithourperformancethisyearandwe'veobviouslygotteamsfocusedonthatbutthatwasheadwind.Whatwasreallypositiveattheendofthedaywasthefactthatourmerchandisecostscontinuetobebetter.Themarkonwasupsowe'rebuyingbetter.

Freightwasabenefit,soalotofthingsgoingreallywellthere.Andthat'sverypositiveandwillcontinuetobepositivewebelieveaswegoforward.

IthinktheotherthingIwouldsayabouttheDollarTreebusinessisevenonalowercompforthequarterandeventheyearwewereabletoleverageourSG&Aexpenses.Sotomethat'sverypowerfultothemodel.There'salotofcompaniesthatwouldnotbeabletoleveragetheirSG&Aatthistypeofacomplevel,soagainit'spartofourdisciplinedapproachaswegoforward.

IthinkspeakingtotheFamilyDollarbusinessIthinkingeneralIthinkthegrossprofitcameinaboutwherewethoughtitwould.Ithinkwe'vemadesomegoodstrides,theteamthereworkingagaintoalotofworkbeingdonetomakesurewegetsomeofthebestnetdebtcostthatwecaninthesystemandbe




abletotrackthatandbaseourbusinessoffofthat.

SoIthinkthat'sverypositive.Ithinkaswespoketointhepreparedremarkssomeoftheheadwindsasfarfromacomparabilitystandpointrelatetoincentivecompensation,divestiturecostandsomethingslikethat.SooverallIdon'tknowthattherewerealotofbigsurprises.

Obviouslyifsalesmaybewouldhavebeenmoretowards--thegoodthingissaleswereatthemiddleoftherange,earningswereatthetopend,towardsthetopendoftherange.SoIthinktheflow-throughwasactuallyprettygoodattheendoftheday.SoIthinkthat'showwethinkaboutit.


That'sveryhelpful.Thanks.

Thenjustaquickclarificationonthefull-yearEPSguidance,lastquarteryouprovidedareconciliationwithafewadjustmentsleadingtoadjustedEBITDA.AndI'mjustwonderingifyoucanhelpusunderstandwhatthosesameadjustmentswouldbeforyour2016guidance?

KevinWampler (CFO):

Yes,Ithinkwe'vereallylaidthemouttoyouinthesenseofthepreparedremarks.Obviouslywetalkedaboutthefactthattheinventorystep-upamortizationis$6millioninQ1and$2millioninQ2.

Aswelooktothepurchaseaccountingitemsthatwe'vetalkedaboutsincethedayofthefirstquarter,you'llcontinuetoseefavorableleaseratesamortizationisabout$18.7millionforQ1,$74millionfortheyear.Andthat$18.7millionstepsdownabout$200,000aquarterroughlyattheendoftheday.

Andthenyouhaveadditionaldepreciationabovehistoricalrunraterelatedtotherevaluationofassetsandthechangeinpolicies.Andbasicallythat'sabout$8millioninQ1and$5millioninQ2.Sothosearereallytheitemsasweseeit.

Sothat'sagainwhywegivethemtoyoutodayinthepreparedremarksandthatshouldhelpyoubeabletodoanyoftheadjustmentsthatyouwanttowithinyourprocesses.OurviewpointiswegaveGAAPguidancetoday.We'regoingtocontinuetogiveGAAPguidanceonago-forwardbasis.

Wethinkthat'sobviouslythecleanestway.Obviouslywe'rerequiredtodothattobeginwith,butsecondarilyitistheitemsareknown,theadjustmentsareknownnow.IthinkeverybodyunderstandsthemandIthinkitwillbecleanerforeverybody.


Great,thankssomuch.

Operator :

JohnZolidis,BuckinghamResearch.

JohnZolidis (Analyst-Buckingham):

Hi,goodmorningandthanksfortakingmyquestion.MyquestionisonmerchandisingattheFamilyDollarstores.

WhenyoutakealookatthosestoresandcomparethemodeltothecoreDollarTree,isthereanyideathatmaybeyoucanaddsomenewcategoriesofproducttoFamilyDollarthatmighthelptoimprovetheproductivitythatsimultaneouslywouldn'ttakeawaysalesfromyourcoreDollarTreestores?




GaryPhilbin (FamilyDollar):

HeyJohn,GaryPhilbin.Goodmorning.

Letmestartbymaybejustdescribingoneofthereasonswedidtheacquisitionwastohavetwocompellingbanners.SothisisnotanexercisetoturnFamilyDollarintoDollarTree.Andsowearerootedinthecustomersweserveandwhereweservedthem.

SoI'dliketomakesurewe'reveryclearwe'regoingtohaveaveryproductiveFamilyDollarbannerwithcompellingassortmentsthatwethinkfitthebillforthefolksthatshopus.Andthatrevolvesanawfullotaroundfirstofthemonthanddeliveringbasicsandgivingthemitemsthatonadiscretionarybasistheyneedtoroundouttheirshoppingtrip.

SostartingwiththatIwouldsaythat'swherewe'regrounded.Butpartofthesynergyeffortishavingourmerchantssittogether.AndjustgotbackfromourmostrecenttripinChinawherebothourFamilyDollarandDollarTreemerchantsareabletositinthesameroomandtakealookatitems.

Sothat'sgoingtobeapiece,thattripaftertripwheremerchantscansitinthesameroomandfindthethingsthatfitforFamilyDollarthatforusmeansopeningpricepoint,greatvalue,itemsthatcanbeimportedthatareprivatebrands.Allthosethingsaregoingtotakeshapeaswecontinueiterationsofourmerchantsgettingtogether.

Sothere'sgoingtobesomeitemsthatyoumightseeinbothbannersbutifyouevergointoaDollarTreeorFamilyDollarandmistakeonefortheotherwe'vereallymissedthemarkonthatassortment.You'regoingtoseetwocompellingstoresandassortmentsandquitefranklyevenontherealestatesidewheretheylivewhichreallyisthegrowthcurbforbothbannersaswegoforward.SoIhopethathelps.

JohnZolidis (Analyst-Buckingham):

Thanksalotforthatanswer.

Operator :

MatthewBoss,JPMorgan.

MatthewBoss (Analyst-JPMorgan):

Hey,thanksguys.Soaswethinktothespringversusthefallofthisyear,whatcategoryshouldwekeepaneyeoninFamilyDollarstoresmoreonthemerchandisingandthepricingfront?Andthenanythingtowatchonthecircularandpromotionalcadence?

GaryPhilbin (FamilyDollar):

Wellofcoursewestartwithdeliveringthebasics.Itellourfolkswehave12holidaysayearandit'scalledfirstofthemonth.

SowearespendingalotofenergyatFamilyDollarmakingsurethatourstoresareready.Theinvestmentthatwewanttomakewithourcustomerisreallyatkickoffaroundthattimeofthemonth.Folkshavemoneyintheirpockettospendandwewanttobeready.

Soallthethingsthatwe'vebeenworkingongettingthenon-goforwardinventorycleardowntogetouron-handsbettersothatwecanhaveourshelvesbetterstocked,that'stheeffortwe'vemadeuptothispointtogointothespringtime.

Obviouslywe'vegotEasterholidayaheadofusgoingintoaseasonthatisobviouslyspringandsummer




afterthat.ButIwouldtellyouanawfullotofwhatwe'reworkingonisdeliveringthebasicseverydaywhichourcustomerresearchsaystheywillgiveuscreditforthatifwe'reabletodeliveronthatweekin,weekout,monthin,monthout.

Asfaraspromotionalstrategy,youmightseewe'veintroducedsmartwaystosavewhichreallyformeisawayoftyingtogetherwhatourcustomersaregoingtosee.Ouradswillreflectourstores.AndsowhenyouthinkabouthowyououghttosaveataFamilyDollar,ourcustomersaregivinguscreditnowforoureverydaylowprice.

Ofcoursewe'vealwayshadtrafficdriversonoursaleitems.It'saCompanyevenbeforeweboughtthemcertainlyhadover1,000$1wowitemsinthestorethatcustomerslovetoshop.Wehaveanextensiveprivatebrandsprogramthatcertainlylendsitselftocompareandsave.

Andwhatwe'reintroducingispricedropwhichisnothingnewcomparedtootherretailersbutforusit'sawayofdeliveringvaluetoourcustomersonsomeoftheitemstheyshopmostoften.Soit'sanotherarrowinourquiverthatallowsustodelivervaluetoourcustomersonamonthlybasisandtrulyawayofshowingfromadtothestoretoevenhowwethinkaboutourcustomers'shoppingpatternshowtheyoughttocomeintoaFamilyDollarandshop.

Sowethinkit'sanexcitingkickoffandreallygivesourmerchantsandreallygreatsupportfromourvendorcommunityanotherwaytodrivemoreincrementalcasesatFamilyDollar.


Great.Andthenjustafollow-up.Withsomeofthetoughercompsbehindus,Iguessjustanycommentsoncurrentbusiness?

Andthenwithinyour2016guidance,whatbasecaselevelofdebtpaydownisimpliedtogettothe$360millioninterestexpense?Isthereanyopportunityforadditionalpaydownastheyearprogressesandjustwheredoyouseetheleverageratioexitingtheyear?

KevinWampler (CFO):

Iwilltakethedebtpiece.Basicallythe$90millionaquarterofinterest,$360millionassumesnoadditionalpaydownatthispointintime.

Soobviouslyifwemakethedeterminationasweworkthroughtheyearthatwe'rereadytopaydownadditionalthatitcouldhaveapositiveeffect.Butatthispointintimewithintheguidancethereisnoassumptionofanyadditionalpaydowns.Sothat'skindofwherethatstandsatthispoint.

BobSasser (CEO):

Asfarascurrenttrends,obviouslywe'vefinishedoneperiodoutofthethreesoit'sstillgottwoperiodstogointhequarterbutI'mpleasedwithwhereweare.There'salwaysyouusuallygetaweatherreportsometimeinFebruaryandwhenweatherwasadverseitwasn'tasgoodaswethought.Butoverallweendedupwithagoodfirstperiodandontrackforagoodquarter.

AndfranklyI'mlookingforwardtoaperiodoftimewhenwedon'thavethosedisruptionslikewehadlastyearfromtheportstrike.AndIthinkyoucanseeinourinventorywehavetheinventorythatweshould'vehadlastyear,weactuallyhavethatinventorythisyear.Somyexpectationisthatwe'regoingtohave--we'reontrackforagoodfirstquarter.

Easterisalittleearly.EarlyEastersatDollarTreearen'tusuallygood,sowe'vesaidthata$10millionheadwind.Butattheendofthedaywe'vegivenyouourfirst-quarterguidanceandanycoloronthatis




we'reontrack.


Great,bestofluck.

BobSasser (CEO):

Thankyou.

Operator :

Ladiesandgentlemen,thisdoesconcludetoday'sQ&Asession.I'dliketoreturnthefloortoRandyGuilerforclosingcomments.

RandyGuiler (InvestorRelations):

Thankyou,Operator.Andthankyouforjoiningusfortoday'scallandforyourcontinuedinterestinDollarTree.

OurnextquarterlyearningscallistentativelyscheduledforThursday,May26,2016.Thankyouandhaveagoodday.

Operator :

Thisdoesconcludetoday'sprogram.

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