Dollar Tree, Inc. Reports Results for the Fourth Quarter Fiscal 2023

• Same-Store Net Sales: Dollar Tree +6.3%; Family Dollar -1.2%; Enterprise +3.0%
• Comparable Transaction Count: Dollar Tree +7.1%; Family Dollar +0.7%
• Diluted Loss per Share of $7.85
• Results Include a $594.4 Million Charge for Portfolio Optimization Review, a $1.07 Billion Goodwill Impairment Charge, and a $950 Million Trade Name Intangible Asset Impairment Charge.
• Adjusted Earnings per Share (EPS) of $2.55, Including $0.17 of Costs Primarily Related to General Liability Claims.
• Quarter and Annual Results Reflect Extra Week as Fiscal 2023 was a 53-Week Year.
• Portfolio Optimization Review Identifies Approximately 600 Family Dollar Stores for Closure in First Half of Fiscal 2024 and Approximately 370 Additional Stores as Their Leases Expire.
• Fiscal 2024 Net Sales Outlook Range of $31.0 Billion to $32.0 Billion
• Fiscal 2024 Diluted EPS Outlook Range of $6.70 to $7.30

Dollar Tree, Inc. (NASDAQ:DLTR) today reported financial results for its fourth quarter ended February 3, 2024.

"We finished the year strong, with fourth quarter results reflecting positive traffic trends, market share gains, and adjusted margin improvement across both segments," said Rick Dreiling, Chairman and Chief Executive Officer. "While we are still in the early stages of our transformation journey, I am proud of what our team accomplished in 2023 and see a long runway of growth ahead of us. As we look forward in 2024, we are accelerating our multi-price rollout at Dollar Tree and taking decisive action to improve profitability and unlock value at Family Dollar."

Chief Financial Officer Jeff Davis added, "As an organization, we continue to execute at a high level. Our core operating performance was strong in the fourth quarter, despite some unanticipated developments related to general liability claims."

Additional Business Highlights

• Opened 219 new stores in the fourth quarter, bringing full-year new store openings to 641
• $3 and $5 center-store merchandise available at approximately 5,000 Dollar Tree stores
• $3, $4, and $5 frozen and refrigerated items available at more than 6,500 Dollar Tree stores
• Net cash provided by operating activities increased $1.07 billion in FY 2023
• Increased free cash flow by $217.2 million compared to FY 2022

Fourth Quarter Results

Unless otherwise noted, all comparisons are between the 14 weeks ended February 3, 2024, and the 13 weeks ended January 28, 2023.

Consolidated net sales increased 11.9% to $8.63 billion. Enterprise same-store net sales increased 3.0%, driven by a 4.6% increase in traffic, partially offset by a 1.5% decline in average ticket. Dollar Tree same-store net sales increased 6.3%, driven by a 7.1% increase in traffic, partially offset by a 0.7% decline in average ticket. Family Dollar's same-store net sales decreased 1.2%, driven by a 0.7% increase in traffic, partially offset by a 2.0% decline in average ticket.

Gross profit increased 16.2% to $2.77 billion and gross margin expanded 120 basis points to 32.1%. Gross margin expansion was driven by lower freight costs, sales leverage, the impact of the 53^rd week in fiscal 2023, and higher allowances, offset by product cost inflation, unfavorable sales mix, elevated shrink, and higher distribution and markdown costs. On a non-GAAP basis, which excludes distribution and markdown costs related to the store portfolio optimization review, adjusted gross profit increased 19.8% to $2.86 billion and adjusted gross margin expanded 220 basis points to 33.1%.

Selling, general and administrative expenses were 54.0% of total revenue, compared to 22.9%. The increase was due to a non-cash goodwill impairment charge, a non-cash trade name impairment charge, a non-cash store asset impairment charge, a litigation charge, unfavorable development of general liability claims, labor investments in store and field payroll, investments in repairs and maintenance, and higher depreciation and amortization, partially offset by sales leverage, the impact of the 53^rd week in fiscal 2023, and lower utility costs. On a non-GAAP basis, which excludes the impairment and litigation charges, adjusted selling, general and administrative costs were 24.4% of total revenue.

Operating loss was $1.89 billion and operating margin was -21.9%. On a non-GAAP basis, adjusted operating income increased 21.2% to $749.1 million and adjusted operating margin expanded 70 basis points to 8.7%.

The Company's effective tax rate was 10.8%. On a non-GAAP basis, the adjusted effective tax rate was 23.1% compared to 23.4%.

Net loss was $1.71 billion and diluted loss per share was $7.85. On a non-GAAP basis, adjusted net income was $555.7 million and adjusted diluted EPS was $2.55. Adjusted diluted EPS reflects approximately $0.17 of net negative impact, primarily related to unfavorable development of general liability insurance claims.

Given the portfolio review process, the Company did not repurchase any shares during the quarter.

Year-to-Date Results

Unless otherwise noted, all comparisons are between the 53 weeks ended February 3, 2024, and the 52 weeks ended January 28, 2023.

Consolidated net sales increased 8.0% to $30.6 billion. Enterprise same-store net sales increased 4.6%. Dollar Tree same-store net sales increased 5.8%, driven by a 7.4% increase in traffic, partially offset by a 1.5% decline in average ticket. Family Dollar's 3.2% same-store net sales increase was comprised of a 2.5% increase in traffic along with a 0.7% increase in average ticket.

Gross profit increased 4.3% to $9.31 billion and gross margin declined 110 basis points to 30.4%. The decline in gross margin was driven by elevated shrink, product cost inflation, unfavorable sales mix, and higher distribution and markdown costs, partially offset by lower freight costs, sales leverage, and the impact of the 53^rd week in fiscal 2023. On a non-GAAP basis, which excludes distribution and markdown costs related to the store portfolio optimization review, adjusted gross profit increased 5.3% to $9.40 billion and adjusted gross margin declined 80 basis points to 30.7%.

Selling, general and administrative expenses were 33.4% of total revenue, compared to 23.6%. The increase was due to a non-cash goodwill impairment charge, a non-cash trade name impairment charge, a non-cash store asset impairment charge, a litigation charge, labor investments in store and field payroll, unfavorable development of general liability claims, investments in repairs and maintenance, and higher depreciation and amortization, partially offset by sales leverage and the impact of the 53^rd week in fiscal 2023. On a non-GAAP basis, which excludes the impairment and litigation charges, adjusted selling, general and administrative costs were 24.9% of total revenue.

Operating loss was $881.8 million and operating margin decreased 1,080 basis points to -2.9%. On a non-GAAP basis, adjusted operating income decreased 20.0% to $1.79 billion and adjusted operating margin decreased 210 basis points to 5.8%.

The Company's effective tax rate was -1.0%. On a non-GAAP basis, the adjusted effective tax rate was 23.1% compared to 23.5%.

Net loss was $998.4 million and diluted loss per share was $4.55. On a non-GAAP basis, adjusted net income was $1.29 billion and adjusted diluted EPS was $5.89. Adjusted diluted EPS reflects approximately $0.24 of net negative impact, primarily related to unfavorable development of general liability claims.

The Company repurchased 3,905,599 shares for $504.3 million, including applicable excise tax.

Portfolio Optimization Review and Impairments

During the fourth quarter of fiscal 2023, the Company announced that it had initiated a comprehensive store portfolio optimization review which involved identifying stores for closure, relocation, or re-bannering based on an evaluation of current market conditions and individual store performance, among other factors. As a result of this review, we plan on closing approximately 600 Family Dollar stores in the first half of fiscal 2024. Additionally, approximately 370 Family Dollar and 30 Dollar Tree stores will close over the next several years at the end of each store's current lease term. In the fourth quarter of 2023, we incurred $594.4 million of charges in connection with the store portfolio review. Additionally, we incurred a goodwill impairment charge of $1.07 billion and a trade name intangible asset impairment charge of $950 million. Details of these charges are provided in the Reconciliation of Non-GAAP Financial Measures at the end of this release.

First Quarter and Fiscal 2024 Outlook

"We are introducing an initial fiscal 2024 EPS outlook of $6.70 to $7.30. While we expect current shrink and mix levels to be a headwind in the first half of the year, we are expecting to benefit from favorable freight rates and moderating headwinds from reduced SNAP benefits throughout the year. We are making solid progress on our key growth initiatives and are encouraged by the early results of our business transformation efforts," Davis added.

Consolidated net sales for full-year fiscal 2024 are expected to range from $31.0 billion to $32.0 billion. The Company expects to deliver a low-to-mid-single digit comparable store net sales increase for the year, comprised of a mid-single-digit increase in the Dollar Tree segment and a low-single-digit increase in the Family Dollar segment. Diluted EPS is expected to range from $6.70 to $7.30.

Our fiscal 2024 outlook reflects approximately $0.15 of EPS benefit from the anticipated Family Dollar store closures, mostly in the second half of the year as we close underperforming stores throughout the first half of fiscal 2024.

The Company expects consolidated net sales for the first quarter will range from $7.6 billion to $7.9 billion, based on a low-to-mid-single digit increase in same-store sales for the enterprise and the Dollar Tree segment and approximately flat same-store sales growth for the Family Dollar segment. Diluted EPS for the quarter is estimated to be in the range of $1.33 to $1.48.

While share repurchases are not included in the outlook, the Company has $1.35 billion remaining under its share repurchase authorization as of February 3, 2024.

Conference Call Information

On Wednesday, March 13, 2024, the Company will host a conference call to discuss its earnings results at 8:00 a.m. Eastern Time. The telephone number for the call is 877-407-3943. A recorded version of the call will be available for seven days after the call and may be accessed by dialing 877-660-6853. The access code is 13744543. A webcast of the call is also accessible through the Investor Relations portion of the Company's website.

Supplemental financial information for the Fourth Quarter is available on the Investor Relations portion of the Company's website, at https://corporate.dollartree.com/investors.

Dollar Tree, a Fortune 200 Company, operated 16,774 stores across 48 states and five Canadian provinces as of February 3, 2024. Stores operate under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada. To learn more about the Company, visit www.DollarTree.com.

Use of Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"). From time-to-time, the Company supplements the reporting of its financial information determined under GAAP with certain non-GAAP financial information. The non-GAAP financial measures we have disclosed include adjusted gross profit; adjusted gross margin; adjusted selling, general and administrative expenses; adjusted selling, general and administrative expense rate; adjusted operating income (loss); adjusted operating income (loss) margin; adjusted net income; adjusted effective tax rate; adjusted diluted earnings per share; and free cash flow.

Reconciliations of the non-GAAP financial measures to the corresponding amounts prepared in accordance with GAAP appears in the tables under the heading "Reconciliation of Non-GAAP Financial Measures" below. These tables provide additional information regarding the adjusted measures.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS: Our press release contains "forward-looking statements" as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they address future events, developments or results and do not relate strictly to historical facts. Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements preceded by, followed by or including words such as: "believe", "anticipate", "expect", "intend", "plan", "view", "target" or "estimate", "may", "will", "should", "predict", "possible", "potential", "continue", "strategy", and similar expressions. For example, our forward-looking statements include statements relating to our business and financial outlook for fiscal 2024, including without limitation our expectations regarding net sales, comparable store sales and diluted earnings per share for the first fiscal quarter and full fiscal year 2024, and various factors that are expected to impact our quarterly and annual results of operations for fiscal 2024; our selling square footage for fiscal 2024; our plans and expectations regarding our business, including the impact of various initiatives, investments, and reviews on the company's performance and prospects for long-term growth; and our other plans, objectives, expectations (financial and otherwise) and intentions. These statements are subject to risks and uncertainties. For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections in our Annual Report on Form 10-K filed March 10, 2023, our Form 10-Q for the most recently ended fiscal quarter and other filings we make from time to time with the Securities and Exchange Commission. We are not obligated to release publicly any revisions to any forward-looking statements contained in this press release to reflect events or circumstances occurring after the date of this report and you should not expect us to do so.

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