Dollar Tree, Inc. (DLTR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Dollar Tree, Inc. Annual Meeting. I would now like to hand the conference over to your speaker today, Bob Sasser, Executive Chairman of the Board. Please go ahead.

Thank you. Ladies and gentlemen, I'd like to call this meeting to order. I'm Bob Sasser, Executive Chairman of the Board of Directors. Good morning, and welcome to Dollar Tree's 2021 Annual Meeting of Shareholders. This year, we're hosting a virtual annual meeting in light of the ongoing public health impact of the COVID-19 pandemic. The health and well-being of our shareholders and employees remain our top priority. And we thank you for joining us on this live webcast of the annual meeting. Before we turn to the formal items of business, I'd like to introduce the members of the Board: Beginning with Mike Witynski, our President and Chief Executive Officer; Greg Bridgeford; Lead Independent Director and Chair of the Compensation Committee; Stephanie Stahl, Chair of our Nominating, Governance and Sustainability Committee; Jeff Naylor, Chair of the Audit Committee; Director Arnold Barron; Director Thomas Dickson; Director Lem Lewis; Director Winnie Park; Director Carrie Wheeler; and Director Tom Whiddon. I would also like to recognize board members Tom Saunders and Carl Zeithaml, whose terms are expiring at this meeting. Mr. Saunders and Dr. Zeithaml have served as directors of the company since 1993 and 2007, respectively, and their contributions have been instrumental to Dollar Tree's success over the years. On behalf of the entire Board, I want to thank Mr. Saunders and Dr. Zeithaml for their valued service and tireless effort to best serve the interest of Dollar Tree's shareholders. We wish them all of the best in their retirement. I would also like to recognize and welcome representatives from Williams Mullen, our Legal Counsel; KPMG, our independent accountants; and Dollar Tree's management and associates. The representatives of KPMG will be available during the question-and-answer session after the meeting to respond to appropriate questions. In addition, the company has appointed Broadridge Financial Services to act as our Inspector of Election. A representative from Broadridge is available by phone today and has taken the oath of Inspector of Election on behalf of Broadridge. Please note that today's meeting will be governed by our rules of conduct and procedures which can be found on the web portal for this meeting. We ask that you review these rules and procedures at this time if you've not already done so. I now turn to the formal business of the meeting. First, the matters to be voted on at the meeting will be presented, and the shareholders will be given an opportunity to vote or change their vote, then the voting results will be announced. After the formal business of the meeting, Mike Witynski will give a presentation on Dollar Tree's progress and our new initiatives. As is our custom, we will answer general questions from shareholders unrelated to the formal business of the meeting at the end of that presentation. Shareholders may submit questions during the meeting using the text box on the web portal. Please refer to our rules of conduct and procedures for additional information on submitting questions or comments. The 2021 Annual Meeting has been called by the Board of Directors for the purpose of voting on the 4 proposals, including -- included in our proxy statement. An affidavit has been delivered attesting that a notice of Internet availability of the proxy materials was mailed on or about April 23, 2021, to all shareholders of the record -- as of the record date. The shareholder list is available on the web portal to shareholders who have logged into the meeting with an authenticated control number. These items and the final voting results will be included in the minutes of the meeting. As of the record date, there were 234,009,610 shares of common stock outstanding and entitled to vote at the meeting. The Inspector of Election has advised the company that a majority of such shares are present at the meeting in person or by proxy. Therefore a quorum is present and the meeting is authorized to transact business. The polls are now open. The proposal being voted on are as follows: Proposal 1, the election of each of the 11 directors named in our proxy statement; Proposal 2, an advisory vote to approve the compensation of our named executive officers; Proposal 3, the ratification of KPMG as our independent registered public accounting firm; and Proposal 4, a proposal to approve the company's 2021 Omnibus Incentive Plan. The Board of Directors has recommended that shareholders vote for proposals 1, 2, 3 and 4. Any shareholders who haven't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions. Shareholders who have sent in proxies or voted by telephone or Internet and do not want to change their vote do not need to take further action. We will pause for a moment to permit shareholders to vote. [Voting]

Now that everyone has had the opportunity to vote, polls are now closed. Since all the votes have been cast, will our Will Old, our Corporate Secretary and Chief Legal Officer, will now deliver the Inspector of Election's preliminary report of the voting results.

Thank you, Mr. Chairman. Proposal 1, election of directors. Each nominee for director has received a majority of the votes cast at the meeting. Accordingly, all nominees have been duly elected. Proposal 2, approve on an advisory basis the compensation of the company's named executive officers. The proposal passed and received a majority of the votes cast at this meeting. Proposal 3, ratify the selection of KPMG as the company's independent registered public accounting firm. The proposal passed and received a majority of the votes cast. Proposal 4, approve the company's 2021 Omnibus Incentive Plan. The proposal passed and received the majority of the votes cast.

Thank you, Mr. Old. Since there are no other matters before the annual meeting, we have concluded the formal business, and I hereby declare this Annual Meeting of Shareholders adjourned. I will now turn the floor over to Randy Guiler, our VP of Investor Relations, for an introductory remark; and to Mike Witynski, our President and Chief Executive Officer, for his presentation.

Good morning, and welcome to Dollar Tree's 2021 Annual Meeting of Shareholders. My name is Randy Guiler, Vice President of Investor Relations. Before we begin, I would like to remind everyone that remarks made in today's presentation about expectations, plans or prospects for the company may contain forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks, uncertainties, and our actual results may differ materially from those indicated in these forward-looking statements. For information on the risk and uncertainties that could affect our actual results, please refer to 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 16, 2021; 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 caution against reliance on these forward-looking statements made today. We disclaim any obligation to update or revise these statements, except as may be required by law. I will now turn the presentation over to Michael Witynski, Dollar Tree's President and Chief Executive Officer.

Good morning, everyone. Thank you for joining us for Dollar Tree's 26th Annual Meeting of Shareholders. My hope is that each of you and your loved ones are safe and doing well. 2020 presented numerous unique challenges, not just to retail, but the lives of millions in the communities we serve across North America. By providing customers with home and essential products at great value, especially during times of need and uncertainty, we are emerging from this pandemic with a stronger company and brands. Our teams are focused on value, convenience and safety, and we will continue to be relentless in our efforts to help protect one another until this pandemic is well behind us. We have come a long way since going public in 1995. Fiscal 2020 was another important year for the company as we transitioned to an aggressive approach under one aligned leadership team, dedicating our major efforts to customer-facing initiatives with clarity, focus and speed. We have a unique, resilient and diversified business model, which provides us financial flexibility and compelling growth opportunities. I am extremely proud of our Dollar Tree and Family Dollar teams and what we have accomplished as one growing company. And I'm especially proud of our people and the management team who makes all of this possible. Our more than 200,000 associates at the stores, out on the field and the distribution centers and at the store support center are the heart of our company. I'm overwhelmed by their ongoing commitment to the communities we serve, and their dedication and hard work is truly inspirational. I've had the pleasure of reading hundreds of customer letters and comments regarding how our associates have gone above and beyond to serve their customers and neighbors. Their efforts contributed to our company's successes in 2020. As an essential retailer in the value segment, we have been and will continue to be part of the solution for millions of households seeking great value and a convenient, safe and clean shopping location. Thank you to our heroes for their extraordinary efforts every day. You have made a difference in the lives of so many customers, neighbors, friends and family. Excellent work. I am also incredibly proud of the company's proactive response throughout the pandemic. Our COVID task force, comprised of key business partners from each department, took on the crucial role of implementing and managing processes to help mitigate COVID-related risks. Within a few weeks of the onset of pandemic in the U.S. and Canada, our teams were successfully able to: Employ enhanced cleaning protocols at the stores, distribution centers and store support centers as recommended by the CDC; encourage proper social distancing measures with signage and audio messaging; modify store hours to provide adequate time for associates to clean and restock shelves; dedicate the stores' daily first operational hour to elderly customers; provide personal protective equipment; implement associate health screening procedures; install Plexiglass shields at cash registers in more than 15,000 stores; and facilitate contactless payment options at checkout through Tap to Pay with Visa, Mastercard, Apple Pay and Google Pay; and hire more than 25,000 new associates to keep up with increased demand. In 2020, the company also paid more than $200 million in premium pay to our frontline workers, and we also adjusted our benefits to better support associates through the challenging and often confusing times. These actions all help mitigate the spread of COVID while all stores remained open so customers could purchase their home products and essentials at great value in convenient, easy-to-stop store locations. Thank you to all the teams that made this possible. Now turning to last year's financial performance. In 2020, we exceeded $25 billion in annual sales for the first time in our company's history. We drove an enterprise same-store sales increase of 6.1% on top of a 1.8% increase in 2019; grew gross profit by more than $740 million, a 70 basis point improvement from the prior year, despite incurring $36.3 million of COVID-related costs. We leveraged SG&A expenses by 140 basis points despite incurring $242.8 million in COVID-related costs. We improved enterprise operating profit margin to 7.4%, a 210 basis point improvement from fiscal 2019. And we delivered annual diluted earnings per share of $5.65. Also in fiscal 2020, we opened 497 new stores and operated 15,685 stores at year-end. We renovated approximately 770 Family Dollar stores, expanded upon our sales and traffic-driving initiatives, which I will discuss in more detail momentarily. We continued to generate strong cash flow and repurchased approximately 4 million shares of common stock for $400 million. Additionally, in 2020, Family Dollar achieved the banner's best annual store manager turnover numbers in a decade, and Dollar Tree achieved the banner's best annual store manager turnover numbers since the acquisition. Increasing store productivity at Family Dollar has been a critical component of the turnaround, and the banner is now gaining market share, especially in the discretionary categories, due to its compelling offerings and great value. Our Family Dollar team delivered a 10.5% same-store sales increase and a 610 basis point improvement in operating margin in fiscal 2020. Since consolidating our support teams into one location and aligning our merchandising and operations leadership in 2019, we have enhanced and aligned communications, strategies, processes, workflows and accountability throughout the enterprise. The progress we have made at Family Dollar in the past year has been remarkable. Our shoppers are responding to the new merchandising offerings and improved operational execution in our stores. And we are seeing a considerable lift in our customer satisfaction survey scores, highlighting 4 key categories: Store cleanliness, product assortment, customer service and speed of checkout. Contributors to this success have been the new and renovated H2 stores, where we continue to see same-store sales lift of greater than 10% in the first year; improved merchandising offerings, including a large variety of $1 price point products; an enhanced brand standards program which clearly conveys expectations to the store teams; and as I mentioned before, the banner's lowest annual store manager turnover rate in a decade. We are in a growth mode. Through 2020 and into 2021, we have demonstrated great momentum in our business. I believe this is attributable to all the work in developing great strategic store formats, refining our assortments and accelerating many key sales and traffic-driving initiatives. The goal is to have various store formats that offer the best of Dollar Tree and Family Dollar brands to serve customers in all types of geographic markets. Our newest strategic format, the Combination or Combo Store, builds off of the success of H2's. We continue to experience a 20-plus percent comp lift in the year 1 in renovating Combo Stores, and new stores are exceeding their pro forma. The Combo Store leverages both the Dollar Tree and Family Dollar brands to serve small towns across the country with more than 3,000 markets identified for future growth. In the city and urban markets, we continue to evolve and grow the H2 store format with a focus on expanded home, seasonal and other discretionary categories. We are capturing market share with our compelling offerings that shoppers love at great value. Both the Combo and H2 format are part of Family Dollar's new store and renovation strategy. Throughout last year, we continued to modify and expand the Dollar TreePlus! initiative, and we actually exceeded our sales plan for the 2020 holiday season as we experienced great sell-through on seasonal products, toys and household consumables. Initial feedback from shoppers on the compelling offering has been extremely well received and very favorable. In fact, when multi-price items are included in the basket, the average transaction value is approximately twice the size. Additionally, the program captures great buying synergies since many of the $3 and $5 items are also now being offered at Family Dollar stores. We plan to provide more details about the expansion of this exciting initiative later this year. With our ability to act with more speed, clarity and focus, we are able to aggressively develop our initiatives that help expand our customers reached and grow market share. This past year, we launched familydollar.com's selling website, providing shoppers the ability to shop our great brand deals online, giving them the option to minimize their potential exposure to COVID. In late 2020, we announced our new national partnership with Instacart, providing customers with same-day delivery options from more than 6,000 Family Dollar stores. The results have exceeded our expectation, and these transactions have a materially higher average ticket. And more recently, we introduced our new retail media network, Chesapeake Media Group. This platform provides our shoppers with compelling content never seen before on Family Dollar digital space. We serve 95 million weekly digital impressions and have approximately 14 million subscribers to our digital Smart Coupons program. We currently have commitments from our largest CPG brands for more than 40 campaigns. These engagements are coming to life through ad placement on Family Dollar app, familydollar.com, e-mail and social media, influencing purchase decisions in real-time. We believe Chesapeake Media Group will enhance the opportunity to further drive loyalty and store traffic for Family Dollar while increasing brand partner awareness and product sales. We have also begun testing the additional fresh produce and frozen meats to select Family Dollar stores geared towards markets where shoppers have fewer local grocery options. We want to provide these customers with convenient access to basic produce items as well as beef, poultry and pork. The new offerings are being well received in these markets, and we plan to expand this initiative in 2021 and beyond. Building on the success of our craft department, we completed the rollout of Crafter's Square to all U.S. Dollar Tree stores in late fiscal 2020. Inspiring the creativity of our customers is at the core of Dollar Tree brand, and our merchandising team is focused on providing an even broader home and seasonal assortment. Customers have been loving all the new offerings, especially since it provides fantastic value for the DIY home projects and decor, crafts for the entire family, school and church projects, seasonal decorations and handmade gifts. This assortment drives traffic to our stores, and it is additive to the basket. I am very excited about the expanded Crafter's Square assortments that will be hitting our store shelves just in time for back-to-school and the busy holiday season. We are committed to responsible corporate governance that deliver sustainable, long-term value to our shareholders. Our Board, led by our Executive Chairman, Lead Independent Director and committee chairpersons, is active and engaged in setting the strategic direction of our business. We value honesty, integrity and transparency in all aspects of our business. These values are reflected in the strength of our financial controls and in the relationships with our customers, vendor partners, associates and shareholders. We again achieved a clean bill of health in 2020 from our external auditors with no material control weaknesses noted in the assessment, underscoring that our accounting and reporting processes are compliant with the intentions and requirements of Sarbanes-Oxley legislation. We continue to generate free cash flow in excess of our investment needs, which we have used to pay down more than $5 billion of debt and repurchase approximately $850 million worth of shares since completing the acquisition of Family Dollar business in July 2015. The best use of capital in our view is to support the continued growth of our business at a sustainable pace. Our Board values diversity in its broadest sense, reflecting, but not limited to, ethnicity, gender, geography and life experience and is committed to a policy of inclusiveness. Our Board and our management team recognizes the importance of assessing, planning for and disclosing the potential impact of environmental, social and governance, or ESG, risks to our business. The Board's Nominating, Governance and Sustainability Committee has the lead role in overseeing our risks and reporting related to the ESG matters and sustainability, with the Compensation Committee having the lead role in human capital management and diversity, equity and inclusion, or DEI, oversight. Among other initiatives, has directed the creation of the following corporate policies to provide enhanced ESG transparency and guidance to our stakeholders: Environmental policy, human rights policy, health and safety policy, code of vendor conduct and political contribution and expenditure policy. It is our strong belief that safeguarding shareholder value requires that the company carefully assess and address the risks inherent in our business. In particular, our Board and management recognizes the importance of planning for the potential impact of climate change and other sustainable risks. And we take -- we are taking action to evaluate how our long-term business strategy may be adapted to address these potential challenges. In April of this year, we issued our expanded Corporate Sustainability Report regarding our recent findings and identified opportunities. I encourage you to review our 2021 CSR, which is available at the homepage on our website at dollartree.com. I am proud of the team's progress related to our ESG programs in fiscal 2020. Accomplishments included, that we conducted a detailed assessment of our impact on the environment and measured our greenhouse gas emissions and energy to establish an initial baseline. We developed our first generation of climate goals aimed at reducing emissions and increasing use of renewable energy. We partnered with ADT Commercial for comprehensive and innovative security solutions, formed our DEI Executive Council, which I will discus in a minute, and launched our inaugural Choose to Give workplace giving campaign. Additionally, to evaluate our progress in eliminating chemicals of high concern and to be part of an industry-wide solution, we began participating in the Clean Production Action's Chemical Footprint Project in 2019. By participating in the survey, we can help establish industry benchmarks for moving away from the chemicals of high concern and towards safer alternatives. I am pleased to announce that this year will be our third year participating in the Chemical Footprint Project. We maintain an open dialogue with shareholders on governance and sustainability practices, which reflect the input and best interest of our shareholders. Our organization has a cascading impact on all of the communities we serve, from our associates and their families, to vendors, suppliers, and the millions of households who are relying on our convenient store locations to get the products they need at a great value. With the support of our newly created DEI Executive Council, we are focused on embracing our differences, ensuring fair treatment and providing equal access to opportunities and resources. Our company is firmly committed to creating a positive and professional work environment where all associates demonstrate courtesy, dignity and respect to others. We are committed to fostering an inclusive environment where the individual differences among us are understood, respected and appreciated as a valuable source to strengthen our company. These principles are supported by our commitment to being an equal opportunity employer with anti-harassment, nondiscrimination and non-retaliation policies. In 2021, we will be publishing our enhanced allyship guide to be a reference and help train associates on our mission of fostering a culture of inclusion where every individual feels included and valued. I stand in unity with our associates. And together, we can drive an inclusive culture that continuously strives for better and equal outcomes for every life we touch. Along with providing great product at fantastic value as well as employment opportunities with numerous career growth potential, the company gives back to our communities by supporting a diverse group of local, national and global organizations that contribute to a variety of causes and populations, including medical research, the arts, underrepresented youths and active military members and veterans. We pride ourselves on our active and ongoing commitment to philanthropic partners, and last year was no exception. Along with financial contributions from associates through our inaugural Choose to Give workplace giving campaign, the company donated $2.7 million in 2020 to our 3 largest charitable partnerships: Boys & Girls Club of America, Operation Homefront and United Way of South Hampton Roads. Additionally, vendor partners and customers donated millions of dollars throughout the year to the charitable partners. Along with supporting the communities around our stores, we also focus on the areas where our distribution centers are located. In 2020, more than $130,000 was donated by our distribution centers' associates, including a company match, to local charities and communities where the facilities operate, including various chapters of Make-A-Wish, The Ronald McDonald House, children's hospitals in Memphis and Chicago and Meals on Wheels in South Carolina. The company's other charitable partners include Access College Foundation, American Cancer Society, American Diabetes Association, Business Consortium of the Arts, Chesapeake Cares Clinic, Chrysler Museum of Art, Elizabeth River Project, 4KIDS, Junior Achievement, Lynnhaven River NOW and the Virginia Foundation of Independent Colleges' Brighter Futures Scholarship Program. Our goal is to help the communities we serve be happier, healthier and prosperous. Across our stores, districts and regions, there is no higher form of recognition to honor their accomplishments than our Top Gun and Great Race awards. These awards go to the best of the best, the highest achievers in the company. To be a Top Gun or a Great Race Champion is to be a winner. Every year, there is a tremendous competition, and 2020 was definitely no exception. [ Alexandra Torres ] led Dollar Tree's Region 22 for the Top Gun Award and [ Chuck Till ] with the Family Dollar's Region 55 received the Great Race Award. It's been a tradition to honor the winners at our Annual Meeting of Shareholders. We look forward to celebrating with them and their teams in person once it is safe to do so. Congratulations, Alexandra and Chuck, on a superb job for 2020. Our future is bright, and we are focused on aggressive growth. Since many of the integration priorities are behind us, we now have the ability to act with more speed, clarity and focus on our sales and traffic-driving initiatives. As an organization with strong cash flow and a healthy balance sheet, we are in great position to plan aggressively and drive innovation in 2021 and beyond. Thank you for your interest in Dollar Tree. And now we will take questions that have been electronically submitted.

This is Randy Guiler. We have received a number of questions submitted in advance of and during this morning's meeting. Several of the submitted questions related to Dollar Tree's multi-price initiative or to the company's business strategy which were addressed in Mike's presentation. Mike, we received the following comment and question from Jose Bravo, the National Campaign Coordinator for the Campaign for Healthier Solutions. Mr. Bravo indicated, he is glad that Dollar Tree has set a good example for the discount retail sector with its transparency in communication, and that the company is moving forward with developing a sound chemical policy. And he applauds the company's participation in the Chemical Footprint Project. His question: Has Dollar Tree taken any additional steps to identify specific priority chemicals to add to its restricted substance list as part of the long-term strategy to eliminate PFAS in food and direct-contact packaging materials? Would Dollar Tree consider supplying [ bulk corn ] as a safer consumer choice?

Well, first of all, thank you for the feedback, Jose. I'm very proud of the work that we've done to date, and we appreciate the productive dialogue with the company over the past year. And to answer your question, yes, Dollar Tree has taken additional steps to identify specific priority chemicals to add to our restricted substance list. And in fact, we notified our vendors earlier this week regarding restrictions on phthalates and PFAS chemicals. Additionally, in the coming weeks, we do plan to release an updated list addressing the additional elements.

The next questions relate to whether Dollar Tree has plans to initiate a dividend program.

Yes. Thanks for the question. And the good news is we're coming from a position of strength with our balance sheet. And periodically, our Board evaluates capital allocation priorities and alternatives. Share repurchases and dividends are always a component of these discussions. First and foremost, Dollar Tree is a growth company, where we believe it is in our best interest of the shareholders to continue growing our company and infrastructure to support that growth. Historically, we have been proponents of buybacks, but we will consider alternatives, including dividends programs, in the future.

We've received a number of questions from partners of the Campaign for Healthier Solutions related to the company's progress on ESG initiatives and sustainability efforts. These questions refer to topics such as product safety, including lead asbestos and BPA; participation in the Chemical Footprint Project as a disclosure leader; and a commitment to eliminate the use of pesticides.

Well, thank you for the questions on this important topic. I'm very proud of the team's efforts and the progress we've made on sustainability, especially over the past year. In fact, Dollar Tree recently published our enhanced and updated Corporate Sustainability Report. Our CSR report is available on the home page on our website at dollartree.com. And then accomplishments related to our ESG program, fiscal 2020, include that we've conducted a detailed assessment of our environmental impact and measured our carbon footprint, establishing a baseline for us. We developed our climate goals designed to reduce emissions and increase usage of renewable energy. We participated in the Chemical Footprint Project for the second consecutive year in 2020. We've partnered with ADT Commercial for comprehensive and innovative security solutions. And we've formed our diversity, equity and inclusion executive council. And lastly, we launched our inaugural Choose to Give workplace giving campaign. While we've accomplished many things, we will remain steadfastly committed to improvement, especially as related to our ESG goals and initiatives designed to minimize corporate sustainability risks while reducing costs and driving efficiency for our organization.

This concludes the question-and-answer portion of the meeting. I will now turn the meeting back to our Executive Chairman, Bob Sasser.

Thank you, Randy. Since the time for our meeting has now expired, this will conclude our webcast. Thank you for attending this year's annual meeting.

Ladies and gentlemen, this concludes today's program. Thank you for participating. You may now disconnect.