Dollar Tree, Inc. (NASDAQ:DLTR) reported fourth-quarter financial results on Monday. The transcript from the company’s earnings call has been provided below.
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Operator
Greetings. Welcome to the Dollar Tree Q3 2025 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star0 on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to Bob LaFleur, Senior VP of Investor Relations. Thank you. You may begin.
Bob LaFleur (Senior VP of Investor Relations)
Good morning and thank you for joining us to discuss Dollar Tree’s third quarter fiscal 2025 results. With me today are Dollar Tree CEO Mike Creeden and CFO Stuart Glendenning. Before we begin, I would like to remind everyone that some of the remarks that we will make today about the company’s expectations, plans and future prospects are considered forward-looking statements under the Safe harbor provision of the Private Securities Litigation Reform act of 1995. These statements are subject to risks and uncertainties which could cause actual results to differ materially from those contemplated by our forward-looking statements. For information on the risks and uncertainties that could affect our actual results, please see the Risk Factors, Business and Management’s Discussion and Analysis of Financial Condition and Results of Operations sections in our Annual report on Form 10K filed on March 26, 2025, our most recent press release and Form 8K and other filings with the SEC. We caution against any reliance on any forward-looking statements made today and we disclaim any obligation to update any forward-looking statements except as required by law. Also during this call we will discuss certain non-GAAP financial measures, reconciliations of these non-GAAP items are to the most directly comparable GAAP financial measures or are provided in today’s earnings release available on the Investor Relations section of our website. These non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, we will refer to our financial results on a GAAP basis. Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations and all comparisons discussed today for the third quarter of fiscal 2025 or against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the Investor Relations section of our website. Following our prepared remarks, Mike and Stuart will take your questions. Given the number of callers who would like to participate in today’s session, we ask that you limit yourself to one question. I’d now like to turn the call over to Mike.
Mike Creedon (Chief Executive Officer)
Thanks Bob. Good morning everyone and thank you for joining us to discuss our third quarter results. It’s great to be with you again. When we recently gathered in New York for Investor Day. I said this was the start of a new era for Dollar Tree. One company, one brand, one focus. Our energy is now directed towards strengthening and growing the Dollar Tree business. We delivered a high quality quarter accompanied by mid-single-digit comparable sales above outlook earnings and strong end of quarter momentum heading into the holidays. These results speak to our disciplined execution and focused strategy. Let me start by framing the quarter. At a high level and then Stuart will take you through the financial details. First, I’d like to highlight the strength of our discretionary business which showed its first positive year over year mix shift since Q1 of 2022. We believe this strength illustrates how our exceptional value proposition, including our growing multi-price assortment, is resonating with our shoppers by helping them meet their needs and desires in the budget constrained environment that many consumers find themselves today. The three pillars that define Dollar Tree are value, convenience and discovery. Those are not slogans, they’re how we win. They describe a brand that offers customers comparable saleselling values across a variety of price points that help them do more with less in stores that are easy to shop and full of surprises worth discovering. While the consumer landscape remains uneven, the underlying story remains consistent. All consumers are seeking value. Marrying that value seeking behavior with convenience and discovery is the intersection where Dollar Tree thrives and the evidence is clear. Dollar Tree continues to gain share and attract new shoppers while continuing to serve its large and loyal base of core customers. Today we serve an increasingly broad spectrum of shoppers from core value focused households to middle and higher income shoppers who are making deliberate choices about how and where they spend. We had 3 million more households shop with us in Q3 this year comparable salesared to Q3 last year. Approximately 60% of these incremental shoppers came from higher income households, Those earning over $100,000, 30% from middle income households, those earning between 60 to $100,000 with the rest from lower income households, those earning under $60,000. Importantly, Q3 spending growth was broad based across all income sub cohorts including households earning below $20,000. To us, this demonstrates that Dollar Tree isn’t just for tough times or for those with limited resources. Dollar Tree is for smart shoppers across all income brackets where value, convenience and discovery matter. At the same time, higher income households are trading into Dollar Tree, lower income households are depending on us more than ever. For example, the average spend for lower income households grew more than twice as fast in the third quarter as the average spend for higher income households. Well, part of this reflects the fact that higher income households are typically earlier in their multi-priced merchandise and re-stickering largely comparable saleslete, 85% of the items in our store are still priced at $2 or below. Offering a broad range of price points while staying firmly grounded in value preserves the integrity of the Dollar Tree brand. We believe time, convenience, pack size and quality are all part of our customers value calculation and so is an expanded range of products that address a wide range of shopping occasions. When a customer can fill a basket with snacks, cleaning supplies, home decor items. And seasonal products all at a great value. That’s when the Dollar Tree magic is on full display. Q3 results were also powered by strong execution in our stores, supply chain and support functions. At Investor Day, Josie Conrad spoke about our commitment to simplify work, elevate standards and empower our people. In Q3, we saw measurable improvement in these key areas. On store standards. We’ve rolled out new tools and training that simplify store routines and improve accountability. The results are visible with cleaner aisles, stock shelves and faster checkouts. With more to come on associate Engagement Our Race to Gold initiative initiative continues to gain traction as we’ve increased our investment in training and career progression. We’ve seen continued improvement in turnover in supply chain. The network is performing at a very high level. Service levels and in stocks coming out of this year’s peak season are are among the highest we’ve seen and our planned increases in distribution capacity over the next several years should allow us to unlock even greater operating efficiencies and distribution cost savings in technology. We continue to modernize our back office systems and upgrade store infrastructure. These investments are simplifying work and enabling smarter decision making in merchandising and replenishment. All of this comes down to one thing making it easier for our teams to deliver a consistently great experience for our customers. With the family dollar sale behind us, we are already seeing measurable improvements in our culture and performance. We are fully aligned behind one brand, one set of priorities and one mission with leadership and investment focus concentrated on growing Dollar Tree. Every decision across product stores, technology, supply chain and people is aligned to strengthening one business. That alignment brings speed and accountability. Teams test, learn and scale faster and we now measure progress across a single set of metrics directly tied to creating shareholder value. We are moving forward with purpose, clarity and conviction guided by the five strategic priorities we laid out at our Investor Day Surprise and delight our customer with an expanded, more relevant assortment. Manage expenses with agility by controlling the cost of the goods we sell and managing our SGA with discipline to drive operating leverage and profitability. Create a strong connection with our customers who with cost effective quick return data driven marketing. Open more stores and improve the condition of our fleet and finally improve the in store experience for our customers by raising the bar on our store standards. At the foundation of these priorities are a fast, flexible and efficient supply chain and disciplined financial management that focuses on high return investments, smart capital allocation and at the forefront of our success is our people, the more than 150,000 associates who show up every day to serve our customers, support their colleagues and strengthen the communities where we operate. They are the reason we do what we do and the driving force behind every decision we make. As you heard me emphasize at Investor Day, we manage this business with a. Focus on what I call the say. Do ratio, making clear commitments and delivering on those commitments. This mindset builds trust and accountability across the organization and we believe that maintaining alignment between what we say and what we do is how we deliver consistent performance over time. In summary, we are pleased with our Q3 results. We’re building a stronger foundation for the future and we’re confident about the direction we’re heading. With that, I’ll turn it over to Stuart.
Stuart Glendinning (Chief Financial Officer)
Thanks Mike and Good morning everyone. Q3 comparable sales sales increased 4.2% and adjusted earnings per share (EPS) was $1.21. Both our comparable sales performance and our adjusted earnings per share (EPS) were ahead of the expectations we shared in mid October. The 40 basis points of Q3 comparable sales acceleration between the middle and end of October was driven by a late but strong performance in Halloween sales on the back of a deeper multi-price assortment and excellent execution across our stores. Dollar Tree’s seasonal assortment and value resonated strongly with shoppers. Our earnings per share (EPS) improvement versus expectations was largely driven by freight, higher discretionary sales mix and SGA. With that, let’s go over the details of our third quarter results. Q3 net sales increased 9.4% to $4.7 billion. Consistent with our expectations. Q3 comparable sales growth was primarily ticket driven as traffic was slightly negative. Average ticket growth was supported by increased multiprice penetration, particularly across our Halloween assortment and the pricing actions we began rolling out last quarter. Importantly, strong execution around merchandise costs, tariff mitigation efforts, freight and operating expenses helped drive profitability Q3 gross margin expanded 40 basis points to 35.8%. These results reflect the strength of our assortment and the agility of our merchandising, supply chain and store operations teams. The key drivers of this improvement were …