Good morning, and welcome to the Dollar Tree Fourth Quarter Earnings Call. This meeting is being recorded. At this time, I would like to hand the call over to Randy Guiler. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to our call to discuss Dollar Tree's Fourth Quarter and Fiscal 2022 results. With me on today's call are Chairman and CEO, Rick Dreiling; and CFO, Jeff Davis. Before we begin, I would like to remind everyone that various remarks we make about our expectations, plans, and prospects for the company constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, and our actual results may differ materially from those indicated in these 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 10-K filed March 15, 2022, our 10-Q for the most recently ended fiscal quarter. Today's press release and 8-K 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, and we disclaim any obligation to update or revise these statements, except as may be required by law. Following our prepared remarks, Rick and Jeff will take your questions. Given the large number of those that would like to participate, I ask that you limit your questions to one. I will now turn the call over to Rick.

Thank you, Randy, and good morning, everyone. I apologize that I'm a little hoarse. I'm coming off of COVID, and the good news is I'm fine. I will review the highlights for Quarter 4 Fiscal 2022 and will provide an update on current priorities. For the quarter, we delivered $7.72 billion in sales, an increase of 9%, with enterprise comp growth of 7.4%, operating income of $618.1 million, leading to a quarter 4 EPS of $2.04. Our sales performance for the fourth quarter was a continuation of momentum from quarter 3. Same-store sales growth of 8.7% at Dollar Tree and 5.8% at Family Dollar represented comp accelerations on a 1-, 2-, and 3-year stack basis. This improved performance and market share gain is not simply happening by itself. It's the result of lots of hard work and good efforts by our store and merchant teams as well as the early fruits of our price, labor, and store investments. And I truly believe we are just getting started. I have been in retailing for half a century, and I've been fortunate to play a leadership role in multiple transformations. I am incredibly excited by and energized to be part of the path ahead for Dollar Tree. We have an exceptional team assembled, and I cannot overstate the amount of positive transformational change occurring in this business. We are committed to enhancing store productivity as we focus on developing our people, tools, and technology to fuel accelerated growth. And we do this while simplifying operations, improving the supply chain, and innovating our merchandising strategies to better support our associates and to better serve our shoppers. Given the team's relevant prior experiences, we know exactly what to do to drive improved productivity and profitability. We are moving as quickly as possible to capture the full potential of this business, and I am confident we will succeed. We have tremendous opportunities to improve the Dollar Tree banner. At Family Dollar, it's clear that we are at least a decade behind, and this is reflected in our prior performance levels and financial results. As we narrow the gap operationally, it will be realized in material improvements to our financial performance. As we get settled in, we are finding more and more opportunities to meaningfully improve both banners. Compared to just a few short months ago, the list of improvement opportunities has grown. Our guiding objective is to maximize returns to our shareholders. Doing so calls for implementing these initiatives with responsible urgency. There is no point in delaying. It has, over the months, become increasingly clear that our team's great experience gives us the opportunity to complete in just 3 to 5 years, most of what has taken far longer in other situations. Our merchants, stores, and other teams are driving lots of initiatives, many of them with minimal investment. I will highlight some of these later. While these are already gaining traction, they will have the greatest impact if supported by additional complementary investments. The stronger our associate team, the better the store conditions, the more competitive our pricing, the more we will get out of them. There is a synergy across these initiatives and the complementary investments we are making, with each enhancing the others. For this reason, we are accelerating and pulling forward our schedule of major high-returning investments. The cost of these investments is reflected in our 2023 outlook as an incremental $430 million increase in SG&A, and the outlook assumes only a minimal return from these investments. The company is confident that these investments once implemented will yield attractive returns in 2024 and beyond. While we are confident these operating expense investments will yield strong returns, we are also aware of the dynamic nature of the earliest stages of a turnaround. The many simultaneous moving pieces, the interdependence of these pieces and the current unusual dynamics in the economy. These considerations make forecasting the quarterly cadence of the benefits from these investments particularly challenging. For this reason, for this first year of our transformation, we will consider these benefits only as they, in fact, materialize. This year's investments, which include the full year impact of investments made during fiscal 2022, are in several key areas in the following order of magnitude: labor and wages, including hourly wage rates and investments in field personnel, stores, through repairs and maintenance and improving store conditions, corporate, including technology and other initiatives. Under this new leadership team, we are increasing average hourly wages by an estimated $2 for the two-year period of 2022 and 2023. We feel that looking on a market-by-market basis and benchmarking to comparable retail wages, this investment will put us in a more competitive position. We also made additional investments in store hours and coverage, investments in our field labor and managers, and other areas to help us execute much better. We expect these labor and wage investments will drive improved execution in our stores, higher sales, lower turnover, attraction of and retention of talent, reduce shrink, and greater productivity and efficiency. Our associates and field personnel are critical to our transformation journey, and we are excited about the investments in our talent. We are looking to invigorate the culture of this business, give our local operators and associates the tools they need to execute, and importantly, provide them the opportunities they deserve to grow within our company...

Thank you, Rick, and good morning, everyone. Unless otherwise stated, all fourth quarter comparisons are against the same period a year ago. In addition to my comments today, a supplemental slide deck that outlines several of our key operating metrics is available on our Investor Relations website. Operating income increased 6.8% to $618.1 million or 8% of total revenue, a 20 basis point decline in operating margin. This was compared to a 70 basis point improvement in gross profit margin, which was more than offset by SG&A. Gross profit increased 11.6% to $2.39 billion. The Dollar Tree segment gross margin improved 110 basis points, primarily from higher initial mark-on, lower freight cost, and sales leverage, partially offset by product mix, product cost inflation, and higher costs for markdowns, shrink, and distribution. Family Dollar's gross margin increased 20 basis points. This quarter represented Family Dollar's first improvement in gross margin in the last 7 quarters. The improvement was driven by higher initial mark-on, lower freight cost, and leverage on occupancy, partially offset by mix, markdowns, shrink, and higher distribution costs. SG&A as a percentage of revenue increased 80 basis points to 22.9%. The increase is due to a $23.9 million non-cash store impairment charge along with elevated repairs and maintenance as part of our commitment to improve store and DC standards. Investments in store and distribution center hourly wages and inflationary costs across several expense categories were consistent at 1.4% of revenue. Net income was $452.2 million, and EPS was $2.04 compared to $2.01 a year ago...

Great. Appreciate all the color, and I hope you're feeling better, Rick.

Thank you, Matt. The improvement, as I look at the improvement, it's not only the sales, but more importantly, the transaction count and what's going on in the basket. And we know that the basket is substantially larger when we get the multiple price points in it. So very – we're pleased. We're excited. And now that we've cycled it, we're getting a true measure on what's going on.

Good to hear you. I guess a little bit of a follow-up on that second question, which is, I think we all kind of understand the need to accelerate investment in the business. But Rick, you made a comment earlier in your remarks about you plan to achieve in 3 to 5 years, what usually takes a lot longer. So I guess the question is, should we view '23 as a reset or starting point for growth in '24 and beyond? Or just given that list of growing projects you mentioned, could we see investment spending continue to pressure earnings growth in '24 and '25?

Excellent question. I would look at '23 as kind of getting us level set – and I think the investments we will utilize in '24 and '25 will be more basic. You're always investing in the business, but it won't be anything of the magnitude that we're tackling now.

I wanted to just follow up on the market share Family Dollar. I mean, certainly, it has been challenged over the years, but it does seem that with price and store investments, that is actually starting to change. So a question on traffic, which remained negative on a year-over-year basis but also multiyear. So how important is it to inflect positive for the model to work here? And how do you envision arriving there? Like what are the most critical components of the strategy to actually unlock that?

Yes. I mean I think as I reflect on what you're asking here, the most important thing we can do is maintain consistent store standards and execute against our operating model. We know what to do and I think if you look what's taking place, the consumer is responding to it and they're responding to it in terms of a bigger share of their wallet, they're responding in terms of market share. And all of the initiatives that we are putting in place, Krisztina, are all designed for that store experience.

Good to hear you're recovering from COVID. So I just wanted to clarify, you talked about those wage investments. Can you just walk through that again? Because I wasn't quite sure, I think you said $2 an hour, but I wasn't sure on the sequencing of that. So I just wanted to better understand that.

Yes, sir. We're doing that market by market. And what we're looking at is not only the hourly wages, which is where the bulk of the investment is. We're also looking at coverage to ensure we have the proper amount of coverage and then we're also looking at what I would call the field team, the store manager and the district manager. We do know, and it's proven that when we have the right wage structure, we increased our retention and our turnover has been pretty astronomical and we're seeing that slow down. We know we get better shrink, we know we get better store standards, and we get better morale. And that all leads to better execution, which the customer sees on the shelf when they're in the store. So it's a broad-based approach.

Yes. So there's a couple of pieces to this. First off, our teams are always going back to our supplier partners and looking for ways to reduce our costs where that is available. And to the extent that later they are and given our volumes and sort of our scale to the extent that we can do so, we'll take advantage of that. But part of the challenge also for us is that a large portion of our contracts, about 60% of all the contracted business that we have for any particular year right now, about 60% of that is long-term charter or contracted rates. And that's the reason why those contracts and charters do not roll off until starting late 2024 or 2025.

It would only be a partial recovery. There's a number of factors to this. One, freight rates have not gone back to 2019 levels in its entirety. Also, as you think about freight, there are really 3 components of freight, and everyone seems to want to focus only on the transatlantic portion, but there's import and outbound freight also, which is ultimately included in all of this.

Sure, Dave, thank you very much. Thank you for joining us on today's call, and have a good day. Take care.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.