Michael C. Creedon
Chief Executive Officer at Dollar Tree
Thanks, Bob. Good morning, everyone, and thank you for joining our call today. Today is a very exciting day for our company. As I'm sure most of you saw this morning, we announced that Brigade McKellum will acquire our Family Dollar business for a total price of just over $1 billion. After a thorough review of our strategic alternatives, the company determined that a sale of Family Dollar is the best way to achieve our value-creation goals. Dollar Tree and Family Dollar are two different businesses with limited synergies and each is at a very different stage of its journey. Separating them will enable each banner to be led and managed by a dedicated team that can focus exclusively on that banner's distinct needs and on realizing each banner's full potential. Separating will also enable investors to own a business they value more without also having to own a business they value less or that may not fit-in their investment profile.
It should also make it easier for the market to properly value each business. Under the terms of the deal, subject to certain closing adjustments, DollarTree will receive just over $800 million in cash proceeds. The deal should close-in about 90 days and Family Dollar will remain headquartered here in Chesapeake. In the 4th-quarter, our team was focused on achieving three distinct objectives, successfully closing out the year, bringing the strategic review to a favorable conclusion in setting Dollar Tree on a path to realize its full potential and create long-term value for our associates, customers and shareholders. With a strong finish to 2024 and the sale of Family Dollar set to close later this year, my leadership team and I will fully dedicate ourselves to Dollar Tree's long-term growth, profitability and returns on capital.
Our focus and energy will be devoted to growing sales and profits at this iconic and powerful retail brand. Dollar Tree offers customers incredible value, convenience and discovery. Our world-class merchants consistently provide our shoppers with an unparalleled and ever-changing assortment of discretionary and consumable products. No other retailer or e-commerce platform can reproduce the immediacy and thrill of that signature Dollar Tree treasure hunt. This is our heritage and this is our future. One of our founders, Make and Brock, always spoke of running clean, bright and inviting stores that exceed our customers' expectations. With Dollar Tree as our sole focus, we can remain true to that vision and return to our roots, while still competing and innovating in the marketplace in new and better ways than we could before.
With value, convenience and discovery, Dollar Tree offers just what the customer needs in today's value-seeking environment. By delivering on the fundamentals, we can drive the sales productivity and profitability necessary to create long-term value for our associates, customers and shareholders. With that, let's now turn to our results. 2024 ended strong as Dollar Tree's multiprice journey continued to build momentum and improvements in-store standards and operational efficiency are creating the foundation for sustainable growth and value-creation. 4th-quarter results reflect the positive impact of our expanded assortment with our newest multiprice offerings, especially in holiday categories, driving strong year-end sell-through. In the current economic landscape, we continue to see value-seeking behavior across all customer groups.
In recent weeks, many retailers reported that customers, particularly middle-income customers are shifting towards alternatives that present value. Dollar Tree is also seeing middle-income shoppers who make-up about half of our customer-base focusing more on value. At the same time, we are seeing stronger demand from higher income customers who increasingly see Dollar Tree as a cost-effective source for an expanding range of products. This trade-in has helped to offset other headwinds. We believe our ability to continue gaining market-share amid such challenging market conditions shows that consumers appreciate the discovery aspect of our unique assortment and our compelling value proposition.
DollarTree's Q4 comp was 2%. The quarter got off to a slow start with the late Thanksgiving, but our merchandising teams delivered across the broader holiday season as customers responded positively to our expanded multiprice holiday assortment. We are particularly gratified that our comp growth was balanced with traffic up 0.7% and ticket up 1.3%. Not only were both positive measures, but ticket actually grew faster than traffic for the first time since Q4 of 2022 during the tail-end of the anniversary impact from breaking the dollar. We are encouraged by the deceleration in consumables mix-shift this quarter, which was supported by the strong performance of our expanded holiday assortment.
Q4 consumables mix increased 60 basis-points to 45.2%, which is an improvement over the average per quarter mix-shift of roughly 200 basis-points we've seen recently. Consumables comp was 4.2%, which was on-top of a 10.8% comp last year. Discretionary comp was 0.4%, its first positive reading since Q4 of last year. Multi-price clearly provided a boost to our Q4 performance. And while we are still in the early stages of this journey, I'm pleased with the progress so-far and excited about the opportunity still ahead. With that, let me share some highlights of how our expanded assortment boosted our Q4 results.
First, as a reminder, our 3.0 stores are new or converted stores that offer our expanded multiprice assortment throughout the store. Other formats include 2.0, which have a smaller multi-price assortment that is concentrated in a single-aisle we call the Valley and our 1.0 stores, which are over 95% of the items are still at $1.25. So in Q4, our in-line 3.0 stores saw a 220 basis-point comp lift compared to other formats, including a 40 basis-point consumables lift and a 290 basis-point discretionary lift. Compared to other formats, 3.0 stores also saw a 20 basis-point traffic lift and more importantly, a 200 basis-point ticket lift. Our merchandising team worked tirelessly to improve and refine execution around our Our expanded assortment, especially in holiday categories. Across seasonal merchandise broadly, our 3.0 stores saw a 10 percentage point comp lift over other formats, including 30 points in Thanksgiving and 15 points in Christmas. In everyday categories like textiles, electronics, apparel and toys, we saw comp lifts in the low-to mid-teens. Toys in particular was a big winner this season. And even in underperforming categories like books, beauty and food, that was more by design as we cut space allocations for these items to make way for more productive categories. We finished the year with approximately 2,900 3.0 format stores, including roughly 2,600 conversions and 300 new stores. While the number of 3.0 conversions this year fell a bit short of target, we continue to believe it is better to not rush and get them done right with the least amount of disruption for our customers and associates. To that end, we are targeting approximately 5,200 3.0 stores by the end of 2025, including 2,000 new conversions and 300 new stores. In summary, we're pleased with the first year performance of our expanded assortment in our 3.0 stores. The traffic, ticket and sales lift that we saw is validating the investments we're making in our expanded assortment. Before I wrap-up the Q4 results, I should note that with the decision to sell Family Dollar, from an accounting perspective, our Dollar Tree and Corporate segments are now reported as continuing operations and Family Dollar results are reported as discontinued operations. Net sales from continuing operations increased 0.7% to $5 billion, reflecting the solid comp performance and strong revenue contribution from non-comp stores, including the former $0.99 only portfolio, offset by lapping the 53rd week of last year. Net sales from discontinued operations decreased 11.2% to $3.3 billion, reflecting Family Dollar's 1.3% comp, the impact of store closings and the lapping of last year's 53rd week. Therefore, on a consolidated basis, net sales were $8.3 billion, which was at the high-end of our $8.1 billion to $8.3 billion outlook range. I'd like to take a few minutes to talk about tariffs and give you a quick supply-chain update. As a large retailer and significant importer, we have years of experience dealing with global trade variability. As discussed last quarter, we have multiple contingencies in-place to address a variety of tariff scenarios and mitigate the earnings impact of higher tariffs. These include negotiating supplier cost concessions, changing product specs, dropping non-economical items, moving country of origin, and lastly, exercising the flexibility multiprice gives us. While we are focused on limiting the financial impact of any new tariffs, we are equally committed to continuously delivering value and market leadership on the items we offer our customers and differentiating ourselves from our competitors across the retail landscape. Our strategies to diversify country of origin sourcing have been in-place for some time now. We intend to remain flexible and nimble, focusing our efforts on sourcing products via channels that deliver the lowest landed cost to us in order to maintain value continuity for our customers. This includes the optionality to shift sourcing to and from different countries within a relatively short-time frame. For example, given our anticipated 2025 imports, the expected net impact of the 10% China tariff that was announced on February 4 prior to any mitigation efforts would have been about $15 million to $20 million per month. Based on our mitigation efforts to date, we have offset more than 90% of this incremental cost, which is reflected in our current 2025 outlook. With respect to the additional tariffs proposed in March, which included an additional 10% on goods from China and 25% on goods from Canada and Mexico. We believe our potential pre-mitigation exposure is approximately $20 million per month. As we speak, our merchants are working to mitigate the impact of this latest round of tariffs. On-top of that, we are evaluating the potential impact of any additional tariffs that could materialize and impact our sourcing efforts. We have not reflected the impact of this second round of tariffs in our 2025 outlook as the net impact will depend on the eventual policy and the degree, scope and timing of our mitigation efforts. The imposition of this year's tariffs has introduced uncertainty and volatility, but over the long-term, we believe that our mitigation efforts can help us prevent sustained margin erosion. Finally, concerning our supply-chain operations, we will be replacing the DC capacity we lost in Marietta, Oklahoma, and we'll communicate our plans to you once they are finalized. In the interim, we will continue incurring additional STEM mile and other-related costs until a replacement is up and running. As an immediate step to help ease some of our current network pressure and support our growing store base, prior to the closing of the sale, we plan to convert the Family dollar distribution center in Odessa, Texas to a Dollar Tree distribution center. In sum, we finished 2024 on a high note with strong execution at Dollar Tree. Our results reflected sales momentum powered by growing consumer acceptance of our expanded assortment. With the pending sale of Family Dollar, I am excited at the opportunity to return to Dollar Tree's roots and begin to unlock the full potential of this iconic retail brand. Before I turn the call over to Jeff to go through the details of our Q4 results, I'd like to welcome Stuart Glendin to our team. We recently-announced that Stuart will take-over as CFO at the end of March. Stewart joined the company earlier this year as our Chief Transformation Officer, where he has been heavily immersed in the Family Dollar sale process and charting the future course for Dollar Tree as a standalone organization. After Jeff's Q4 recap, I've asked Stuart to share our 2025 outlook. Finally, I want to thank Jeff Davis for his partnership these past 2.5 years and for helping to ensure a smooth transition as Stuart assumes his new role. And with that, I'll turn the call over to Jeff.
