Dollar Tree Stores Earnings Call INSIGHTS: SG&A Flow, Geography and Sales
Matthew Boss – JPMorgan: So your SG&A flow through in the quarter was the best we’d seen since 4Q of ’08. Can you speak to some of the investment spending around your Canadian operations and how we should think about expense control in the second half of the year, potential opportunities to look forward to?
A Closer Look: Dollar Tree Stores Earnings Cheat Sheet>>
Kevin S. Wampler – CFO: I would tell you in general as we look at the second quarter, you’re right. I think our SG&A grew about 6.8% and I would tell you that where we saw the biggest benefits as we called out was in the payroll line items and as you well know, our biggest SG&A line item is our store payroll and our field payroll for those teams and they did a very, very good job in the quarter of being efficient and we leveraged those costs very, very well and so as you think about it, I’ve spoken a lot over the last couple of years about the idea of flowing inventory in a much more efficient manner through our system and obviously this is one of the aspects of it in affecting labor. So this year will basically have about 300 million cases of product flow through our distribution centers which ultimately get to our stores. The average store would get about 70,000 cases. Obviously we have many stores, who do well above average sales, earning a lot more cases. So lot of work has been done as we’ve spoken in regards to how we’re flowing these goods. So the logistics folks – starts with the buy and how it’s been flowed through the distribution centers and then to the stores and we do believe that we’re making gains there. At the same time, we do believe there’s more to be gained in the long run as we continue to go down that path. As far as Canadian SG&A, obviously, we did a lot of work last year with infrastructure and so, we haven’t seen the same leverage there and we don’t necessarily expect to see the same leverage in the near-term as we continue to build out our teams. The other thing that we have going on up there is relaying these stores that are in the Ontario province relaying them and rebannering them as Dollar Tree stores. So there’s extra labor that goes into that. So at this point we’ve not seen that. Obviously longer term, we do believe that there will benefits from the infrastructure, the changes that we’re making as well as productivity in the stores.
Matthew Boss – JPMorgan: And second, can you talk to the monthly cadence of comps in the quarter, any surprises in the quarter from a category perspective and then any thoughts on traffic trends thus far in August?
Kevin S. Wampler – CFO: Well, the quarter was fairly consistent. Start of May was a little better than June, and July sort of rebounded back from May a little bit. So there was that sort of a cadence in the quarter, but it was throughout the quarter. It was consistent with our expectations. We don’t talk about upcoming quarters, so I can’t give you any remarks on that, but cadence throughout second quarter was as I expected and really no surprises there.
Geography and Sales
Meredith Adler – Barclays Capital: I would like to follow-up on the question about sales, you said it was in line with expectations. Do you think that the weather had any impact at all on your sales, could you look at geographic data and say that in places where weather was normally hot or not so hot sales were good and then there was any kind of a slowdown in places like the Midwest or the northeast where it was particularly hot?
Bob Sasser – President and CEO: Meredith, I really can’t say that there is any correlation there to weather. We saw no real impact by the weather. If you look at the regions and the areas of the country, our best comp growth was in the mid-Atlantic and in the Midwest, but it was really overall across the country a fairly tight range. You always have, as you look closer with a microscope, you always have a little market here and a little market there that either overachieve or underachieve and we saw some of that, but that’s the usual. Overall it was a fairly consistent with our expectations quarter, whether you look at it geographically or by period of time. It was really hot. I don’t know that that had any – I can’t tell you that I can see in the numbers whether that had any effect. In our Deal$ stores, we sold a lot of fans. We sold a lot of water. We sold a lot of things that you need when it’s really hot. So it may have even helped us in some places.
Meredith Adler – Barclays Capital: Then you made a comment in your first prepared remarks. I’m not sure I can quote you exactly, but something about how important basics are to the consumers and that you want to have them there for them when they want them. And I didn’t know whether that implied some change in sort of philosophy about replenishment of more categories, I won’t say planograming but maybe more consistency in the offerings.
Kevin S. Wampler – CFO: Meredith, I’ll tell you what I was speaking to. We get a lot of questions about the penetration of consumer products to our overall mix, and of course, consumer products are really important to our traffic, because customers buy them more frequently. Everybody needs them. They shop more frequently for them, so it helps increase our traffic. But they are lower margin, higher turns, a little bit lower margin, so there’s always a balance between that and what we call our variety merchandise, which is the fun and the seasonal and all the things at the surprising values that you find at Dollar Tree, discretionary product, higher margin type product. So we are always talking about the balance and if you look at the past several quarters, there has been an increase in the consumer products as a percent of our total driven by the down economy. The dire straits that a lot of people are in with high unemployment, with uncertainty on fuel prices, with any uncertainty that there is out there, so that was really all I was speaking to about that we are not really changing our distribution strategy. I’m just speaking to the fact that we still see continued penetration from the consumer products driven by the customers’ need, and our intent is to continue to serve our customers. Sometimes I’m asked questions about well how far do you think that is? Well we are really following our customers’ lead and we are going to continue to do that. If you look at second quarter, it was really a very good balance. I think the penetration of consumer products increased about 45 basis points, which gave us a little bit above the 22 basis point headwind on gross profit in the quarter and we still ended up with a gross profit, flat to last year. So, we’re really pleased with the performance in that regard. That’s what I was speaking to, it was the mix.