Dollar Tree Stock

Greetings, and welcome to the Dollar Tree Q2 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Daniel Delrosario, Senior Vice President, Investor Relations and Treasurer.

Daniel, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today to discuss Dollar Tree's second quarter fiscal 2026 results. With me today are Dollar Tree's CEO, Mike Creedon; and CFO, Stewart Glendinning.

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 section in our annual report on Form 10-K filed on March 16, 2026, our most recent press release on Form 8-K and other filings with the SEC. We caution against 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 to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR 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 non-GAAP basis.

Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations, and all comparisons discussed today for the second quarter of fiscal 2026 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.

Following our prepared remarks, Mike and Stewart will take your questions. Please limit yourself to one question and one follow-up question. And with that, I'll turn the call over to Mike.

Thanks, Daniel, and good morning, everyone. I want to start by recognizing the more than 150,000 associates across Dollar Tree, whose commitment to our customers drives everything we do. They're creating a more relevant shopping experience through a better assortment, better-run stores, more consistent execution and a customer-first mindset that was reflected in our results this quarter.

The second quarter represented another period of progress for Dollar Tree. Improved execution across the business drove financial results above the high end of our outlook range. We're building a stronger business by investing and strengthening the value, convenience and discovery we provide our customers, and the quarter's results reflect those efforts.

The Dollar Tree team delivered robust top- and bottom-line results. Net sales growth increased 7% to $4.9 billion. Comp store sales growth increased 3.7%, exceeding our expectations. Customer traffic was positive 0.4%, while average ticket increased 3.3%. Diluted earnings per share were $2.70. That includes $1.31 from the combined net impact of tariff refunds, reinvestments and certain duties on aluminum pans and paper plates.

Beyond these discrete impacts, the underlying business continues to strengthen. We are driving a better assortment in more and better-run stores and speaking to our customers in ways we never have before. While it's still early, the customer response and performance we're seeing gives us confidence in these initiatives and in the long-term opportunity ahead. Improving the fundamentals of a nearly 9,500 small-box retail business takes time. It starts with getting the basic blocking and tackling right. We are running cleaner, brighter and better-stocked stores. We're encouraged that those everyday operational improvements are becoming more visible in both our customer metrics and financial results.

We're pleased with our performance this quarter. We delivered some of our most compelling comp results in several years, with positive traffic earlier than we expected and strong comp growth on top of the 6.5% comp we delivered in the second quarter last year. That performance is a strong indication that the strategies we've put in place are gaining traction and that we're building real momentum in the business. Last year, we outlined strategies for reaccelerating traffic and top line growth. The sequential traffic improvement helped drive our best 2-year comp stack since 2023.

We're also encouraged by traffic trends that strengthened on both a 1-year and 2-year basis as we move throughout the quarter. We believe those trends speak to the underlying momentum in the business and the progress we are making in driving more consistent, sustainable top line growth. We achieved this performance by staying focused on the fundamentals and executing against the priorities we outlined earlier this year. I want to remind you of a few of those priorities and the progress we're making against them.

First, we leaned into those categories and price points where customers are responding most positively. We are enhancing our assortment accordingly so that it is broader and appeals to a wider spectrum of income levels. It's the combination of a compelling opening price point, deep value, greater choice, trusted brands and new categories that makes the Dollar Tree value proposition so powerful, and that brings our customers back to the store. Multi-price penetration increased approximately 400 basis points year-over-year to 17% of total sales. We are bringing more excitement, discovery, relevance and choice to the shopping experience while maintaining the value that has always defined Dollar Tree.

When you combine a more relevant assortment with a cleaner, better-run store, the customer's response is even greater. That is reflected in the strengthening traffic trends we saw during the quarter and gives us confidence that the actions we are taking are resonating with shoppers. Second, we continued strengthening our marketing capabilities and customer outreach. We doubled down on our value message through our 40th anniversary celebration, reinforcing what has made Dollar Tree special for 4 decades: value, convenience and discovery, while showcasing how the brand is evolving to offer customers even more choice, relevance and that thrill of the hunt. We are bringing the Dollar Tree value proposition to life in new ways and giving customers more reasons to visit our stores more often.

Third, we remain focused on operational execution. We continued reinforcing our G.O.L.D. standards and partnering with our field teams to deliver a more consistent customer experience across the fleet. Over the past year, we've made measurable progress in elevating the shopping experience across our stores. At Investor Day last October, we shared that approximately half of our stores were in the opportunity for improvement category, meaning that they fell below our standards. Today, that number is about 1/3 of the fleet, reflecting the significant work our operators have done to improve execution, store conditions and consistency.

But we're not satisfied with that progress. As our stores improve, we are continuing to raise the bar and make our standards more rigorous. We're seeing that improvement reflected not only in our internal measures, but also in improving customer sentiment around the shopping experience. There is still more work to do, but we are holding ourselves to a higher standard and building a more consistent experience across the fleet.

While we still have opportunities to improve stores that remain below our standards, we believe the larger value creation opportunity is in sustaining the gains we've made and continuing to raise the level of execution across the fleet. The next phase is about making those improvements durable and repeatable. We are embedding stronger operating disciplines across the organization so that better execution becomes the standard, not the exception. Over time, we believe that will translate into a more productive store base, a better and more consistent customer experience and stronger financial performance.

We strengthened key areas, including in-stock levels, shoppability, store recovery and store-level planning. When stores are well run, they're easier to shop, better for our associates and customers and more productive for the business. The same operating disciplines that create a better shopping experience also improve inventory control, merchandise protection and compliance with our standards. And this shows up in our shrink statistics. Shrink was favorable during the quarter and contributed to our improvement in profitability.

Finally, we continue to improve the shopping experience through targeted store refreshes and renovations designed to make our stores cleaner, brighter and easier to shop. These updates help ensure the shopping environment better reflects the strength of the Dollar Tree brand. While it is still early and we are continuing to evaluate the results and refine our approach, we see an attractive opportunity to strengthen the existing fleet and improve the customer experience over time.

Let's turn now to the macro. The consumer environment remains dynamic. Customers continue managing household budgets carefully, shopping with purpose and prioritizing value and affordability. Our data shows we grew sales across all income cohorts. Households we serve were up nicely year-over-year with gains skewing to the middle and higher-income households. Comp strength was broad-based across the assortment, with personal care and toys notable outperformers. Discretionary performed well, and consumables delivered exceptional comp growth.

A couple of points are worth highlighting. First, the inflationary backdrop continues to pressure all household budgets, particularly for lower-income consumers. As our customers look for ways to stretch their dollars, they are increasingly turning to Dollar Tree for everyday essentials at compelling opening price points and pack sizes that help them manage their budgets. At the same time, our value and convenience and the breadth of our assortment is resonating across all income cohorts.

Second, we were pleased with discretionary performance despite pockets of helium shortages across our store fleet, which created a modest headwind during the quarter. We estimate helium-related in-stock challenges reduced total sales by approximately $15 million or about 30 basis points of comp. We continue to work closely with our vendors to understand the expected recovery of supply. Against that backdrop, the performance of discretionary reinforces our confidence in the broader strength we are seeing across the assortment.

Let me turn to tariffs and the tariff refunds we received during the quarter. We received approximately $383 million, giving us a meaningful opportunity to reinvest in the business and further strengthen our value proposition for our customers. We are putting those funds to work in areas where we believe they can have the greatest and most lasting impact. We are focusing those dollars on targeted pricing strategies, marketing, store operations and store conditions, areas that can benefit our customers today while strengthening the business for the long term.

Additionally, we are closely monitoring the competitive environment and our relative values in the marketplace. Dollar Tree is committed to delivering outstanding value, convenience and discovery at all times for our customers. Stepping back, we are pleased with our second quarter performance. Comp sales exceeded the high end of our outlook, traffic improved, our assortment gained traction, store execution strengthened, and our teams delivered better results across our supply chain.

We believe our investments in merchandising, pricing, marketing and store execution have strengthened customer relationships and improved the long-term earnings power of the business. Across these areas, we remain focused on delivering what we believe matters most to customers, exceptional value, greater convenience and the sense of discovery that has always differentiated Dollar Tree. Those priorities continue to guide our merchandising, pricing and operational decisions, and we believe they position us well to deepen customer loyalty. And we are investing our tariff proceeds in a way that is consistent with that philosophy.

As we look ahead, our priorities remain unchanged: better serve and engage with our customers, execute more consistently, allocate capital with discipline and build a stronger Dollar Tree positioned to deliver sustainable, profitable growth over the long term. We are engaging with and learning from our customers in new ways and using those insights to inform how we evolve the business. We're encouraged by the progress we've made, but we also recognize there is more work ahead.

In closing, we are navigating a highly uncertain macro environment. As we've said in the past, Dollar Tree is built for times like this. Our strategies are unlocking a better assortment and better-run stores while engaging with our customers in more relevant and compelling ways. We look forward to building on our strong operating momentum in the second half of the year. And finally, I'm excited to share that as we mark Dollar Tree's 40th anniversary, we're committing $40 million through our Dollar Tree's Impact Fund to support local organizations that make a meaningful difference in people's lives. Reinvesting our tariff refunds in these communities will help expand access to essentials, create opportunities and strengthen the communities we serve.

With that, I'll turn the call over to Stewart to discuss the financial results and outlook in more detail.

Thanks, Mike, and good morning, everyone. In the second quarter, we saw continued improvement in the underlying financial performance of the business. Second quarter adjusted diluted earnings per share was $2.70, of which $1.31 was attributable to the combined impact of tariff refunds, tariff refund reinvestments and offsetting certain duties. Adjusted EPS is well ahead of our outlook range.

Before reviewing our financial results further, I would like to provide an overview of the tariff refunds. Given the impact of tariff refunds and our related reinvestments on the P&L, we think it's important to provide additional context on what we know today, recognizing the timing and magnitude of these items could impact our reported results. During the second quarter, we received $383 million of tariff refund proceeds. The benefit to gross profit and other income was $369 million and $14 million, respectively.

Additionally, gross profit was negatively impacted by $13 million of certain duties. In the quarter, we reinvested $37 million of those proceeds, including $22 million in cost of sales and $15 million in SG&A. As Mike described earlier, these investments were targeted at discrete customer-facing and operational initiatives, such as our 40th anniversary celebration, marketing and store conditions, all of which are designed to enhance value, convenience and discovery for our customers.

Now let me walk you through the second quarter financial details and then discuss our updated outlook. Net sales increased 7% to $4.9 billion, driven by a 3.7% increase in comparable store sales and a 3.3% contribution from net new store growth. Comps were driven by a 3.3% increase in average ticket on the back of last year's pricing actions and higher multi-price penetration. Traffic increased 0.4%, a sequential improvement relative to the Q1 trend. By category, consumables delivered a 5.8% comp, while discretionary delivered 1.6%. As Mike mentioned, category performance was broad-based, and we overcame an estimated $15 million sales headwind from supply constraints in helium.

Gross margin expanded 850 basis points to 42.9% and included a 680 basis point benefit related to the net impact of tariff refunds, reinvestments and certain duties. Gross margin expansion was driven by tariff refunds, lower tariff rates, favorable shrink results and occupancy leverage, partially offset by reinvestments primarily related to our 40th anniversary celebration, certain duties and a mix to lower-margin consumables. As Mike mentioned, our shrink performance remained favorable during the quarter and reflects adjustments to the overall enterprise-wide results from our most recent counts.

Moving down the P&L. Total SG&A, inclusive of TSA income, levered 50 basis points and included a 30 basis point impact from tariff refund reinvestments. The improvement in total SG&A rate, inclusive of TSA income, was primarily driven by payroll, partially offset by higher marketing and depreciation costs. Adjusted operating margin expanded 890 basis points to 14.1% and included a 650 basis point net benefit related to tariff refunds, reinvestments and certain duties. Below the operating line, net interest expense was slightly favorable, and the effective tax rate was in line with our expectations.

Turning to the balance sheet. Inventory declined 9% versus the prior year, while sales increased 7%, resulting in a favorable inventory to sales spread. We continue to manage inventory tightly, which supports fresher assortments for our customers, working capital efficiency and stronger free cash flow generation. We ended the quarter with $1.06 billion in cash and no commercial paper outstanding. We generated $922 million in cash from operations and invested $246 million in capital expenditures, resulting in free cash flow of $675 million.

During the quarter, we repurchased 5.6 million shares for $605 million. Looking back over the last 12 months, we've reduced our share count by approximately 8% and returned over $1.8 billion to investors through share repurchases. As you look ahead, I'd like to walk you through our outlook for the remainder of the year. There are a number of moving parts, which are important to understand as you look at the business going forward. These include the tariff refunds and their partial reinvestment, the ongoing tariffs following the recent rate adjustments and the impact of ongoing fuel costs.

Let me share the current assumptions and expected impact on the business. As we shared earlier in the call, the full year will include $383 million of tariff refunds received in Q2. We're not assuming additional refunds. Offsetting these refunds, we currently anticipate reinvestment of approximately $210 million. As it relates to tariff rates, on our Q1 call, I shared that we expected the tariff rates to return to their previous levels. The newly established rates have moved higher, but are now lower than what we had assumed. With respect to fuel, the outlook for fuel rates is elevated relative to when we last spoke in May and therefore, an incremental headwind.

Turning to our updated outlook for the year. We expect net sales in the range of $20.5 billion to $20.7 billion, reflecting comparable sales growth of 3% to 4%. We expect adjusted corporate SG&A of $515 million to $535 million, including our $40 million charitable contribution. We now expect TSA income of $65 million, or $5 million lower than we previously assumed. This is primarily the result of the timing of various TSAs rolling off.

With respect to net interest expense, we now expect $70 million, or $15 million lower than we previously assumed. This reflects a higher average cash balance and higher interest income. Given the second quarter performance, updated tariff regime and net tariff refund benefit, updated TSA income and net interest expense assumption, we now expect adjusted diluted earnings per share in the range of $7.70 to $8.05, including an approximately $0.60 benefit related to the net impact of tariff refunds. Please note, this outlook incorporates an outstanding share count of 191 million shares, which reflects share repurchases through today's date.

Turning to the third quarter. We expect net sales in the range of $5 billion to $5.1 billion, reflecting comparable store sales growth of 3% to 4%. Adjusted diluted earnings per share are expected to be in the range of $0.80 to $0.95, including a negative impact of approximately $0.50 related to tariff refund reinvestments.

In closing, we delivered a strong second quarter and continue to execute against our strategic priorities. Our team's focus, operational discipline and improving business performance position us well for the balance of the year as we work to generate consistent, profitable growth and create long-term value for our shareholders.

With that, I'll turn the call back over to Mike.

Thanks, Stewart. As we step back from the quarter, what gives us confidence is not any single metric or onetime event. It's that we're seeing progress across every area of the business. Customer engagement is improving. Merchandising is becoming more agile. Operational execution continues to strengthen, and the investments we've made over the past year are beginning to reinforce one another.

While we recognize that there's still work ahead, we believe Dollar Tree is becoming a stronger, more competitive retailer with a greater ability to deliver sustainable, profitable growth over the long term.

With that, we're happy to take your questions.

[Operator Instructions] Our first question today is coming from Matthew Boss from JPMorgan.

Congrats on a nice quarter.

Thanks, Matt.

So Mike, can you elaborate on the cadence of the comp trend you saw in the quarter? Traffic turned positive a quarter earlier than your plan 3 months ago. So can you talk to drivers of that outperformance and impact from the 40th anniversary $1 price points? And lastly, can you share where your comp stands quarter-to-date today?

Sure, Matt. Thanks. First of all, let me start by saying the team did a fantastic job in Q2. If we rewind the clock to the beginning of the year, we had the right strategy given the setup, and we were confident traffic would turn positive much quicker than it did with Break the Dollar. What we saw in Q2 is proof point that a better assortment in better-run stores while talking to our customers in ways we never had before really drives the business. And traffic was the headline in Q2.

The comp strengthened as the quarter progressed, and traffic improved sequentially and ultimately turned positive. The most encouraging aspect of the performance was that it wasn't driven by any one category or one event, but we saw broad-based improvement across the business, and that gives us a ton of confidence in the strength of the underlying trend and the underlying business. As I mentioned in my script, not only did we see traffic trends get stronger by month, the 2-year traffic trend also strengthened. So relative to our previous expectations of positive traffic in the back half, we're running about a quarter early. And when I step back, I really like what I see. I like that the strategies we've laid out are working.

On the 40th anniversary $1 price points, I think it's important to note that these are really small in scale. For those of you, and I know you do, shop our stores, it's a handful of rotating SKUs and endcaps. And when we look at the data, we definitely think the 40th brought some excitement, some newness, there's a halo that goes with that, but wasn't really a key driver of the comp.

On quarter-to-date trends, I don't typically comment on that. But what I would say is that as we put our outlook together, we incorporate everything we know today. And I'm really encouraged by the momentum we continue to see in the business. The team will stay focused on execution and delivering value, making sure we're convenient with great checkout and that thrill-of-the-hunt discovery that Dollar Tree is known for.

Great. And then, Stewart, a lot of moving parts on margins this quarter. Excluding the net tariff impact, can you walk through what drove the underlying earnings beat relative to your outlook that you shared back in May?

Thanks, Matt. Yes, look, lots of moving parts. There is a great deal of complexity. We're going to try to make that simple. Look, the short answer to the question here is that ignoring the net tariffs, the benefit of those tariffs, we sold more than we expected, and we did that at better margins. So that's the good news. On sales, the 3.7% comp was above the high end of the Q2 outlook, and that just -- that drove additional gross margin dollars, a positive.

But the more meaningful driver of our performance was in our margin delivery. And relative to -- if you look back at our Q2 outlook, we had 3 main areas of gross margin favorability: shrink, freight and fixed costs. On shrink, as we highlighted in the prepared remarks, we continue to run better stores, and that's showing up in favorable inventory counts. Shrink was much better than last year and even better than we expected. Shrink also, by the way, benefited from a cumulative adjustment to the reserve, which provided a benefit in the quarter. And just to help with that, the split here is about 2/3 from the inventory results and about 1/3 from the reserve adjustment.

Freight was modestly better than we assumed, and that was mainly because we had better-than-expected fuel rates. But the higher sales comp actually allowed us to drive leverage on our fixed costs, which included occupancy and distribution costs. And then on SG&A, since we generated a higher comp, we also generated higher fixed-cost leverage on that SG&A. So we had better sales, we had better gross margin, and we had better operating margin. And I want to point out also that the share count did not have any meaningful impact on the results that I've just spoken to.

Next question is coming from Seth Sigman from Barclays.

Nice quarter. It looks like the new high end of your EPS outlook, the $8.05 or I guess it's $7.45 ex the net tariff refunds, it mostly just flows through the Q2 beat and the lower share count. I just want to make sure that's right. And then related to that, your prior outlook embedded a higher tariff rate versus the current 12.5% that you mentioned. Where is that upside from lower tariff rates? How is that flowing through?

Stewart here. A good question. So first of all, you're correct, we did pass through the beat and the benefits of the lower share count in our outlook despite the current market volatility and inflation. And if you strip out the net tariff impact of the tariffs, which was $1.31 in the quarter, you get to $1.39 for underlying EPS in the second quarter. And that, of course, is well ahead of the $1 to $1.15 outlook.

And the way I calculate it is if you take the $0.24 beat at the high point, and I'm using the high point because we shrunk the range, add about $0.11 of benefit to that $0.24 from the lower share count for the year and then add another $0.04 for the net benefit of lower TSA with the positive impact from lower interest expense, and you get to about a $0.39 benefit coming out of Q2. And since last quarter, the high point of our outlook was $7.10, you take that $0.39, add it to the $7.10 and then you take the net full year benefit of $0.60 for tariffs, and you get right up against the high point of the EPS outlook. So I know there's a lot in there, but that's how you do the math.

More importantly, let me address just the tariffs. I'll remind you that for the back part of the year, we had assumed a 20% tariff rate when we reported back in May, that is what the administration was telling us. And as you know, the tariff rates now are lower, somewhere around 12.5%. So we get some benefit from that lower tariff rate in the back half of the year. But there are 2 offsetting factors in cost of sales, which absorb that benefit. First, we are anticipating that the sales growth in the back half skews a little bit higher in consumables. And while that is really a great positive outcome from a traffic and customer relevance standpoint, that higher consumables will drive a slightly lower margin mix. And so the mix -- some of that mix dynamic is absorbing tariff benefits.

More powerfully, we've really been focused in the back half on protecting value for the customer. And so while tariff rates have come down, we're also navigating some higher inflation and on portions of our assortment. And we're seeing some pressure in supply chain, of course, because of fuel. So rather than passing those costs on to the customer, we've taken advantage of the fact that we're getting that lower tariff rate in and that tariff rate is absorbing inflation and helping us to maintain value across key categories. We think that's helping our traffic. And of course, we think that's also driving market share gains. So looking at this, I think we've got the right balance between driving the near-term results and strengthening the business.

And the good news, I mean, this is really good news, is that our outlook has not included the tariff refunds to offset any of the current inflation. We're taking those higher costs in our run rate, and we're offsetting that higher volatility. So again, I know there's a lot there in the financials this quarter, but hopefully, that lays that out to you.

Okay. Yes, that's very helpful. I did want to follow up on the tariff refunds, and perhaps you can give us a little bit more color on how you're deploying those funds? And what type of return are you assuming in this guidance for the spending of that? And if there's any context on how that's already started to play out as you start to deploy that?

Yes, sure. Seth, I'll start, and then, Stewart, if you want to jump in on the returns. As we talked about in the script, we're thinking about tariff refunds as a way to really enhance our strategy. What it gives us is the opportunity to take the initiatives we've laid out and accelerate them. We also use a small portion of the refunds tactically to fund our 40th anniversary $1 price point strategy, which, as I mentioned, created a ton of buzz and excitement for our customers, really supports that thrill of the hunt.

The investments are focused, as we all are, on enhancing value, convenience and discovery. So that includes improving our assortment with incredible values, making our stores easier to shop by upgrading in-store signage and then the marketing piece of it, where we're talking to our customers in ways we really never have before and scaling those marketing and digital capabilities. These are all areas that we believe can really increase customer engagement and accelerate our traffic flywheel. The refunds were significant. We're trying to be as thoughtful as we can about how to deploy them. So the investments today provide a lasting return.

And Stewart, if you want to touch on those returns?

Yes. Thanks, Mike. Look, just a couple of quick points. We really did not bake in any real return in the incremental spend. And there were 2 reasons for that. First, we're in an environment where many retailers are reinvesting back in price, and we want to remain competitive. And so all boats may end up in the same space. Second, a number of the investments we're actually making are in areas, particularly in SG&A, where we're talking about store standards or where we're talking about messaging. These are places that are going to help to build momentum in the business. And you wouldn't ordinarily expect to see a sudden rush of benefit in.

But the way we've looked at those is to try to make sure that these are costs that are going to have lasting benefit, but that are not lasting in terms of expense. So as Mike said, we're using this as an opportunity to accelerate and enhance the investments we are making in our business to drive initiatives across our stores. There could be some upside in this. But I think for the moment, it's a better approach to saying that we're going to be cautious in the way that we estimate our outcomes.

Next question is coming from Rupesh Parikh from Oppenheimer.

And also, congrats on a nice quarter. So on store standards, you mentioned that about 1/3 of stores are not meeting your internal benchmarks, down from about half last October. How should we think about the opportunity from here to not only maintain those standards, but improve them?

Yes, Rupesh, thank you. At Investor Day last year, this was a critical point that we made. We were really clear that when you improve store standards, you improve the entire foundation of the company. And it's the transformation that unlocks the full potential of this business. We knew we had meaningful opportunity across the fleet, and we laid out a very disciplined approach to address it. We've got a chart in the investor slide deck that shows what this team has accomplished so far. And so I want to make a few points on this.

First, the progress we've made is encouraging. But we certainly don't view getting from roughly half the chain to about 1/3 of the stores from the opportunity bucket up as crossing the finish line. We view this as evidence that what we're doing is working and gaining traction. So if you would think about this, early on, a lot of your efforts are just focused on addressing the most visible opportunities, and we've made meaningful progress there. But there is still a significant opportunity to elevate the standards across the entire fleet.

Even many of our better-performing stores have room to improve, whether that's merch execution or in-stock levels, recovery, just the overall shopping experience. And those incremental improvements when you're talking about 9,500 stores really matters. It's not just about going from an opportunity store to a good store. We want to go from good to great and great to G.O.L.D. We want to raise the bar on the entire fleet. And when you do that, that's the difference maker for Dollar Tree.

And just the other point I'd make is I think a lot of retailers can make progress, they can get focused and make short-term progress. The key to all this and the way we've built it is that we're going to sustain these elevated standards. That's the harder challenge. When you look at G.O.L.D. and our G.O.L.D. standards, we know where we want to get our stores. We know where we want to keep our stores, and our culture of accountability around execution is what gives us confidence that we'll get there.

Ultimately, you run better stores, you give a better customer experience, that drives traffic, sales and productivity over time. The positive traffic trends we saw this quarter give us confidence that customers are noticing the improvements. And with a long runway to go, it gives us confidence in what we're doing in our future. I'm very passionate about this point.

Great. Then, I have a quick follow-up question for Stewart. So in terms of the updated outlook, can you help us think through some of the puts and takes on the gross margin and SG&A line for Q3 and Q4? It would be helpful if you can provide any color, mix impact, freight fuel, tariffs and shrink as well.

Yes. Thanks, Rupesh. You said a quick question. There's a lot here. So I'm not sure it will be a quick answer, but let me unpack this. And I really want to take some time to talk about the tariffs because -- we've had a great quarter. We're delivering a little bit faster. And we -- I don't want to confuse the reinvestment with really the underlying performance of the business, which is good. So let me take this apart here.

We spent a lot of time trying to unpack the tariffs so that there's transparency, and you can see the business that sits underneath that. And if you look at the supplemental deck, we laid out the full year in that deck so that you could understand what the tariff impacts are, and you can separate them from what I'm saying about the rest of the business. So let me just take you through the items, starting with the refunds, the reinvestment and the duties, you get a picture of that. And then I'll come and I'll talk about the gross margin and the SG&A and give you color on some of the other items that you asked about.

So when I talked about the prepared remarks, we had received about $369 million of refund in Q2, and that benefited gross margin in Q2. And for the full year, we currently expect to reinvest approximately $210 million. So you get a big benefit in Q2, and you get the expenses coming in the back part of the year. So $210 million that we're going to reinvest for the full year, that's $80 million impacting gross margin and $130 million impacting SG&A.

But of the $210 million, you'll recall, maybe as I went past that in the prepared remarks, we reinvested $37 million in Q2. That had $22 million in COGS and $15 million in SG&A. So think about that, the back half then -- I'll just give you the numbers. The back half will have a gross margin impact of $58 million in COGS, in gross margin and $115 million in SG&A. And keep in mind that the last number, the SG&A number, includes the $40 million of charity donation that Mike talked about. So when you combine all these items on an EPS basis, the net benefit is about $0.60 for the year. And that includes, by the way, $14 million or so that I spoke to, a positive income in the $383 million refund. But -- so $0.60 for the full year.

So if you now accept that all the tariffs, you put those aside, the color I'm now going to give you completely excludes any of the puts and takes I've just given you on tariffs, we expect -- we said we expected gross margin to be up for the year, and that means up modestly for the year. And that means that there's going to be some pressure in the back half. And specifically, we expect the gross margin to be flattish in Q3, which benefits from cycling last year's inventory write-off. And we expect Q4 that gross margin will be down.

Now what drives that? In both quarters, we have higher freight costs driven by higher fuel prices. And we had, last year, you'll recall, in the back half of the year, very low freight prices. So we're cycling some of that. And we have that broad-based inflation that's coming through our merch costs. I think a lot of that is tied probably to fuel, but we're seeing broad-based inflation. There's a lesser impact on the mix shift to consumables. It's mostly driven by the other 2. And so while you get a little bit of benefit from the current lower tariffs, they're helping, but they don't offset the negative impacts of freight and inflation. And when I'm talking about tariffs, I'm not talking about the refunds now. I'm talking about the ongoing tariff rates.

So there's a lot here, forgive me. I want to be really clear on the merch costs because if we're talking about these higher freight costs, we're talking about these higher fuel prices, to the extent that those are sticky -- and of course, the market is volatile. To the extent those are sticky, we'll deploy the 5 levers. We've done that repeatedly over the last couple of years. You can see that we know how to manage to the margin. On shrink, of course, we're not expecting the same magnitude in the back half of the year because most of the inventories have been taken. So I think that's the picture on gross margin.

Let me go to your last point, which is SG&A. And I'm talking about SG&A inclusive of the TSA income. We said in the past, we're cycling the red-stickering initiatives from last year, and that's about $33 million a quarter. We see several offsets to this benefit, which includes lower TSA income as we wind down the TSA. We've got some higher utility costs, and we've got some higher marketing costs where we've chosen to invest. But the good news on SG&A is we are controlling the controllables in SG&A, and we continue to see opportunity.

So there's a lot there. But if I just summarize it by saying I've broken out the tariffs. You will see those higher reinvestments in the back part of the year, which will reduce our EPS in each of the quarters. You should add that back, and that's probably about 2/3, 1/3 just as a rough guide. On the margins, we're managing these higher costs as part of our run rates. I've laid those out for you. And on SG&A, we're in charge of the SG&A items that are controllable.

Our next question is coming from Bobby Griffin from Raymond James.

Congrats on a good quarter. Mike, I wanted to circle up first on the $1 price points that you referenced. Is that something we should expect on a go-forward basis? And how are you thinking about those items in the context of the multi-price strategy? Anything that would prevent that from being part of the assortment going forward?

Yes. It's a good question, Bobby. I'll tell you, like our founders, everything we do is designed around delivering value, convenience and discovery for our customers. Those are the principles at the heart of Dollar Tree, and they guide every pricing decision we make. We're pleased with where our multi-price strategy stands today. Multi-price gives us the flexibility to deliver the right item at the right price while always maintaining that compelling value proposition across the store. So the thrill of the hunt can come from finding a $5 hammer or a $3 seasonal item or a $1 pool noodle. What matters is that the customers know they're getting outstanding value no matter what the price point is.

So with that context, looking ahead, there's nothing preventing us from maintaining a $1 price point within the assortment. As Stewart said before, we buy to a margin. When we can offer a $1 item and still deliver the value and economics we're looking for, we'll absolutely do that. Ultimately, multi-price is not about moving away from our heritage. It's about giving us more flexibility to drive the value, convenience and discovery that has always been our heritage and will always be our heritage.

Okay. That's helpful. I appreciate it. And then just quickly as a follow-up, Stewart, on the helium shortages, modest comp headwind here in 2Q. Just how should we think about that in terms of the back half and what's assumed in the guide from that aspect?

Yes. I'll actually jump in on that. I'm very close to it. I will say that the team has done a great job on the merch side and on the store side, navigating the helium shortage. As we mentioned in our prepared remarks, helium availability reduced sales by about $15 million or 30 basis points of comp during Q2. The impact was concentrated in our party business. Balloons are an important traffic driver for that business. And when customers come in for balloons, they often purchase other items for celebration and events. So the impact definitely extends beyond the balloon sale itself.

But what I think is really important is we don't have a demand issue here. The challenge has been the availability of helium across the industry in these pockets where we've seen some challenges, and that's limited our ability to fully meet the demand. So we're working and we've worked closely with our suppliers. We've taken steps to manage through the disruption. Supply remained constrained throughout the quarter. And as we look to the back half of the year, it's still uncertain. And so because of that, we're not assuming a recovery in the near term in our numbers. But we work this constantly.

And I think it's important to note that when you take that impact and you step back, we're encouraged by the underlying performance of the business. You look at discretionary despite this helium headwind, broad-based strength across a number of departments and really a strong discretionary on top of a very strong discretionary last year.

I appreciate the details on both aspects. Best of luck here in the back half.

Next question today is coming from Michael Lasser from UBS.

Obviously, there's a lot of moving pieces with all that's going on within the margins, especially. So my question is a 2-parter. One is you are pointing out that the gross margin should be down year-over-year in the fourth quarter. Most likely, the investment community is going to extrapolate that into next year as some of these persistent costs linger around. You have made the case that you can use your 5 levers to offset that. Now is there anything different about this environment that we should at least not anticipate the gross margin will be down for a period of time because you do have a lot of competitors who are investing in price and that could constrain your ability to pass along further price increases?

Yes. I mean, Michael, let me pick that up. First of all, I've seen a lot of earnings releases where people are talking about using tariff refunds to offset back half inflation. And I want to point out that's not what we've done here. All the inflation that we've discussed is sort of directly in the run rate. And we wanted to do that because we want you to see what the underlying business looks like. Having said that, as you know, of course, we have very successfully managed volatility these past couple of years using those 5 levers. And we're confident that we can manage to the margin and work to the algorithm that we laid out at our Investor Day.

So the picture for the back half of the year is, of course, as painted, but we want to be mindful also that because of the volatility, these things can move around a lot. And so just imagine that we see changes in tariff or more importantly, we see a cessation of hostilities in the Middle East, and we see a dramatic reduction in fuel costs. These could change that inflation picture quite dramatically. And it doesn't make sense for us, given the strategies that we employ and the value we want to drive for our customers, to take any sort of premature and reactive kinds of decisions. We're driving a great result for the year. We've absorbed these kinds of inflations in that great result, and we think it's better to stay the course until we can see very clearly what the result is going to look like and our merchants and our cost base will respond to what we need to drive the right results for next year.

Okay. And another way of basically asking the same question, so I apologize for that, is you've, at your Investor Day, laid out an algorithm that will generate substantial earnings growth moving forward. Given these inflationary pressures, coupled with the unique investments that you are making this year and the funding sources from those investments, will 2027 be a year, in light of all that, where you think you can generate the algorithm? Or should we, as the outside, be thinking next year is going to be a sub-algorithm year given that you may have to digest some of what happened this year?

Yes, Michael, we feel confident in our algorithm. We think Q2 was an incredible proof point of that with traffic turning earlier, I think it demonstrates the customer response. We're not giving '27 guidance today, but we feel really good about the initiatives that we outlined at Investor Day, the work we've done. And what you're starting to see is these initiatives build upon each other and work in conjunction with each other. I call it better, better, better. So it's a better assortment in better-run stores and now with better marketing and more to come on that.

And so when I look out at the multiyear horizon, I'm excited about what we're doing, and the proof points are telling me we're doing the right things, we need to keep executing and there's much strength ahead.

Yes. The only thing I'd add to that, Michael, is that the sort of pressure you're seeing in the back half, I mean, that inflation driven, I mean, everybody is feeling that. So we're not going to be alone in that. I think what separates us in my mind and why I feel confident about the long-range algorithm is that we're taking the right choices. You're seeing those results in this quarter, and we're giving you the kind of transparency because we have that belief.

Next question is coming from Edward Kelly from Wells Fargo.

I was hoping that you could maybe unpack the second half a little bit from a comp perspective and what you're thinking there. Obviously, your traffic compare gets a lot easier. Ticket compare is a little bit harder there. Just sort of how you're thinking about sustaining sort of the 2-year on traffic? And then maybe also just additional color on the mix side in discretionary and what you think is causing that softness there.

Yes, sure. Thanks, Ed. I'll take that. I think as you look at this sustaining, it really goes to the initiatives we've seen. Both -- everything we laid out at Investor Day was designed to drive both traffic and ticket. And while ticket carried the water in the first half of the year, as you lap last year's tariff-related price actions, we know it's ticket. And so what gives me confidence in the second half of the year is, yes, it's going to be skewed towards ticket. But seeing that -- I'm sorry, skewed towards traffic, excuse me -- seeing that traffic come earlier and seeing the positive Q2, and I mentioned we were pleased with the start to Q3, that gives me confidence in that traffic really helping to drive.

But as you start to smooth these things out and you look at the long-term algo, all the initiatives we're executing on are designed to drive both. And I think we've got some really good proof points as you look at the first half of the year, and that gives us the confidence that traffic will carry the day in the second half. And that, as we normalize over time, we really get the strength of both ticket and traffic because that's what we're designing it to do.

In terms of the mix, my Brockton will come out a little, and I won't apologize for a 1.6% comp in discretionary. When you look at, it's on top of a 6.1% from last year. So -- and the consumables comp was incredible. I said it in the prepared remarks, this wasn't a question of consumable being the story and oh, no on discretionary. This was a story about discretionary being strong and consumables being very strong. And add back in that helium. I mean, when you look at 30 bps, that takes discretionary to a 2% comp in the quarter. So -- and remember, Q2, there's not a lot of Dollar Tree type events in Q2. So give me Halloween, give me Thanksgiving. Let me get to Christmas. And I think that consumables-discretionary mix really is strong for us and is constantly the magic of Dollar Tree.

Great. And just a follow-up, Stewart. Could you unpack freight for us? Just the incremental headwind, what is sort of fuel surcharge? How we should be thinking about what's going on with the underlying contract rates? There's been some talk about driver shortages. I don't know what type of visibility you have on renewals. Just any help you could provide there?

Yes. Look, I'll just go back. Nothing's really changed from the previous quarters in terms of the composition there. We did enjoy very low, particularly ocean freight rates at the end of last year, which we highlighted in our call. So there's a bit of lapping that. But ignoring that for a second, as we mentioned, we got through all of our -- or most of our renewals, and the base rates were not substantially different from last year. What is different is really this fuel -- the fuel surcharge that's coming through is very, very meaningful. And that's going to continue as long as the fuel prices are elevated.

There is an impact from drivers. It's not nearly as much as fuel. Really, fuel is the driver here. I mean, sort of good news, bad news. Nobody wants to see higher fuel prices. But to the extent that we see things settle out in the Middle East, and that those fuel prices can come back pretty quickly, and that will be felt in our freight rates pretty quickly because that's all set up as a surcharge with readjustment time frames that are actually quite short.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, everyone. We're excited about the quarter. We're excited about the future of Dollar Tree, and we appreciate your time this morning on the call. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Dollar Tree Q1 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Daniel Delrosario, Senior Vice President, Investor Relations and Treasurer.

Good morning, everyone, and thank you for joining us today to discuss Dollar Tree's First Quarter fiscal 2026 Results. With me today are Dollar Tree's CEO, Mike Creedon; and CFO, Stewart Glendinning.

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 and 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 section in our annual report on Form 10-K filed on March 16, 2026, our most recent press release and Form 8-K and other filings with the SEC.

We caution against 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 to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR 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 non-GAAP basis.

Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations and all comparisons discussed today for the first quarter of fiscal 2026 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.

Following our prepared remarks, Mike and Stewart will take your question. yourself to 1 question and 1 follow-up question. And with that, I'll turn the call over to Mike.

Thanks, Daniel. Good morning, everyone. At Dollar Tree, we continue to focus on executing our strategic plan. Expand and modernize our assortment through multi-price, manage costs with a create a strong connection with our customer, open more new stores and improve the condition of our fleet and the in-store experience, all of which are supported by supply chain excellence and our more than 150,000 associates.

At the same time, we recognize the consumer environment remains dynamic, especially for lower-income households, navigating higher fuel costs and broader macro uncertainty. Customers are shopping thoughtfully and closer to need, with a continued focus on affordability, convenience and trip efficiency. Customers value the ability to shop nearby and quickly to stretch their budgets through smaller and more affordable pack sizes and to still find a compelling assortment and discovery throughout the store.

Importantly, our model is built for environments like this. Our deep value and attractive opening price points not only enable us to best serve our core customer, they also position us to benefit from trading behavior, as customers across multiple income cohorts become increasingly value-focused.

Against a backdrop of ongoing uncertainty around fuel costs and tariffs, we will continue to protect value while strengthening the quality and relevance of our assortment. In this environment, our powerful combination of value, convenience and discovery continues to resonate with customers across all income levels and a wide range of shopping occasions.

Our financial performance in the first quarter builds upon the strength of the prior quarter and validates our approach. Total sales increased 7.2%, while comparable sales rose 3.5%, driven by continued strength in ticket and traffic trends that improved in line with our expectations. Our focus and execution drove strong margins in Q1 adjusted earnings per share growth of 38% year-over-year to $1.74, exceeding the high end of our outlook range.

As expected, this year's earlier Easter timing created a natural comp headwind, and our core customer continues to buy much closer to need.

Despite these dynamics, we delivered a good quarter. Our performance reflects the underlying momentum in the business and strong execution from our merchandise, store and supply chain teams. Our multi-price assortment continues to perform well and remains a meaningful growth driver.

While Dollar Tree has historically and continues to feature prominently around the holidays and celebrations, we are increasingly leveraging that traffic and customer engagement to build greater relevance across everyday consumables in household categories throughout the year. Our merchant teams are focused on bringing the multi-price excitement of holiday to the everyday categories.

Increasingly at Dollar Tree, we've been saying, "come for the holiday, stay for the every day". Customers often enter the store for a seasonal need, particularly around holidays and celebrations and then engage more broadly across everyday categories once in the store.

Our internal data continues to show that expanded multi-price assortment is supporting incremental strength in everyday categories like toys and beverages.

Turning to the components of comp, traffic declined 1% in the quarter, representing a 20 basis point sequential improvement from the fourth quarter. This improvement is consistent with our expectations. On a 2-year basis, traffic trends improved about 200 basis points sequentially in the first quarter when compared to the Q4 2-year traffic stack reflecting both continued normalization from the initial reaction to pricing resets and also encouraging customer response to our expanding assortment and value proposition.

Ticket increased 4.5% in the quarter. Ticket growth reflects the continued evolution of our assortment, the expansion of multi-price and our ability to offer customers a broader range of value options across categories. We are seeing strength in areas such as home decor and household consumables, where we have leaned into even higher quality, sharper price points and clearer value communication. The expansion of multi-price continues to be a key enabler of that progress. It allows us to improve quality in core categories, introduce new items that were previously not viable at a single price point and create more compelling options across a wider range of purchase occasions. Additionally, it enables us to better align price points with product attributes, improving both clarity and value for the customer.

At the same time, we remain disciplined in maintaining strong relative price competitiveness. Our opening price point remains a critical anchor for both the brand and the customers' perception of value. Even as we expand assortment and choice above the entry price point, rigorous benchmarking of pricing and assortment against competitors has enabled us to maintain our position as a value leader.

Importantly, approximately 85% of our sales mix remains at $2 and below, underscoring our continued commitment to affordability and everyday value. And as Dollar Tree celebrates its 40th anniversary this year, customers will also see the dollar price point featured in stores as we honor the heritage and foundation of the brand.

Let's move on now and discuss profitability. Dollar Tree's margin profile is improving. We are making progress in areas that are within our control. This dynamic contributes to stronger overall profitability and reinforces the trajectory we outlined coming into the year. Stewart will review the financial results in more detail later, but I would like to call out an area where our operating initiatives, in particular, our gold store standards and agile cost management focus are translating into positive financial outcomes.

While it's still early days, we are starting to bend the curve on shrink. Shrink improved year-over-year as our strategies are gaining real traction. Initiatives we outlined at Investor Day, such as the nonnegotiable audit, along with continued teaching, coaching and training on shrink prevention or having a measurable impact. In addition, we are seeing increasing benefits from our product protection efforts which are helping to reduce loss on higher risk items.

In departments where we've tightened merchandising standards, improved product placement and applied more deliberate controls on an at-risk category performance is holding up better and losses are coming down. We are also being more intentional in how we identify opportunity areas in stores, addressing them through focused training, stronger oversight and consistent operational discipline.

Improved store standards and greater execution consistency across the fleet directly contribute to more stable performance at the store level. While this work is ongoing, early results continue to reinforce the disciplined, consistent execution in the field is driving meaningful improvement versus last year. At Dollar Tree, we're focused on the areas within our control and our gold store initiatives are contributing to our financial performance.

Now let's talk about marketing, which is a new muscle for Dollar Tree and one that is becoming increasingly relevant as our assortment expands as our customer base increasingly includes more higher income customers and as we seek to drive shopping frequency.

Dollar Tree has one of the strongest unaided awareness levels in retail, and we are working to more fully leverage that strength. We have been building and scaling more advanced marketing capabilities, particularly around targeted and data-driven engagement. These efforts improve our understanding of customer behavior and how we communicate value across different customer groups. They enable us to better segment our customer base and tailor messaging in a way that is more relevant. This includes how we communicate assortment, highlight key categories and support seasonal and everyday merchandising initiatives. The net result is better customer engagement and reinforcement of our value proposition.

We are also improving how we measure the effectiveness of our marketing efforts, enabling us to refine our approach over time and ensure that we are investing in the most impactful channels and strategies and are capturing a return on our investment. It is about improving precision and delivering clear relevant messaging that aligns with how customers are shopping our stores and engaging with our expanded assortment. As these capabilities continue to evolve, that will play an increasingly important role in supporting overall performance and strengthening customer engagement.

At Dollar Tree, everything starts with the customer. And we are spending more time listening to our customers and understanding how they shop in ways we never have before.

Let's turn to traffic, which remains an important component of the overall model. The performance in Q1 was consistent with our expectations and directionally aligned with the traffic patterns we discussed last quarter, following the pricing transition and re-stickering activity. Our experience with breaking the dollar demonstrated that a major pricing reset at Dollar Tree results in a temporary shift in the balance between traffic and ticket, while overall comp performance remains healthy.

Importantly, we continue to believe the current traffic response remains more muted and will normalize more quickly, reflecting the more targeted and strategic nature of the pricing actions taken over the past year. We remain highly focused on the needs of our customers and approach pricing thoughtfully, ensuring we continue to deliver the deep value they rely on while reinforcing our position as the value leader.

More broadly, traffic trends are behaving in a way that is aligned with how we would expect the business to perform given the evolution of assortment, multi-price strategy and customer behavior. When we look across the fleet, traffic performance varies in ways that are consistent with trade area, store characteristics and execution levels. That variation provides clear visibility into the underlying drivers of traffic performance and helps inform how we continue to operate and prioritize across the business.

Importantly, it also reinforces that the levers we are focused on, execution, assortment and overall store standards, are directly relevant to how the business performs.

Against a still uncertain macro backdrop, we are seeing customers remain highly value-focused, intentional in how they shop and shopping closer to need. While the external environment remains dynamic, including ongoing variability in fuel prices and tariff-related uncertainty, we believe our value positioning continues to resonate with customers navigating this current inflationary environment.

As we anniversary last year's pricing actions in the second half, traffic should also benefit from the operational and merchandising progress already underway across the business, and our focus remains on reinforcing clear value in the assortment, targeted customer engagement and better in-store execution.

First, we'll continue leaning into the areas where customers are responding positively, particularly multi-price expansion in everyday categories and a compelling opening price point assortment.

Second, as I just discussed, we are continuing to scale our marketing capabilities, where targeted outreach is driving incremental trips and a strong ROI.

Third, on the operations side, we're focused on making stores easier to shop. Ensuring consistent cashier coverage, continuing to address underperforming stores with tighter field accountability and reinforcing our gold standards across the fleet to improve execution, store conditions, and the overall customer experience.

Fourth, we'll continue improving the experience through disciplined store refreshes and renovations focused on enhancing productivity and the customer experience.

As our founders often said, "when we operate clean, bright and inviting stores, our customers win and Dollar Tree wins".

Finally, because our model enables us to help our customers better navigate uncertain times, Dollar Tree has in the past, become more relevant in tougher economic environments. This may prove an added tailwind over the quarters ahead.

Taken together, we believe these efforts support improved trip frequency, broader customer engagement across shopping occasions and a more consistent experience that should help us earn that next visit.

When we step back and look at the quarter holistically, a few things are clear. First, we delivered strong operational execution, resulting in margin expansion and earnings growth ahead of our outlook.

Second, the business continues to perform as expected with comp driven by ticket and supported by a stronger assortment.

Third, traffic trends remain in line with our expectations following the pricing actions last year.

And finally, we are deploying strategies to increase customer frequency.

We are encouraged by the progress we are making in profitability and execution, and we remain focused on continuing to build on that momentum. We are operating with discipline, focused on the right priorities in building a business that is more consistent, more predictable and better positioned for long-term growth.

As we look ahead, our focus remains on continuing to execute against the priorities we have outlined, while remaining responsive to the external environment and aligned with the needs of the customer.

We believe our work today builds a stronger foundation for the future and positions us well for sustainable growth over time. Importantly, we believe the first quarter serves as another proof point that the actions we are taking across assortment, operations and execution are driving strong financial performance.

We are building a more relevant assortment delivered through more consistently well-run stores informed by deeper engagement with customers and a better understanding of how they shop Dollar Tree.

With that, I'll turn it over to Stewart to walk through the financial details.

Thank you, Mike, and good morning, everyone. For the first quarter of fiscal 2026, Dollar Tree delivered strong results across the P&L. Traffic trends improved, and we drove operating margin expansion and grew adjusted earnings per share, 38% year-over-year to $1.74. This result was ahead of our outlook range.

Let me walk you through the details and then discuss our updated outlook. First quarter net sales increased 7.2% to $5 billion, driven by a 3.5% increase in comparable store sales and a 3.7% contribution from net new store growth. In line with our expectations, comps were driven by a 4.5% increase in average ticket on the back of last year's pricing actions and higher multi-price penetration. Traffic was down 1%, also in line with our expectations.

By category, consumables increased 3.2%, while discretionary delivered a 3.9% comp with notable strength in toys and Personal Care. Gross margin expanded 120 basis points year-over-year, driven primarily by higher merchandise margin, freight favorability and lower shrink. These benefits were partially offset by higher tariffs and markdowns.

Moving down the P&L. Total SG&A inclusive of TSA income delevered 10 basis points, driven by increased investments in marketing higher general liability costs and higher depreciation expense, partially offset by TSA income and lower payroll expenses.

We continue to make progress on growing total SG&A in line with the rate of sales growth, even after factoring in the impact from incremental marketing investments and higher general liability cost, SG&A growth inclusive of TSA income was largely in line with sales growth.

Let me take a moment to briefly address corporate SG&A. After the sale of Family Dollar, a separate corporate segment is no longer needed. However, so you can track our progress. We will continue to provide the breakout of corporate SG&A through the fourth quarter of this fiscal year. But starting in the first quarter of 2027, we intend to report on total SG&A line only.

With that said, Q1 corporate SG&A, inclusive of TSA income declined 15% year-over-year and levered 70 basis points to 2.4% of total revenue. Taken together, adjusted operating margin expanded 110 basis points to 9.5%, and adjusted operating income dollars increased 22% year-over-year.

Below the operating line, net interest expense and tax rate were in line with our expectations, while the average diluted share count was modestly favorable. Adjusted diluted earnings per share increased 38% to $1.74.

Turning to the balance sheet. Inventory declined 9% versus the prior year while sales increased 7.2%, resulting in a favorable inventory to sales spread. Our continued focus on improving inventory turns supports fresher assortments for our customers, working capital efficiency and stronger free cash flow generation. We ended the quarter with $1 billion in cash and no commercial paper outstanding. We generated $644 million in cash from operations and invested $253 million in capital expenditures, resulting in free cash flow of $392 million.

During the quarter, we repurchased about 5.5 million shares for $595 million. Subsequent to quarter end and as of today, we repurchased a further $98 million of stock. Looking back over the past 12 months, we've reduced our share count by approximately 8% and returned $1.7 billion to investors through share repurchases.

Before I share our second quarter outlook and updated expectations for fiscal 2026, I would like to start by talking to you about our tariff rate assumptions. We are closely monitoring the tariff environment, and we're taking a prudent approach to our outlook.

Consistent with last quarter, we are assuming that the current tariff rates remain in place through July and then increase in the back half of the year to the levels predating the February 20 Supreme Court decision. Additionally, we've not included any tariff refunds in the outlook.

Turning to our updated outlook for the year. We expect net sales in the range of $20.5 billion to $20.7 billion, reflecting comparable store sales growth of 3% to 4%. Given the stronger first quarter performance, lower tariffs for part of the year, higher fuel costs are driven by the current macro environment and lower share count following our repurchase we now expect adjusted diluted earnings per share in the range of $6.70 to $7.10. Note that this outlook incorporates an outstanding share count of 194 million shares which reflects share repurchases through today's date.

Turning to the second quarter. We expect net sales in the range of $4.8 billion to $4.9 billion, reflecting comparable sales store growth of 2.5% to 3.5%. Adjusted diluted earnings per share are expected to be in the range of $1 to $1.15.

In closing, we are encouraged by the start to the year, and we believe we're well positioned to deliver consistent profitable growth and to create long-term shareholder value.

With that, I'll turn the call over to Mike.

Thanks, Stewart. We delivered a strong start to the year with improved execution, driving margin expansion and earnings ahead of expectations. The business is performing well, and we're seeing good progress in the areas we control. As we look ahead, our focus remains on disciplined execution, driving strong financial performance and staying flexible in an uncertain environment. At Dollar Tree, we're building a stronger, more resilient business positioned for consistent profitable growth.

And with that, we're happy to take your questions.

[Operator Instructions] Our first question today is coming from Matthew Boss from JPMorgan.

So maybe first, could you walk us through drivers of the first quarter beat relative to your outlook from back in March? How much of it was related to lower tariff rates? And can you give us a sense of the impact from higher fuel in the quarter? And then I have a follow-up.

Yes, Matt, before Stewart jumps in, this was a really strong top line quarter for Dollar Tree. When you think about the setup, I mean we delivered a 3.5% comp on a tough compare and overcame the unfavorable Easter calendar shift. To us, this just speaks to the underlying strength of the business and the operational improvements we continue to see.

So thank you to our Dollar Tree associates. They just absolutely love delivering this magic to our customers and helping our core customers get through this present time. So Stewart, do you want to talk about the margins?

Yes. Thanks, Mike. If you looked at the quarter and our performance relative to expectations, I mean there's two big drivers here. The biggest driver was shrank, obviously, a great performance. We said we would take action there, and we have. But the other drivers, we had favorable freight relative to our assumptions and then some contribution from margin as well.

If you take those together, that's the 120 basis points of gross margin expansion. As Mike highlighted in his prepared remarks, we're really pleased, and we're pleased because the kind of changes that we saw here were really driven by operating actions.

Tariffs, while there were a year-over-year headwind were really offset by our five lever actions. So they weren't really a factor in this quarter at all. And just for absolute clarity, I mean we had no tariff refunds in this gross margin number for this quarter as well.

On your question about fuel, there was some sort of small volatility in the quarter, but it really wasn't a factor so much this quarter because of the timing of the conflict and the increases in the fuel rate. We'll start to see that coming in the back part of the year.

Great. And then as a follow-up, could you maybe speak to the progression of comps and traffic in the quarter? And if you could give us some more color on the Easter performance. And then if you could just speak to how the comp is trending quarter-to-date. I think that would be really helpful.

Sure, Matt. Broadly speaking, traffic was in line with our expectations. We saw that 20 bps improvement versus Q4. And on a 2-year basis, we saw meaningful acceleration versus Q4. So we were happy to see that.

The comp was strong, trended in line with expectations, and I really liked the strength in both discretionary at 3.9% and consumables at a 3.2%.

For Easter, it was an expected headwind. Two weeks fewer selling moves it up into the worst weather part of the month and seeing a customer that's shopping so much closer to need, those days matter. But the underlying was really good at Easter with record sales in the final days of Easter.

With the quarter-to-date, we don't quantify inter-quarter trends. Our comp performance informs our Q2 outlook, which we are very comfortable with.

I will say we are encouraged by the strength of Mother's Day, but still so much of the quarter ahead of us. And as I mentioned last call, 2025 was an incredibly strong Q2. So I think we've hit the right balance here when I look at that Q2 comp outlook.

Our next question is coming from Seth Sigman from Barclays.

When you look at the guidance for the year, considering the magnitude of the Q1 beat and then the benefit from share repurchases, which is really more of a benefit on future quarters. it doesn't seem like you're flowing through all of that upside to the full year guidance. Obviously, you're raising it not to that extent.

So can you just walk us through some of the puts and takes as you think about that updated 2026 guidance?

Thanks for that question. Look, I'll just start by saying we're very happy that the Q1 start was so strong because that reduces some pressure on the back part of the year given the macro uncertainties that are out there.

We thought it was appropriate to raise the full year outlook, but we also wanted to be appropriately balanced and financially prudent, given some of the uncertainties that are out there. And there are several there are several variables that remain dynamic today, including tariffs, fuel, freight and just some broader consumer pressure. And the updated guidance we've given reflects a more cautious view around some of the transportation and fuel costs relative to where we entered last year.

So let me cover a couple of the details. First, when we spoke to you last quarter, there was an expectation, I think, of a shorter period of impact related to the conflict in the Middle East, and that has proved not to be the case. And so now we're assuming that the higher fuel prices lost throughout the year since we don't know when that conflict will end. And we're also assuming that, that amount is absorbed by the business.

At the same time, we do get some benefit from lower tariffs which will manifest themselves in the second and the third quarter. But that hasn't really changed from last quarter since we were already expecting that. And our assumption there is that following the statements from the administration, we will revert back to the old tariffs.

So because of those things, and really, if you just step back and said, what's changed, the only thing that's changed in the whole assumption is that the fuel -- the increased fuel prices are going to go for longer. So we're not flowing that full through for the full year. But a couple of other things are important in how we constructed that outlook.

We did increase -- we did incorporate, I should say, the lower share count for the share repurchases through the debt, no assumptions for any share repurchases through the rest of the year. And we're also not assuming any benefit from the potential tariff refunds in the guidance, just given some of the uncertainty about when they will come and the amounts that will be coming.

And so I want you to -- I'll just wrap up by saying I want you to keep in mind three upsides to the full year. The first one is that the Middle East conflict ends and oil prices dropped before year-end. That happens, obviously, we'll take some benefit.

Second, if the tariffs that are currently in place extend past July, then there's the potential for more benefit in the results.

And the third thing is that once we receive those tariff benefits, if we assume that there's reinvestment in the business, and we do think we will have reinvestment in the business, that those reinvestment benefits could drive the flywheel of our business in a very positive way. And of course, we would intend that to be the case.

So I think we've taken an approach here, which is sensible, given the uncertainties, and I think I've outlined some of the things that could give you a bit of upside.

Okay. Perfect. That's super helpful. I did want to follow up on traffic, down 1% this quarter. It seems pretty manageable, especially given some of the history you've seen when you look at Q2, difficult compare, do you still feel like traffic can inflect positively in the second half of the year? The macro backdrop and gas prices are higher. So if things do feel a little bit different for the end customer than they did in March. So how are you thinking about that inflection in traffic?

Yes, thanks. We recognize the macro has changed. And as you just said and I've said before, Q2 is a robust comparison. But we believe traffic will continue to improve over the course of the year. We take confidence in the Q1 improvement versus Q4 despite that earlier Easter. And then that 200 bps acceleration on the 2-year, I mean, that's meaningful, and that gives us further confidence.

And then you look at the back half, we anniversary several pricing actions in our initiatives that we laid out at Investor Day, they really continue to scale. So we get benefit from that.

And then finally, we're not someone that takes price a lot. And if you look at our history, it's rare. And the worst day of our pricing is the day we take that pricing. It's in a $0.25 increment and then we continue to improve from there as others adjust their own pricing and we're at our level. So that gives us further confidence.

On the macro, sure, customers are under pressure from higher fuel prices, but that also makes them more value focused. Look back at history, I always talked about that 20 years of positive comps. Periods like this reinforce Dollar Tree's position as a key partner for our customers.

One, our outstanding value. Two, we're close to home with an in and out shop. And three, people still want to treat themselves. And at Dollar Tree, you'll retreat yourselves because of where we're -- our value is in our pricing. So that gives us confidence as we look out over the course of the year.

Our next question today is coming from Rupesh Parikh from Oppenheimer.

So during our store tax, we recently observed some price increase in center store food. So curious whether this was planned, much the store did impact and what's the strategy behind it? And then as you look at the place where you took pricing, how do your values compare to the competition at the new price levels?

Thanks, Rupesh. I'll start that. First, just to put it in context, -- this is a very small portion of our assortment, less than 5%. Our objective was to improve assortment relevance and also improve price clarity for the customer. We're listening to our customers in ways we never have before. And there were brands that we had lost because we couldn't provide them at the dollar or the $1.25. And our customers wanted those brands, they were part of their occasions to come. And so at $1.50, we were able to bring that back. [ Rice Saroni ] is a great example. Spam, you can see it in the stores. Frank's hot sauce. I mean we put that on everything. So it really gave us a good opportunity.

And then in terms of the competitiveness, Stewart, do you want to hit the process there?

Yes, sure, Mike. Let me talk a little bit about how we benchmark versus competitors. So Rupesh, we don't achieve value by chance. That's really my first point. Our merchants do the shopping for our customers to make sure that we get to the best value. And one of the ways they do that is that they rigorously benchmark our products against the competitors. Now remember, only about 20% of our store can actually be -- is actually like-for-like. But even when they do a like-for-like comparison, they're pretty generous to our competitors in the way that they benchmark that because they allow much larger packs to be benchmarked directly on a per ounce basis against our own packs. And even when we do that, we still show data that shows us to be positive on a relative value basis versus the competitors.

And I'll also say part of that value benchmarking, not simply what is the price, but also what is the spec of the goods that is going into. So it's a very detailed process that gets back to the point I started with, which is this doesn't happen by chance.

On the 80% of the store that is sort of unique to us. Our merchants still on those items, I mean, 85% of the store is less than $2. So this separates us from most competitors, generally speaking. But outside of that, I mean, our merchants are constantly focused on how they achieve the greatest value on any of those items. They want the deals to be real deals, and that's how we end up with things like $5 hammers. And so we always start with value, we end with value across 100% of the store.

Great. That's helpful color. Then my follow-up question. SG&A deleverage during the quarter, can you speak to your confidence that SG&A can lever this year? And also since you're lapping the red stickering headwind, how should we think about SG&A growth on an underlying basis? Just any headwinds or tailwinds we should be thinking about?

Yes. Thanks, Rupesh. I mean yes, let me pick that apart. So first of all, the SG&A outcome is really good. Look at this against history. It's clear that the results we've delivered in Q1 are good results that put us absolutely on the track that we've been talking about. When you consider -- what also took us in Q1 because at the same time, we delivered these results in the first quarter, we were continuing to invest incrementally in marketing initiatives, and we also had to absorb some increased pressure from general liabilities.

So let me talk to a couple of those things. First of all, on general liabilities, I want you to think about that a little bit like we shrink. We've taken it apart. We know what the drivers are. We've got teams organized around it. And we have a very clear action plan that is designed to bend the trend on general liability, even though that is a bit of an industry problem.

We are also continuing to make progress on growing SG&A more in line with our business. That has been the focus of our organization, and we're seeing much better cost discipline we're seeing labor productivity, and we're starting to see those leverage characteristics.

Now in the back half of the year, in the back half of the year, we will start to lap the stickering from last year. So you're going to see absolute leverage in the back half of the year. I mean, how am I confident we're going to see leverage because I know we've got that onetime from last year. But putting that aside, all of our goals remain the same and we're confident that we are on the right track to deliver our SG&A promises.

Thank you. Our next question today is coming from Chris Bottiglieri from BNP Paribas.

Can you speak to what you're seeing from low income consumer given elevated gas prices Additionally, have you started to see any trade-in to Dollar Tree from hierarchy consumers, given the environment, are you seeing anything differently from a merchandising perspective? Are you doing anything differently from a merchandising perspective?

Yes. Thanks, Chris. Yes, across all income levels, customers are value-focused and definitely prioritizing affordability, convenience and gas saving trip efficiency.

In Q1, customers saw higher gas prices for sure, but they also saw higher tax returns. And typically, we see a lag in the true impact from higher gas. So that remains to be seen a bit as to the impact they have.

But no matter what the customer faces, we know that value and convenience will be top of their priorities. And for us, that's where we meet them, and that's what we think we're really well suited. And I couldn't think of a better time to have a more complete and relevant assortment. So yes, we are seeing trade-in customers as we continue to grow households. We're the fourth largest household by penetration retailer. And it's skewing higher income, more than half skew higher income, and they're finding an assortment that is really relevant to them.

So Dollar Tree, it's a destination in times like this, and we will -- we've proven that over our history, and we'll continue to see that.

Mike, maybe just -- let me just offer a couple of thoughts on some of the data that we're seeing. We look at our performance by income cohort, we've got the ability to slug some of that. And there's no question that lower consumers under pressure. I mean I've just gone through 3 or 4 years of higher inflation generally, think about food, health care, housing utilities, look at all those things over the last number of years, and you will see them indexing higher, markedly higher. And now on top of that, is coming this much higher gas price.

But the critical thing, and this is really the message I want to give you is that when we look at Dollar Tree, when I take the part of the data from this past quarter, and we look at our store base by income demographic. All of our cohorts are comping positive in this past quarter. So comp growth is broad-based. And some of the things that Mike is saying about the attractiveness of our assortment and our offering and our value to customers is proving out in the data.

And then my follow-up would be a question on tariff refunds. Can you give us an update on the tariff refunds and how you think about timing amount and the use of the proceeds?

Sure. Yes, thanks for the question. Like many companies, we're participating in the tariff refund program. There's still a lot to process through, especially on what future tariff landscape might be.

But at Dollar Tree, we start with the customer. Our focus is the customer, so we would look to reinvest any refunds in the business to enhance our ability to deliver that value convenience and discovery that our customer comes to us for.

In terms of the outlook, as Stewart said, we haven't -- nothing was in Q1 and nothing is assumed in the outlook going forward.

Our next question is coming from Michael Lasser from UBS.

We're all trying to figure out the interplay between your outlook for traffic and your profitability. So on the one hand, you're making the case that given the outlook for stacks as the traffic comparisons get easier coupled with the historic experience as traffic had come back following your initial move to the $1.25 price point, traffic will improve. But on the other hand, you're also saying that you're going to absorb some of the increased costs in the second half of the year may focus a bit more on marketing. So perhaps you're saying you're going to need to sacrifice your profitability in order to drive that traffic.

So how do you prioritize over time, this balance between restoring positive traffic versus maintaining the profitability of the business. Is there one that you would prioritize over the other, meaning if traffic does not improve in the back half, you'd be willing to sacrifice some of your margins in order to do that?

Yes. Good. Well, let's talk about, Michael, that's a good question. I mean, I don't think we're going to say what we will do when we face specific circumstances. I can tell you what our plan is.

In answer to the question that I had earlier about the outlook, I sort of made it clear that some of the benefit we took in Q1, some of the outsized performance in Q1, we will use that to help insulate the back part of the year.

And so our view is we don't know how long the conflict in the Middle East is, like others, we are hopeful that, that is a temporal and not a structural issue. For the moment, we are treating that as a temporal problem. And that is to say we've got the resource in our forecast for the year, our estimates to be able to manage absorbing that cost. And as I also said earlier, I mean, I think there are some upsides here. I mean if we do see early oil change and that will take the pressure off in an obvious way when we get those tariff refunds, those will see reinvestment in the business.

None of those are really in there. So I think there are other places to go to reinforce traffic in the back half before we have to eat into the outlook that we provided to you today. Does that make sense?

It does, Stewart, it will be helpful if you could outline some of those levers that you would push in order to drive traffic. It does not perform up to what you're expecting? And then I have a quick follow-up.

Yes, Michael, the initiatives that are already in play that we've laid out, those improving store standards, Stewart talked about how we saw traffic by our store groups, how they were performing, where they were located, all that. All those initiatives are already underway. We really see those as gaining traction and being big drivers in the second half.

You talk about shrink, shrink improves in well-run stores. And so we really look at the assortment we're delivering and looking out over the second half, we look at the improvement in the store standards. We look at the marketing that has -- it's a kind of low-cost, quick return type marketing. We really feel all of those will be big drivers in the second half.

Understood. My quick follow-up is, Mike, has the basket -- the price of a basket for a customer increases the customer comes to the register sees that it cost a lot more to buy the same volume of goods that they might have purchased in the past. Perhaps their expectation around the store experience also elevate if they're going to have to spend more to buy the same amount.

So you showed this help a graph on where your store standards are across the distribution of your entire population. Where does that stand today? And are you willing to invest more in labor or other operating expenses to accelerate and then the curve on your overall level of store standard in order to meet the customers' expectations if they have risen as a result of the higher price points.

Yes. First, on the back, I think you've got to ground yourself in the fact that 85% of what we sell is less than $2 or less. So we have an average unit of $1.51. You get a basket $12 and change. We are not the same sticker shock you're getting when you check out at a grocery store or one of these mass merchants. It's different.

In terms of we call the Himalayas, somebody said that at Investor Day, and I've always liked to [ Jose ] gets tired of me asking about the Himalayas. We are seeing improvement and it's sliding to the right. And retailers are always chasing their lower-performing stores. We were chasing more than we should have been. We've seen that improve and materially improve shifting to the right.

And I think shrink is a good proof point of that. When you've got a well-run store, we know shrink can be internal and external. And when you have a well-run store it's kind of easier to see what's out of place, and it's easier to control the things you control including in-stocks and shrink. So I think that's a good proof point, Michael, of the progress we've made in improving the overall store standards.

Our next question today is coming from Scott Ciccarelli from Truist Securities.

You talked about making progress on the initiatives we provided at Investor Day. I think one of the ones that really stood out was your gold star goals and how the majority of your stores basically are substandard by your own metrics. So can you help us understand the progress that you've already made on improving the store standards, whether that's percentage that shifted from [ 3 to 5 ] or whatever it is? And then also, what is your expected progress for the balance of the year?

Sure. And just to correct, I think 42% is what we showed, so it wasn't the majority were below our standards. But if the average retailer is chasing 15% to 20% of their stores, we were chasing 42% below our standard. So that's what I showed at Investor Day, that's significantly high. That's less than 1/3 today. So we haven't broken that out, but I'll tell you right now that's less than 1/3, still not where we want it to be, but significant improvement.

When you have 9,400 stores and chains, turning these big [ QE2 ] are hard to do. I'm very pleased with the progress we've made over the past year. And as more and more stores are above our standard and approaching that grand opening look daily, the ones left to manage get easier to manage just because of volume. If every room in your house is a mess, it takes longer to clean. As you start cleaning room to room, it gets easier to clean up the kitchen. And that's really what [ Jose ] and the team are doing. They're making that progress. And it's not linear. It starts to accelerate because of fewer stores to address.

And then just a quick follow-up. We saw a decline in inventory levels. Is -- was there something kind of unique about this quarter in terms of timing? Or is the expectation to manage down inventory because obviously, that becomes a gross margin benefit for the balance of the year if it stays lower?

We've been very focused over the last 12 months trying to manage that inventory. If you look back a year ago, we felt that our turns were just too slow. We were carrying too much inventory. It was gumming up stores and distribution centers taking too much storage space.

So it's been a very conscious effort over the past 12 months. to reduce the inventory. And we think it's a really great result.

I mean if you looked at this quarter, is the inventory has just grown in line with the sales over the past 12 months we would have $425 million more inventory than we have today. So it's been a good result operationally to unclog the system, and it's also been a very good outcome for working capital efficiency.

Thank you. Our next question today is coming from Edward Kelly from Wells Fargo.

Stewart, I was hoping that you could [indiscernible] on freight for us. Historically, obviously, it's typically been a sizable headwind for Dollar Tree on prices spike. Could you maybe just talk a bit more about [ ocean ] domestic spot versus contract? And I guess overall, the real question here is how confident you are in your visibility in terms of any freight headwind being guidance this year.

Got you. Okay. Well, let's pick it apart. I mean, I think some of the comments that I've made in the last quarters, I would just sort of echo here today. I mean, we had very favorable freight environment last year. I mean there's been plenty of capacity in the marketplace.

That hasn't changed dramatically through this point as we were coming into the year, it was one of the things that was on my watch list as a potential downside. That hasn't manifested itself, which is sort of good news.

We've been through our -- most of our negotiations on freight and the base rates for those for that freight movement have remained pretty favorable, actually. I mean, so we haven't seen dramatic movements from last year.

What is different, of course, is that everybody is facing a higher fuel bill, and it is perfectly reasonable to expect that our freight providers are going to be reimbursed for those higher costs. And so you're seeing price surcharges, which are coming through, which are baked into our expectations for the remainder of the year.

last quarter and maybe even the quarter before, I had worn that there may be some pressure on driver availability and driver availability has been squeezed some. And so we have seen some incremental costs from driver costs, which we've baked into our numbers. So all of that is in there.

And then just your last question, which is about sort of where we think about spot or long-term contracts versus short term. In the current environment, you want to avoid spot because those prices are very, very high. But if you look at our -- the construct of our freight agreements over the last couple of years, those have moved to more of a shorter-term bias that is to say, a year or so and that was conscious in the current environment, that is not a bad thing because we actually see that we'll be more tightly coupled with the marketplace. So we still have a mix of both, just to reassure you, but it's moved a little bit more towards the shorter time frame.

Great. And then just a quick follow-up. Helium, just thoughts on helium supply. What you're seeing, how it may impact you for the balance of the year?

Sure. Helium is still a bit tight across the industry. But overall, we feel good about how we're managing it. We came into this with stronger inventory position as one of the largest buyers, which really helps us from an access standpoint and is an improvement from where we were dealing with this in the past.

I also like the timing. I wish we didn't have any helium shortages, but I like the timing of it because, if you think about big holidays, Valentine's Day being a huge demand, and then we were -- so it came after Valentine's Day. We already had supply for Mother's Day and grads. And so we see demand now ease a bit. And we'll continue to work closely with our suppliers and use our scale to keep things flowing.

I do also want to mention. I celebrated my son's 15th birthday on Saturday, plenty of helium balloons, but also the stick balloons set up an entire table, I see that to say the substitutability at Dollar Tree is second to none. You want to come in and celebrate, we promise you, we've got something for you to celebrate and it looks great and no one can match our value.

Our next question is coming from John Heinbockel from Guggenheim Partners. .

Mike, two things tied together. What's your vision for marketing now that you ramp it up in terms of what should you be spending where right, I think about calls to action on a personalized basis, right, to get people in for that extra trip. How do you think about that holistically? And then what's your outlook for UPT, right, is that naturally should improve, right, as you cycle some of the tariff increases?

Yes. Thanks, John. In terms of the marketing vision, we have a new muscle here. It's a test and learn muscle. So we're going to lean on that. We've got data now that we've never had before, really leveraging elements of AI throughout our business to really get to know our customer better. And so I say that to say, our test and learn is going to fuel what we do with marketing. So when we do our banner ads, our push is when we do influence or social media, when we see things that hit we're going to lean into that and we're going to grow, always with an eye towards the returns on it.

So I said at the retail round up earlier this year. Both think of us Super Bowl ad, but definitely think of us leaning into social, leaning into targeted messaging to our customers to make sure they're aware of what's inside the box.

Our unaided awareness at Dollar Tree is incredible. It's one of the highest in retail. But what's in the box with our new expanded assortment has changed, and we want to tell our customer about that. So we'll leverage test and learn to really lean in and over time, develop our long-term marketing vision.

On the units front, we think about UPT as an output, not an input to our assortment. Given the growth in multi-price, units become less relevant as a marker. As we said -- I said at Investor Day, we're focused on space optimization and driving that shelf productivity. And so as such, we'll reallocate space to a more productive assortment. So if a $5 hammer, Stewart's favorite thing, replaces [ $4.25 ] units, your units come down, but we like what we see from the shelf and the shelf is working harder than we had it working before.

In Q1, units per transaction declined in line with our expectations, it's a natural output of this evolution I'm talking about. And when we look longer term, our objective is to improve basket building opportunities through broader assortment relevance, stronger consumables engagement and a more compelling multi-price offering that drive increased shopping frequency and fill and complete that basket, cross-category purchasing behavior.

So it's important. It's a little less relevant, but it's something we'll keep looking at and it performs in line with our expectations.

Question-and-answer session. I'd like to turn the floor back over to Mike for any further closing comments.

Thank you, and thanks, everybody, for joining us today and for your continued interest in Dollar Tree. I'd like to once again thank our 150,000-plus Dollar Tree associates who make magic. We appreciate you. Thanks for the time. speaking to you again next quarter.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Dollar Tree Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Daniel Delrosario, Senior Vice President, Investor Relations and Treasurer. Daniel, please go ahead.

Good morning, and thank you for joining us to discuss Dollar Tree's fourth quarter fiscal 2025 results. With me today are Dollar Tree's CEO, Mike Creedon; and CFO, Stewart Glendinning.

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 section in our Annual Report on Form 10-K filed on March 16, 2026, our most recent press release and Form 8-K and other filings with the SEC. We caution against 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 to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR 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 fourth quarter of fiscal 2025 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.

Following our prepared remarks, Mike and Stewart will take your questions. [Operator Instructions]

And with that, I'll turn the call over to Mike.

Thanks, Daniel. And before I begin, I want to welcome you in your new role and congratulate you. We're excited to have you stepping into this next chapter with us. I look forward to working closely together as we continue sharpening our execution and communicating our story with clarity and discipline.

Good morning, everyone. I'd like to use my time today to step back and frame what this quarter represents, more importantly, what it tells us about the underlying trajectory of the Dollar Tree business. At Investor Day, we laid out a clear road map for Dollar Tree, expanding and modernizing our assortment through multi-price, strengthening operational execution and managing costs with agility while driving disciplined capital allocation. The fourth quarter is an important proof point that those strategic pillars are translating into measurable results.

We delivered 9% revenue growth in the fourth quarter with a comp of 5%. The comp performance reflected continued ticket growth and expected decline in traffic, strong seasonal execution and high discretionary engagement with the customer. As we exit fiscal 2025, we're doing so from a stronger earnings base than we contemplated at Investor Day, reflecting the operational progress made in the back half of the year and positive customer response to our expanded assortment and value offering.

The fourth quarter included approximately 40 basis points of comp headwind from 2 winter storm events late in January that led to widespread store closures. We don't typically call out weather as those impacts tend to normalize over time, but the severity of these storms makes it appropriate to address. At the peak of the disruptions, nearly half of our store fleet was impacted by closures. The team executed our storm playbook effectively, prioritizing safety, maintaining operational control and reopening stores quickly for the communities that we serve.

Despite the headwind from the January storms, comparable sales were still at the midpoint of our outlook range, supported by improved mix and strong seasonal demand. Year-end holiday performance was especially strong, reinforcing customer engagement. Importantly, these results reflect more than just quarterly momentum. They demonstrate the continued progress we are making across the business.

In 2025, we made strong progress on our transformation initiatives. We completed the sale of Family Dollar, continued to test, learn and sharpen our multi-price and merchandising strategy, modernized key operational capabilities and laid the groundwork for sustained execution against our long-term algorithm. What we built this year is a stronger foundation for the next phase of growth. We are now, once again, a focused single-banner enterprise: Dollar Tree. We successfully navigated unprecedented tariff volatility and demonstrated the flexibility we've gained for responding to future macroeconomic factors via our multi-price assortment. We scaled multi-price with discipline, expanding assortment breadth, increasing sales productivity in converted stores and broadening our addressable market while preserving price leadership. We demonstrated measurable progress against strengthening our store standards.

That's meaningful change for a 9,000-plus store system and validates our strategy, reinforcing that disciplined execution, clear priorities and operational focus are translating into stronger fundamentals and a durable long-term growth plan.

Over the past 3 months, we've seen an acceleration in Dollar Tree household growth. Dollar Tree U.S. households reached a record 102 million, adding 6.5 million net new households in Q4, which represents a meaningful acceleration versus Q3. The growth in households continues to be broad-based and accelerated sequentially. As we shared with you at Investor Day, increasing trip frequency is a significant opportunity where even modest gains in annual visits translate into meaningful incremental sales. Taken together, the data shows multi-price and assortment expansion are not just driving spend; they are expanding Dollar Tree's addressable market.

Let's turn now to comp. The 5% comp in the quarter was ticket driven, with average unit retail increasing to approximately $1.51 versus $1.34 last year. Mix was a key driver in the quarter. Discretionary categories outperformed consumables, with multi-price driving outsized strength in seasonal, party and toys. Multi-price was also a tailwind to our Christmas performance, driving strong engagement across seasonal and discretionary categories. Expanded price bands and a more relevant assortment increased category breadth and gifting choice, driving basket expansion.

Stores with more mature, multi-price assortments delivered stronger seasonal demand and higher average tickets, reinforcing the incremental nature of the strategy. We see discretionary outperformance as an indicator of customer receptivity to expanded value, with shoppers gravitating toward broader assortments and higher-value options. As we have underscored in the past, Dollar Tree maintains laser focus on real-time quantitative benchmarking of the value in our stores versus the competition.

On an aggregate basis, our relative value proposition was even stronger as we exited 2025 than when we entered and versus our historical average. This is, of course, after pricing actions in response to tariffs and increased multi-price penetration.

I'd also like to highlight that, on average, the relative value of our multi-price offerings is even higher than that of our entry-price SKUs. Gross margin performance continues to improve, supported by favorable mix, freight moderation and disciplined mark-on management, even as we absorbed higher markdowns and continue to manage tariff volatility. Robust comp and margin performance, coupled with an incredible and expanding value proposition for our customers reflect the strength and durability of Dollar Tree's fundamentals.

Let me turn to multi-price, which is a core pillar of our growth strategy and central to how we are expanding the business. In Q4, multi-price represented approximately 16% of total sales. Over the course of the year, we rolled out roughly 2,400 additional in-line 3.0 multi-price stores, bringing the total to approximately 5,300 locations. While the distinction between our different store formats is becoming less pronounced as multi-price elements are integrated across all stores, our in-line multi-price stores continue to deliver meaningfully higher sales productivity than legacy formats, reinforcing the structural productivity benefits of the model as we scale.

By maintaining $1.25 leadership and introducing more price points, we've increased flexibility, improved relevance and deepened basket potential through complementary new offerings, delivering thrill of the hunt wow value. Approximately 85% of our opening price point assortment is $2 and below. And more than 80% of the assortment is unique to Dollar Tree, reinforcing the differentiated, discovery-driven nature of our model. We remain in the early innings of Dollar Tree's multi-price evolution. The results we have achieved to date give us building excitement on the opportunity ahead.

I'd like to take a moment to discuss traffic trends at Dollar Tree. Traffic declined in the quarter, in line with our expectations. I want to zoom out now and share how we're currently thinking about traffic more broadly. As we shared at Investor Day, everything we're doing is deliberate, from how we're modernizing pricing to how we're strengthening execution across the fleet. With that context, let me put our traffic trends in perspective.

We have successfully worked through the restickering process. It is now largely behind us. That process was a system-wide reset, new signage, improved price clarity and assortment updates designed to modernize the shopping experience. We've only adjusted pricing twice in our history: first, breaking the dollar in 2022; and second, targeted price actions in response to tariffs in 2025.

Historically, with pricing resets at Dollar Tree, while overall comp sales remain robust, there is a temporary mix shift in the same-store sales composition between traffic and ticket. What we're seeing today is directionally consistent with that pattern. That being said, as we look at the data, we see a traffic trend that is above prior reset levels, outperforming our historical experience. Importantly, we were more strategic and deliberate with our assortment during our current price adjustment cycle. As Stewart will outline in more detail shortly, our 2026 outlook reflects an expectation for a more balanced contribution from traffic and ticket. In fact, we saw sequentially improving traffic in Q4 and we're pleased with our quarter-to-date trend.

Larger picture, what matters most is how customers are behaving during a pricing transition. If engagement were deteriorating, we would expect to see pressure first in discretionary and impulse categories. Instead, in Q4, discretionary outperformed, seasonal was strong and multi-price adoption increased. That is the profile of a customer who is engaging and responding to expanded assortment and incremental value.

Let me shift to execution. This is where we've made some of the most important progress. Operational metrics are improving across the fleet. Since midyear 2025, we've seen improvement in store-level performance indicators. For example, on a net basis, more than 1/3 of our stores have improved against our internal operating standards, driving greater consistency across the fleet. Importantly, stores that perform at the highest levels across key operational indicators are outperforming the fleet with higher levels of comp and profitability. This reinforces a simple principle. When store leadership is stable, schedules are optimized, shelves are stocked and processes are consistent, stores perform better. We've made tangible progress filling store manager vacancies, reducing turnover and minimizing early closes and late openings. Retail is local, and it's won store by store.

That strengthening foundation extends beyond the 4 walls of the store and into our broader supply chain and inventory discipline, which I'll touch on next. The foundation of our business is getting stronger, and that improvement is particularly visible in our supply chain. We're raising the bar across the organization and we're seeing strong delivery from our supply chain team as service levels, in-stock metrics and inventory discipline continue to improve.

As we shared at Investor Day, those gains are driving greater operating efficiency including higher throughput per distribution center and improved shipping productivity and giving us confidence in our expectations. We also navigated meaningful cost volatility this year. Tariff expense increased substantially year-over-year. As we've discussed, we continue to actively deploy the 5 mitigation levers we've historically used to manage cost headwinds, including supplier negotiations, product reengineering, country-of-origin shifts, assortment adjustments and targeted pricing actions, all to maintain strong profitability while preserving value for our customers.

Gross margin expanded despite this volatile tariff backdrop. We managed corporate expenses with discipline, are rightsizing the organization post separation, improved free cash flow and returned significant capital to shareholders. This is a structurally stronger enterprise than it was 12 months ago.

When I step back, what I see is a resilient, high-quality business that has navigated through a period of unprecedented change while advancing a broad set of strategic initiatives. At Investor Day, we laid out a clear set of assumptions and a path forward. And in the back half of the year, we outperformed the earnings expectations embedded in that framework. That performance reinforces both the resiliency of the model and the early progress we're making against the plan we shared with you.

We're exiting the year with an expanded, more relevant assortment driven by disciplined multi-price execution, a stronger customer connection and accelerating household growth, improved store operations and greater consistency across the fleet and agile cost management in a volatile environment, supported by supply chain excellence and disciplined financial management. That combination positions us well going forward.

In summary, Dollar Tree today is simpler, more focused and structurally stronger than it was a year ago. We're confident in the durability of this model and in the direction we are heading.

With that, I'll turn it over to Stewart to walk through the financial details.

Thank you, Mike, and good morning, everyone. For the fourth quarter of fiscal 2025, Dollar Tree delivered strong results, extending the momentum we've built throughout the year. Comparable sales increased 5%, gross margin expanded 150 basis points and adjusted diluted earnings per share increased 21% year-over-year. I'll walk through the key drivers for the quarter, and then we can discuss our outlook.

Fourth quarter net sales increased 9% to $5.5 billion, driven by a 5% increase in comparable store sales and a 4% contribution from net new store growth. As expected, comps were driven by a 6.3% increase in average ticket, reflecting strong holiday performance. Traffic was down 1.2%.

By category, consumables increased 3.6%, while discretionary delivered a 6.2% comp, with notable strength in Christmas party, paper and toys on the back of an enhanced multi-price assortment. Gross margin expanded 150 basis points year-over-year driven primarily by higher merchandise margin, lower freight costs, favorable mix toward higher-margin discretionary categories and occupancy leverage. These benefits were partially offset by tariffs and higher markdowns.

Moving down the P&L. Dollar Tree segment adjusted SG&A delevered 170 basis points year-over-year, primarily driven by higher store payroll and general liability claims. We absorbed approximately $30 million for restickering costs in Q4, bringing the full year total to approximately $100 million. As I'll discuss momentarily, we will cycle the majority of these costs in the current fiscal year.

Adjusted corporate SG&A net of $23 million of TSA income was $138 million, down 3% year-over-year and leveraged 40 basis points. We continue to make progress on this line item and remain on track toward our longer-term target of corporate SG&A at approximately 2% of sales by fiscal 2028. Taken together, adjusted operating margin expanded 20 basis points to 12.8% and adjusted operating income dollars increased 11% year-over-year.

Below the operating line, net interest expense was in line with our expectations, while the effective tax rate and average diluted share count were modestly favorable. During fiscal 2025, we returned significant capital to shareholders through share repurchases, reducing shares outstanding by approximately 8% year-over-year.

Turning to the balance sheet. Inventory was down 7% versus the prior year, while sales increased 9%, resulting in a favorable inventory-to-sales spread. Our continued focus on improving inventory turns supports fresher assortments for our customers, working capital efficiency and stronger free cash flow generation. We ended the quarter with $718 million in cash and no commercial paper outstanding. We generated over $1.2 billion in cash from operations and invested $264 million in capital expenditures, resulting in free cash flow in the quarter of approximately $970 million. For the full year, we generated more than $1 billion in free cash flow.

During the quarter, we repurchased 2.2 million shares for $232 million. For fiscal 2025, we deployed nearly $1.6 billion towards share repurchases at an average price of $91. Subsequent to quarter-end, we repurchased approximately $190 million of stock. We ended the year with a strong liquidity position and remain well positioned to fund growth and return capital to shareholders.

Our capital allocation priorities remain unchanged: first, invest in the business to support growth; second, maintain a strong and flexible balance sheet; and third, return excess capital to shareholders.

Before reviewing our outlook, I want to briefly address the tariff environment. We have considered all of the recent changes. And while there may be some upside, we remain cautious because of the potential for further near-term changes and because of the potential for negative freight and other costs related to the conflict in the Middle East. It is also important to note that our current inventories have capitalized the tariff rates in place before the recent Supreme Court decision, and those costs will flow through the financials over the next quarter or so. As a result, any potential benefits will come after that.

Turning to our outlook for fiscal 2026. We expect net sales in the range of $20.5 billion to $20.7 billion, reflecting comparable store sales growth of 3% to 4%. We expect diluted earnings per share in the range of $6.50 to $6.90, which is consistent with our Investor Day framework and represents high-teens earnings growth for the year. We expect top line growth to be driven by continued multi-price expansion, improved space productivity and assortment optimization, new store openings and improving store conditions. Our full year comp outlook assumes a positive contribution from traffic.

As previously shared, we are targeting approximately 400 gross new store openings and 75 closings. We expect gross margin to be roughly flat, driven by improved markdown performance, partially offset by higher freight costs. We continue to deploy our 5 merchant levers to mitigate tariffs and other cost-related headwinds.

With respect to SG&A, we plan to tightly manage store labor while continuing to support improved store conditions. We're also taking actions to rightsize our corporate cost structure, keeping us on track to achieve our longer-term SG&A targets, including corporate SG&A of approximately 2% of sales by fiscal 2028. For 2026, we see corporate SG&A in the range of $470 million to $490 million net of TSA. Overall, our outlook reflects modest SG&A leverage as we continue to manage operating costs tightly.

For modeling purposes, let me walk through the key items we expect to lap this year. In the second, third and fourth quarters, we will lap the stickering and price implementation costs incurred in 2025. In total, these costs were approximately $100 million, spread relatively evenly across those 3 quarters. As the TSA winds down this year, we anticipate roughly $70 million of TSA income in fiscal 2026 weighted towards the first 3 quarters of the year. Putting it all together, we expect year-over-year operating margin expansion to be the greatest in the second and third quarters of the year.

Below the operating line, we expect net interest and other income of approximately $85 million, an effective tax rate of 25.4% and a diluted share count of approximately 199 million shares, which does not assume any additional share repurchases. Our balance sheet remains strong, and we're well positioned to continue returning capital to shareholders. In fiscal year 2026, we expect CapEx in the range of $1.1 billion to $1.2 billion, which represents a slight year-over-year decrease in capital intensity driven by normalizing supply chain spend.

Lastly, on the cash flow statement, we expect to utilize our NOL balance to generate roughly $165 million of cash tax benefits.

Turning to the first quarter. We expect net sales in the range of $4.9 billion to $5 billion, reflecting comparable store sales growth of 3% to 4%. Adjusted diluted earnings per share are expected to be in the range of $1.45 to $1.60.

In closing, we remain focused on disciplined execution of our Dollar Tree strategy and on delivering against our long-term earnings growth targets. We are encouraged by the progress we've made strengthening our fundamentals, improving store execution and driving a more productive and relevant assortment for our customers.

In 2025, we returned a record amount of capital to shareholders. With a strong balance sheet and multiple levers to drive growth, we believe we are well positioned to deliver consistent profitable growth and to create long-term value for our shareholders.

With that, I'll turn the call back over to Mike. Mike?

Thanks, Stewart. Over the past year, we have simplified the enterprise and sharpened our focus on what matters most: building a stronger stand-alone Dollar Tree. We're scaling multi-price with discipline, the assortment is more relevant, customer engagement is higher and converted stores are delivering improved productivity. Execution is improving across the business. Store performance is strengthening. The supply chain is operating with greater stability and efficiency is increasing across the fleet.

At Investor Day, we laid out a clear road map, disciplined growth, stronger returns and a structurally more productive enterprise. In 2025, we delivered a financial performance that exceeded our Investor Day outlook. As we exit 2025, our strategy is translating into measurable progress. Dollar Tree is simpler, more focused and better positioned for the future. The fundamentals are strengthening, the organization is aligned, and we are confident in our ability to deliver sustainable, profitable growth over the long term.

Thank you. And with that, we're ready to take your questions.

[Operator Instructions] Our first question today is coming from Matthew Boss from JPMorgan.

Congrats on a nice quarter. So Mike, could you provide some additional color on your monthly comp cadence in the fourth quarter and elaborate on what you saw in traffic? Just what you think were the key drivers? And then quarter-to-date, could you speak to how the comp is trending relative to the 3% to 4% guidance?

Yes. Thanks, Matt. Let me just start by saying we were pleased with the 5% comp in Q4. And it would have been higher if not for some of the weather events that I spoke about at the end of January. If I look at the quarter by month, December was our strongest month on the back of a really exciting multi-price led Christmas. I would say November was a very close second. And then January, of course, experienced a significant impact from the storms.

Now within those monthly comps, we were excited because we saw traffic improve sequentially as the quarter unfolded. P12 better than P11, P11 better than P10. And really, it wasn't until the end of January that we saw that disruption.

In terms of the start to the year, the quarter-to-date trend, as I said in the script, we're pleased with what we're seeing. Relative to the 3% to 4% guidance for the first quarter, we feel comfortable. Let's remember, Easter is earlier this year, and historically, that's been a headwind for the business. And we've, of course, tried to account for that in the comp guide. So overall, we feel good about our comp trend, and we like where we've started quarter-to-date.

Great. And then as a follow-up for Stewart. On gross margin, can you speak to some of the puts and takes within the outlook for roughly flat? And then additionally, just how should we think about potential upside from tariff changes? And when could that flow through?

Yes. Look, I'll start by saying that 2025 was a pretty strong performance. I mean we were up 59 basis points in the year. I think that's a big increase. You'll also notice the guidance that I've given you is now tighter than the plus/minus 50 bps I was sort of going into the year with because we have, in some places, a better view and, in some places, more volatility. But let me give you a little bit of perspective.

So guidance is to keep that better performance versus last year, flat in this year. I think that's a good starting point. If you look forward, we've done a stronger job of buying. You'll keep in mind that now sort of tariffs have settled in, our teams have that chance to get out and employ the 5 levers. Multi-price mix is helping. And we've seen strong performance in our supply chain from a productivity perspective. All these things are setting up positively for next year.

On the offset side, I did call out last quarter that we expected to see some reversion in freight, and freight was a big benefit last year, absolutely. We're hanging on to that benefit in other ways, but freight is likely to come back to be more expensive this year. And certainly, with the current fuel prices, there's going to be some volatility in fuel.

On the tariff side, we are paying slightly lower tariffs at the moment, although the administration has pointed out that they expect to get back to where we were. And so we've taken that into account as we planned this year. And while there might be some small upside in the early days, although keep in mind, because of the cycle of our inventory, it will take about 4 months as the inventory cycles through before we start seeing the benefit of that. But I think some of the benefit of the tariff might be offsetting to some of the fuel increases we're seeing. And on fuel, we'll have to see what that looks like for the rest of the year. So overall, we think we've given some strong guidance, and we expect to deliver it this year.

Next question today is coming from Seth Sigman from Barclays.

I wanted to follow up on traffic. Can you just elaborate on how you think that plays out through this year? Specifically, when do you think traffic could actually inflect positively? And maybe you could also elaborate on that point that your experience this time around regarding elasticity has been maybe better than the past.

Yes. Sure, Seth. I really look at traffic with 2 lenses. One is the lens of today. We saw the restickering we had to do in Q3. That continued in Q4. You see that in how the costs played out. And that restickering, it's not a onetime disruption, it's kind of that disruption throughout the quarters. That's disruptive to our people, in the store, our associates, but also to the customer. That's now behind us.

And what I'm pleased with is that we continue to improve in the traffic as you look throughout the quarter. So when you look at, like I said, P12 was better than P11 and P11 better than P10. As we got away from those restickering, we really saw that improvement.

And then the second lens is the historical lens. We've only taken price twice in our 40-year history. And so when I go back to break the dollar, you can go back and look, the traffic declined 4% and was negative for more than a year. We look now and say, okay, we're down 1%. So it just hasn't fallen as much, and we expect that duration to be shorter as well. So a more muted response for a shorter duration. And why? Because we were more strategic this time around in where we took price, before the entire store went up, leaving a good percentage of the store just not at value and so our merchants had to go work that through buying cycles and get back in line. This time around, you were able to be more strategic. And as a result, we were sharper on the pricing and we've seen a more softer response in terms of the -- not declining as much.

Okay. Great. Very helpful. And then, Stewart, for you, on the SG&A outlook, I guess that's one of the big changes versus 2025. There are a lot of moving pieces and things that you're lapping from last year. Can you just frame the leverage that you're expecting to get here on SG&A on an underlying basis? And how are you thinking about some of the SG&A investments going forward? And just ultimately, what do you see as the drivers of operating leverage here?

Great. Thanks, Seth. Let's take this in 2 pieces because I think it's helpful to look first at the segment SG&A and then to look separately at corporate SG&A. First of all, we said last year, we were going to go aggressively at expense, and we wanted to see ourselves driving leverage, and that has remained the goal. And I think we did a good job in 2025 of bringing those corporate SG&A costs down.

But let me start with the segment. I mean on the segment last year, we did have higher wages and some investment in hours, which we called out this time last year. Those were -- that was money that was well spent because we started to see improvement in our stores and we saw a much bigger comp.

If you think about the other big item, which we'll cycle this year, it was about $100 million, which related to all of the stickering and the price resets, so that won't recur this year. If you pull out the $100 million, all of our efforts have been focused around managing the rest of the SG&A costs on our payroll, which is about 2/3 of our total SG&A. We've done a good job of planning this year. We're implementing new workforce management software, and we expect to keep a lid on our increases.

So if you take into account the small investments, I'd say, small investment in marketing, on an underlying basis, you'll see a very small amount of leverage or flat. And that is a big difference to prior years. On corporate SG&A, as you know, of course, we're driving that down, and you will see absolute leverage on corporate SG&A as we continue to take those numbers lower.

Our next question is coming from Rupesh Parikh from Oppenheimer.

So I was hoping you can help us to understand how your team is thinking about the impacts to your business related to higher gas prices on the consumer front, some of the raw material impacts and higher freight costs. And I think it would also be helpful to hear how your team is quantifying the impact of higher diesel prices. And finally, I just want to get a sense of [ your team's ] spot exposure and whether the latest higher level of energy prices have been factored into your guidance?

Yes. Sure, Rupesh. Why don't I -- I'll take the consumer piece and then I'll let Stewart talk to the P&L. Higher prices at the pump impact all households. And so what we see is in the middle to higher income households, we see accelerated trade-in. So those customers are turning towards Dollar Tree. And then our core customer, the lower-income shopper, our pack sizes are what really help them stretch their paycheck and make their budgets work for them. So the price impacts everyone, but for us, Dollar Tree is really that key tool that helps them manage their budgets and deal with these higher prices.

And when you look back and see, I mentioned this in the press release, for 20 years, Dollar Tree has been posting positive comps. There's a lot of economic cycles in those 20 years. And the one constant is that Dollar Tree continues to be the answer across all income levels as people help live and celebrate their lives. Stewart?

Yes. So on diesel prices, and we obviously have a very close watch on this and we know exactly by increase how much that's affecting the P&L, I think we plan in the short run here, as I mentioned in the answer to the earlier question, we'll have some offset in the short run between diesel increases and some of the tariff benefits. We also will employ the 5 levers. If this looks like it's going to go longer, then we've got other actions we can take. I've been quite clear, I think last quarter in pointing out that we manage to a margin, we buy to a margin. And any of these kinds of price increases that we see, if we think they're going to be permanent or long-lasting, we're going to be taking other operating decisions and choices to try to drive -- to drive out that increase.

Great. And then my follow-up question, just going back to Q4, I think it would also be helpful if you can provide more color on the Q4 gross margin and also on the 170 basis points of SG&A deleverage that we saw.

Well, Q4 margin was heavily influenced by a much lower freight costs. And again, that was something we saw throughout the year. We were pleased with that benefit. I think it's a good thing, actually we're hanging on to that benefit in the following year's margin guidance, notwithstanding the potential reversion in freight costs. But there are other drivers also. And I mentioned those, we continue to see sourcing improvements as our merchants have had more time to wrestle with the higher costs coming through from tariff and inflation. And of course, we've had favorable mix from multi-price, which has been helpful to us.

On the supply chain, as we actually saw Q4 was strong performance in productivity there as our warehouses work aggressively to be more efficient. And we shared some of that at our Investor Day. We're starting to see that come to fruition. The SG&A pressure in the quarter was the same story as it was in the last 3 quarters of the year, which was really all of the onetime stickering costs, which we don't expect to repeat this year. We did see a continuation of higher insurance and general liability costs, but those broadly, they're smaller costs. They don't move the P&L around as much.

Our next question today is coming from Bobby Griffin from Raymond James.

I guess, Mike, I want to start on multi-price points. If you could speak a little bit about those higher price points, and more importantly, what you're seeing at the level of productivity gains out of those stores? And then taking that a step further, just as multi-price point mixes up or continues to mix up, how are you in the team looking at where you stack up competition-wise on those new or higher price points? And can you tie that back into what we're talking about with traffic and your confidence there?

Yes, absolutely. Thanks. We continue to see really strong customer acceptance for multi-price, particularly in that $3 to $5 range where the assortment expansion is driving incremental demand rather than substitution. And multi-price is improving store productivity. With higher sales per square foot and larger basket sizes in those converted stores, the broadened assortment and the increased relevance really both benefits the customer. And then in terms of our associates, it's fewer things to put on the shelf. And so there's some nice productivity and our stores love it. The ones that haven't been converted can't wait to be converted.

And I want to be clear though that this is not simply about raising prices. This is about us having better items, larger pack sizes, the right pack sizes and categories that just weren't available to us at a strict dollar or even $1.25 price point. So even at those higher price points, we remain incredibly competitive with a better assortment. And in fact, in multi-price, our value proposition is significantly better than anyone we see in terms of mass or grocery or other alternatives. So as a result of that, we're just not seeing resistance from the customers. Instead, and you saw this in the great household growth, we're seeing customers come to Dollar Tree. And that accelerated household growth in Q4 is just a great proof point of that relevance and that incremental benefit to the customer.

I really look and say multi-price items deliver an incredible relative value, while the entry price point continues to be what drives people as a destination to Dollar Tree. And our customers are telling us, they're telling us with their footsteps to the store and with their baskets. And we believe, as I mentioned, when we get their frequency up, that's when you really start to see that traffic take off. But right now, I love where we're at in terms of more and more households finding Dollar Tree and finding this incredible assortment.

And maybe just a quick follow-up for Stewart. Just on -- I appreciate the comments on the SG&A. Maybe can we go back on the corporate SG&A. I think the guide is maybe modestly higher than what we would imply coming out of the Investor Day at the midpoint. So can you talk about that and just kind of the glide path back to 2%, what the timing there? Has anything changed?

So let's start with the 2%. We're still pushing for 2% by '28, and we think that's reasonable. In terms of the actual guide of $470 million to $490 million, we had targeted $470 million at Investor Day. So we're still at the bottom -- the strong part of the guide is still a possibility.

I think it's important to just recognize that we finished 2025 in a really powerful way. We started the year with $660 million of SG&A. We anticipated $95 million of TSA. We only got $55 million. We only got $55 million out of the $95 million. So we had to go out and cut a lot of costs just to get to the number. And actually, what happened, we actually over-delivered. So we ended up being -- instead of being at $565 million, we were $35 million better. So a good result in 2025.

In 2026, similarly, we think that those TSA numbers will be slightly lower, and we're actively removing cost. But against the $500-and-some million, we finished up with $530 million, we start with $15 million of inflation. So we've got to pull out the inflation, then take out the next chunk of costs. So I think we're doing a good job.

And I would also say, by the way, that while we're pulling out that cost, we're continuing to invest in the business. And so think about -- we're spending in the back office money on various IT investments to try to automate tasks, which will allow us to flatten out that SG&A curve as we move forward. So all in all, on track for the 2%. Our organization is structurally simpler. And we're going to keep pulling out costs. I think we're going to meet the guide.

Next question is coming from Michael Lasser from UBS.

If we look at your guidance, there's a fairly narrow range for your top line expectations for 2026, yet there's a pretty wide range for your earnings expectations for this year. And that's despite what seems like a decent amount of flexibility between the restickering costs fading away, some relief on the tariff side. So, a, what is going to drive you to the top end of your earnings expectation for the year versus the bottom end? And b, if we look at that wide range, coupled with the fourth quarter that just was basically in line with what you expected despite a slightly better comp, are you still at the point where it's difficult to have a full handle on managing the profitability of the business? And at what point do you think you have more visibility into that outlook?

Yes. Well, thanks, Michael. I think, look, when you look at the guide, I mean, there's still $200 million, of course, of revenue separating those 2. I understand the point about what that looks like below. There are a lot of moving parts, both in margin, I mentioned, of course, roughly flat. We're dealing with tariffs, we're dealing with freight. So these are some of the things that might pull us down. What could pull us up, freight ends up being better, the war in the Middle East ends quickly and we end up being positive there. And of course, if we do see a more powerful return of traffic in the back part of the year, all of those things should be a help to us.

Multi-price from a mix standpoint is beneficial. So we obviously have planned for a level of multi-price. We'd like to see that working in our P&L. When you get down into the SG&A lines, we've given you some spread, obviously, on the corporate SG&A side. And on the segment SG&A, I think the risk there is related mostly to utilities and to general liabilities. The wage number is so big, I mean, 2/3 roughly of our SG&A, that small movements there can have big impacts on the bottom line. So I think those are the big moving pieces.

Okay. It was interesting that you did not mention the prospect of reinvestment either within the stores or within the merchandising, especially if you see traffic that does not meet your expectations. So, a, how have you factored in reinvestment back into the business? Is that going to be more or less static? And b, have you already seen traffic turn positive such as that gives you confidence that there is the right level of investment in the business today?

Yes. Thanks, Michael. Let me talk about investment. I think we've actually had quite a good deal of investment in the business. And we've spoken at Investor Day to investments in CapEx to redo stores. Our merchants now are on top of the changes coming out of tariffs and, of course, have been investing appropriately and ensuring that we have the right level of value. And as I mentioned in one of the earlier questions, we're investing in a number of back-office systems to help manage our SG&A. So I think that's the right level of investment.

On the top line side, we spoke at Investor Day about marketing. We have injected a small amount of marketing investment this year. We think it's going to have a good strong return. And so I would say there's a great deal of reinvestment being made in the business to ensure the flywheel is accelerated. Mike, maybe you want to talk to traffic.

Yes. Michael, I mean, we're confident in what we're seeing both in the sequential improvement we saw in Q4, despite that significant -- remember, almost half of our stores were closed for multiple days as we ended the year. And then we're pleased with what we're seeing to start the year.

And yet in your mind, you're still saying, okay, I've got an earlier Easter, which is still ahead of us and we have a very robust Q2 last year that was very strong. But absent all that, the sequence, the start to the year, the earlier Easter, the Q2, I look at the full year and say we expect a meaningful contribution from both traffic and ticket to our year. Everything we laid out at Investor Day is really working for us and I'm incredibly confident about the full year.

Our next question is coming from Edward Kelly from Wells Fargo.

I just wanted to follow up on store standards. I was curious if you could just take a step back and maybe assess where you stand there, as part of this, issues like in-stocks, price clarity, cleanliness, et cetera. Is there still work to do here? And if so, can you do that in the context of tightly managing SG&A?

Yes. Thanks, Ed. First of all, we've been on this gold path for a while now. And when I first got here, it was whack-a-mole, you improve one store, another one would break, almost in that ratio. And the work that the team has done and the acceleration we've seen in the last 6 months, that -- remember that number I said, net 1/3 of our stores have improved. So instead of you fix one, you break one, it's you fix several, one might go backwards. And so we're really seeing an overall improvement, and in a quarter, to net improve 1/3 of your stores, that's real meaningful progress. And I think that's showing up in the comp.

And then we're talking to our customers every week. We have our receipt-based surveys. We scrape websites, thousands and thousands of feedback every single week. We're seeing those improve every single month. And that's a testament to the store standards. And then the work in the supply chain that Roxanne and the team have done is the flow to the stores is much better, so you're not kind of choking out a backroom. We're much more even in our flow. And as a result, the appearance on the shelf and the in-stock is much better. You do those things well, and it's much easier to maintain the front room and keep the price clarity really clear.

So I'm excited by the progress. I'm excited that we seem to have reached that point where we've started to accelerate the improvement. And as I look forward, you're always going to be managing the fact that there are some stores that might not be where you want them to be, but the overall level of the stores has moved to the right on our scale and the number of stores improving is far exceeding the ones that are declining. And it just makes it much more manageable. And on the whole, the appearance to the customer is that much stronger. So I'm really excited about the work that Jocy and the team have done and the progress that they're making. And more importantly, the accelerated progress I'm seeing.

Okay. And then just as a follow-up, could you speak to what you're seeing in UPT? Did that essentially kind of mirror what's been happening on the traffic side? And then what's the expectation there as you think about '26?

Yes. So we look at it and say, traffic's important to us, ticket's important to us. We want to make sure we complete the shop. And so when I look at the relevance of the assortment, and being able to have a real gift to give, which is why we've made the investment in toys and you see how the Toyland for us is improving. Those units are important. And so we're seeing, with multi-price, yes, you'll see a unit decline because of the higher price. But what's the basket look like and what's really the relevance of that basket? And that's what we're seeing improving and that's what we really are hearing from our customers that they love.

Next question is coming from Paul Lejuez from Citigroup.

Curious if you could talk about the inventory number. Can you talk about inventory in units compared to that dollar number that you reported? Also what the plan is for F '26? Start there.

Yes. So look, let's start with the fact that 2025 was a really good performance. I said at the beginning of the year that I thought there was improvement in terms of cycles. I think our merchant and supply chain teams did an excellent job of managing that, down 9% in inventory and up -- or sorry, down, I think, 7% in inventory, up 9% in sales. This is a good -- really good result.

So when you talk about units, actually, it's quite interesting. I haven't given any data, but I will say that the units actually are even lower, and that's because that's reflecting the fact that we've got a lot more multi-price items there, and therefore, we're handling fewer units. We expect, by the way, that, that has a positive impact on labor pressure in our stores.

For 2026, we haven't given any sort of balance sheet guidance, but you can expect that we will continue to focus aggressively on managing that inventory so that we've got balance sheet efficiency and higher returns on the capital invested in our business.

Stewart, can you frame that inventory units just given the higher tariff costs built in? I think, obviously earlier Easter, higher price point, what does that number look like in units?

Yes, sorry. Finish the question, forgive me.

I just also wanted to ask what you built in for shrink this year.

So let me take both of those. First, again, I'm not giving you a number on the units. I'm just telling you that the unit performance was even better than the overall performance in dollars. And so you can take that as an added positive.

In terms of shrink, we're optimistic about this year in shrink. We think that 2025 -- or 2026, forgive me, is the year in which we expect to start to flatten that shrink results. So that's where we sit currently. The changes we're making are the right changes, and we expect that the increases we saw last year will be blunted this year.

Our next question today is coming from John Heinbockel from Guggenheim.

My question, can you talk about traffic by cohort, maybe annual visits? When you think about the new households that have come in, the average household, maybe -- and then maybe your best ones right, and you frame that opportunity? And then what will drive that? I think about MPP, right? And does discretionary drive that in the 3, 4 key holidays? And then consumable, right, cooler, the rest of the year? How do you think about MPP's role in that improvement?

Yes, John, thanks. We grew households across all income cohorts. So you saw that accelerated rate, and that wasn't just higher income. That was across all income levels, we saw our household penetration increase. And so when I look at it and say, you look at the traffic drivers, it's not that one income group is accelerating and one is declining. That's not what we're seeing. We're seeing growth in household growth across all the income levels.

The higher income does skew higher multi-price, no doubt about it. And they do drive discretionary, and so -- and they are our fastest growing in terms of the household penetration. So we're definitely seeing an acceleration in trade-in. But our core customer, lower income, that represents half of our business. We're still growing that household and they are still loving what they find in multi-price.

So yes, consumables are a big driver that -- not a stock up, but that kind of in between, our pack sizes are a great fit for them. We see that, but we really see the relevance increasing across every income level.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thanks, operator. I appreciate it. And thanks to everyone for joining us today. We appreciate your time and engagement, and look forward to updating you again when we get together next quarter. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Greetings. Welcome to the Dollar Tree Q3 2025 Earnings Conference Call. [Operator Instructions] 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.

Good morning, and thank you for joining us to discuss Dollar Tree's Third quarter fiscal 2025 Results. With me today are Dollar Tree's CEO, Mike Creedon and CFO, Stewart Glendinning. 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 10-K filed on March 26, 2025, our most recent press release and Form 8-K 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 to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR 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 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website. Following our prepared remarks, Mike and Stewart 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 1 question.

I'd now like to turn the call over to Mike.

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. 1 company, 1 brand, 1 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 comps above outlook earnings and strong end-of-quarter momentum heading into the holidays. These results speak to our disciplined execution and focus strategy. .

Let me start by framing the quarter at a high level, and then Stewart 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 3 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 compelling 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 compared 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 $60,000 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 customer life cycle with us. The data clearly shows that our core customer remains loyal and deeply engaged. She's balancing her household budget carefully and continues to count on Dollar Tree for Essentials and increasingly for the seasonal and discretionary items that bring joy to her and her family. Over time, our goal is to inspire the same level of loyalty in our newer higher income customers that we see in our core customers. While the average per household spend for our higher income customers is currently lower even given their higher income, larger average basket size and ability to spend more, this is a simple function of trip frequency because many of our higher income customers are still early in their relationship with Dollar Tree, their purchase frequency has significant room to grow.

Over time, we believe the growing trip frequency among these higher-income customers, given their propensity to build bigger baskets will be a powerful growth driver for Dollar Tree. This is why our brand promise matters so much right now. We make it easier for customers to do more with less without trading down on quality or experience. And that is what keeps our traffic and baskets healthy in a cautious consumer environment.

And with that, let's take a look at some of our Q3 highlights. Comparable sales increased 4.2%, a nice acceleration from the quarter-to-date trend of 3.8% we shared in mid-October. As the results suggest, October finished strong. driven by momentum in our multi-price assortment and a great Halloween. Our Q3 comp was all ticket driven as traffic was slightly negative. Discretionary mix improved 40 basis points to 50.5%, Comp increased 4.8% in discretionary and 3.5% in consumables. Gross margin performance exceeded expectations, reflecting strong operational execution and cost discipline.

Adjusted EPS of $1.21 was nicely above our outlook, and Stewart will go through the drivers behind this upside in his remarks. We believe these results reflect our sharper focus and more disciplined execution. Multi-price was a key driver of our Q3 momentum. As a reminder, multi-price is a deliberate long-term data-driven strategy that began back in 2019 to make Dollar Tree more relevant, flexible and profitable. Multiprice is about evolving our assortment over time. to include new, more relevant and attractively valued items that we could not offer at a fixed price point of $1 or $1.25. Multiprice is 1 of the most important strategic shifts in Dollar Tree's modern history, and it's working.

As we highlighted at our Investor Day, the roughly 5.5% annual comp we've averaged since breaking the dollar in 2022 is among the very best in all of retail. Those of you who attended our Investor Day may recall a slide from Stewart's presentation, where he demonstrated how expanded multi-price penetration in categories like electronics, hardware and Easter, had a meaningfully positive impact on sales and per unit profitability. We've reproduced a similar analysis on our multi-price Halloween assortment this year, which we've included in our supplemental presentation available on our Investor Relations website.

Our Halloween performance this year is another clear example of the power of Multiprice. This year, our Halloween assortment generated over $200 million in sales, an all-time record. But to see the full impact of multiprice, let's go back to Halloween 2022 when multi-price was still in its infancy. That year, multi-price represented about 3% of units sold, 10% of sales and 7% of merchandise gross margin across our full Halloween assortment. Fast forward to 2025. On a 25% larger base of sales, were multi-price accounted for roughly 1/4 of our total Halloween sales and merchandise gross margin, but only 8% of Halloween units sold. We are continually engineering incremental value and profitability drivers into our multi-price assortment.

Across Halloween this year, each multi-price item that we sold generated 3.5x more profit than each non multi-price item we sold. This is a full turn higher than Halloween 2022. By combining this increase per unit profitability, with a higher multi-price mix, we were able to generate approximately 25% more margin dollars from our Halloween assortment this year compared to 2022, while selling approximately 10% fewer units. And this is just the positive impact on merchandise margin. It doesn't take into consideration any labor or distribution cost savings that come from handling fewer units.

Looking at it this way, multi-price is a powerful growth and profitability driver. It broadens our value proposition and relevance to our customers allows us to compete more effectively, helps drive cost leverage and sets the business up for long-term success. More importantly, we are just getting started. multiprice is not a one-and-done proposition. We expect these dynamics to play out across every holiday in special occasion and strengthen as our multi-price penetration expands. Over time, our customers let us know what the right multi-price mix ultimately is, but we're confident that it's meaningfully higher than where we are today.

So let's take a look at some broader merchandising highlights from the quarter. Discretionary categories accelerated through the quarter with standout performances in party and home decor. Consumables were steady, led by household cleaning, personal care, snacks and cookies. Seasonal performance was strong, particularly towards the end of the quarter. We plan the inventory carefully, had strong in-store execution and are pleased with our sell-through. Those wins are proof points for our merchandising strategy and ever-changing more relevant assortment that drives trip completion and, more importantly, enhances profitability and margin performance.

Today, with a wider assortment of multiprice merchandise and restickering largely complete, 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, Jocy Konrad 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 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 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 1 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 1 brand, 1 set of priorities and 1 mission. with leadership and investment focused concentrated on growing Dollar Tree. Every decision across product, stores, technology, supply chain and people is aligned to strengthening 1 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 5 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 SG&A with discipline to drive operating leverage and profitability, create a strong connection with our customers 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 and 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 Stewart.

Thanks, Mike, and good morning, everyone. Q3 comp sales increased 4.2% and adjusted EPS was $1.21, both our comp performance and our adjusted EPS were ahead of the expectations we shared in mid-October. The 40 basis points of Q3 comp acceleration between the middle and end of October was driven by a 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 EPS improvement versus expectations is largely driven by freight, higher discretionary sales mix and SG&A. .

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 comp growth was primarily ticket-driven as traffic was slightly negative. Average ticket growth was supported by increased multi-price penetration, particularly across our Halloween assortment and the pricing actions we began rolling out last quarter. Importantly, strong execution around merchandise costs, tariff mitigation, 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 merchandise margin. successful execution of our 5 merchant levers: renegotiation, reengineering, shifting country of origin, discontinuing and targeted price changes, all contributed to our ability to manage increased costs from tariffs. Right, import and inbound freight rates were favorable versus prior year. with lower spot market utilization and better container flow-through at our DCs. Domestic transportation costs were also favorable. Mix, discretionary and seasonal categories, particularly Halloween, were stronger than expected, increasing the realized markdowns.

As part of the ongoing strategic initiative to increase shelf productivity that we outlined at Investor Day, we identified and wrote off various slow-turning SKUs. This will create room for more productive items and help optimize [indiscernible] utilization in our stores and DCs. The total impact to Q3 earnings was approximately $56 million or approximately $0.21 of EPS. We believe we will see increased sales and profits per store going forward as we bring in new items or reallocated shelf space to existing but faster turning products. Shrink. Overall, shrink was higher than last year, but in line with our expectations. These drivers taken together drove the Q3 gross margin performance.

At the Dollar Tree segment level, our Q3 adjusted SG&A rate increased 160 basis points to 26.2%, driven by higher store payroll related to wage increases and restickering, general liability claims costs and D&A from elevated store investments. These were partially offset by sales leverage. As a reminder, we do not expect costs related to restickering and other price-related activities to be repeated next year. Also, the wage-related payroll increases this year were expected and planned. Looking forward to next year, we expect wage growth to moderate. As we discussed at Investor Day, on a go-forward basis, our goal is to grow Dollar Tree segment SG&A per store below the rate of inflation, while reinvesting selectively in high-return initiatives that enhance the customer experience and the long-term profitability of our store base.

We believe this will result in future SG&A cost leverage. Adjusted corporate SG&A should be considered net of TSA income because of the cost we carry in order to service the Family Dollar transition. Using this lens, our adjusted corporate SG&A rate net of the $24 million of TSA income leveraged 80 basis points to 2.4%, a positive step toward our goal of reducing corporate SG&A to 2% of sales by fiscal 2028. Adjusted operating income increased 4.1% to $345 million. Our operating margin contracted by 30 basis points to 7.3%, reflecting the offset between the gross margin expansion and SG&A deleveraging, partially driven by cost headwinds such as restickering that will not repeat in 2026.

Keep in mind, our comments with respect to anticipated SG&A leverage next year at both the Dollar Tree segment and the corporate level. Net interest expense and our adjusted tax rate were broadly in line with expectations. Adjusted EPS from continuing operations increased 12% to $1.21. Moving on to the balance sheet and free cash flow. Inventory was down $143 million or 5% versus prior year, while sales increased by 9.4%, our store count increased by 4.5% and we ramped up our DCs in Ocala and Odessa. This reduction reflects our focused efforts to increase inventory turns and improve shelf productivity. We ended the quarter with $620 million of commercial paper notes outstanding and $595 million in cash and cash equivalents.

On the Q3 cash flow statement, we generated $319 million in cash from operating activities and had capital expenditures of $376 million. This resulted in negative free cash flow in the quarter of $57 million. Year-to-date, we've generated $88 million of free cash flow. As a reminder, the fourth quarter is our highest cash generating quarter because of normally high levels of sales and because our capital expenditures skew towards the first 3 quarters of the year. In Q3, we purchased 4.1 million shares for $399 million, including excise tax. Subsequent to quarter end, we repurchased an additional 1.7 million shares for $176 million.

Year-to-date, we've completed $1.5 billion of share repurchases or approximately 16.7 million shares at an average price of $90 per share. This represents approximately 8% of the shares we had outstanding at the beginning of the year. Our liquidity remains healthy. Our balance sheet remains flexible, and we have ample capacity to fund our growth and return significant capital to shareholders. Our capital allocation priorities remain unchanged. Number one, invest in growth; number two, maintain a strong and flexible balance sheet; and number three, return capital to shareholders.

Looking ahead, we expect Q4 comps will come in between 4% and 6%, which should support net sales of $5.4 billion to $5.5 billion and adjusted EPS in the range of $2.40 to $2.60. On a full year basis, this would raise our comp outlook to between 5% and 5.5% and our adjusted EPS outlook to $5.60 to $5.80. The underlying assumptions incorporated into our full year outlook are as follows: net sales of approximately $19.35 billion to $19.45 billion. Gross margin expansion of approximately 50 to 60 basis points reflecting sustained favorability in merchandise margin, freight and occupancy leverage with some offset from markdown and shrink.

Dollar Tree segment SG&A deleverage of approximately 120 basis points, primarily driven by higher store payroll related to wage increases and restickering and, to a lesser extent, facilities costs and D&A. Corporate SG&A costs, we expect corporate SG&A net of $55 million of TSA income to decrease by approximately 3% year-over-year. Net interest expense of approximately $85 million to $90 million, which is about $10 million to $15 million below our prior outlook, an effective tax rate of approximately 25%. Shares outstanding of approximately $206.4 million, reflecting our share repurchase activity through December 2.

We remain on track to meet our full year CapEx target of $1.2 billion to $1.3 billion. We understand that at this point, many of you are shifting your attention to next year. As a customer, we intend to give a detailed outlook for 2026 on our next earnings call in March. With that said, I will remind you of the directional outlook we provided at our Investor Day, where we outlined an algorithm for adjusted EPS to grow at a 12% to 15% CAGR through 2028, supported by underlying EPS growth of 8% to 10%, with the balance being driven by the unwind of certain discrete items, mostly affecting 2026 with some residual carryover into 2027.

To review the underlying details of the algorithm, I direct you to our Investor Day presentation, which is archived on our IR site, and we will give you more specifics and any updates next quarter. To wrap up, we're executing well against the road map we shared with you in mid-October. Each day, we continue to see tangible proof that the fundamental appeal of this business: value, convenience and discovery, is resonating with customers and translating into strong financial results.

With that, I'll turn things back over to Mike. Mike?

Thanks, Stewart. Let me wrap up by putting Q3 in the broader context of where we are and where we're going. When we shared our road map at Investor Day, we said this transformation was about focus, consistency and accountability. We believe Q3 was a strong proof point that our strategy is working. We delivered above-market comps, expanded gross margin and continued to make meaningful cultural progress across the organization. .

Today, Dollar Tree is a pure-play value retailer with the scale and focus to compete at the highest level. Post Family Dollar, we have clarity of purpose and our teams are responding with renewed intensity. As we look to Q4, the setup is solid. Halloween was great, and our Thanksgiving and Christmas assortments are resonating with our customers as we remain focused on consistently delivering unbeatable WOW value and the thrill of the hunt experience.

As 2025 winds down, let me wrap up by saying, first, to our associates, Thank you. Your dedication, creativity and pride in the work you do are what makes Dollar Tree special. To our customers, thank you for your trust and loyalty for choosing us for the moments, big and small, that matter the most in your daily lives. And to our shareholders, thank you for your continued confidence and partnership.

With that, Stewart and I are happy to take your questions.

[Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan.

Congrats on another nice quarter. So maybe 2 parts. Mike, could you elaborate on drivers of the same-store sales acceleration that you saw in October, speak to comp trends that you've seen in November that support the 4% to 6% fourth quarter comp guide. And then, Stewart, could you just help break down gross margin expansion opportunities in the fourth quarter? And how best to think about gross margin puts and takes, maybe at a high level for next year?

Yes. Sure, Matt. As we looked at how the quarter unfolded, the Halloween was just a great finish to the quarter. It did come as we see in times like this, people buying for need and a little closer to need. So it came a little later, but it came incredibly powerfully and it came with a record number. If you go back, Easter performed that way, a great Easter, a great Halloween and our setup for Thanksgiving and Christmas is just fantastic. So we really look at what we've done with multi-price and how the assortment has gotten better and our customer across all incomes is really resonating with that and providing just fantastic seasons for us. So we feel really good about our guide on the 4% to 6%.

Matt, let me pick up on the gross margin for the fourth quarter and then just talk a little bit about next year. So first of all, as we think about the fourth quarter, the same kind of levers that you saw in the third quarter, we detailed some of that in our supplementary materials as well as in my prepared remarks are going to be drivers in the fourth quarter. You will see a very powerful fourth quarter on the back of those drivers. If you look at next year and just think about next year, freight is a benefit certainly in the fourth quarter, it came through in the third quarter. As you look to next year, both freight and markdowns are the areas that we'll be watching.

If you think about how we operate our business, we buy to a margin. And so when we set up our goal for next year, we shared with you that we said we would be equivalent to this year's margin, plus or minus 50 basis points, and that's the place that we're targeting. There may be continued benefit in freight as we move into next year. There are some -- there is some belief that perhaps on the freight side, we'll see a tightening of capacity later in the year, and we are watching the potential shortage of drivers. But I understand that the reason I bring up the targeted gross margin is because we use those 5 merchant levers to achieve that margin.

So I think the margin you can take to the bank for next year. The second piece is to refer back to the Investor Day materials that we had. And in our fourth -- in our recent Investor Day, we shared with you an algorithm that said we would achieve high-teens improvement next year. That's on the basis of that same gross margin achievement and based on some of the discrete items that we're expecting to see in the coming years. So we're set up well for next year and I think that probably gives you the main drivers.

Our next question comes from the line of Michael Lasser with UBS.

It's on traffic. And obviously, this was the first decline in traffic that Dollar Tree has experienced in a while. To what degree is that as a result of some of the legacy households pushing back on the price increases that have been taken in the last couple of quarters. And if that's the case, does that give you any pause on your ability to achieve this high-teens EPS growth next year in light of the prospect that you might have to make some investments in order to recapture those households that are just dissatisfied with the pricing changes?

Yes, Michael, we really see traffic as a mix between some internal activity, namely the restickering and some broader retail trends. We don't see it as a pushback from our customer. And if you look at our performance in the quarter, we had great growth across all income cohorts and our core customer really had our highest comp. So we look at it and say we saw the traffic to decelerate in that August, September time frame. That was the peak of our restickering, those red stickers that was the peak distraction for us.

And then it was good to see traffic strengthen towards the end of the quarter, really on the backs of that Halloween and that great strength in Halloween. So we believe there's some broad-based retail traffic decel around back-to-school -- some of the sticker shock around back-to-school. But as we got into the real core of what Dollar Tree does and does we think better than anyone, we saw the strength in our Halloween and we're very excited about what Thanksgiving and Christmas and all the seasons can do for us.

Our next question comes from the line of John Heinbockel with Guggenheim Partners.

Mike, 2 quick ones. When you think about traffic or divergence between traffic and units. So even as the traffic will be strong units maybe to a lesser degree because you're basically trading people into higher price point items. Talk about that divergence in your mind. And then secondly, if the units are going to grow at a slower pace, how do you think about space allocation and re-planogramming the stores over maybe the intermediate to longer term?

First of all, thanks, John. We'll always follow our customer on that. We believe that the customer resonating incredibly well with multi-price. We're hearing that in the surveys we're doing. We're seeing it and how our customers are performing in the store and that real strength in the comp of that core customer. So yes, when we look at the store, when we take multi-price, we'll take away sections of $1.25. And so your units will naturally decline there as you take that space and make that space more productive. So we do see some of that. But we believe the proof point we have from break the dollar was that you took up the price of the whole store.

There were elements of the store that just didn't work and our merchant team with the next buying cycles to really recover that. What we've seen here in this multi-price evolution and some of the restickering we did based on the inflationary cost environment, is that the units have performed better. The traffic has performed better, and we're confident that we can continue to drive that value in our product across these price points and continue to give the customer exactly what they need. So we see that coming together very well for us, and we'll respond to the customer and their trends with how we set up the store.

Our next question comes from the line of Edward Kelly with Wells Fargo.

I wanted to ask you about the mix of multiprice as you think about next year. Just looking out, it does seem like you'll have more conversions. I would imagine you're still doing more merchandising around improving the multi-price mix. So how do you think the stores look from the standpoint of the multi-price offering as we think about next year? And then how does that play into the way that you were thinking about driving comp next year in terms of traffic versus ticket?

Yes. Thanks, Ed. I mean, I really want to start with saying 85% of the store is still $2 or less. So we're still early in this multi-price game. And when you look at what the seasons have done, we're going to continue to benefit in those seasons from the multi-price assortment and we're really looking at everyday essentials and where we can benefit in the assortment there and the shift towards multi-price. Where it ultimately goes, our customers will respond to us, and we'll respond to them in terms of building it out. But I know it's higher than where we are today, and it's something that we believe sets up a multiyear run where we're able to respond to our customers, wow them with new discovery and not just at the seasons, but new discovery every day because multiprice contains something on a wild table for us or on an end cap that shows them something they couldn't believe they could get at that price, even though it's a price higher than $2.

So we're delivering the everyday value with the majority of the stores still at that $2 or less, and we're wowing the customer in what we bring into the multi-price assortment.

Our next question comes from the line of Paul Lejuez with Citi.

Curious if you could talk about Thanksgiving weekend and what you saw from a traffic versus ticket perspective? It sounded like you saw a pickup in traffic around the Halloween period, curious what you saw Thanksgiving week and weekend. And then that 85% number, I think you're talking in terms of units, in terms of the percent of the store that's still $2 and below. What percent of sales would we -- should we think about being above that $2 level? And how does it split between discretionary and consumables?

Yes, Paul, let me clear up the first one. So first of all, it's sales dollars that are at the 85% of the stores $2 or less. That is on sales dollars. As we look at how the quarter has started, I said in my prepared remarks, we're really pleased, we look at the strength of the seasons, to Thanksgiving, the setup for Christmas, what we've seen so far in Christmas. So we feel really good about the guide for the fourth quarter. We've got 1 period in, and we're feeling really good about where we sit.

Our next question comes from the line of Rupesh Parikh with Oppenheimer.

I also have a 2-part one. So just on the elasticity front, just curious on the categories you took pricing related to Tower trip price increases. Just curious how that played out. And then if we do get tariff relief, how do you guys approach that, whether passing on those savings or letting it flow to the bottom line?

Yes. Thanks, Rupesh. I mean, the elasticity has really -- it's come in as we've modeled it. It's very manageable. It's really offset by the mix we see in the multi-price, but most importantly, the value perception is intact. Our customers responding across all income cohorts, core customers, new customers, the 60% of the new $3 million that have come in making more than $100,000. So we believe that the elasticity is very manageable. .

And then I do think it's important to go back to that break the dollar moment, what we saw there, it's a proof point. You can go back and look, see what happened with traffic. And now our performance, we believe and what we're seeing in our numbers is better than that and gives us the confidence in the path we're on, on this. As for the tariffs, I know it's been a lot in the news. We have, I think, 1 of the very best global sourcing teams in the business. they are all over this. They've got great partners watching this. We'll see how it unfolds with the Supreme Court, and we'll take action from there.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

This is Zach on for Simeon. Just a couple from our end. Back to the traffic question, is there a way you could compare your frequent and most loyal customers to those who are more episodic? And would you say there's the similar deceleration in traffic trends between both of those groups? Or is there a gap in the trend?

Yes. When we break it down, we really look at more our sales across all those income cohorts. It's really important to us to make sure that as we know multi-price skews and attracts more towards higher income that we are committed to the base of our business, which is that core customer, that customer that makes around $60,000 a year. and we were particularly pleased with how our comps performed at that core customer, they had our highest comps in that customer. And so we think that our customer, whether you're new to Dollar Tree or you shop us several times a month that you're finding what you need if you seek out affordability, you're finding exactly what you need at Dollar Tree. .

Our next question comes from the line of Scot Ciccarelli with Truist.

I think we all understand that there was some internal disruption as you resticker product. But with the negative traffic this quarter and the expectation to keep expanding NPP, should we just expect 4Q and next year to have a similar mix of traffic and ticket that we saw in 3Q? In other words, it's -- all the comp is primarily driven by ticket.

Yes. Scot, it's hard to say. We can go back and we know what we saw in break the dollar. You saw the multiple quarters and how the traffic performed there. We believe this time around we were much more strategic. But back then, the only choice was raising everything to $1.25. And as I've mentioned, you had a healthy percentage of the store that just didn't work at that new level and the merchant team had to go over several buying cycles and reengineer product and renegotiate and get product that did work and you saw what happened with traffic recovery.

This time, we were much more strategic in how we took that. We really feel that we have found the right value places to take price, and our customers responded. If you look at the value we took in Halloween or in Christmas, I mean, our customers responded incredibly well to that move. So I look at it and say, I think we were more strategic this time or we at least had a more strategic opportunity available to us this time. And we'll see how the traffic lays out.

Yes. And maybe 1 other thing just to supplement, I think if you go back to the investor materials we laid out, I mean that entire strategy is set up to drive higher sales in stores. via productivity on the shelves, via the way we intend to market to customers and based on the way we intend to run better stores. I think that entire setup really is organized to enhance the traffic and the ticket flow.

Our next question comes from the line of Michael Montani with Evercore. Michael, could you please check if yourself muted?

I was going to ask if you could share what the average selling price was in 3Q versus this time a year ago. And then curious if you think that you'd be able to get that level of price increase again in 2026 to drive comp?

Yes, our AUR right now right about $1.50. When you look at that value over time, it's pretty remarkable. considering what this company has done, what other prices have done. So we look at it and say, our customers going to tell us with their comps, with their wallets that we're hitting the right points in terms of value, convenience and Decovery, one of the things that we really turn to is that expanded more relevant assortment. So yes, it comes at a higher ticket, but it's still an incredible wow for the customer. it fits their occasion, the purpose for their trip and whether it's a great pack size for them that helps them or just an item that helps them celebrate and they love it.

So we feel that while the AUR moves up, it does so lock squarely into that value play for the customer.

Keep in mind 1 other item is that, obviously, as our multi-price penetration increases, so that will also move AUR. That is not price dependent. And I think if you looked at the supplementary materials and you look at how well the multi-price worked in Halloween this year, it will give you a sense for the kind of benefit we might see going forward as we drive that multi-price harder.

Our next question comes from the line of Zhihan Ma with Bernstein.

Great. Just 1 quick clarification on corporate expenses. Did it come in a bit better than your prior expectations? If you can provide a bit more color there, that will be really helpful. And then a quick 1 on next year. Given the trade in, you have seen from middle to higher income consumers, what does the tax refunds, the incremental tax refund next year grew to middle to high-income consumers helping behaviors in your line? .

Yes, I'll pick up on the first part, Stewart here. The SG&A did come in better than we expected as we get ready to set ourselves up for next year and achieve some of the aggressive savings targets we set up, we've been squeezing down on SG&A. Some of those savings came in a little bit faster than we had expected.

Yes. And then I'll take the second one. I look at the tax refunds to the OB3, big beautiful Bill, would you offer the best value in retail, you benefit when people have more money in their wallet. And Dollar Tree has the best value retail has, and we think will benefit as they get more money in their pocket.

Our next question comes from the line of Kelly Bania with BMO Capital Markets.

Wanted to ask about the consumables, the market share trends from a unit perspective. They seemed quite strong in the first half, but really shifted in the third quarter here. I was just curious if you had any explanation of what you think is happening there? Is that attributable to the sticker -- the restickering impact? Or any other color on the market share trends there?

Yes, Kelly, the red dots is kind of how I'll answer that. It really peaked for us in this Q3, it was the mass distraction. I will tell you though, as we've seen trends from our customer post that we track via customer surveys, be it scrapes of website and star ratings and all that. the sentiment of our customer that really peaked negative in that August, September has improved every week. So the fewer mentions of pricing, more positivity, less negativity. We've been watching that. And every week, that's gotten better. .

So we don't love that we had to create that environment for our customer. it was a necessary evil to continue to deliver for them and give them product at a value. But it is what it is, and it's behind us now. The red stickering is basically done. You get a little bit as you take some pack away, but it's basically done the distractions behind us, and our stores and customers are responding very favorably.

Our next question comes from the line of Joe Feldman with Telsey Advisory Group.

When you talked about the -- that higher income consumer, trying to get them to visit more often with more frequency. I'm just wondering how you guys plan to go about that? Maybe is it more stimulus from a marketing standpoint? Or I don't know what other methods that you might be thinking of. But how do you get them to come more frequently?

Yes. We love that this customer is finding us. We want to create a very sticky relationship with them. And we believe it is the more relevant assortment, so continue to wow them each season that they come up and for their everyday essentials with items they just can't believe they found. Remember, you don't come into Dollar Tree with a list and your head down and I have to get this. You come in with your head moving around, looking at all the things that are wowing you.

So that relevant assortment creates a sticky relationship and then there is nothing more important than running better stores. our store standards are on the move up. And we believe that as we continue to improve the in-store experience, those customers are going to want to come more and more often.

Our next question comes from the line of Robbie Ohmes with Bank of America.

I wanted to follow up on the last question. Just the -- it's impressive how you guys are gaining all the new customers and the info you gave us on that. Just help me understand gaining all these new customers at all these income cohorts versus negative traffic? Like how does that happen? Is somebody -- are there cohorts dropping out or coming a lot less frequently, and that's offsetting all these new customers that you guys have gotten to come to the stores. Maybe a little more color on like what's happening there.

Yes. Robbie, it's really a question of frequency. So you're driving new customers to the store, which is fantastic. I mean 3 million new households, yes, they're skewing a bit higher income, but the strength of our business is still in that core customer, their purchase frequency, their comp dollars. We believe that these new customers come in, we can increase their trip frequency too when they find better run stores, and they find an assortment that keeps them coming back.

So right now, they're coming in because of a Halloween or they're coming in for a great season and then what they find in the store when they're there in health and beauty and in everyday essentials, that's what keeps them coming back. If you look at Dollar Tree compared to some of the folks we aspire to be, the difference is not in our ticket, the difference is in trip frequency. We believe we've got an opportunity to unlock increased trip frequency with these great newer trade-in customers.

Our next question comes from the line of Bobby Griffin with Raymond James.

Just curious if you could expand a little bit more on shrink and where you are in that journey of bending that line item. And then I don't think it was discussed at the Investor Day, but what is embedded in the multiyear outlook for shrink? Is that elevated rate versus pre-COVID? Or is it a return to 2019 rate?

Yes. I'll start with that with the focus we have. We learned a lot about shrink from Family Dollar. Family Dollar has a higher shrink threshold, if you will. And we were able to bend the curve over there. And so we've really reorganized how we're addressing shrink at Dollar Tree. It's not as simple for us as it is the -- we can't just go rip out a bunch of self-checkouts and improve our shrink, we don't have self-checkout in any large capacity. So for us, it has to be leveraging training of our people, leveraging technology to address shrink over time. And then in terms of how it builds, Stewart?

So Bobby, Stewart here. We have built in some improvement in shrink as we move forward. I mean, we've made these changes to people and process. We're investing money in our asset protection and we expect that to bend the trend. So that is built into the forward expectations.

Our next question comes from the line of Chuck Grom with Gordon Haskett.

I have just a question on the SG&A line. In Slide 9, you talk about the unit trend going from 100 to 89. So there's a clear benefit from running less units through the store on freight and handling expenses. But when we look at the core SG&A line, can we unpack the 160 basis point increase in SG&A? And then also looking ahead to the fourth quarter, how are you thinking about the complexion of both gross margins and SG&A in the last quarter of the year? .

Yes. So Chuck, it's Stewart. When you really look at SG&A in total, the big driver for SG&A increases is really in store payroll in that whole space. We do have some increases, as we said before, both in DNA based on store investments and also in general liability claims, those are probably the big areas to think about. If I unpack the store payroll for you a little bit, earlier in the year, we commented on the fact that first, we were faced with some rate increases. Those -- a number of those were driven by state minimum wage increases.

And second, we had decided at the beginning of this year that we would put some more hours back into the stores because we also have reinvested some hours in stores, we could drive a better comp. And certainly, we set that on as an aggressive goal for the year, 3% to 5% comp, and we're obviously at the top end of that. And the last piece, of course, is the tariff-related stickering activities, which is a pretty substantial add. So if you think about the increase in payroll, which, again, the biggest driver of the SG&A, it was about 1/3, 1/3, 1/3, 1/3 was to the rate, 1/3 with the increased investment in hours and 1/3 was stickering.

Let me come back now to your unit point and because I want to look forward to next year. If you're thinking about next year, the stickering is sort of largely gone. So that piece is not going to be pushing on our P&L. In fact, that's a benefit. The rate increases, we believe that rate is going to start to moderate and that's going to help us next year. And then the last piece on the hour side, actually, on the hour side is exactly the point you've just made. The success of multiprice in fact, allows us to move fewer units through the store and that will give the flexibility to decide do we take the unit -- do we take the hours down, do we invest in more hours in running stores better. But I think it puts us in a better position overall. Hopefully, that gives you a good flavor for your question.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mike Creedon for any closing comments.

Hey, thanks for joining us today, and we wish everyone a safe and healthy holiday season. Thanks so much.

Ladies and gentlemen, thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. .

Good afternoon, everyone, and welcome to Dollar Tree's 2025 Investor Day. A quick housekeeping note, if you didn't see it on the way in. We've got a WiFi password up here. I'll get out of the way. The network and the password. So thank you all for joining us this afternoon, both here in New York and online. It's great to be together on such a beautiful fall day here. These are truly exciting times for Dollar Tree. Since we last met in June of 2023, the business has advanced in significant ways. Most notably, we have completed the sale of Family Dollar, marking a definitive moment in our journey.

Today is about looking ahead to the future of the stand-alone Dollar Tree business and the tremendous opportunities that lie ahead for our brand, our customers and our shareholders. We have a refreshed management team. Today, you will hear from our CEO, Mike Creedon, and key members of his executive team, who will talk to you about our products, customers, stores and people and the tremendous runway for profitable growth that we see ahead of us. For those here in New York, if you didn't get a chance to visit our merchandise space back here behind me, we'll have Dollar Tree team members there during the breaks, and they can show you some of the neat products that we are offering in our expanded assortment.

And at every seat, you will have found a small gift from Dollar Tree as a thank you for your time this afternoon. And for our final housekeeping item, my favorite part of the presentation, I would like to remind everyone that various remarks that we will make about the company's plans and future prospects are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Act of 1995. These statements are subject to certain 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 review the slide included in our materials and see our public filings with the Securities and Exchange Commission.

We caution against any reliance on any of these forward-looking statements made today, and we disclaim any obligation to update any of these forward-looking statements, except as required by law. One last housekeeping note also, we'll post a full presentation afterwards that we were done at 4:30. And with that, it's my pleasure to announce our CEO, Mike Creedon.

Thank you, Bob. Good to see everybody today. It's an absolute pleasure to be here. When I stepped into this role of CEO just 10 months ago, I was already excited for this opportunity to tell you about the compelling future of a stand-alone Dollar Tree. That day has finally come, a new day for Dollar Tree, a new era for Dollar Tree, and I'm committed to realizing the potential that lies ahead. For me, accountability is nonnegotiable. One way I measure our business is by a simple standard, the say-do ratio. If we commit to something, we expect to deliver.

Today is about transparency, recapping where we've delivered and more importantly, being clear about the vast opportunity still in front of us. I'm pleased to report that since we last met in June of 2023, Dollar Tree has made significant progress. We are within the comp growth and gross margin ranges we outlined, and we've opened more than 1,100 new stores, including our milestone 9,000th location in Plano, Texas. Our merchant team is delivering greater choice and relevance across our assortment through our multi-price expansion strategy. Their agility, deep supplier partnerships and strong negotiation discipline, combined with our global sourcing scale and SKU selectivity enables us to react quickly to change in tariff regimes or others and deliver the lowest landed cost possible for these items.

Across our supply chain, we're modernizing our distribution centers with enhanced technology and infrastructure investments. Beyond merchandising and supply chain, we're making tangible progress across operations by improving store level productivity and reducing turnover while promoting tens of thousands of associates. In IT, modernization efforts are replacing outdated green screen technology with integrated real-time tools that better support the business and deliver a return on investment, thanks to the data-driven flexibility and nimbleness they enable. Across finance, we're focusing on tighter capital discipline, stronger cost controls and enhancing returns. And we've returned $2.1 billion of capital to shareholders in just the past 2.5 years. We have made significant progress.

And while we're proud of where we've come and how far we've come, we also know there's substantial opportunity ahead. The reality is that near-term results don't yet reflect the full earnings power of this business. And today, we'll talk about the many ways that's changing. As we look ahead, we believe several factors will set the stage for accelerated improvement, a consumer looking to recover from the highest inflation in decades, cost gaps that narrow as onetime pressures roll off, traction on our tariff mitigation efforts, actions underway to stabilize shrink and distribution capacity returning to full strength with Phoenix and our Marietta DC rebuild coming online. The progress we've made and the opportunities ahead give us every reason to be optimistic. But the real reason behind all of it is simple, our customer.

Every action we take, every investment we make is designed to strengthen our promise to them. In these times, they need us more than ever. As we approach our 40th anniversary next year, that promise remains at the heart of who we are to deliver value, convenience and discovery every single day. This promise of offering value convenience and discovery is what makes shopping with us affordable and fun. This is what keeps our customers coming back. This is what sets us apart, and this is incredibly rare. I can count on one hand the number of retailers with a shopping experience that offers a true sense of discovery. Let's turn to the first pillar of our brand promise, value. For our shoppers, the comparison is clear. On the products that matter most to them, Dollar Tree provides more value for every dollar spent. Here's the headline. The average item in a Dollar Tree costs $1.40. Across the same categories in the marketplace, the average is more than $3. That's not a small gap. That's a structural advantage.

In fact, 85% of the products for sale in a typical Dollar Tree cost $2 or less. That's why our customers trust us for the essentials they buy every week as well as the items they need to celebrate special occasions, holidays, honor the seasons and scale matters. With more than 9,200 stores, our size and SKU selectivity work together to create buying power that very few retailers can match. We don't try to be an endless aisle. We offer fewer, smarter choices, and that lets us go toe to toe with other retailers on price while still delivering a sharper value proposition.

And fewer SKUs means more volume per SKU, generating savings we can pass directly on to the customer. Now value is only part of the story. It's also about convenience. Our stores are efficient, easy to shop. It's a quick in and out. You could park right at the front door, complete a shop in about 10 minutes and walk out with what you need and at Dollar Tree, hopefully, a few things you didn't know you needed.

And that makes us so special. It makes us one of the fastest trips in retail. With our multi-price strategy, which I'll speak about more in a moment, we are delivering a more complete shopping experience and building on the convenience our customers already value. They can now find complementary products and categories, including branded and licensed items as well as larger pack sizes. And to be clear, we have no aspirations to compete with club stores or big-box retailers where large means a 20-pound bulk bag of Halloween candy for $25.

Our approach is rightsized for our Dollar Tree shoppers, offering a modest increase in quantity while maintaining the strong value they expect from us in the $2 to $5 range. And then there's the piece that makes us truly unique, the surprise and delight. Customers come in with their heads up, not buried in a list, every trip brings unexpected fines.

Essentials at a great value, plus those treasure hunt items that turn an everyday errand into something fun. That's the power of Dollar Tree, value, convenience and discovery, a combination no big box or e-commerce player can match. Our ability to deliver the Dollar Tree brand promise requires the right leadership. I am delighted to introduce the leaders who are shaping this new era for Dollar Tree.

These women and men bring the right mix of experience, resolve and vision. You will hear from several of them today, including Brent Beebe, Jocey Konrad, Roxanne Weng and Stewart Glendinning. Together, as a full leadership team, we've been rolling up our sleeves to reimagine what this business can be, and we are aligned on a common goal to make Dollar Tree stronger, more productive and more profitable.

This leadership team is just a part of a powerful engine fueled by more than 150,000 Dollar Tree associates. We always say our associates are our customers and our customers are our associates, and many of them are also our shareholders. More than that, they are the magic makers at the heart of this organization. And I've always centered myself and the company on 3 fundamentals that serve as our North Star.

We make it easier to work here. It's a career, not a job, and we are building it to last. And when you look at the tech investments we've made in our race to gold that Jocey will talk about later, that's all about making it easier to work here. When you look at the tens of thousands of associates we've promoted, that's a career, not a job. And when it comes to building it to last, we're building something that will last another 40 years and beyond.

When we honor that commitment to our people, we honor our customers and we deliver for our shareholders. Going back to the say-do ratio, it's not just about metrics. It's about trust and it's about our people. Every promise we keep strengthens the foundation we've been building for decades. That foundation was laid by our founders, whose belief in delivering value continues to guide us. So as we look ahead, it's only fitting to pause and reflect on the Dollar Tree heritage.

Dollar Tree has been a part of the retail landscape for nearly 40 years, growing from a single toy store in Norfolk, Virginia to a household name with more than 9,200 locations across North America. Our history teaches us that simple principles, executed with discipline can create extraordinary results. In looking at our significant milestones, I would be remiss not to formally address the recent monumental change in our business, the sale of Family Dollar.

Selling Family Dollar enabled us to concentrate our management and financial resources on the highest return opportunity, enhancing the value of Dollar Tree. Through accelerated growth, margin expansion and capital discipline, we will take Dollar Tree to new heights. This wasn't just a financial transaction. It was a strategic milestone that enables us to play offense. It strengthens our balance sheet and removes a major distraction for our leadership team and our associates who supported both banners, ensuring that every ounce of our focus is now focused on the future of Dollar Tree. When you step back and look at our history from our earliest days to transformational decisions like selling Family Dollar, you see a story that has always been rooted in our founder's vision.

In his memora, one buck at a time, which we've given to all of you, our founder, Co-Founder, Macon Brock, captures the Dollar Tree retail philosophy that still guides us today and holds true, deliver simplicity in the store, value for the customer and consistency in execution. When we do this, we're able to surprise our customers with value on every trip in clean, bright and inviting stores and delight them with a thrill of the hunt shopping experience where they can discover essentials and little treasures, all at great prices.

And while our DNA will never change, we're also acutely aware that the future is about more than nostalgia and heritage alone won't deliver long-term returns. It will be built on bold choices, disciplined execution and a relentless focus on delivering value for our customers and for our shareholders. The world has changed. Customers are more digitally connected, costs are higher, competition is shifting and tariffs have added more volatility.

Later, I'll cover the playbook we've written to counteract those external pressures. But one thing is certain. To make the most of our opportunities, God bless you, Dollar Tree must evolve. And we are from a single price point model to a multi-price assortment from an aging store base to a fleet of refreshed stores, from underinvestment in technology to an AI-enabled enterprise, from inconsistent execution to a culture of excellence and accountability. To advance our evolution, we're shifting our culture to one of testing and learning. We're evolving from informed intuition and judgment to a data-driven trial and error test-and-learn approach. And that involves our people, the systems needed to support it and of course, the culture needed to thrive in this type of an environment.

With a store fleet of our size, we operate a massive laboratory for innovation, allowing us to continuously test, learn and optimize to fully capture the opportunities in the market. The opportunities are there, and we will do what we need to in order to capitalize on them. Now it's time to share how we move forward with purpose, with clarity and with conviction. Today, I'm pleased to share the strategy that will take us there.

Our strategy is simple, but it's powerful. surprise and delight our customers with an expanded, more relevant assortment, manage our costs with agility by controlling the cost of the goods we sell and managing our SG&A with discipline to drive operating leverage and profitability, create a strong connection with our customers with cost-effective, quick return and data-driven marketing efforts, open more new 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 strategic drivers, there are 3 critical forces that enable our success. Excellence in our supply chain enables flexibility, speed and efficiency. Disciplined financial management ensures high ROI investments and capital allocation and most importantly, our human capital. At the foundation of this strategy, at the heart of our success is our people. More than 150,000 associates show up every day with purpose, serving customers, supporting one another and strengthening the communities where we operate. They are the reason we do what we do and the driving force behind every decision we make. Our investments in people are not just about wages or training, they're about building pride, belonging and opportunities across our organization. When our associates thrive, our customers feel it, our communities benefit and our business delivers stronger results. Let's take a look at the first strategic driver.

Surprise and delight our customers with an expanded, more relevant assortment. Why is this important? Because doing so offers added value, convenience and discovery for our customers, which drives higher traffic, ticket and discretionary penetration and then our existing store space becomes more productive.

This expanded, more relevant assortment not only enables us to capture greater share of our customer spend, it also helps us attract more shoppers to our stores. And the highest price point -- the higher price point items in our expanded assortment increase the gross profit we get from each item we handle and gives us greater operating leverage on our supply chain and in our stores. Before we go any further, I do want to address a point of growing investor confusion.

Some observers have begun to conflate 2 distinctly different activities taking place in our stores. The first is our ongoing multi-price strategy and the second item is the restickering, which is directly tied to near-term cost mitigation.

These are not the same thing. They serve entirely different purposes and time horizons. The multi-price strategy we are discussing involves expanding our assortment to include new, relevant, attractively valued items we could not historically offer because of our price point constraint. To be clear, multi-price is a journey of becoming ever more relevant to our customer, whereas restickering is an operational stop gap we've deployed to manage external cost pressures. We fully acknowledge the retail execution behind restickering isn't ideal, and it doesn't make working in our stores easier. But I can assure you it's short term and will primarily phase out by the end of our current fiscal year.

While this activity has driven some discrete expenses and activities in our stores, I want to be clear that our prices and value remain compelling and our continued strength in sales and market share trends demonstrate this. Let me underscore, our multi-price strategy is one of the most important strategic shifts in Dollar Tree's modern history, and it's working. It's deliberate data-driven initiative that began in 2019 to make more relevant, more flexible and more profitable Dollar Tree.

Those who know our history know that for decades, Dollar Tree was defined by a single price point. That discipline built enormous trust, but it also placed a ceiling on what we could offer. Expanding beyond a $1.25 has allowed us to meet more of our customers' needs and in turn, drive sales.

With multi-price, we've been able to introduce complementary items that enable our customers to better complete their shopping trip with entirely new products, categories, larger pack sizes and trusted national brands while still keeping our $1.25 offering as the foundation of our value proposition. This is not an identity shift. Multi-price strengthens what Dollar Tree stands for, value, convenience, discovery. Our customers understand that. They continue to fill their baskets with $1.25 essentials, and now they're adding items with expanded price points to their baskets, delivering a truly great value for the occasion or mission they're shopping for.

This is not a departure from what made Dollar Tree Dollar Tree. It's an expansion of that promise. It's how we remain relevant to customers today while creating sustainable growth and stronger returns for the future. We are not abandoning the customer who relies on our opening price point items. And as I shared before, the average price of an item in our stores still a $1.40. And 85% of the products we sell still cost $2 or less. As we expand into higher price points, our promise to always deliver value remains unchanged. In fact, it's even stronger under our multi-price strategy. Our world-class merchandising team continues to set Dollar Tree apart through our unique model and global sourcing capabilities, including our China Plus One strategy. We design, specify and procure distinctive products at scale, delivering compelling merchandise that keeps customers coming back, including our leading discretionary and seasonal items where Dollar Tree can't be beat.

Our $20 billion in retail sales and focused assortment delivers a powerful advantage to our merchants. SKU selectivity gives us leverage with vendors and allows us to curate products that deliver the best value for the customer. The powerful combination of all these variables allows us to deliver exceptional merchandise at an unmatched value.

And our multi-price results speak for themselves. It's driving strong sales growth, expanding margins and larger baskets. It's helping us attract new households, including more middle and higher-income shoppers while deepening loyalty among our core customer base. Multi-price drives significantly higher basket sizes and is highly accretive to our financial and operating performance overall. You could see the proof right here in this independent survey from Morning Consult.

Our customers are consistently rating us high on key drivers, including #2 in net favorability, #3 in purchase consideration, #3 in value and #2 in reputation. While customer feedback is strong, our sales performance really tells the story. Since breaking the dollar in 2022, we've driven an average comp of 5%, while growing our store count rate that added another 2% to our top line. In the first half of this year, we've grown comps at 6%, while guiding to 4% to 6% for the full year. These are strong results and favorably compared to other retailers. We'll continue to drive our multi-price strategy and look to deliver continued strong top line results.

Top line growth in recent years has built a strong foundation. And we're now positioned to translate that growth into stronger profitability as multi-price scales, cost inflation moderates, transformation investments take hold and onetime costs unwind. Now let's talk more about how we've enhanced our ability to navigate the unusually dynamic cost environment. Our goal is to always stay ahead of cost headwinds and continue delivering strong performance no matter the challenges we face. We've identified 5 key levers that position us to offset these pressures, renegotiating supplier terms, reengineering products for efficiency, shifting country of origin where we need to, discontinuing lower margin or underperforming items, and executing targeted retail price changes when necessary.

Each lever on its own provides meaningful help. But together, they are a very powerful mitigation tool that help us to preserve margins and provide more predictable returns. Our approach to agile cost management extends beyond protecting our cost of goods sold. We are also working to leverage our SG&A and drive profitability. We're managing SG&A with the same level of discipline and intentionality that we are applying to our cost of goods. We are focused on building a more efficient, agile organization that is aligned with our post Family Dollar needs and is built to scale profitably. Our major levers are clear, getting more from every hour. We're using smart tools, automation, better processes to help our teams work faster and smarter, turning effort into real results spending less to do more.

Our big corporate investment phase is behind us. And as operational investments and capital spending comes down, so will expense growth and depreciation and amortization, giving us more room to grow profitably, rightsizing for our future. With the Family Dollar sale behind us, we're reshaping our organization to fit the needs of the new Dollar Tree. We'll reduce corporate SG&A from 3% to 2% by 2028, enabling us to be leaner, faster and built to win. Together, these actions drive operating leverage and allow more sales to flow to the bottom line. Now let's talk about how data-driven marketing efforts will enable us to build stronger connections with our customers cost effectively and with a quick return.

And why is this important? Because improvements here build brand equity and drive customer affinity, traffic and loyalty. This accelerates all our other efforts. When we can connect directly with our customers, they have more reasons to shop, their baskets are fuller and they return more frequently. And our new presence on e-commerce platforms like Uber Eats introduces us to a whole new incremental base of customers. Dollar Tree's reach today is extraordinary.

More than 100 million households shop with us annually, making us the fourth largest retailer by household penetration in the U.S. In fact, nearly 3 out of every 4 households in America visited Dollar Tree in the past year. Importantly, this customer base is expanding, reaching over 2 million net new customers just in the last year and even more compelling, since the launch of multi-price, we've added 10 million net new households, demonstrating our customers' acceptance of our expanded assortment. What's more, nearly half of our new customers have already come back and shopped with us again, clear evidence that we are not only attracting shoppers, we're converting them into loyal customers.

And who are our customers? Who aren't our customers? The Dollar Tree customer base is broad and diverse. It spans all ages. We serve young families stretching their budgets, retirees living on a fixed income, college kids outfitting a dorm, and increasingly higher income households who appreciate the convenience and the thrill of the hunt shopping experience that only Dollar Tree can offer. Higher-income households are our fastest-growing cohort, proving that our value resonates across all income brackets. When households, especially higher income households shop our stores, they drive higher baskets because multi-price is especially relevant to them. As we look at frequency, we have a large base of occasional shoppers, more than 60 million households, where even one more trip per year would translate into close to $1 billion in sales.

We have the opportunity to earn that additional trip and expand our share of that customer's wallet. Together, this mix of loyal customers, new adopters and underpenetrated segments gives us both scale today and runway for tomorrow. So let's talk about how we're going to earn that trip. For most of our history, Dollar Tree didn't have to market itself. As a single price retailer, we operated with the mentality, build it and they will come. Today, we have an incremental opportunity to actively engage customers, tell our story in new ways and strengthen the unique value, convenience and discovery proposition that has always defined the Dollar Tree experience.

We believe this will enable us to accelerate the expansion of our reach. As we strive to be more relevant to our customers, we are building marketing into a strategic capability, identifying low-cost, quick return, data-driven solutions that will accelerate our connection with consumers, drive traffic and support our long-term success. After a decade of sharing resources to support Family Dollar, we are proudly building new muscle at Dollar Tree and the Dollar Tree of tomorrow. We are introducing ourselves to new customers and reintroducing ourselves to customers who may not be familiar with our newly expanded offering. We're advancing a brand that engages, excites and brings customers back more often.

What does this mean? A stronger digital presence with personalized and geo-targeted campaigns, expanded social media and influencer marketing to connect with a broader audience, partnerships with e-commerce and delivery platforms like Instacart and Uber Eats that meet our customers wherever they are and wherever they want to shop. This is about one thing, though, cost-effective marketing solutions that build equity and drive sales. They strengthen the bond between our customers and our brand. They position Dollar Tree as a place to save and have fun, and they become a relevant, ever-increasing relevant part of your life. We see this opportunity as an enormous tailwind. Delivering on our promise to customers starts with great stores, no doubt.

This is why we're focused on expanding our footprint and elevating the condition and consistency of every store we operate. Earlier this year, we celebrated the opening of our 9,000 Dollar Tree store in Plano, Texas, a milestone that was both a point of pride and a reminder of the incredible opportunity still ahead of us.

At more than 9,200 stores, that's a tremendous base of strength, but it also highlights the white space opportunity ahead. Look at the map. We are significantly underpenetrated in the Southwest, the West and in dense urban corridors across North America. This means that while we already operate from a position of national scale and brand recognition, we believe the runway for expansion is long. Our established footprint provides the stability and underpenetrated regions provide the growth, together creating a powerful opportunity for sustained market share gains.

With approximately 400 new stores opening each year, we have a powerful prospect to expand our footprint well into the future. Our growth plan isn't about adding stores everywhere. It's about strategically placing them where demographics and demand tells us the returns will be the strongest. Our new stores are delivering returns in excess of 25%, even in today's environment of cost inflation, higher interest rates, low retail vacancy rates and limited development. Our growth runway does not stop there. Given our financial projections and the retail opportunities that continue to evolve, we see a long runway ahead for store growth, but growth has to be about more than new stores. It's about making our existing fleet stronger and more productive.

Half of our stores haven't been touched in over a decade. So we are launching a refresh program, paint, flooring, fixtures. These are small investments with big payoffs that quickly improve the shopping experience. I recently walked into 2 different Dollar Trees, same city, walked into one that had been refreshed. The other one hadn't been touched. The results were striking. Their performance was too. And we're optimizing space. Too much of our floor area has been tied up in underperforming categories. We are reallocating space to higher-margin categories and products within the $2 to $5 price band, which we believe is just the biggest value creation opportunity. Okay. Let's talk about execution. For too long, our store standards have been inconsistent.

How we approach our work matters. That's why with Jocey's leadership, we launched the X factor framework and the race to gold to set clear benchmarks for what good looks like. We know what makes a store great. Like our founder said, it's about running clean, bright and inviting stores that deliver a consistently strong customer experience. And Jocey and her team are committed to this journey. We strategically invested in labor, extending hours of operation, fixing underperforming locations and giving associates better training and tools and the early results are promising. We're also attacking shrink head-on through accountability tools, technology pilots and new leadership alignment, we see an opportunity to mitigate shrink as a persistent headwind.

But this is about more than metrics. It's about culture. A store that meets gold standards isn't just better for customers. It's better for our associates. It's a place they're proud to work. It's a place they're proud to recruit others to and an opportunity that feels like a career and not just a job. That pride turns into lower turnover, stronger execution and a better financial performance. So what does gold actually look like? It means shelves are front-faced and fully stocked early in the day. It means clear aisles, bright lighting and signage that is clear for our customers. It means restrooms that are clean, checkouts that are staffed and associates who greet our customers with a sense of pride. That may sound basic, but across more than 9,200 stores, consistency is what builds trust.

None of this work can be completed without a modern supply chain infrastructure. Later today, you're going to hear from Roxanne about many of the opportunities we have in our supply chain network. To date, our distribution network has been stretched by rapid store growth, the rollout of multi-price assortments and the loss of one of our DCs. We're addressing this with a multiyear plan to expand and modernize DCs and capacity and strengthen our transportation. This will unlock meaningful savings over the next several years. On the tech side, we're replacing legacy systems with modern AI-enabled platforms. That means smarter assortment planning, better inventory visibility and improved workforce management. Technology is a big enabler. It gives us the ability to serve customers better, manage costs more effectively and scale profitably.

To give you a sense, some of our legacy systems were decades old, a clear opportunity for modernization. Compare that to where we're going with cloud-based platforms, predictive analytics and mobile-enabled workflows, that's not just a tech upgrade. It's a cultural shift. These investments in our IT and supply chain infrastructure are highly transformative. They'll allow us to flow product more reliably to stores, reduce out of stocks and improve our cost structure at scale. Our ability to invest in the business, expand our store base and create long-term value all starts with a very strong financial foundation.

With a healthy balance sheet, solid free cash flow and the proceeds from the Family Dollar divestiture, we are well positioned to fund growth while also delivering consistent returns to our shareholders. Let's discuss a moment why these things matter. We are not going to spend our way into growth. We're strengthening the foundation for it. A healthy balance sheet and strong free cash flow gives us the flexibility to invest where it matters most. We'll deploy capital with discipline. Capital will be allocated with clear priorities, investing in high-return opportunities, maintaining prudent leverage and delivering sustainable long-term returns, all to provide predictability and confidence for investors. A disciplined financial strategy ensures that we can continue to grow without compromising returns.

So what would I like you to take away from today? Dollar Tree has enormous opportunity for growth. We are well positioned to navigate today's unusually dynamic cost environment. We are now a focused stand-alone business. We have a refreshed leadership team that is aligned, accountable and committed to our strategy. Our strategy has very clear levers. We are already actioning them. They're led by multi-price expansion, improved store conditions and supply chain optimization. We are absolutely committed to driving expense discipline, reducing corporate costs to improve profitability. You've heard that our strategy is simple, yet powerful. It's a new era for Dollar Tree, fueled by value, convenience and discovery, and we are building it to last.

With that, I'd like to turn things over to Brent Beebe, our incoming Chief Merchandising Officer, to share how our disciplined approach comes to life in the assortment and value we bring to customers every day. Brent?

Good afternoon. By way of quick introduction, I'm Brent Beebe, Dollar Tree's incoming Chief Merchant. I've had the pleasure of working with Dollar Tree and on our transformation since 2020. Our value proposition centers on opening price points, fixed and limited prices that signal quality and value. This approach, Mike kind of touched on it, it stretches the shoppers' budget further, get some between trips.

And a key driver to our most recent growth has been the introduction of multi-price, expanding our ability while maintaining both that quality and value our customers has always loved from Dollar Tree. And in this role, I couldn't be more excited about the journey ahead. Today's story is about how Dollar Tree merchandising is transforming. We're going from constrained to optimized from a single price point to a high-performing multi-price model. It's about being more relevant. It's about building a stronger connection with our shoppers. As it currently stands, our store space has a lot of opportunity for sales and margin productivity. Some of our most productive categories have room to grow while others have an opportunity to be optimized.

This creates an opportunity to enhance sales and unlock more value. And you know what, we're not starting from scratch. We've actually been doing this for 6 years. We're evolving and scaling multi-price. We've built a proven model that's informed by our customers. Now with advanced analytics, we can sharpen our understanding of assortment performance, unlocking that potential that we're talking about. Looking forward, we're optimizing our store space with precision and focusing especially on that $2 and $5 price point range. By aligning space with demand, we're expanding high-margin categories, and we're unlocking stronger productivity in sales per square foot. We're treating shelves like a real estate portfolio. Every inch must deliver stronger sales and margin. Outcomes here aren't left to chance. We've been evolving this all along the way.

And multi-price is central to the strategy. It's not about more price points. It's about flexibility. It's about choice. It's about creating a deeper engagement with our shoppers. Now as all you know, in retail, innovation is key. Through a disciplined test-and-learn approach, we'll validate ideas before scaling, mitigating any execution risk and ensuring that there's measurable value and what we're doing. We understand the challenges. We see the growth potential and we've got a plan to win more market share. So let's dive in. Let's begin with the performance of the core Dollar Tree business. Since 2023, we've added $2.6 billion in sales. It's a 7.5% compounded annual growth rate. At the same time, $1 billion in gross profit. That's an 8% CAGR, clear evidence of a strong, scalable and margin-accretive model. A key driver is the balanced mix that we have of discretionary and consumables.

Discretionary drives margin. Consumables drives trips. And together, they deliver an extremely attractive gross margin profile. Our unique blend of merchandise provides this unique advantage in the marketplace. You know what, our assortment is highly differentiated. Nearly 60% of all products are private label or control brand. These products are engineered specifically for the Dollar Tree shopper. The remaining 40% are trusted brands, names our shoppers recognize and absolutely love. Now taking that all in totality, 80% of our assortment is unique. Less than 20% is similar to the competition. I'll say it again, less than 20% is similar to the competition. That's what's fueling the treasure hunt experience that keeps shoppers coming back for more. Mike touched on it. Price is another advantage. Our average unit retail is less than half the broader retail market.

That value gap is disruptive, one that unlocks new opportunities to layer in additional price points and broaden our assortment. Another point that's critical. As a variety retailer, we don't need to carry everything. We focus on categories and items where we can deliver true relevance and value at an attractive margin. If a product doesn't meet those standards, we'll simply either reengineer it or we'll drop it all together. Supporting all of this is our global sourcing strength. As one of the largest importers by container volume, our scale enables quality and value. Our well-developed China Plus One strategy helps manage those macroeconomic pressures and maintains our competitive advantage. It allows us to deliver disruptive value at scale. In short, Dollar Tree stands on a foundation of growth, margin strength, unique assortment and sourcing excellence. With that in place, let's get to the meat of this and explore our multi-price journey. Multi-price has been a breakthrough for Dollar Tree.

For decades, our identity has been defined as a single price point. Now that model gave us clarity for sure, but it also placed a ceiling on what we could offer. By expanding our price points, we've shattered that ceiling. Multi-price isn't a departure from our promise. It's an evolution that strengthens it. We believe it makes Dollar Tree more relevant, more competitive and more profitable. The benefits are clear. First, multi-price allows us to protect our core value promise while expanding choice and relevance. Shoppers appreciate the affordability of the opening price point and the excitement of discovering something unexpected at 3 and 5. To enable a more complete shopping experience, we can now offer complementary 125 school supplies and a $5 Disney backpack or for Halloween, we can now offer large variety bags of candy to round out that Halloween shopping experience.

This expanded assortment is at reliably low price points that drives customer loyalty and incremental spend. Second, it gives us agility. When inflation hits, tariffs come or other cost pressures, we're no longer constrained by a single price point. We can adjust while still delivering our promise of value, convenience and discovery. Third, multi-price increases shelf productivity. As an example, a 4-foot section that once generated a fixed revenue at $1.25 now delivers multiples of that revenue when we incorporate a $3 and a $5 item, transforming the economics of the space across the entire fleet. Operationally, it gives us leverage.

With lower unit throughput, each item that moves through our system generates more profit dollars while actually placing less strain on logistics and labor. Financially, multi-price delivers a step change in the economics. Margin dollars, both per item and per basket are significantly higher than in a single price point model. It's a key driver of improved sales and margin productivity for us, exactly the outcome we want as we reallocate our space to higher-performing categories. By offering quality and value across multiple price bands, we become more relevant more often. Now the strategy began in 2019. And since our last Investor Day, we've added multiple price points and scaled it by over $2 billion in sales. This is proof of customer acceptance and disciplined execution.

You can see in the price bands, in 2023, 90% of our sales were at $1.25 or below. Today, 60% is at $1.25 and below, 25% is in that $1.25 to $2 and 15% of our business is done above $2. That's merchandise relevance in action. It's measured, it's successful and it's anchored in value, convenience and discovery. We've seen household penetration grow, stronger basket conversion and expanded gross margin dollars. In short, the evidence suggests that multi-price delivers higher productivity, larger baskets, greater agility and most importantly, stronger customer engagement. It's an evolution that strengthens our core and positions us for long-term growth.

All right. Multi-price is about creating differentiated value at Dollar Tree. For customers, it means stretching their dollar further without sacrificing on quality. For Dollar Tree, it means stronger gross profit dollars, a more compelling assortment and deeper customer loyalty. As we expand in the $2 and $5 price point range, we're not just competing on lowest nominal price. We're competing on value. That strategy positions us to capture more market share and accelerate our growth. Today, as I mentioned, items above $2 are about 15% of our mix. When you look at the totality of that assortment, our prices are 10% to 15% lower than the competition for similar products. Importantly, our goal with multi-price is to add relevant and differentiated and incremental items that expand what Dollar Tree means to our shoppers.

Take toys, for example. We've engineered products into price bands that offer great value and drive incremental growth. One of my personal favorites, the snack option here. In snacks, we partnered with national brands to create multipacks tailored for our shoppers. In cleaning, we've introduced twin pack disinfected wipes at $5. That's 15% lower than the competition. Now our vendors want to partner with us. It's because of our scale, because we have high traffic and their desire, they want to compel trial in their products. Other examples you saw in the other room include our automotive expansion. I don't know if you saw the Prestone antifreeze down on the bottom shelf. It's $6. That's 20% less than the competition's private label and the hand vacuum at $7, products that we simply could not offer at $1.25.

These items broaden our relevance. We're meeting new shopper needs and reinforce our value promise. What we're doing in multi-price is different. It's unique to Dollar Tree and tailored specifically for our shoppers. That's why it's working. It's engineered values in categories where we have the right to win. One of the biggest differentiators in our business today compared to a few years ago is data. We now have new sources, new talent and AI-powered tools that give us visibility and precision we just never had before. We also built a new assortment planning suite, one that provides us guardrails, enables us to test and learn and offers modeling capabilities that didn't exist up until this year, really.

And what that data tells us is clear. Our biggest opportunity is in optimizing the space we have, treating shelves like a real estate portfolio. Every inch is an investment, and we're engineering outcomes that deliberately drive sales and margin. To be clear, we're not shifting to a planogram approach, but rather, we're leaning into the treasure hunt experience when products are grouped by mission and utilizing price point signage for clarity. Our goal, simple, is to maximize the financial performance of the store in its entirety. Within this framework, multi-price is a critical tool, but it's just one. Another real key value driver is engineering our mix based on shopper demand. Instead of relying on legacy space allocations, we're shifting from space-driven to shopper-driven merchandising.

That allows us to further delight our shoppers, maximize sales, gross margin and returns across the fleet. This opportunity is huge. It is so significant. By optimizing store space, we're creating a pathway to accelerate multi-price. We're expanding shopper relevance, and we're unlocking higher productivity across the entire fleet. Wanted to share kind of the magnitude of the space optimization that we have. If you look at this graph, it simply charts sales per foot per store across 50 different categories. Each data point represents how efficiently space is being monetized in our store.

Our team has a clear map, not only of the sales, but also the profit per foot for each category. This gives us a dual lens of volume and margin and how each foot is performing. Now we consider all factors of sales, profit and importance to customer traffic in deciding how we allocate our customer space. As you can see, there's a widespread here in performance. Some categories are delivering exceptional returns per foot while others are underleveraged. The median line here is just the current benchmark, but it is by no means the ceiling. By optimizing space and refining our assortment mix, we have a clear path to shift that median up. This means reallocating space from low-performing categories to higher-performing ones and curating product shelves that drive both sales velocity and margin. So let's go a little deeper on this just to give you a couple of examples.

In our consumable business, optimizing the balance between shaving and skin care yields dramatic results. We freed up 4 feet of space for higher demand items, shifted from shave to skin care, and we saw a 26% improvement. The same applies to our discretionary categories. We reallocated 4 feet of space from apparel to household plastics, a category that we see strong customer demand for, and we're seeing a 47% lift on a combined basis.

Mike referenced how often we're testing and learning. That's why changes like these are first assessed with thoughtful reference to related categories in the entire store as a whole. Space optimization has the potential to dramatically increase our sales productivity without any capital expenditures.

For customers, it makes it feel more curated for them and aligned with their needs. For the business, it means higher returns on fixed assets. Optimization has a multiplier effect. Each proven change builds a more productive store. Multiply that across 1,000 locations and the impact is absolutely transformative. It's one of the clearest examples of how data can directly translate directly into value creation.

As we look at the opportunity multi-price provides, giving shoppers another reason to visit or one more reason to add to their basket, we see more than just a pricing strategy. We see a gateway for new categories that simply previously were out of reach. When we look at the consumable mission trips, multi-price has enabled us to expand assortment and broaden relevance in ways that weren't possible before. In frozen foods, we now offer large pack sizes of $3 or $5 items, making us more convenient for families. In beverages, multi-price allows us to sell multipacks that deliver value at scale. In household, we now carry higher quality storage solutions and cleaning categories. These offerings enable our shoppers to fulfill more of their needs at our store, and it also elevates the entire shopping experience.

These are examples of just how we're growing our share of wallet and becoming more relevant to our valued customer base. Looking at consumables through the lens of these shopper missions, 4 distinct trips emerge. First one here, grab and go, these are baskets with 3 or fewer items. These are quick transactional trips, typically for immediate consumption. Need it now, these are baskets between 3 and 10 items, driven by urgency. It's typically a household staple health care or maybe it's a snacks for the week. A fill-in trip, that's 11 to 20 items in the basket. These are topping off a pantry load, typically household goods between larger stock-up trips. And my personal favorite, the stock-up trip. That bad boy has more than 20 items in the basket. That's where Dollar Tree is the primary destination.

Our market share across the trip mission show 1% in grab-and-go, scaling to 5% in the fill-in and then closing it out with 4% in the stock-up trip. By aligning merchandising with these trips, we're ensuring Dollar Tree is relevant, relevant across multiple shopping occasions, driving frequency, bigger baskets and stronger quality. To illustrate how this plays out, I'll share a few real-world examples that bring these shopper missions to life. All right. First one, let's take a look at the grab-and-go trip. When we studied this trip, we quickly saw an opportunity to become more relevant by introducing brands. These are brands we couldn't afford at $1.25, but that resonate with our shoppers. But with multi-price with its $0.25 increment price points enabled us to offer them.

We can now satisfy an additional impulse, convenience and value and enjoy the traffic and transaction benefits. This enriched assortment has energized our snack zones and impulse categories, areas where relevance and brand recognition matters enormously. The results have been some of the strongest sales we've seen in Snacks and Beverages in years. At the same time, we didn't walk away from our base. We carefully rationalized our $1.25 assortment. So we're ensuring that, that opening price still available for our shoppers at the best value. It's not about replacing $1.25. It's about enhancing it with multi-price to create a more complete and compelling offering.

The outcome is clear. We've increased sales productivity, opened a pathway for multi-price and through smart negotiations, delivered exceptional value for our shoppers. All right. Let's look at the next example, which, of course, is my favorite, a stock-up trip. When we drive in -- excuse me, when we dive into the stock-up trips, again, these are baskets with 20 or more items. They're often anchored by $1.25 essential. These everyday basics are what get customers into our stores. But today, we're offering an expanded assortment that includes items with a wider range of price points and additional items whose variable pack sizes enable us to offer an even better value.

Now when shoppers come in for their bleach, they don't just leave with bleach. They can also find cleaning accessories that we could not offer at $1.25, plus deeper value multipacks and quality items at $3 or $5. These aren't just add-ons. They're complementary essentials that deepen the value of the trip. So think about a customer who relies on Dollar Tree for our unbeatable value of bleach. Today, they can now round out their basket with multi-price items like gloves, sponges and bulk cleaning supplies, all in one stop. That's convenience, that's discovery, and that's value working together. The expanded assortment is driving stock-up trips to Dollar Tree. It's not just about offering more, it's about offering better. The impact is clear.

These larger baskets are no longer defined solely by opening price points. They're increasingly blended with multiple price -- multi-price essentials that drive higher sales and stronger margins. Just as grab-and-go trips, have been energized by brand introductions, stock-up trips are being redefined by our multi-price assortment. Okay. So what does this all mean for the consumable side of the business? I'll take a step back here and look at the total market. When we look at our share by price band in the marketplace, 2 things stand out. First, we have tremendous strength below $2, where Dollar Tree has been a long leader in. Second, and equally important, we see opportunities to win in adjacent price points. We can win there through incremental items where we can be relevant to our shoppers and deliver that quality and value.

This is where the size of the prize comes in. We believe the opportunity in the $2 to $5 price band is immense. As I mentioned previously, we previewed a version of this in our last Investor Day and have delivered over $2 billion in incremental sales in just 2 to 3 years. Additionally, since our last Investor Day, we've been building capacity across multiple dimensions. In stores, where space optimization creates room for expanded assortments, with our shoppers by educating and engaging them on the value of multi-price, in data using advanced analytics to guide smarter decisions and in talent with merchants who are sharper and more agile than they ever were before.

At the same time, we've been accelerating growth in share of wallet and growth in household penetration. That progress alone gives us confidence that the next wave of growth is not just possible, but it's inevitable. Our discretionary business is a key differentiator for us and one that represents 50% of our total business. This mission trip is about a special occasion, a season, a celebration, inspiration and definitively about discovery. We'll look at a few examples that highlight the treasure hunt we're creating through our expanded assortments. When we look at the power of multi-price, hardware is one of the clearest examples of how this strategy opens up new categories. Prior to multi-price, our assortment was simply constrained. There were entire categories we couldn't touch.

You can't make a quality hammer for $1.25. At the same time, we had unproductive space, take our phone accessories here at $1.25, which weren't delivering the sales or margin we expected. That gave us the chance to rationalize, free up the space and introduce a multi-price hardware set. The preliminary results have been absolutely compelling. Hardware has driven unit comps, average unit retails and basket penetration increases across all formats. In other words, shoppers are not just buying. They're building bigger baskets, mixing hardware into their trips in a way that they didn't before. Now let's look at the seasonal trip. Seasonal has always been one of the most distinctive parts of Dollar Tree, and it's also one of the most mature multi-price businesses that we have.

This is an area where we have both the right to win and the capability to deliver unmatched value. Multi-price enables us to broaden the scope of the items so that our shoppers can complete the purpose of the shop. It enables us to offer customers everything they need to celebrate holidays and special occasions in just one trip, again, at a value no one else can match. Let's talk Halloween. We see 3 distinct shoppers. On my left, whatever it is for you, the casual shoppers who typically have up to 4 items in their basket. The celebrator has 5 to 10 and our enthusiasts who are all in, their baskets are 12 or more items. When we analyze this mix about 2/3 of trips fall into the casual and celebrator category.

But importantly, 1/3 of our shoppers, the enthusiasts by 3x more the number of items. And they're adopting multi-price assortments in a major way with 8x the basket size. By leveraging multi-price within the celebrator and enthusiast groups, we've significantly increased the basket size, margin dollars and overall impact. For these customers, multi-price isn't just an add-on. It transforms the trip by offering bigger, higher quality and more innovative items. To show how powerful this can be, let's take a look at how this played out in Christmas last season. Here are the facts that we've uncovered for the 2024 season. 125 baskets were flat to slightly down. Our multi-price-only basket saw high single-digit increases.

More importantly, the mixed baskets of opening price point and multi-price is up double digits. An opening price point only basket is about 5 items or less. But when customers combine opening price point and multi-price, the average basket size jumps to 10 items. That tells us that customers have embraced the expanded assortment. Think about those Christmas sets you saw in the other room. We've got toys that parents can actually put under the tree. We've got large plush animals, and we've got Bluetooth electronics. These products simply weren't possible at $1.25. But at multi-price, they become attainable and compelling. And we didn't abandon our core.

Most of our assortments remain under $2, preserving our value identity while layering in excitement and relevance. That combination, everyday affordability plus the expanded seasonal offerings is the engine behind our basket growth.

Let's bring this to life with a seasonal candy. A great example of how multi-price helps meet customer needs in new and exciting ways. Seasonal candy is a key driver in building baskets, stronger margins and deeper engagement. Think about the occasions throughout the year, large variety bags for trick-or-treaters for Halloween, stocking stuffers at Christmas, classroom exchanges for Valentine's Day and basket stuffers for Easter.

Each moment calls for something bigger, something different, more specialized than our $1.25 assortment alone can provide. By layering in multi-price, we've expanded beyond single-price small pack format while staying true to value and keeping everything complementary to the $1.25 set.

We've built this strategy around brands our shoppers love. Candy is so emotional and recognizable, credibility matters. Because of our tremendous purchasing volume, major vendors want to work with us to co-create special pack types designed specifically for Dollar Tree, products that deliver the right size, the right price and are seasonally relevant.

On top of driving incremental sales, these partnerships further strengthen our position as a must-have retail partner for our vendors. So when you step back, it's about proving our model can scale that shoppers actually want more from us and that we have the tools to deliver.

Now let's look around the corner on what's next. Looking ahead, one of the most powerful ways will drive growth and innovation is by doubling down on our test-and-learn approach. Disciplined and thoughtful analytics are at the cornerstone of this strategy. Before rolling out new multi-price categories, space reallocation or merchandising strategies, we will start with a controlled pilot.

We'll measure customer response, analyze the sales impact and then refine the execution. Only when the data supports the concept will we expand it across the fleet. This approach reduces our risk, uncovers new opportunities and accelerates our success. Three areas we're exploring, zone pricing, strategically in a limited number of markets. Second, front-end reconfiguration, opportunities to increase our impulse purchases. Third, data and predictive analytics to help us forecast, personalize and make data-driven decisions.

The beauty of this approach is our scale. With over 9,200 stores, 100 million households and a growing digital platform, we have the permission to test, fail-fast, but certainly implement quickly. This is how Dollar Tree will continue to evolve, not by standing still, but by constantly experimenting, refining and discovering new ways to serve our shoppers better and more profitable.

All right. Now let's pull this all back together and connect these themes to the bigger picture. Our merchandising strategy is setting Dollar Tree up for long-term growth and leadership. We're optimizing store space, treating shelves like a real estate portfolio engineered to drive higher sales and margin.

Multi-price is one of our most powerful tools. It enables us to capture greater share of wallet and increase our customers' -- relevance with our customers. We'll fuel innovation through test and learn, experimenting, reacting and using our scale to keep merchandising dynamic, resilient and relevant.

Bottom line, Dollar Tree is moving with purpose. We're building a model that's more productive, more resilient and more customer-led than ever before.

Thank you for your time. I'll now turn the stage over to Jocelyn Konrad, Chief of Stores and Enterprise Operations. Thank you.

Good afternoon. My name is Jocy Konrad. I'm the Chief of Dollar Tree Stores and Enterprise Operations. I recently celebrated my second anniversary with the company, and it has been a privilege to be here today on behalf of our operations organization.

With my more than 30 years of experience in running small box retail, I recognize that every business runs differently. When I transitioned to lead the Dollar Tree team last November, it was a peak holiday season and the busiest time at Dollar Tree.

The best thing I did was listen, learn and ask questions. To protect the fourth quarter, I did not immediately jump in and make instinctive changes. I spent time with our team to learn the brand, our associates, our customers and our operations. And I observed 2 things that have stuck with me every day since.

First, there is magic in the Dollar Tree brand; and second, there is a ton of opportunity ahead of us. The Dollar Tree brand is unique. And now we are accelerating our pace to raise the bar in stores and maximize the opportunities we have every day to impact associates, customers and deliver results to shareholders.

As Mike shared earlier today, our store fleet is essential to our strategic plan. Our strong footprint provides the stability to raise the bar in store operations and that's what we will cover today. But before I dive in, I want to be clear on a few things. We are not satisfied with the inconsistency of our store conditions. We have made some progress, and I'll share more about that today.

And we will continue to elevate our stores to reach higher standards. These are the headlines I want you to hear from me. We have a tremendous opportunity for improvement and acceleration. And as we begin, let's walk through our brand journey. With more than 9,200 stores across North America, our footprint is substantial. This means that when we make changes to our processes, standards or expectations, there are more than 9,200 store managers to reach, more than 500 district managers to connect with and more than 50 regional and zone leaders to influence.

We recognize that as a large organization, there isn't a magic wand. We must make decisions and changes that are sustainable for our associates. And we must be intentional about how we choose to prioritize and drive improvements.

As you've heard today, Dollar Tree has evolved from a single price point model to a multi-price assortment. Since we introduced the $1.25 price point in 2021, we have continued to fiercely protect our brand promise of delivering great value to our customers. And this brand evolution has come to life in our stores and through our associates.

They are on the front lines of implementing new sets, fixtures and prices. We know what needs to be done to improve standards, and it's not a solo endeavor. Our associates have been on a journey with us each step of the way. And as we raise the bar, we're dedicating time to teach and coach and train with clear processes and expectations. Across departments, we collaborated this year to define the what and the how of our multi-price journey, while prioritizing value, convenience and discovery.

Let me illustrate the importance of our recent operational evolution through an example. Our expanded multi-price assortment introduced a few schematics in our stores. One of those areas was in our frozen food department, a critical sales and transaction driver for Dollar Tree.

From associate feedback during store visits, it was clear that we lack consistency in our stocking process. We saw an opportunity to make the process easier. And as a result, we began to simplify our freezer merchandising with a new 5-step process. Associates should now have a clear understanding of how to properly receive an order, replenish the freezer and then organize the back stock.

It's not a complicated change. It's slightly different with more intentional steps. We focused our teams on these key behaviors that align to a high standard, and the changes were a result of listening to feedback from our associates. How we approach our work matters and many times, the best ideas come from our associates on the front lines.

At our Field Leadership Summit last month, I shared with our district, regional and zone level field leaders that they and their teams are the magic makers in our stores. It's not just me or those presenting today, it's more than 144,000 field associates who are closest to the customer. They are responsible for the customer experience.

But first, it's important to define our expectation standard. During our 2023 Investor Day, Mike introduced the G.O.L.D. standard that we aspire in all of our stores. We call that the Grand Opening Look Daily. The gold concept sets the bar for consistent store standards and associates are expected to run gold standard stores, not just meet those standards once.

Initially, when we introduced the concept of gold, we coached our teams on what gold looked like. Our G.O.L.D. standard stores are our top shelf location, the model stores in the fleet. These are the stores we are most proud of because their achievement of G.O.L.D. standards model value, convenience and discovery for associates and for customers. In a well-run G.O.L.D. store, we are fully staffed. Positions are easy to hire by a well-trained store manager. Associates are trained with consistent expectations, they work as a team, they are proud of their work.

Leaders and associates follow standard operational processes. The store is safe, clean, bright. The shelves are full. The backroom is ready to receive the truck delivery. Customers are greeted, they feel welcome and their expectations are consistently exceeded. And shrink results and risks are mitigated.

The G.O.L.D. standard supports our growth runway. It is our expectation in every store so we can continue delivering a consistent experience that earns the highest praises from our customers. But it's clear from the current range in our store standards, based on our new rating system this year that all stores are not achieving the G.O.L.D. expectations as committed.

Listen, I am not pleased with the inconsistent G.O.L.D. score results. We know many of the root causes, and we've defined the work that needs to be done. And that is the work we are prioritizing.

Now to guide our efforts before we step inside of a store, we use a report called the fish finder, which comprehensively ranks stores across key metrics. We review the areas and where we are winning and where we have opportunities. With the fish finder, it's like a golf score, the lower, the better.

We know many areas in the opportunity stores tend to be correlated to a few things: a store manager of vacancy and high turnover, inconsistent store process execution, opportunity with on-shelf availability, disengaged teams who call out from their shifts and are understaffed and potentially high shrink.

And we know what it takes to move a store along the race of G.O.L.D. to higher standards and embodies brand strategies. At its core, retail is a people business. Our associates are at the heart of our organization, representing our brand for our customers and our communities.

Our current focus is on building a foundation where our associates understand their role and have clear expectations for their work. They understand how to deliver and where to get help when they need it, and they collectively focus on running the business.

As I shared earlier, we've made progress in our results. Year-to-date, we're seeing positive brand trends in both comp sales and improved associate scheduling, as we optimize our labor. We've seen improvements with store manager vacancies with a reduction in the number of stores that have a store manager opening.

This is a key role in our store leadership, and we're prioritizing continued improvement in this area. And we're seeing a reduction of incidences of early closes or late openings. We are eager to build trust with customers so that they know that when we say our store will be open, it will be.

We owe it to our customers to be a reliable shopping option. In the first half of the year, we also identified focus stores to monitor G.O.L.D. score improvements. I'd like to share an example. In 2 stores, the impact of filling store manager vacancies, reducing out of stocks and optimizing associate schedules led to results.

In this case study, both stores, 1 in Texas, 1 in California, began as less than a 5 on the G.O.L.D. scoring scale. Both stores are now scoring in the great category on their way to a G.O.L.D. score. In the first quarter of the year, both of these stores had negative single-digit sales comps and after focus changes and running, now they are running positive double-digit comps year-to-date. We focus on how we work, we will raise the bar.

Now when it comes to how we work. I have seen that teams who care about the how also understand the why behind their work. As we are building high-performing teams who run high-performing stores, we needed to pause, slow down for a moment and define the purpose of our tasks.

Our tasks, our task is to run clean, bright and inviting stores, as our founders clearly articulated. What our purpose, that's to care to serve and to support our associates with a great place to work, our customers by surprising and delighting them and our communities by giving back.

Our people are at the heart of everything we do, from the day we hire a new associate to the time dedicated to supporting them. As a team, we talk about the ways we win together. The first is that we will do it right the first time, prioritizing accuracy and efficiency. The second is that we will slow down to speed up. These are both cultural building blocks, and it is our responsibility to build and maintain an attractive culture. It's how we show that working at Dollar Tree is a career, not just a job. Our team is raising the bar, emphasizing accountability at all levels.

Earlier this year, we introduced a new accountability matrix to monitor our operational efforts. We aim to ensure expectations are understood as we live up to our community's commitments and our results. Our expectation is consistent store standards that deliver consistent customer experiences in every aisle, every store, every day.

We know where the opportunity lies. We know that first impressions matter. We know that customers deserve our best. Doing all of this right is the best way to deliver value for our shareholders, and we're making measurable changes to deliver that Grand Opening Look Daily.

So listen, as you get to know me, you'll find that I am passionate about being with people in our stores. Time spent with our associates always educational for both the associate and for my team. When we engage with our associates in their workplace and take time to ask questions, we find gaps and areas for opportunities to make it easier.

My expectation for my team is to listen and learn while coaching and training in a tailored way for each person. It's the same expectation I hold for myself. And we are committed to relentlessly pursue ways to deliver the magic of Dollar Tree with urgency, as we evolve our culture to emphasize associate accountability. We have to start here with our people to build the culture that raises the bar.

One of the ways that we're leading our teams differently is through a consistent framework called The X Factor with 3 core components: the associate experience, the customer experience and operational excellence, surrounded by extraordinary leadership, we are positioned to drive exceptional results.

You may notice that this visual looks a bit like a steering wheel. It does. We drive towards results through visual representation of our consistent focus areas. It starts with engaged associates, who delight our customers with memorable shopping experiences. That's how we will raise the bar.

The G.O.L.D. framework is the foundation for our elevated standards. To evolve the initial G.O.L.D. framework that was originally rolled out, we have taken steps to just change our approach a bit. We have clearly defined what G.O.L.D. is and what it's not. Moving from the subjective to objective measurements.

This is a key difference. Our associates are very familiar with what G.O.L.D. looks like, but the why and the how they weren't always clear through our expectations. This became evident when visiting stores. We're now driving results through a playbook called the Race to G.O.L.D., representing the next level of our G.O.L.D. evolution.

It's an educational and coaching tool that brings to life the operational expectations for running G.O.L.D. stores that will deliver exceptional results. Our new approach has much more rigor and standardized scoring. We have a consistent expectation for associates that are measured the exact same way in every store.

Along the race of G.O.L.D., associates use a visual road map to climb higher in the 10-point scoring scale for G.O.L.D. standard stores. Stores are scored along the race as they successfully master each step and stack their building blocks. The race to G.O.L.D. includes almost 50 operational activities, processes, events -- sorry, processes or events prioritized appropriately.

Topics include safety, shrink, customer service, associate behaviors, price clarity and more. A few examples are highlighted on the illustration behind me. This visual hangs in each manager's office and our leaders coach to it during their store visits. There is a clear plan for every manager to assess their store and their progress and to understand how to maintain their current score, why those steps are so important and what steps are necessary to continue to improve.

Using this tool, we measure all stores consistently for confirmed and continued improvements. We train our associates to deliver clean and bright associate and customer areas, front-face and fully stocked shelves, resources to mitigate shrink and opportunities to create merchandising magic.

It's not linear. Our teams are working on all areas of the Race to G.O.L.D. every day. By recalibrating the Dollar Tree G.O.L.D. standard, we have the foundation to raise the bar on our execution. With more than 9,200 store managers leaving 144,000 associates consistency is key. How we approach our work impacts the results that we will deliver along this journey.

As Mike shared, Dollar Tree is on a journey, and our growth plan isn't about adding stores everywhere. It's about strategically placing new stores where demographics and demand tells us where the return is strongest. And while we're opening new stores and improving conditions, we're also committed to improving our store operation performance, and our associates are a core piece of this.

When our associates bring our brand to life, our customers have a memorable thrill of the hunt experience in our stores. Part of our strategic approach is also about strengthening the existing fleet of stores to be stronger and more productive. One of the ways we will do that is through a store refresh program. Historically, Dollar Tree has not had a renovation or refresh program, and we're changing that. What we have known from the data that store refreshes quickly and reliably pay for themselves.

And despite the fast returns, half of our fleet has been open for 10 years or more without a refresh or renovation. This new refresh program will result in the touch up of about 3,000 stores or 1/3 of the fleet and the renovation of more than 100 stores. However, because this is a new program for Dollar Tree, we will continuously measure the returns. When our customers step into our house we get one chance for a first impression.

The impact of improvements like fresh paint, clean exteriors, new ceiling tiles, all says, welcome to Dollar Tree and meets our store standards. As we raise the bar, the physical store experience matters. I remember that X Factor framework I shared earlier with exceptional results in the center of the visual, the results are dependent on raising the bar for our standards. And we are providing our associates with tools, data and processes to support the elevation.

A store that meets G.O.L.D. standards isn't just better for our customers, it's a better place for our associates, it's a place they want to work. And it's the way that we make the most of our opportunity, shifting store standards from the left as opportunity stores and good stores to the right as great and G.O.L.D. stores. Race to G.O.L.D. is our new playbook, but we are also focused on clarifying our ways of working and the work our associates are doing.

We are relentlessly pursuing consistency in our store operations. As we do that, we are able to simplify the work for our associates. As I mentioned, there are almost 50 stops along the Race to G.O.L.D. And most of them are repeatable activities that require consistent execution. We've simplified 3 key activities so that they are integrated in a typical work week. First, it's about truck day.

From the time we receive a truck, associates are expected to unload the freight, organize the backroom and stock the shelves. We urgently process freight within 48 hours. So our stores are fully stocked with new merchandise to deliver the thrill of the hunt for our customers. Second, work the plan, focusing on merchandising initiatives and seasonal displays.

There are many, many items that the store manager has to do. And the manager manages their week through a plan. Part of this work is also preparing for the next truck to ensure an efficient backroom flow. And third, it's about daily recovery. At Dollar Tree, recovery means pulling products to the front of the shelf, filling in any gaps with new inventory and tidying up the aisles.

If we do these 3 things consistently, that will help us elevate store standards. Consistent standards help get us to gold which brings our brand promise to life. And as we raise the bar, how we do our work matters. But we're not stopping there, aligned with many of the operational stops along the race of G.O.L.D., we are committed to continuous improvement.

We're seeing early wins from test-and-learn initiatives this year. As a result of labor investment test in select store, performance was boosted with positive sales lifts. In the first half of the year, we extended hours of operation in select markets, which resulted in sales increases during those additional operating hours.

Through a monitored focused stores test earlier this year, the sales increase resulted from targeted investments in store standards. And last, in select stores with upcoming scheduled inventories additional labor hours were allocated as a test to support the larger truck deliveries. A positive sales lift was observed.

The test results were confirmed by a third party and are significantly significant, but we're not done yet. We're also pursuing a reimagined store experience that includes refresh signage, a new front-end configuration and facilities improvements. Each of these areas is intended to improve the customer experience in stores.

Operational support of merchandise excellence in stores continues to evolve as the departments collaborate on shared initiatives. We've recently launched refreshed multi-price signage to support price clarity. Merchants source new easier shelf stocking formats that aid seasonal sell-through and minimize seasonal packaway.

In late 2026, we plan to launch a powerful new workforce management system designed to transform how our stores schedule. This tool will give managers smarter, data-driven scheduling capabilities, helping them plan to business needs, optimize labor hours and ensure shifts are efficiently covered. Associates will have the convenience of self-serve options to change shifts, providing more flexibility and control with their work schedules.

Ultimately, this is about precision and empowerment, having the right associate in the right place at the right time, so our stores run smoother, customers get better service and our teams feel more supported and empowered. The steps are clear for how to run a productive store. We're raising the bar with our teams to embrace our business model changes, and we're assessing the results each step of the way.

The last piece of work I want to speak to is related to maximizing margins and reducing expenses through in-store controllables. One of these is shrink. We're recalibrating our focus to control what we can control, to protect the sales that we've achieved. Shrink represents a significant opportunity to improve our bottom line.

Our reporting shows that about 20% of our stores are contributing to much of the shrink risk and impact. We're actively reviewing and activating with these stores differently to mitigate risk with a variety of tactics. Earlier this year, we also transitioned the asset protection team to work more directly with store operations hand-in-hand to focus on improvements in this important area.

This fiscal year, we introduced new shrink mitigation tactics for long-term impacts. One of the tactics is the nonnegotiable audit. The first thing we needed to teach and coach, what does nonnegotiable mean, not up for debate and this audit is not optional. Our store leaders are required to conduct a rigorous nonnegotiable audit each time that they visit the store to ensure that we are controlling what we can in store operations.

All associates are held accountable to the nonnegotiable processes and expectations that are critical to mitigate shrink risk. We are teaching, coaching and training our associates for consistent attention to critical shrink prevention tactics. Physical security initiatives like security camera reviews and internal and external theft prevention programs are all examples of ways our teams are combating shrink together.

Shrink is a responsibility of the entire team of associates and field leadership, which is why many of the shrink-related activities are included in the race to G.O.L.D. you saw earlier. When we leverage these tactics to improve shrink, we are raising the bar in our stores.

As we look at our current store landscape, there is immense opportunity. Our potential can be unlocked by raising standards across all stores to deliver the magic of Dollar Tree. This is a journey that we will sustain through routines, disciplines and clear expectations. By raising the bar and shifting a large portion of our stores from good to great and onward to G.O.L.D., we will meet and exceed our associates, customers and shareholder expectations.

We are also exploring ways to make labor more productive in our stores while we do this. When we talk about an attractive financial outcome, it's directly reflective of our consistent store standards that raise the bar across the entire fleet. We have the opportunity to shift the stores from the left to the right, measure and report on these improvements and deliver those financial results.

Think about that profile of a G.O.L.D. store with an engaged manager and a team that's well prepared for the day; clean and inviting aisles; stocked shelves and low shrink. The best financial returns are from these stores. We have modeled out what it looks like when the opportunity and good stores shift from left to right and we're completing the work to continue to test, learn and validate those assumptions.

In the next several years, we will continue to refine the model with consistent store standards and teams that test and learn all of those opportunities. We believe results are ahead of us. I started today by telling you, Dollar Tree has both magic and opportunity. As I pull the thread through from our time today, here are a few key takeaways: We are raising the bar in store operations, beginning with our associates and the culture that we build and maintain. We're doing that through consistent store standards and operational processes. And for a common language across the more than 9,200 stores, we've introduced The X Factor and the Race to G.O.L.D. playbook.

And when we elevate our store standards using the new G.O.L.D. scale, we believe we can deliver strong financial results. We are committed to building high-performing teams that will continue to surprise and delight our customers. We are committed to retain and grow our associates and positively impact our communities. And we will absolutely be making changes that embody a consistent focus on store standards. The magic of Dollar Tree will only strengthen as we raise the bar together.

Thank you for your time today. And now we invite you to take a 20-minute break right before our Chief Supply Chain Officer, Roxanne Weng will take the stage.

[Break]

If everybody could please start moving back to your seats, we'll get set for supply chain and then finance. And then we'll get to Q&A. And hopefully, we'll have you all out here at 4:30 to catch your trains and planes back home.

Good morning, everyone. I hope everybody had a nice break. I'm Roxanne Weng, Chief Supply Chain Officer at Dollar Tree. I joined the company about 6 months ago, also with 30 years in small box retail, and I'm really excited to share with you today our supply chain strategy. Our supply chain is the backbone of our operations and the enabler of nearly every initiative we have underway.

We don't just move boxes or pallets. We deliver those products that help families live their lives and create memorable moments. From household essentials to seasonal decor, the efficiency of our network directly determines how well we can serve our customers. Whether it's serving millions of customers each week, supporting the rollout of our multi-price strategy or ensuring consistent delivery to over 9,000 stores, our supply chain excellence is what allows us to compete and win.

I'm going to take the next few moments to walk you through the evolution that we are under and what is shaping our path forward. We'll discuss our existing operations, significant opportunities we have to improve our store to distribution center ratio and the actions that we are taking to evolve our supply chain into a long-term enabler of growth. This is about more than efficiency. It's about positioning Dollar Tree to capture growth and deliver value for many years to come. So let's start with looking at the network today.

Our network has over 18 distribution centers. It's one of the largest in North American retail, 18 centers across the U.S. and Canada, and we have 2 more under construction. We recently announced a new facility near Phoenix, in the rebuild of our Marietta, Oklahoma DC, which is on track to open in 2027.

Every day, we load over 1,400 trucks, put them on the road and deliver over 3,000 routes. And despite that scale, we are able to achieve a 97.5% on-day delivery rate, a remarkable level of reliability, given our scale and the complexity of external factors. Our network coverage is very extensive, but it also gives us the ability to service our stores with excellence.

We are rapidly modernizing our systems to improve our capabilities, though as volume will continue to increase, our capacity is tightening. Within that pressure though, lies opportunity, opportunity to improve productivity, streamline our costs and enhance service to our stores.

There are several dynamics that are driving our opportunities around capacity. First, sustained store growth. We have opened over 1,000 stores in the last few years, generating substantial increases in sales and volume across our network. This level of growth underscores why capacity and network planning is one of our key priorities.

Second, the rollout of our multi-price assortment, is a big win for our customers and it has introduced some initial added complexity with a broader SKU mix and more dynamic replacement patterns. But note, that multi-price also allows us to leverage our supply chain costs with a portion of same-store sales growth delivered by AUR rather than units.

And third, the loss of our Marietta, Oklahoma DC, following last year's tornado. It temporarily reduced capacity and created strain across the network. This event added transportation miles, temporary costs, but it also accelerate our ability to be flexible. Our focus is on ensuring that our network evolves and lock-step with our store growth, delivering reliability, scalability and efficiency for years to come.

When we talk about evolving a supply chain of this scale, it's important that we measure our progress with the same discipline that we measure execution. This slide and the criteria on it are how we're going to measure success.

Let's start with cost savings. Every initiative that we have in supply chain is designed to deliver measurable financial benefit, whether it's through transportation efficiencies, labor improvements or smarter inventory management. Each dollar saved strengthens our ability to reinvest.

Next, throughput per facility. This measures how much additional volume each distribution center can handle without compromising safety or service. Improving throughput allows us to unlock more output without necessarily adding more distribution centers. This is a significant objective of our supply chain evolution, servicing more stores through each distribution center.

Next, we are focused on cost to serve. It's a critical measure of how efficiently we move products from vendor to shelf. Lowering cost to serve, helps maintain margins, deliver consistent performance across a very complex network.

Another key metric, service levels. Our ability to maintain a 97%-plus delivery rate, even as volume continues to increase, is proof that our team has operational discipline, we are leveraging technology and we are committed to reliability.

And last, we've got to talk about multi-price readiness. That capability is now fully embedded across all of our distribution centers. It's a onetime investment that now gives us the flexibility to handle a broader multi-price assortment.

So taken together, the criteria on this slide tell a very clear story. Our supply chain is becoming more efficient, more agile and more resilient. It's a network that we're building to sustain the growth, strengthen our margins and serve our customers with precision every day.

To continue to evolve our supply chain, we are pursuing 4 clear priorities. First, we're going to strengthen labor management and drive performance. We are building a consistent operating framework, simplifying incentive programs and expanding safety and recognition initiatives. These efforts are creating a culture of accountability, engagement and continuous improvement across all of our facilities.

Second, we're unlocking productivity through strategic investments. We're investing in technology and tools that allow each distribution center, the ability to handle greater volume and more efficiently. These targeted investments expand capacity and improve service without adding unnecessary costs. If we can get an attractive return on capital, we will always look at it.

Third, we are building an optimal network for sustainable growth. Our goal is to capture the right capacity in the right locations, aligning our distribution capabilities with store expansion. This minimizes miles and product touch points.

And fourth, we're looking to improve transportation and inventory management. We are modernizing routing, fleet management, improving inventory visibility to enhance delivery precision, reduce transportation miles and better balance flow across all of our facilities. Together, these initiatives will strengthen our ability to serve stores, maintain costs and support sustained profitable growth.

Because our associates are the backbone of what we do, I'm going to go a little bit deeper into labor. Without a stable engaged workforce, none of our initiatives can succeed. In 2023, our voluntary turnover was at 71%. In 2024, we were able to reduce that to 65%, and we are on track this year to hit 55%. That's meaningful progress, proof that deliberate actions are working.

We've eliminated incentive plans that do not align to performance. We've enhanced safety programs so our associates feel protected and supported. Recognition and feedback are built into every facility that we run. And we have embedded a culture of continuous improvement into all of our facilities, empowering associates to give us feedback and propose solutions.

But most importantly, we have introduced a pay-for-performance program that is grounded in engineered labor standards. This program allows associates to directly tie reward with effort. It creates fairness, transparency and accountability. We are building a sustainable engaged workforce that takes pride in results, drive stronger morale and will have lasting operational excellence.

At the last investor conference, a couple of key investments are outlined that were designed to drive productivity. I am very happy to tell everyone here today that we have completed the temperature rollout to all of our distribution centers. This is allowing us to directly ship OTC products to stores, eliminating costly workarounds.

As a stand-alone Dollar Tree, we are committed to building a store-friendly supply chain. One way is through the Rotacarts, which were introduced in 2023 when Family Dollar was still part of our business. Rotacarts are a tool that we will continue to utilize. We have plans to roll them to two additional facilities this year, and we will continue to study how we can use Rotacarts to create an attractive return on capital.

Another key objective is to smooth the flow into our distribution centers and into our stores. Doing so, protects capacity. It also creates predictability for labor planning and for execution. Together, this approach has resulted in the most manageable peak period for years to come for our stores and our distribution centers. This is a store-friendly supply chain.

A new warehouse management system is now being implemented. This is providing greater flexibility, greater storage utilization and faster throughput. We are introducing a new transportation management system right after the holidays that will improve trailer movement and reduce dwell time. But these are not isolated upgrades. Together, they represent a significant step forward in how product moves through our network. They will reduce transportation miles, improve driver efficiency and strengthen service levels to our stores. And with multi-price SKUs now set up completely in all of our distribution centers, a onetime investment that's complete, we can fully support the expanded multi-price assortment going forward.

Let me talk about the network itself. Our growth plan manages capacity with efficiency, ensuring that as store count increases, our network can handle the added volume without sacrificing service levels or adding any unnecessary cost. As we've mentioned, we've approved facilities near Phoenix and in Marietta. I'm going to pause and talk about Marietta for just a second. As many of you know, Marietta -- our Marietta, Oklahoma DC was destroyed by a tornado in 2024. Several weeks ago, I'm really excited to say we celebrated the groundbreaking of our new 1 million square foot facility, a rebuild that will serve over 700 stores and brought 400 jobs back to the area. We expect to be fully operational by 2027.

And in addition, equally important, we've donated $50,000 in grants to local organizations in Marietta. This is about more than a logistics project for us. It's about resilience. It's about doing right by our associates and about ensuring that our supply chain is stronger than ever. Once Marietta is fully operational, it will also reduce the costs that we're currently absorbing from higher transportation miles across our distribution network.

Over the next several years, we will also deliver new capacity and higher productivity within existing facilities through a series of targeted network projects that will optimize our current assets. We will achieve this by: one, better utilizing two Family Dollar -- former Family Dollar facilities. And two, we have targeted expansion plans for three other facilities. Together, these projects will help us increase our store to distribution center ratio with only limited capital investment.

We are on track to increase our store to distribution center ratio from just under 600 today to 750 by 2029. That's a 20% increase in throughput. The result is a network positioned for sustainable growth at the right cost, one that supports store expansion, will protect service levels and strengthens our resilience for the long term. Transportation is another area where disciplined execution makes a measurable difference. We've locked in multiyear inbound and outbound contracts for freight. This will reduce exposure to the spot rate market and will achieve more predictability in service.

Today, about 3/4 of our freight volume is covered by these longer-term agreements. This will provide stability even as market conditions fluctuate. We are also taking a very active approach to import management. By diversifying our points of origin and balancing our flow across multiple carriers and multiple ports, we're able to mitigate risk and respond faster to shifts in global conditions. These steps are already visible in our performance.

As you can see from the chart, our inbound and outbound freight as a percent of sales has declined steadily. It has become more predictable, reflecting better contract coverage, improved routing and tighter alignment between inbound freight and store demand.

So let me summarize by covering what I've talked about today. First, multi-price is now fully embedded across our network, unlocking a broader assortment, higher margins and greater customer reach. We're aligning our supply chain costs with sales growth, ensuring that our network can absorb store expansion without any unnecessary costs. We're maintaining stable transportation performance despite a challenging external environment.

And we're normalizing inventory levels to free up capital and reduce strain across our facilities. We are seeing tangible results, higher throughput per facility, improved productivity and sustained service reliability, clear evidence that we are delivering measurable performance gains. Most importantly, we believe our supply chain is becoming a true competitive advantage, cost efficient, scalable and built for resilience.

Looking ahead, our priorities are very, very clear: enhance the distribution network to support sustainable growth, unlock productivity in every facility and strengthen transportation and inventory management while mitigating external risk. Each of these priorities supports a single objective to build a supply chain that grows with the business, serves our customers with consistency and delivers long-term value.

I want to thank you for your time, and I will now invite our CFO, Stewart Glendinning, up to the stage.

All right. Well, good afternoon, everyone. Mike and my colleagues have walked you through the elements of our strategic plan, and I'd like to show you how that translates into a powerful set of results for our business.

As I begin my presentation, I'd like to point out the most important messages that you'll hear today. Number one, looking ahead, we have a clear algorithm for growth with consistent 5% to 7% annual top line growth driven by 3% to 4% same-store sales and the remaining incremental non-comp revenue contribution from new stores. Importantly, we believe we can drive operating margin leverage even at the lower end of our same-store sales comp range. This is driven by our operating and merchandising strategies combined with rigorous expense management.

Now in addition to the underlying growth from top line sales and the operating cost leverage will benefit from the elimination of recent cost headwinds, and I'll talk to some of those in a minute, but we expect those in the coming years with most of that benefit coming in 2026.

Number three, our balance sheet is strong and after making disciplined capital investments to support the growth of the business, we expect to produce meaningful free cash flow and return significant cash back to shareholders.

Now before I go into our longer-term outlook for the business, let me take a moment to update you on 2025. We are reaffirming our full year 2025 outlook and still believe that our Q3 2025 EPS will be similar to Q3 last year. Now since we shared our Q3-to-date comp trends on our September earnings call, today, we'd like to update you on our most recent results.

With just a few weeks left in the quarter, our Q3-to-date comp is 3.8%, which is similar to where it was about six weeks ago. While this is a slight deceleration from the first half, it's a strong result, and it's consistent with the modestly softer trends we've seen across broader retail.

Also, it's worth pointing out that our traffic quarter-to-date is roughly flat, and our seasonal sell-through has started strongly with Halloween. Overall, we remain pleased with how we've addressed this period of enormous cost volatility while continuing to resonate with our customers. Of course, we'll be providing you with a lot more detail on our current results in early December when we report our Q3 results.

Now let's talk about the future of Dollar Tree and our formula for earnings growth. The initiatives you've heard my colleagues present today ultimately ladder up into each of the elements in this formula. First, expanding our selling footprint by opening new stores. Second, improving our sales per store via our assortment enhancements, including multi-price to drive higher turns and bigger baskets and running our stores better so that they are clean and inviting and our shelves are full.

Third, increasing the gross margin on each sales dollar by upgrading our assortment productivity to higher-margin products and by leveraging our fixed costs like rent with higher sales per square foot while lowering shrink and markdowns. Fourth and lastly, leveraging our in-store costs and corporate overhead to drive operating margin expansion.

Let's take a closer look at each of these, so that you can understand the financial possibilities of what you've heard today. Now earlier, Mike laid out the runway for new stores. Opening approximately 400 new stores a year will add roughly 3.6 million net new square feet per year after considering normal course closures. And as you've also heard, we believe we can maintain this level of new stores -- of new store openings into the foreseeable future. New stores offer very strong returns and have a meaningful impact on our sales growth.

As you can see from the table on the left, we expect our portfolio of new stores to drive 25-plus percent IRRs, including the impact of cannibalization and DC capacity, and they will contribute approximately $650 million of sales in their first year. Now this means that new stores are adding about 2.5% to our total annual sales growth after considering the impact of about 75 store closures per year. In their second year and thereafter, new stores grow more quickly than older stores.

And as a result, each cohort of new stores that enters the comp base after their first 15 months of operation helps to accelerate our overall comp growth net of the cannibalization I spoke of. We believe new stores are good for customers, good for Dollar Tree and good for shareholders.

Now as I move on to discuss how the merchant and operating activities Brent and Jocy spoke about and how they impact our P&L, I want to start by sharing a picture of our current portfolio. Our average store has a footprint of around 8,800 square feet of selling space. And you can see from the chart that most of our stores are in the 8,000 to 10,000-foot range.

Looking back to 2019, our average sales per square foot has grown steadily, up approximately 19% through the second quarter of this year. As part of this increase, we've seen a much faster increase in basket and AUR than in units. And since we broke the Dollar and introduced multi-price in 2021 and 2019, respectively. Driving higher sales per square foot and per store can unlock significant value for Dollar Tree, given that many of our expenses are semi-variable.

Our largest semi-variable expense is store labor, which is driven more by unit volume than by dollar volume. In fact, if you look back at our labor hours per store since 2019, we're flat to slightly down. The primary driver of labor cost increase has been wage rates, which in a number of geographies has been dictated by state minimum wage mandates, not hours worked in our stores. I'll provide you with more detail on store costs in a few slides.

The point to take away from this slide is that higher sales per square foot creates operating leverage. And the initiatives shared by Brent, enhancing the assortment with faster turning higher-margin products and multi-price will drive higher sales per square foot and leverage our costs. Here, you can see some examples of specific changes we have made to our businesses in categories like Electronics, Hardware and Easter.

Now to make comparison easier, we've indexed these to 2020. In the top row of charts, you can see significant increases in both sales and merchandise dollars, these gross profit dollars. In the lower left chart, you can see that in all three categories, units grew substantially slower than sales. In fact, units were actually down in Electronics and Hardware.

At the same time, gross profit dollars per unit increased markedly. With only about 15% multi-price penetration in our portfolio today, we believe we have a meaningful opportunity to repeat these kinds of success scenarios across other additional categories. And multi-price is driving a substantial change in our ability to leverage our costs. Historically, at the $1 price point to drive comp sales growth, we needed to sell exactly that same amount of units. This activity came with commensurate growth in variable cost activity, including supply chain and store labor.

Now with the advent of multi-price driving our growth and by increasing AUR and the mix of pricing on products solely than units, we can grow our sales with less pressure from supply chain costs and store labor. It's not just changes in assortment that can drive increased sales and profits, but changes in the way that we run our stores.

Earlier, Jocy shared with you some of the actions that she is taking to ensure consistent and exceptional service delivery to our customers. Her team uses a rigorous measurement approach across all 9,200 stores and approximately 580 district managers to monitor that performance. These tell us what is going on in the fleet and enable us to improve performance.

As you all know, better operating performance and store conditions result in better financial outcomes. Since 2019, Dollar Tree has delivered strong top line growth and gross margin performance in addition, with net sales growth averaging over 7% a year and gross margins expanding by 110 basis points to around 36%, which is in line with our targets. However, during the same period, our increase in segment SG&A has averaged over 9% per year, leading to deleverage in the P&L.

Our corporate costs have also risen disproportionately. You'll note here that I'm only showing 3 years of corporate SG&A because that's the period for which we've restated the results for stand-alone Dollar Tree to reflect the Family Dollar sale. Prior to the sale, corporate SG&A as a percentage of sales would have been much lower because the consolidated sales number reflected the operations of Dollar Tree and Family Dollar.

This chart compares our total corporate cost to the revenue of Dollar Tree on a stand-alone basis, which results in a higher percentage. Regardless, our corporate SG&A costs have risen faster than sales, and our team is highly focused on reversing that trend. At the segment level, it is worth understanding the major line items that are driving our cost increases, which you can see on the left side of the slide. These 6 line items represent 3/4 of the cost increases we've seen over the past 5 years.

At the per store level, the largest dollar increases have been store level labor and depreciation and amortization, which account for nearly half of our total SG&A increase. The former has been entirely wage rate driven and the latter has been driven by increased capital spending. Looking forward, we see a pathway to leveraging these costs, and we call out some of the expectations on the right side of the slide. After several years of elevated hourly pay rate inflation, we're expecting this to moderate beginning in 2026.

On top of that, we expect to see greater labor efficiencies from the implementation of our new labor management software, which automates scheduling and other tasks that are currently done on an individual basis by more than 9,200 store managers. Additionally, as we expand the rollout of multi-price, we expect to create some additional labor efficiencies driven by the reduction of unit volumes, which I spoke about earlier.

Also, while it's not reflected in these numbers, which only run through 2024, we expect to get a segment SG&A benefit of more of around $100 million to $115 million next year as the stickering costs and price implementation costs we're incurring in 2025 aren't expected to repeat in 2026. After we complete our multi-price conversion, that program by the end of 2026, we expect to see a benefit of approximately $40 million in 2027 as those temporary labor costs go away.

We also expect our D&A growth rate to moderate as our per store pace of capital investments comes down. Both general liabilities and utilities will be market-driven, and there's some risk that they could rise faster than inflation. But at a total level, it's easier for us to react to these expenses in our gross margin or other expense reductions since they represent a relatively smaller percent of our overall sales.

Finally, repair and maintenance cost, since COVID, they've been increasing faster than inflation because of resource availability and the cost of components, and we could see similar increases. Having said that, again, this is a relatively smaller line item in our P&L, easier for us to manage.

With respect to corporate SG&A, we've set a target of 2% of sales by 2028, and that's about 2/3 of the current levels. Helping us get there, we expect a $95 million reduction in each of 2025 and 2026. And these reductions include the impact of the TSA income. After the TSAs run their course, any remaining costs related to providing those services, we will remove those from our business.

For 2025, we're on track to deliver our $95 million target. And we believe our end goal of corporate overhead at 2% of revenues will come from a combination of additional SG&A cost reductions and from leverage of strong top line growth, and we expect, as I said, to achieve that by 2028. The strategy and the initiatives we presented today drive a powerful algorithm for Dollar Tree.

Let me take you through some of the expectations for the medium term, and I want you to think about 3 years. You'll note that the table shows an underlying algorithm and an adjustment for discrete items affecting '26 and '27. And we've totaled those on the right-hand side for a 3-year expectation.

New gross store openings of approximately 400 per year, offset by roughly 75 closures and implementation of our merchant and operating strategies on a combined basis are expected to create annual sales growth of 5% to 7%. That's underpinned by annual comp sales growth of 3% to 4%. The leverage from this revenue growth, along with our shrink reduction objectives are expected to drive modest expansion in our annual gross margin.

For 2026, we expect gross margin to be roughly flat as previously communicated, given the various puts and takes on tariffs and other related items. In 2027, when our Marietta DC comes back online, we expect a small benefit of around $10 million as a result of the shorter stem miles. Now this is less than the early impact of costs following the loss of the DC, and that's because of some of the steps that we have taken since then to optimize the delivery miles.

Segment SG&A per store is expected to increase in line with inflation on an underlying basis. Within segment SG&A, we do not expect again to incur stickering and other price change-related costs, which results in approximately $100 million to $115 million of benefit in 2026. A small amount of stickering or other price-related costs may remain related to packaways or inventory carry through.

In 2027, we expect approximately $40 million of benefit related to the completion of the multi-price conversion and the elimination of that temporary labor. The elimination of these discrete costs will reduce the reported growth rate of segment SG&A per store relative to the underlying growth rate. Now we expect savings of $95 million in 2026, as I said earlier, with a lesser impact in future years as we work towards our 2% goal.

Note that the discrete items in the algorithm show a benefit range of up to $70 million with the balance of the $25 million -- a balance of $25 million against that $95 million to be identified and delivered as part of the underlying growth algorithm. All in all, we expect this to drive a 12% to 15% EPS growth CAGR with an underlying growth of 10% to 15% and the balance will be driven by the discrete items, which are mostly front-loaded into 2026. That's an important item. Note that this expectation excludes the benefit of future share repurchases.

And finally, we expect ongoing annual CapEx will average approximately 4% to 5% of sales. This outlook assumes that the current tariff levels remain in effect. Let me speak to that. As you all know, an additional 100% tariff may be imminently imposed on China. If this takes effect, we believe it will have only a small effect on this year as we've received almost 100% of the products required for our fourth quarter.

Our newly created ability to shift our sources of supply to other countries and our treasure hunt model gives us the flexibility to substitute our merchandise with functional equivalents from new sources or different product alternatives. As a reminder, these two of the-- are 2 of the 5 levers that we will use to deliver the lowest landed cost. This positions us to be as nimble or more so than our competitors. And as such, we'll be in a position to protect our market share.

As we've done already this year, we'll be prepared for a range of scenarios and we'll implement the best solutions to ensure that we maintain the profitability of our business model. And finally, it's worth noting that we will not require further stickering efforts because these new product purchases are not prepriced.

Now to help illustrate the expected earnings progression over the years ahead, we started with the midpoint of the range of our current full year outlook for 2025, and we added back the discrete items for each year and also applied the midpoint of the underlying growth algorithm. So we sort of run this for. You'll notice that because of the discrete items, the growth rate is higher for 2026, and this rate normalizes towards the underlying growth in future years, high teens, low double digit, high single digit.

One question we're asked frequently is what level of comp is required to leverage our SG&A. We believe we can create operating leverage even at the lower end of the comp range I've just shared. And let me walk you through some of the logic for why that's true. First, our merchants buy to a target gross margin, which considers all of the cost of goods, including shrink and distribution costs. So if freight increases, the merchants will deploy the 5 levers to make sure that we get back to the target. It may not happen in weeks, but it will certainly happen in a period of quarters.

Furthermore, we have teams focused on shrink and markdowns, both of which represent opportunities in the future to improve our gross margin. Store labor is a significant cost in the P&L and is driven by the hours work and the wage rates. On our side, we expect to see greater efficiency from multi-price and from the implementation of the new labor management software. And after several years of labor rates increasing faster than the rate of inflation, we expect wage rates going forward to be more closely correlated with overall inflation.

Repairs and maintenance and depreciation and amortization can both be broadly managed to a target and growth rates for both are expected to moderate as our CapEx per store comes down. The remaining items, utilities, general liabilities are less impactful in total to the P&L. Unfortunately, as I shared earlier, historical indicators suggest these may run faster than inflation. But bringing this all together, we expect our per store operating cost to move in line with inflation, which we believe should be less than our current comp sales outlook.

Right. Looking forward, we expect CapEx to moderate and when combined with our growth algorithm, we expect free cash generation -- free cash flow generation to be very strong. Keep in mind that for 2025, we are also benefiting from the proceeds of selling Family Dollar, which is outside of this free cash flow calculation. And on a go-forward basis, our free cash flow will benefit from approximately $400 million of cash tax benefits related to the Family Dollar sale.

Now our balance sheet is strong. Our leverage is low, and our next bond redemption isn't until 2028. Our preference is to keep our leverage at 2.5x or below, which at our current leverage level offers headroom and provides ample liquidity for our business. Our capital allocation priorities are simple: maintain a strong balance sheet, invest in growing our business where we can find, of course, attractive returns and deliver -- and deliver excess cash back to shareholders, those three things.

Looking ahead for the next 5 years, we expect to balance our investments across our existing stores, new stores and supply chain while continuing to support our IT modernization efforts. We have a disciplined process to vet capital spending and ensure we're delivering proper returns for our shareholders. We do this by setting return targets, upfront and then by reviewing capital returns after implementation to assess the achievement of the targets. And we've done a good job of returning cash back to shareholders via stock buybacks.

This year, in particular, we leaned heavily into repurchases as we believe our stock price has been at an attractive price. As of the end of last week, we have repurchased $1.2 billion this year or 6% of our total sales -- our total shares, forgive me. 6% of our total shares for any confusion that I might have.

Given our expectation of future free cash flow, we think it's increasingly likely that our Board will consider introducing a modest dividend in the next year as a complement to our share repurchase program. While our current stock price supports allocating excess cash to buybacks, we believe that over time, our free cash flow would support a dividend as well. This brings us back to the pathway to our earnings growth. Underpinning each of the elements of these earnings growth are specific actions and initiatives we believe can drive that growth. We expect to add more stores and add more to our footprint.

Our enhanced product offering, including expanding multi-price and faster-turning goods, combined with exceptional store operations should drive higher sales and leverage our cost base. And we're aggressively managing our SG&A to disconnect future increases from top line growth. All of this is designed to drive growth and operating leverage, and I look forward to reporting our progress in the future quarters.

Thank you for the time today. And now I'll invite my colleagues to join me on the stage for the Q&A. Thank you very much.

I got the mic back. Thank you. Bob just points out, it's always good to have a very good IR guy because he keeps you honest and honesty is, of course, very important. While I was explaining the algo to you, I wanted to be really clear that the 10% to 15% CAGR is combined, including the discrete items. The underlying growth rate is 8% to 10%. So just in case there's any mistake about that, everybody is now absolutely clear. Okay. I'm sorry, 12% to 15%. Thank you, Bob. I kept saying 10% to 15%, it's 12% to 15%. Thank you, Bob. Somehow that's in my head, but now it's out.

All right. You're going to tell us your name and who you work for the webcast and then you can ask your question. I will ask you to ask one question and you're only going to be allowed to ask one question because they're going to take the mic away from you. And then Mike will either answer or ask someone else to answer.

I like that. My favorite answer, just so everybody knows, is, Stewart?

And I'm going to point you and not call your name, so we don't say your name twice. So I will start right here.

Rupesh Parikh, Oppenheimer. So maybe since -- I'll start with Stewart with the first question. Just on your longer-term targets, one of the challenges with Dollar over the years is, targets are set and then sometimes they don't materialize in line with expectations. So as you look at your planning forecast for the next couple of years, what level of conservatism do you believe you've embedded in the guide for maybe some of the unexpected developments?

Yes. I mean, Rupesh, I think we've done a good job of really looking at what the various outcomes are. I mean if you just take the opportunities that were presented by the team today, there are some really powerful ways to expand the P&L. We think we've appropriately assessed the probabilities of those, and we've rationalized the P&L to hit the right -- to get to the right spot. We put that out for 3 years because we think that's a horizon we can easily see. And I think we've got the kind of support that we feel confident that's a number that is absolutely achievable for our business.

It's Michael Lasser from UBS. It's a 2-part question. First, the model has become a little bit more complicated, not only for the consumer, but maybe the employee to deal with some of the ins and outs of managing the day-to-day. So how do you translate that to a better experience for the customer? And secondarily, is it realistic to expect a 3% to 4% comp over the longer run because you're doing a 3.8% right now with the benefit of maybe 10 to 15 points of inflation?

Yes. Why don't I start, and then I'll let Jocy jump in here and then certainly, we can kick that around. The first thing I'd say to you in terms of have you made it too complicated for your associate or for your customer. The first thing we do, and I said it was our associates are our customers and our customers are our associates. And we say that it's not just a tagline. Literally, our people tell us. We learn from them. They tell us what we're going to do. They're the first, they're the canary in the coal mine, if you will. They love multi-price. I mean they're the first to be surprised and delighted in terms of what we've put in the store.

So they absolutely love that. They want it. They want more of it. They all wanted to get converted as soon as they could because it also brings more sales and it brings more sales with fewer units, so they get more productive hours. So they get the hours based on the sales and then they're more productive and they end up running better stores.

That's separate from the red stickering. The red stickering, no one liked. It was awful in the stores. Stewart and I were in Columbus. And I mean, I think the team played a joke on us, they gave us floral to do, which was an absolute nightmare. But we did it just to get a feel for what it was. That's largely behind us. We say it will be done by the end of the fiscal year. But just so you know, it's pretty much behind us other than some packaway for Christmas and then you might have some packaway next year in any of the holidays, but just in Easter, but largely behind us.

So separate that complication and how bad that was and really mostly in the rearview mirror, the vast majority of that work is done. It's been restickered. It's gone. That complication is behind us. The multi-price, they're loving and not finding complicated. Do you want to...

Yes. I would just say the changes that are happening in our store are different, not difficult, right? It's just building different muscles in our retail stores to just accommodate multi-price, schematics and our single price point. And we're doing that through multiple things, simplifying it, signs, shelf labels, et cetera, so that our teams can do the work without overcomplicating it.

And then finally, the sustainability of the comp. You heard a lot today. We don't have to hit every one of those out of the park to have sustained comps. We are developing an ever more relevant Dollar Tree. The assortment is very attractive now to not -- it's attractive to our core customer who loves the pack sizes. They love the trip consolidation. We've added some incrementality to what they could buy.

You think about them coming in for Easter -- I mean, sorry, coming in for Halloween. They've always come in for decor and some of the things to do jack-o'-lanterns and all that. And now they're finding real candy that they can -- 30-piece candy you saw there. That's better than 1, and it's priced for $5. I mean it's a really good deal.

So we believe for our core customer, they're loving our pack sizes and the incrementality. And then this higher-income customer is really finding us for the first time. And so when you start to look at what that can do for your comps, and you get more relevant to that higher income and you continue to surprise and delight your core customer, we see that as building on top of building, add to that new stores and then flat out running better stores, which we're committed to do.

I look at the best retailers out there around the world. They run the best stores. There's a couple of retailers I could think of. I've never been in a bad store, and they don't know who I am and they didn't know I was coming, and they were never bad. So that's where we have to get to, too. You see that in the shift. So I looked at it and say, not all of those have to be home runs. We've built it. Every one of those has a list of actions below it that build up to that comp and above.

Kevin Nichols from Bryn Mawr Trust Advisors. My question is, so on the store growth and then on the same-store sales, you have to be taking market share from someone. And I'm just curious, any information you can say, who do you believe you're taking market share? It's not one person I know, but who's the market share coming from over the next 5, 6, 7 years?

Yes. We've seen great opportunity from convenience and drug. Those are the most pronounced. It's -- we've also been very opportunistic. If you looked at last year, the 99 Cents Only deal that we did. This year, Party City, Joann's. I mean, so bankruptcies have certainly helped support us as we've taken share. But we believe -- I always see, people say, who are your competitors? And everybody will compare us to Walmart or DG or any of those. And when we had Family Dollar, I think that made a lot of sense.

We compete with everybody and we compete with nobody. I mean 80% of a Dollar Tree is unique to Dollar Tree. So when I look at who we take share from, we know who we're taking share today. I think that will continue for years here. We also believe we have the opportunity to be relevant no matter who the competition is. And one of the stats I always give is some of our fastest-growing stores are in mass merchant headquartered or mass merchant anchored -- Shopping centers. Thank you. So we think we do well where there's already great traffic building.

Matt Boss, JPMorgan. So Mike, you cited your aspiration is not big box, not club stores. So could you talk to the total addressable market that you see for Dollar Tree, how that's changing with multi-price point? Maybe what inning you see multi-price point versus 15% of the mix today? Or what did you embed in the 3-year plan? And a quick one I'm going to sneak in for Stewart is, 8.5% margins this year. I know that includes a number of transitory headwinds. What's the right operating margin for the business over time?

Yes. The headroom we see -- we've got others that do this around the world. Some are 85% multi-price. There's another one in Europe that's 2/3 multi-price. We sit here today at 15% is above $2. So you got kind of your opening price point of $1.25. We've made the decision on some $1.50 and $1.75, but still kind of opening price point. And then you have this multi-price that's relatively small. So we see a tremendous amount of headroom when it comes to attracting both new shoppers. So those higher income shoppers, I mentioned it's 50% of our growth of new customers in Q1, 2/3 in Q2. We believe we are more relevant to new shoppers.

And then you take the trips, the customer journeys, if you will, I'm coming in for Easter. I'm coming in for [ c*** ]. I'm coming in for any season or holiday or everyday shop and all of a sudden, I can add to that basket because the shop is more relevant. So more relevant to more customers, more relevant to every customer trip. We put those together, and I don't think we know what the ceiling is on that. We just think it's significant. We put the 3% to 4% comp in the model. I told you we didn't have to hit home runs to hit each of those, but we see this as an incredible opportunity because of that more relevant dynamic.

Yes, Matt, I think, look, this can be a double-digit business. We're going to take cost out of our SG&A. We know that's coming. If you think about the rest of it, just trying to drive that leverage through store, get to the higher end of the comp, maintain the cost, keep those semi-variable costs in line. And then I think you start to see that margin expansion. There are many other examples of retailers who have done this. And I think it's getting more revenue through the box, which is really a big lever.

Zhihan Ma from Bernstein. I wanted to follow up on the multi-price side. It seems like you're taking a pretty broad-based approach across categories. Is there a point in being more surgical in terms of where you can be more differentiated from an assortment perspective, maybe focus more on household discretionary and less so on food and bevs?

Yes. I'm going to let Brent take that. But I really want to make sure the distinction between the multi-price evolution we've been on since 2019, and I'm sorry, Matt, you asked what inning, it's early. It's an early inning. The multi-price evolution we've been on since 2019 and now red stickering to address some near-term costs. So we have been very strategic in terms of where we've taken multi-price.

We still wanted to sell foil pans. They're $1.75, it's the only way you can keep selling them, and we're still the best value in town on the foil pans. I don't count that as multi-price. That wasn't a decision to say, I'll tell you what, we're going into foil pans. It was all about making sure we could still sell it to our customer. Brent?

Yes. Yes, it's a great question. Really, we started with discretionary. That -- we started in 2019 with a discretionary point of view because we knew we could create incredible value that our stores could execute. We just started in consumables, and it's really through a test and learn. Some of the things that we've tested have been great value, but we weren't able to execute them. At the same time, we did frozen a couple of years ago, and that transacted really, really well.

So the answer to your question, it's really through that test and learn where we'll engineer a value. We'll look at the market and say, where can I be relevant and can I engineer something at a high quality, high value. If yes and yes, then we'll go to work and put that into a select number of stores and see how that responds at shelf, how does the stores execute it, that kind of thing. And then that's what informs what goes forward.

I think what you're going to see as you go forward with us, particularly on the consumable side, you're going to see some shifts there because of how much pressure the lower-end customer is under. We're seeing much more transact in our 125 business than some of these -- they're legitimately incredible values, but the customer that's looking for the consumable side sometimes can be a lower end. So a long-winded answer, but it's really through test and learn and based on where we think we can win.

John Heinbockel, Guggenheim. So what is the brand awareness of multi-price point in and of itself? When you think about your marketing initiatives, how can that move the dial on brand awareness? And then back to zone pricing, you talked about the 80-20. How much of an opportunity is there to take the 80% where you can earn margin, reinvest in the 20% and drive a better value perception in the 20%?

Yes. So let me -- I'll take the first one. We have a customer that we've never really connected with or talked to digitally marketing. We had a if you build it, they will come approach. And as a result, you have a brand in Dollar Tree that has incredible unaided awareness. Everybody knows Dollar Tree. But what's inside, very little. I mean it floors me the folks that know Dollar Tree, but don't really know Dollar Tree in terms of what's inside. They come for a specific journey, customer journey. It's a birthday. I'm celebrating Halloween. I'm just getting cleaning supplies. They don't realize what else is there.

We have an ability, and that's why we think we can do it low-cost, high-return marketing where we do geo-targeted. We connect with them with, don't think promo offer. That's not going to be us. Ours is going to be awareness. Hey, Christmas sets next July. And if you're part of the club or you're part of our app, you download, you get to know when Christmas sets, things like that.

We think we could raise the awareness and then doing the -- you bought this, not would you like that, some of those things. This is all new ground for us. We're getting customer data that we've never gotten before within the last 8, 9 months. And we think we can use that to broadcast what's in the store and increase that awareness. Do you want to hit on pricing or...

Yes, I'll try. I'll do my best. I just want to go back on the other one, too, is John, as you know, that our customers still say, "Oh my gosh, I can't believe. Like the treasure hunt is still there, whether it's our Dollar Tree dupes, whether that's $1.25, $1.50 or multi-price. So it's a huge unlock for us, but we've really got to make sure that we can attribute it to a sale. Otherwise, you can get sideways quick.

So I will say [ don't pricing ] falls into this test-and-learn culture that we're building. This is relatively new to us. We've got much better data now. The technology is incredible. The infrastructure that Bobby has built over the last couple of years, we actually get to use now. So before we were just building it. Now we actually get to use it. We think it gives us a muscle to really be able to look at things. So we have our launch in zone pricing in a couple of places. I think we'll learn from it and see what we get and go from there. And then is there an opportunity to say, okay, here, I can make more than invest others. We'll see. That's part of the testing and learning.

John Zolidis, Quo Vadis Capital. So in the current quarter update you provided, it sounds like the average ticket is up nearly 4%. And as I understand it, 15% of the product assortment currently is above $2. And we still have the rollout of multi-price, which is going to be completed roughly at the end of next year. So when that rollout is completed, what percentage of the goods will be multi-price of your sales that you anticipate?

And over the longer term, how much of a lift to average ticket do you expect to see given being more relevant to higher-income consumers, average price point in the store being higher, people putting more items in the basket? Because it feels like there is going to be quite a large lift from this product assortment transformation continuing to provide to comps over the next 1.5 years at least.

Yes. We believe that some of that answer -- first of all, we'll always start with the customer. So we're going to follow our customers' lead in terms of we're going to test and learn. And if they respond favorably and we take another category, so we too hardware. We took auto. The cleaning supplies are a great example. And we believe we can provide incremental value or even incremental convenience. You're already coming in for the bleach, you want the wipes, that's an incremental. It saves you a trip somewhere else. We'll continue to do that.

I'm not going to say where that ends up, partly because I don't know right now. I think it's an opportunity to learn from test and learn. I actually don't know that we'll ever fully talk about that because we also believe there's a competitive advantage there. If you look at the place we play, the mid -- we're not where you come and do your entire grocery shop. You come to us in consumables for a mid fill-in or stock up or a grab and go. You come to us for the seasons. If we, like this Halloween, believe that we can save you a trip and present great value with a bag at 30-piece candy, well, that's going to increase.

And then the final thing I'll say is it will change during this -- the year. So you'll have times -- big Q1, Q4, you'll run higher in terms of multi-price. And then in the middle of the year where you don't have kind of I call it the reasons for Dollar Tree, which is the seasons, you'll go down a little bit. But we know what the -- what it could be someday. We know what others are doing.

I mentioned our friends to the north, they're 85% above their opening price point. We're not friends in Europe yet, but those folks are doing about 2/3 of their business. So -- and we're at 15. So I think there's an incredible runway there, and I'm not exactly sure yet where it will go, but I know that our test and learning with our customer is what's going to guide us there.

[ Sid ] from EdgePoint. Just thinking about the slide that you showed with the stores and the G.O.L.D. scoring, I thought that was a great slide. Can you talk about maybe the incentive structures for the associates at the stores and how you get these associates maybe to change those behaviors and bring the stores up to -- from the 2, 3, 4 up to the 6 and the 7?

You want to jump right in on that?

So first, I want to clarify that when we launched the race to G.O.L.D., we elevated the standards immediately by putting different things under that five different tactics, different processes that actually took the score lower for our stores.

I appreciate that clarity. As the guy that launched G.O.L.D., I really appreciate. Jocy has absolutely raised the bar on them. So a 4 for Creedon is now like a 2, I think, for Jocy. So...

So those things are just table stakes. So I don't want people to get nervous on that 1 to 4 rating. It's greeting customers. It's opening stores on time. It's nonnegotiable audit, simple things that we just have to be more consistent on because they're table stakes to running a retail shop.

So as we teach our teams how important those things are ultimately to get to G.O.L.D., they will understand and they will build upon that. We do have incentives for our store managers from a sales perspective. So each period, our store managers can bonus. So we're connecting sales to G.O.L.D. so that they can then benefit from that continued improvement in our stores.

The last thing I'll add to it, it ties -- the reason we talk so heavily about career, not a job is because if I had to go compete wage for wage, like right now, the guys that run all those amazing warehouses are hiring like crazy. The reason we keep our turnover low is people say, all right, I could go there for 90 days and make $0.25 more an hour, but then I'm thrown out right after the Christmas rush, whereas you work for us because we're opening 400 stores a year.

Every 15 stores is a new district. That's a new leadership position. That's 400 store managers. You come work for us because you start with us, you might be a part-time holiday helper and you could be running your own blocks in 18 months. Nobody does that. Nobody can provide that career path. And so yes, there's incentive for our store manager. And when you run great stores, you make more money because your sales are better and you get bonus. You also are a part of something that then puts you in a position to grow a career versus just some job that's paying $10 an hour.

Paul Lejuez, Citi. Questions on traffic. Just at a very high level, the 3% to 4% comp that you put out there for the algorithm what do you build in, in terms of traffic that contributes to that 3% to 4%? I think when you gave the third quarter number, you said traffic was flat. So maybe just to help connect from the dots as you roll out some of the multi-price point in theory, you're expanding your customer base. But what's happening underneath the surface? Are you also losing some customers? Or are they just shopping less frequently? Just maybe help connect the dots there and what the ultimate plan is in terms of traffic contributing to that comp?

Yes. We don't break it out by that. I'll tell you that we want both traffic and ticket. I talked about in the first half of the year, one of the things I loved was that balance between the two. So one, we want more shoppers finding us, and then we want them loving what they find and filling their baskets. And then finally, and this is where I think will really come from the more relevant assortment is they'll increase their trip frequency. So that's kind of -- we want it all. We don't break it down by each. We want them all.

If you think about the store -- sure, you can do the math, traffic, traffic flat, Stewart talked about it. Given the kind of time of year and where we're at, I think it fluctuates. We really -- the reason for Dollar Tree of the seasons, that's what drives people to our stores. Back-to-school was good for us.

We had good sell-through, but that's not really a destination. We're not a destination. The back-to-school comes out of the aisles and goes to the front. And when it's over, it goes back to the aisles as opposed to Halloween, Thanksgiving, Christmas, Valentine's, Easter, -- those are the real drivers where your destination is Dollar Tree first, and that's what really drives people to our store. And then as they get there, they're finding this thrill of the hunt that's filling in the basket. So we want it all, Paul.

Brad Thomas with KeyBanc. The question is about the overlap with competition. Mike, I believe you've been saying the number less than 20% of products overlapping. Could you just talk about how that's evolving with multi-price? I guess as a semantic, does that include pack sizes being different on a similar kind of product? And then how do you think about the competitive landscape changing just as you're at these different price points?

Yes. So first of all, 10% is pretty much like exact SKU match that we do. And then another 10% would be like products. So that's how you get to the 20% that we have to compete with, and then you get 80% that is unique to Dollar Tree. And certainly, Brent can jump in here. But one of the things that Brent talked about is our national brands, our supplier community, they want to work with us to make pack sizes that are for our customer.

When I look at -- I don't -- I mentioned it earlier, and Matt said in his question, I don't want to compete with the big box. You're not coming to us for the $25 candy giant. I mean that's not who we want to be. We love the idea that you came to us for Halloween decor and the jack-o'-lantern, that you always came from, and now you're picking up wow, that 30 piece or $5 makes total sense.

We believe that our value -- relative value and our convenience can trump any competition because no one else offers that. When you add in thrill of the hunt and you end up leaving with something you had no idea you were going to get because you didn't even know you wanted it, that's really where we think no one can compete with us.

Yes. I just want to jump in on this particular one here. So to answer your question, it's a little bit of both, but we do look at unit of measure or equivalent. And then as we're looking at that, we're wanting to make sure that we're still a great value. However, we go in quarter increments. So it's not a penny for penny. We're looking at the total value proposition. So some of the reporting will come back and say, "Hey, you're getting beat by $0.08. And yes, that is true.

However, but when we look at the value, convenience and discovery and then if we see the consumption happen, we're okay. And I say that nervously because we're really not okay, but we're always watching what is our value because we have a relentless pursuit for it. It's just within those quarter increments. If we're not a value and the customer isn't there, we'll drop the item.

And then what does that basket have to look like to get that relative value? I mean you quickly see -- we've seen reports comparing us to Walmart. Sure. If you want to go spend $348 at Walmart to get that $18 savings versus us, by all means that's your customer. Our basket is $12. That's not who we are. Those aren't our pack sizes.

Ed Kelly, Wells Fargo. I wanted to ask you about store standards and the opportunity there. You spent a lot of time talking about store standards not being good enough at a decent chunk of your stores. I think you had roughly half of your stores in that bottom quartile, maybe, right?

As we think about that, is there a way to size the prize in terms of sales per store? How different is sales per store by cohort? So what's the real opportunity there? And then tying that into labor, I think some of the test and learn opportunities that were talked about were kind of tied to labor. Complexity of the store is rising with multi-price point. So maybe, Stewart, could you bridge that to leveraging on a 3% comp in terms of the labor side of the business out of complexity and the comp leverage?

I'll start with the store standards and then you guys can jump in. So first of all, Jocy did set a high bar. So that 48% or whatever it is of the stores that are 4 and below. I'd put it in this context. I think every retailer is chasing on a given year, 15% to 20% of their stores being not where they want them to be. We're chasing about 1/3 of our stores. So there's significant opportunity.

That's to say that some of the ones that fall into that 48% with a little elbow grease and some focus from Jocy can be at that 5% very quickly. But 1/3 of our stores, we're chasing, and there's huge opportunity. And yes, we don't specifically say it, but if you look at the comps of a store that basically -- even a 7 and above comps compared to a store with a 4 or below that's on the G.O.L.D. score, I mean, it's significant. And when we move them there, the comps are significant.

Yes. So Ed, your question is, how do we create that leverage? Is that what you're saying? Yes, the complexity.

Yes. Look, I mean, yes, so let's take up a couple of things and then join the dots together here. I mean when you really look at the labor, and it's a huge chunk of our P&L. when a person takes one item and it puts on the shelf, there's not a lot of difference when it's $1.50 candle versus a $5 handle. And I think one of the points that I was making in my presentation this morning is that when we were back at $1, everything was $1 and a single kind of unit of labor. Now you're talking about a single unit of labor, but you've got 3x the sale. And for that reason, you create leverage.

Look, if there's some marginal increase because I have to put in a certain spot or in a certain region or I need to get some pricing there. That's not a significant amount of labor, right? That isn't because the item goes on the shelf, we've got a bunch of items going there. It's repeated and repeated. And therefore, I don't really subscribe to the theory that there's a whole bunch of complexity.

Matt asked the question about sort of where we might be from a leverage perspective and what does that look like in operating. I want to just be clear, Matt. I wasn't giving any guidance for the next 3 years, just so you know you asked us where could this business go. And so I just want to be really, really clear, right? I mean this is a -- we've got a model here that will start with leverage from our SG&A. And what is good about that is, that is a much more controllable element.

In the early years, you will see that leverage coming through because we have non-repeatable items. As we move forward, you will see that leverage coming because we are taking distinct actions against our corporate SG&A. And when you go to the stores on an ongoing basis, as multi-price ramps up, you will see unit benefit. To the extent that we then get much more sales going through the box, well, that's a whole another level of leverage.

But I think we've taken a pretty gentle approach here. If you want to really figure out what the leverage number is for the company, then I think starting with the guidance that we've given today, which is distinct in the answer I'm giving to Matt, is start with those elements we've given, that will put you on the right track for where we think the next 3 years will go.

Pedro Gil with Morgan Stanley. You mentioned multi-price is driving a 10% increase in AUR, 8% increase in gross profit dollars per unit, which is impressive. I'm curious what you're seeing in terms of units per transaction and how you're managing any potential elasticity response to the higher AURs?

Yes. I mean we don't give units per transaction. We like what we're seeing from a customer response to the basket. You saw Brent's the bigger the basket, if it has multi-price in it, it's just a much bigger basket. We love the baskets that are both $1.25 and multi-price because those are our largest baskets. The unit game is a little tough because in our store, you still have the 8,800 selling fee.

And so some of the expansion of multi-price comes at the expense of $1.25 where you'd sell more units, which is why we typically don't kind of play around the unit economics there. What we love is that selling a $5 hammer, you only have to sell one of them. It's the equivalent of selling at $4 of something else helps us on labor utilization, also helps us in terms of dollars to the box. But...

What is most important to us is gross profit dollars per store, right? That is actually where we're focused. Can you get -- can you optimize the gross profit dollars per store, then the P&L itself will work. If we get there because we sell more multi-price and have lower labor, well, that's not -- because units are slightly less, that is not a bad thing. And so I wouldn't read less units as necessarily being....

One additional thing to the gross profit is household penetration. As long as we're continuing to increase our household penetration, then we can be okay with that.

Mike Montani at Evercore. I just wanted to ask if I could, to break down the comp a little bit further. So one question would be the store engineering part of the comp between new store growth, productivity benefit, refresh, remodel, less cannibalization. I was thinking 50 to 100 bps, but can you guys comment there? And then the other part was just space optimization, zone pricing, front-end reconfiguration. There's a lot of potentially meaningful drivers in the comp. So can you help us to kind of piece together what that could mean for comp as well?

I'm happy to start with the high level and then to the extent we want to include it. When you look at that 3% to 4%, we then deconstruct that here. And Jocy has a piece that are solely coming from moving her refresh program, which is a low CapEx but really nice return because we get a nice pop out of those stores. New stores net of cannibalization, especially as they mature year 2, 3 and 4. After that, they're kind of in the sauce, but you get an outsized benefit in year 2, 3 and 4 and net of cannibalization, that's what we call a comp builder, just improving the running of the stores as a comp builder. And then Brent, in his section has an entire set of comp builders and all that.

So what -- the reason I say we don't have to hit the home run is every single one of these will ladder up to something more than the total. And that's because we want to build in some conservatism to make sure, okay, we want to fulfill our say-do ratio. If we say it, we want to do it. And as a result, we better go out there and move more stores towards the right. We should open 400 and work like hell to offset cannibalization by year 2, things like that. And then...

Yes. I mean there's nothing really to add to that. I mean we just -- we haven't broken down the comp for people. The truth is when you look at our -- when I look at my comp bridge for the year, it's got all the elements you've got on it, right? I mean it's a long list of items. And as we take each of the initiatives you've talked about today, we sort of assessed each of those and the probability model, put that together and the comp as it generally works out, one may end up being slightly higher than another. But this is not all sort of -- this is not all bets on one place. And I think that's probably the most important thing you should take away from it.

Kelly Bania from BMO. I guess a question, other parts of retail are talking about changing profile of the profit picture in grocery and food and consumables. And as you go deeper into these $3 and $5 products that are getting more margin from advertising, data monetization, how do you think about staying competitive in those price points longer term as other retailers are getting margin in other ways?

Yes. So we -- none of this has retail media in it. I mean we did learn from Family Dollar. They do a considerable amount of that. We're still a 50-50 consumable discretionary. We're still 80% unique Dollar Tree. That retail media piece really comes from national brands. So we'll always look at it. We believe that data can be a big unlock for us. The more data we have on our customer, the customer we're attracting, the basket they're building within our stores, the folks that fund retail media want to see that.

But to us, the reason we believe we will be successful and we don't have to worry as much about being competitive on that item is we don't have to sell any of that. So when you're a grocery store, they better have that big tide. They better have milk and eggs. We've got that 30 load tide there that's pretty amazing for the value. That may not be there next year if we feel we can't do it. And that's the beauty of the thrill of the hunt. You don't have to have any of those things.

But I guarantee you, there are some people surprised and delighted by that tide all in one, it's really exciting. So people tell me for $5 -- 31 loads for $5. So I don't think that's as big a problem for us because of our thrill of the hunt nature.

Bobby Griffin from Raymond James. Just curious, like moving the stores from the left to the right, when you look at that chart, very powerful chart. When we've seen that at other times in retail, it typically comes with a labor investment, either on an hours or a per hour basis. We haven't quite talked as much about that this time. So can you maybe bridge that and help us understand why your opportunity might not come with such a heavier labor investment and what some of those opportunities are?

I'm going to start it. I'm going to turn it to Jocy. So I brought G.O.L.D. to this company a couple of years ago when I got here, I've been here 3 years. If I ever went somewhere else, I'd bring Jocy's G.O.L.D. with me because it's much more specific. It's very objective and not subjective. And I will tell you, none of that ability to move up the G.O.L.D. curve required us to put hours in or do any of that. So that's kind of the first answer on it.

A lot of this is -- I mean, I've been in small box a very long time, the two women to my left have as well. I mean onboarding for a lot of small box retailers, here's the keys. It's not been great in our business. Here, we've taken a much different approach. We've done a lot of training. We show people the career opportunities. We're being very specific in terms of the leadership that's coming to them. And then the last thing I'll say on it is the comps we're driving in the multi-price at lower units is providing a more productive hour to them. So it's as if you are adding to the stores hours even though you're not. Is there anything you want to add?

Yes. I think we're just looking to work smarter, not harder through disciplines and through teaching and training and coaching our teams how to do those specific things. And we see the opportunity there because many times, our associates aren't being very concise in what they're doing. We say do it right the first time. We may do things 3 times over, and that's just waste in the store. And then secondly, I would add, we're diving deep into taking waste out of the store. So as we look at all of our operational activities, if it's not adding value, we're pulling it out. Therefore, we don't need more labor. We're just using our labor more productively.

Joe Feldman, Telsey Advisory Group. Can you guys talk about with the modernization of the systems that you're doing, how much AI or AI capability you're building in for the future to be able to optimize efficiencies?

Yes. I'll first -- I'll use AI in its big umbrella term, machine learning, automation, agentics. We are leveraging all three of those on our AI journey. Things like Bobby's got a call center that now we handle certain levels of the call center via agentics as opposed to a live operator. Steve Schumacher is rolling out. We hire -- I don't know if you know this, we hire thousands of people a week, just given the nature of our stores. We're looking at agentics to do the first three levels of screening. So you just think about that.

Right now, I have to have a -- sorry, Jocy, I love your job. Jocy has to have a DM make that call. A store manager has to meet with that person. And now we'll go through three levels with agentics and only the final interview gets done by the store manager, and that's just because they won't hire without it. We're working on that too because our system works that well. And then in Brent's world, the hands off the wheel of assortment, especially in consumables has grown rapidly and AI is supporting what goes where, when it gets ordered. We're leveraging it anywhere we can. We're still early in it, and we treat the same test-and-learn mindset to it.

But I'm blown away by what it's done in just a year for us in a couple of key areas. And then hopefully, you all saw we had an announcement with Legion yesterday, I believe. So this is labor management planning. This is for our stores. Right now, I mean we have as antiquated a system as I've ever seen. I came from a world where demand planning set our schedule. All you had to do was load your attributes. This is Jenny, this is Paul. They work available these hours. And then the computer just created the schedule and all that. We do everything manually with Legion now starting next year, one, we'll be able to do that all automated.

And two, AI is actually telling you when to staff those people. One of the favorite things I walk into a store and I say, "Hey, so when is your power hour? When are you most busy? Oh, it's 5. Kind of end of the day. I'm like, you have a school across the street. I promise you it's 3:15. Let's stand here. Let's check it out. They don't know that -- but now the system will bring that person in starting at 3 because the system is using AI to see where the demand is. It's really -- I love it. I'm very excited about that.

Chris Bottiglieri, BNP Paribas. A couple of questions -- 2-part question on capital intensity. So your depreciation year-to-date is up 30%. Your gross PPE is up 8%. Trying to get a sense of what's happening there. You mentioned multiple times bending the curve on depreciation. So hoping you maybe explain why this year is elevated, why that gets better. And then relatedly, the part 2, as you start elevating the brand in the multi-price, why is the 125 stores being, renovated the right number? Why is it not higher? Like how do you think about managing that?

Maybe I'd pick up on those things. So a couple of key points here. First of all, why is the elevation of CapEx this year? And the answer is because we actually have two district DCs that are under construction, right? Keep in mind, we lost one of those in the tornado. We got that partially really funded by insurance. So if I adjust for insurance and a chunk of that money is going to come off.

One of the things to take away from Roxanne's presentation today, which I think is really relevant is that she's talking about moving the number of stores per DC from 600 to 750 per DC. Now keep in mind, though the DC costs sort of $200 million, $250 million. So if we now have increased the productivity of DC by 20%, then you can expect that, that absolutely is going to have a meaningful impact on not having to add DCs as frequently as we were doing before. Every -- we were adding every 600 stores. Now we add every 750 stores.

So for those two reasons, you're going to see that CapEx is going to be moderated. We also have pushed through some of the big systems -- some big systems investments that we've made in the last couple of years. Those platforms are now in place. That's a further help. Coming back to the stores. Look, we set out $100 million. We've talked extensively in this meeting today about how we use this sort of a test-and-learn approach, and we talked about how we're disciplined from a capital investment standpoint.

If those stores work really great and those refreshes deliver amazing returns, then probably you can expect that we might ramp that up. If they don't work as well, then you can expect that we're not just going to spend the money because we said we're going to spend $100 million on it. We're going to use a very thoughtful and disciplined approach to make sure that as we deploy the cash is done in a sensible way. So hopefully, that covers the waterfront.

We'll have returns discipline. So if we see the refreshes go better or the renos go better, then we'll increase. But it will all be based on that returns-based discipline, something that this company hadn't had in my opinion, and I got whip marks on this one. We are absolutely disciplined about our capital and making sure it drives a great return.

We're at the end of our time. I got one more over there, and I'm going to call it after that.

Scot Ciccarelli with Truist. So you guys did give some examples of the increase in sales per square foot you experienced as you shifted merchandise from one category to another. The truth is every retailer is trying to optimize square footage productivity, right? So can you help us understand what's different about this particular initiative, maybe different than what you've done in the past? And then also like how much more of that initiative should we see as we go forward?

I'll start and then kick it to Brent. But I mean, that's great that others have been doing it for a long time. This is brand-new work for us. I mean, remember, we sold everything at a single price point. Nothing went anywhere, everything went everywhere. I mean it was one of those where you could just come in and look and our folks kind of had a lot of say in what went everywhere. And there's some good things to that, but you end up with these large, large runs of maybe an underperforming category because that's what that store manager did, and that's the product they got.

We want to be much more disciplined and purposeful about how we use our space. And we now have a technology that's telling us the productivity of that shelf. So that's something we didn't have until this year that says, this is how the shelf is doing, how it's working for us. But Brent?

Yes. No, I think you said it perfectly. I mean we're just now starting. That's the biggest difference. As simple as if you're a consumable store, we weren't really sending you more consumables. We were sending you the exact same assortment. So with the data now that we have, we're able to optimize that a lot better. And so it's really just beginning. And what we've seen in the rearview mirrors is really about the multi-price adaptation that's driving that square footage.

You can see it almost line up pretty close to our multi-price. So in the rearview mirrors, it's been about AUR and that shopper adoption. As we go forward, it's going to be that plus just making the stores work harder for us as we optimize the assortment through our assortment planning team.

There's maybe one other thing I'd just add to that, and that is with the changes that are coming via multi-price, it's actually quite a -- that's a different architecture in the company than we've had. And therefore, Brent talked about doing that in a very thoughtful and disciplined way that optimizes the profit per store. And I'm not sure if you talk about broad retailers that actually they're seeing that kind of difference in terms of the evolution of their inventory or their product. So you'd have to make that comparison to for yourself.

And I think I got to everybody. I just want to make sure before we end that there isn't anybody. I think I got to everybody. If you've got one more, two more, maybe we can do a little extra time. But otherwise -- going, going, gone. Great. All right. That's how we like it.

All right. Thank you all for spending the afternoon with us. We really appreciate your time commitment. This was, as I started, just something I've been looking forward to since this team came in. It's been 10 months for me. I want you to leave with a couple of things. We're not chasing growth for growth's sake. The discipline is real. Our say-do ratio will drive us. And then we're building Dollar Tree to last here. We want to be consistent. We want to make sure we're consistently customers. We're consistently there in how we show up for our associates.

And then finally, we're consistent for our shareholders. We think that's the most important thing we can do. And we're at a key inflection point here, and we're building this thing for the next 40 years, and we're excited to have you go on the journey with us. So thank you all for the day. Safe travels home. I appreciate it.

Greetings, and welcome to the Dollar Tree Q2 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Bob LaFleur, Senior Vice President, Investor Relations. Bob, please go ahead.

Good morning, and thank you for joining us today to discuss Dollar Tree's Second Quarter fiscal 2025 results. With me today are Dollar Tree's CEO, Mike Creedon and CFO, Stewart Glendinning.

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 in Management's Discussion and Analysis of Financial Condition and Results of Operations section in our annual report on Form 10-K filed on March 26, 2025, our most recent press release in Form 8-K and other filings with the SEC. We caution against 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 to the most directly comparable GAAP financial measures are provided in today's earnings release available on the IR 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 second quarter of fiscal 2025 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website.

Following our prepared remarks, Mike and Stewart 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.

Thanks, Bob. Good morning, everyone, and thank you for joining us today. With the closing of the Family Dollar sale, the second quarter represents an important milestone in the evolution of the Dollar Tree story. In addition to closing the sale, I'm proud to say we delivered another strong quarter with results exceeding the high end of our expectations and reflecting a high level of execution across the board.

The timing of the impacts of tariffs and our mitigation activities played out differently than we originally anticipated, with some of the net positive benefits of our mitigation initiatives coming earlier in Q2 and the tariff impact shifting to later in the year. Having said that, we are pleased with our momentum and our team's ability to adapt to a rapidly changing landscape.

The second quarter unfolded against a volatile backdrop for both the consumer and retail industry, as the economy continued to adjust to elevated tariffs, persistent cost pressures and a static labor market. In today's environment, customers are seeking value and convenience more than ever, and Dollar Tree is uniquely positioned to deliver both.

Whether it's a mom stretching her grocery budget, a college student outfitting a dorm room or a higher income shopper attracted to an expanded assortment of everyday essentials. Our stores are increasingly the destination of choice. This context is important because our Q2 performance was not just about exceeding a set of earnings expectations. It was about gaining share, expanding our relevance to a broader base of customers and proving once again that Dollar Tree thrives when customers focus on value.

So let's walk through the Q2 highlights. Net sales increased 12.3% to $4.6 billion, driven by a 6.5% comp sales growth, which is a solid result in a quarter without major traffic driving events or holidays. Importantly, comp growth was nicely balanced between traffic and ticket and between consumables and discretionary.

In fact, it's been 2 years since we've achieved a discretionary comp this high. Additionally, unit growth was positive, even with the limited pricing actions we took in the quarter. The bottom line was strong with adjusted EPS of $0.77 coming in ahead of our outlook. Stewart will walk you through the details of how Q2 benefited from some timing issues and how those should flow through the balance of the year.

This positive momentum and consistency of execution demonstrates our growing appeal as a value retailer in periods of increased volatility. More importantly, we believe the customer gains we've made are sustainable, a belief underscored by our growing understanding of the dynamics driving these gains.

Our dollar and unit share gains accelerated in Q2, providing additional evidence that our value proposition is resonating with customers. Our strong performance was led by seasonal items, party, balloons and personal items as customers find more items through our expanded assortment to help them live and celebrate their lives.

As of the end of Q2, we have added 2.4 million new customers on a last 12 months basis, consistent with our pace in recent quarters. And nearly 2/3 of those new customers came from households earning $100,000 or more. Underscoring growing engagement, the number of shoppers visiting three or more times a month increased by 11% in Q2, a sequential improvement from the 9% growth we saw last quarter.

While sales growth was strong across all income cohorts, we continue to see especially strong performance from middle and higher income customers, with households earning over $100,000 per year, providing a meaningful portion of our Q2 growth. The strength of these results reflects how our value, convenience and discovery proposition is resonating with more and more customers and leading to increased trade-in activity. The increasing relevance of our expanded assortment is helping us attract and more importantly, retain a broader range of shoppers.

To support the rollout of our expanded assortment, we completed 3,600 3.0 format store conversions through the end of Q2 and remain on track to reach our target of approximately 5,000 stores by year-end. Recall that last quarter, we said the distinctions amongst our various multi-price and non multi-price store formats were beginning to blur as we roll out certain aspects of the expanded assortment across all store formats. And since the flexibility of multi-price is increasingly embedded across all our stores, the relative performance among the various formats is less meaningful.

As you could see from our aggregate comp this quarter, the business is doing exceptionally well, and we continue to be pleased with positive contribution from our expanded assortment. Expanding our assortment to include items at a variety of price points is fast becoming the standard Dollar Tree model.

It enhances our flexibility, whether through larger pack sizes, better quality items or entirely new categories. The ability to shop for $1.25 snacks and $3 to $5 home decor items in the same trip makes Dollar Tree more compelling than ever. Our expanded assortment makes us more relevant, broadens our customer base, and increases our flexibility in responding to tariffs and other cost pressures.

Tariffs remain a source of ongoing volatility and operating in an environment where rates change frequently remains one of our largest challenges. A quarter ago, we told you we were forecasting the balance of the year based on our expectation that China tariffs would be 30% and the rest of the world would be closer to 10%.

Today, tariff guidelines for China have yet to be finalized and currently remain at 30%, but countries like Vietnam, India and Bangladesh are meaningfully higher than they were in June when we provided our last outlook. We are adapting to this volatility and have several strategies in place across the business to address multiple cost pressures, including tariffs.

Over the past few quarters, we've detailed what we call our 5 levers to mitigate these cost pressures. To review, these levers include negotiating with our suppliers, respecting products, shifting country of origin, dropping noneconomic SKUs and finally, and as a last resort, pricing. As we demonstrated in Q2 and expect will be true over the balance of the year, these levers are effective mitigation techniques. Using all 5 levers helps us to achieve the lowest landed cost possible and keep delivering compelling value to our customers.

As many of you saw in our stores, our price initiatives started in late Q2 and will continue rolling out across the balance of the year. Following the selective pricing actions that we've taken so far, we are pleased with the understanding and resilience of our customers and the effect on unit volume has been less than we initially expected.

This again demonstrates the power of our value proposition and validates multi-price as a structural advantage as we navigate a challenging tariff landscape. In a few minutes, Stewart will share more details on our tariff mitigation efforts in Q2 and for the rest of the year.

Beyond the P&L, execution was strong across the business. Our inventory levels are healthy heading into the fall and holiday seasons. Supply chain performance remains solid with strong in-stocks, favorable freight compared to last year and efficiency gains from DC realignment projects in Odessa and Ocala.

In real estate, we have opened 254 new stores so far this year, including 42 former Party City locations and are on track to hit our full year target of approximately 400 stores. Additionally, we have converted 26 former Family Dollar combo stores to full Dollar Trees and expect to convert the remaining 31 stores by year-end. We remain pleased with the outperformance of our new stores, particularly the $0.99 only conversions.

Elsewhere in real estate, the renovation of legacy Dollar Tree locations continues to enhance store conditions and improve the overall productivity of our fleet. Additionally, our expanded preventative maintenance program is reducing downtime and lost business, including a 15% year-over-year reduction in store closed days due to maintenance issues. That is on top of a 50% improvement last year.

On August 28, we announced a new partnership with Uber Eats. I'm very excited about this partnership, as it represents the next logical step in meeting our customers where they are and helping them shop the way they want to shop. Importantly, this agreement gives us access to Uber Eats' 25 million customers, which is a newer and younger demographic that Dollar Tree has yet to fully tap into. While it's still early days, we are encouraged by the initial response to the launch.

In short, we are executing on growth, productivity and cost control simultaneously. Dollar Tree has always thrived in tough times. From our founding in 1986 to today, our formula has been remarkably consistent, deliver value, convenience and discovery for our customers. With our newly expanded assortment, we can now offer more compelling products and be more agile in navigating tariffs and other cost pressures, all while offering our customers more discovery at still affordable prices. Our ability to adapt not only positions us to withstand volatility, it positions us to gain share in the face of it. Dollar Tree is built to win in these conditions, offering prices that customers value, pack sizes that help them manage tight budgets and a range of products from everyday essentials to the joy of the perfect Treasure Hunt find.

Taken together, our ability to drive traffic, ticket, comp and market share in a volatile environment highlights the resilience of our model and the ever-increasing agility of our organization.

Before I turn things over to Stewart for more detail on our financial results and outlook, I'd like to acknowledge the extraordinary efforts of our associates in every store, every distribution center, every support function, our people are the reason Dollar Tree continues to perform at such a high level and in a challenging and unpredictable environment.

I'd like to give a special shout out for all the hard work that went into the Family Dollar sales process. This was a massive effort that involved nearly every aspect of the business, and I'm especially grateful for the efforts of everyone involved. The Dollar Tree team's dedication to serving customers and executing our initiatives with urgency, delivers great outcomes and will drive our success for many years to come. Stewart?

Thanks, Mike, and good morning, everyone. Q2 comp sales increased 6.5% and adjusted EPS was $0.77. We recognize that this was substantially better than the outlook we provided last quarter, when we said we expected Q2 comp sales to be towards the higher end of our full year range of 3% to 5% and that adjusted EPS could be down by as much as half compared to the prior year.

With respect to compound performance, our initial outlook took into account the relative lack of events and holidays in Q2. But as the quarter unfolded, we saw that the increasing relevance of our expanded assortment to a wider range of customers overpowered the lack of events and Q2 comps came in stronger than we expected.

With respect to the EPS outperformance, our sales were higher than anticipated. Our pricing actions started earlier, the timing of how our mitigation efforts impacted COGS differed from our initial expectations, and we were able to leverage our payroll costs in SG&A. The COGS timing difference reflected tariff headwinds shifting from Q2 into Q3 and Q4 and the benefits of our mark on being higher than expected. While all of these factors will impact the cadence of our EPS in the back half of the year, on a full year basis, our outlook remains intact.

With that, let's go through the details of our second quarter financial performance. For the quarter, net sales increased 12.3% to $4.6 billion. Comparable store sales increased 6.5%. Growth was balanced with increases of 3% in traffic and 3.4% in ticket. Meanwhile, the sales contribution from noncomp stores also exceeded our expectations based on strong results from new store openings and our $0.99 only conversions.

Positive performance was broad-based across categories, with comp up 6.7% for consumables and 6.1% for discretionary, which is particularly impressive, given the seasonal lull we normally see in Q2. Strength in electronics, hardware and lawn and garden drove the healthy mix in the quarter.

Turning to margins. Q2 gross margin increased 20 basis points to 34.4%. Several factors contributed to this, including lower merchandise costs driven by higher inventory mark-on and lower freight as well as favorable pricing that helped us offset higher tariffs.

We also benefited as our mix shifted away from some lower-margin consumable categories. The strong sales comp also helped us leverage occupancy costs. These benefits were partially offset by higher markdown reserves on aged inventory, higher distribution costs and elevated shrink.

While tariffs were a meaningful headwind as expected, we were able to use our 5 mitigation levers to counteract much of the impact. At the Dollar Tree segment level, our Q2 adjusted SG&A rate increased 50 basis points to 26.3% driven by higher store payroll related to stickering activity, wage increases, depreciation, incentive compensation and repairs and maintenance.

These were partially offset by lower general liability expenses and sales leverage. While general liability expense was lower than last year, it was higher than we contemplated in our June outlook. As many companies have noted recently, the cost of claims continues to rise across the industry.

At the corporate level, adjusted SG&A expense was higher driven by incentive comp and IT project expense. On a year-over-year basis, prior to TSA income, our corporate SG&A rate held steady at 3.1%. Subsequent to the sale of Family Dollar, we received $8 million of TSA income net during the second quarter. Adjusted operating income increased 7.4% to $236 million and operating margin decreased 20 basis points to 5.2%. This was significantly better than our outlook, reflecting the sales outperformance, expense control and timing benefits.

Moving on to the balance sheet and free cash flow. Total inventory increased $112 million or 4.4%, reflecting store growth, our expanded assortment and inventory mark-on related to our pricing initiatives. We ended the quarter with $666 million in cash and cash equivalents.

On the Q2 cash flow statement, we generated $261 million in cash from operating activities and had capital expenditure of $245 million. This resulted in free cash flow of $16 million, which was a $131 million positive swing year-over-year. On a year-to-date basis, we have generated $145 million of free cash flow.

Additionally, in Q2, we received $668 million of cash proceeds from the sale of Family Dollar. On top of that, we expect approximately $425 million of cash tax benefits from the sale and approximately $100 million of accelerated cash tax benefits as a result of the recently enacted tax bill. Also, during the quarter, we paid off our $1 billion May 2025, 4% senior notes using a combination of commercial paper and available cash on hand. In the near term, we will continue to leverage commercial paper and available cash.

In Q2, we repurchased 5 million shares for $501 million, including excise tax. Subsequent to quarter end, we repurchased an additional 0.6 million shares for $71 million. Year-to-date, we've completed $1 billion in share purchases or approximately 11.6 million shares at an average price of $86 per share.

We ended the quarter with healthy liquidity, a more flexible balance sheet and ample capacity to fund growth while returning capital to shareholders. Our capital allocation priorities have remained consistent and include investing growth for new stores, multi-price conversions and supply chain efficiency, maintain balance sheet strength and flexibility, return capital to shareholders through ongoing share repurchases.

Now let me provide an update on our full year 2025 outlook. We now expect comparable sales growth of 4% to 6% and adjusted EPS of $5.32 to $5.72, assuming current tariff rates. Gross margin improvement of approximately 50 basis points driven by pricing, freight and partially offset by higher tariffs.

For Dollar Tree segment adjusted SG&A, we anticipate approximately 120 basis points of year-over-year deleveraging driven by a modestly higher outlook for labor and general liability costs.

For corporate SG&A, prior to any TSA reimbursement, we expect costs to increase approximately 11% to 12% on a year-over-year basis. TSA proceeds of approximately $55 million to $60 million, subject to final adjustments. On a net basis, our outlook for adjusted corporate SG&A net of TSA proceeds remains essentially unchanged.

Finishing the P&L, we expect net interest expense of approximately $100 million and an effective tax rate of approximately 25%. We still expect capital expenditures to be in the range of $1.2 billion to $1.3 billion, including approximately 400 new Dollar Tree store openings.

We remain committed to offsetting cost pressures, including tariffs through our 5 levers while sustaining investment in growth initiatives and store expansion. Throughout the balance of 2025, we will be focused on consistent execution, disciplined cost control and delivering value to customers in what remains a challenging macro environment.

And with that, I'll turn the call back to Mike. Mike?

Thanks, Stewart. Our second quarter results reinforce the unique position Dollar Tree holds in today's retail landscape. We delivered strong sales growth, margin outperformance and market share gains, all while navigating cost pressures in a dynamic consumer environment. With the Family Dollar divestiture complete, Dollar Tree is now a fully focused business.

Every ounce of our leadership attention, capital investment and operating resources is now directed towards strengthening the core Dollar Tree brand. This sharper focus is already showing up in the pace of conversions, new openings, and faster decision-making on pricing, assortment and sourcing.

Looking ahead, our strategic priorities remain clear: one, continue the rollout of our expanded assortment, which is driving higher traffic, ticket and discretionary penetration; two, manage costs with agility, use our 5 mitigation levers to protect margins while maintaining customer value; three, invest in the customer experience with compelling assortments, clean stores and well stocked shelves; and four, drive disciplined growth and returns, supported by a strong balance sheet, free cash flow and the proceeds from Family Dollar.

We entered the back half of the year with strong momentum, healthy inventory, a clear strategy and the resources to execute. That gives me tremendous confidence in our ability to deliver for our customers, associates and shareholders, not just in the near term, but for the long run.

Finally, as we mentioned last quarter, we'll be hosting an Investor Day in New York on October, 15 to share a refreshed long-term strategy and financial outlook for the stand-alone Dollar Tree business. This will be an important opportunity to show you how we intend to build on the momentum we've established and how we see the company evolving over time. Importantly, we will share more details about our updated strategic road map and financial framework.

We look forward to showcasing the growth runway ahead, the earnings power of our expanded assortment and the operational improvements we are embedding across the business. And with that, we're ready to take your questions.

[Operator Instructions] Our first question is coming from Michael Lasser from UBS.

Guys, there's a perception out there that as you have more fully rolled out some of your tariff mitigation strategies, including raising price points across your assortment that the consumer has pushed back, your comps have slowed and the perception of relative value has decreased.

And if this is the case, Dollar Tree's margins are going to be at risk over the long term as it will not have the levers to navigate through a higher cost environment. So why are those points wrong, especially in light of, what there's been a lot of moving pieces within your full year guidance suggesting that business does remain somewhat volatile?

Yes. Thanks, Michael. Michael, we're pleased with our customer response. If you look at mix on all levels of our customer, the traffic and ticket are balanced, our consumables and discretionary are balanced and across all income levels, Dollar Tree is resonating with our customer. You look at what we're adding last quarter.

In Q1, 50% of the customers we added came from the higher $100,000 price point -- salary point. If you look this quarter, that was 2/3 of our customers. So we think we're resonating very well with the customer. And when you look at these comps, both 1-year and on a 2-year basis, these are incredibly strong comps that demonstrate the relevance that Dollar Tree holds. Our customers are walking in.

And one of the things I love about small box is you get a feel for the whole store as soon as you walk in the door. They're walking in and they're seeing value. We still have 85% of our stores at $2 or less. Think about that. You walk in and you're finding value around every corner. We think our customer is really pleased with that.

Our next question is coming from Paul Lejuez from Citi.

Can you talk about the drivers of the higher ticket between AUR and UPT, maybe any more detail you gave about AUR and discretionary versus consumables? And just at a high level, just trying to understand what pricing actions were already taken in the second quarter versus what is still planned in the second half?

Yes, Paul. When we look at the drivers of it, first of all, that balance that I talked about between discretionary and consumables was really strong and then, of course, the balance in traffic and ticket. And even though we did take some price in Q2, units were still up. So that tells us that our customer is accepting, they're still finding value in our stores.

And we look at their reaction and they'll continue to guide us. But as I mentioned in my prepared remarks, the unit performance was actually better than we expected. So those are the major drivers there in terms of the mix and what we've seen on units.

Next question is coming from Edward Kelly from Wells Fargo.

I wanted to follow up on guidance. Looking at your guidance for the back half of the year, it implies a fairly wide comp range of about 2% to 6%. And I was curious if you could, maybe talk a bit about why that range would be wide, given you have accelerating price you've mentioned lower-than-expected elasticity, which is obviously positive. I mean wouldn't a comp slowdown be a surprise given that?

And then the second part of this is related to bottom line. And I was just curious if you could maybe quantify some of the new headwinds that sort of work their way in, whether it's incremental tariffs, liability claims or anything else?

So I think, looking at the back half of the year, there's a lot of volatility in the marketplace. We can't say how the consumer will react to various price increases that are taking place in general. So far, in the first half of the year, we've had a very strong performance. We expect a strong performance in the back part of the year. But we want to be certain that we take account of volatility that consumers are faced with. So I think that's really the expectation. The answer to your question about the variability in the comp range.

In terms of the costs -- increased costs that we're facing on the general liability side, this is not a problem with having more claims. This is something we're seeing across all industry, the cost of settling claims is getting higher. And therefore, while we haven't seen any increase in the rate of claims, we are seeing those claims come in more costly. And just so you understand, this is not the question of sort of million dollar claims. Most of the claims we have are very, very small, but it's the percentage cost change between settlement last year and the settlements we're seeing now.

When you -- to put that into context, if you looked at last year versus this year, in the second quarter of last year, we had a big charge to catch up some of our general liability reserves. In this year, we didn't have that kind of big charge. We are keeping track as we go of the change in the settlement cost. But if you look at a total year-over-year our general liability costs this year are expected to be in line with last year despite the bigger increase. So that's a sense of that. On the other side, we have seen a slightly increased costs in both shrink, which we called out last quarter. And in markdowns also, we haven't quantified either of those.

Your next question is coming from Simeon Gutman from Morgan Stanley.

This is Zach on for Simeon. I was wondering if you could speak to perhaps what a normalized EPS for the full year '25 would be in the way you see it? Because it does seem like there's some onetime items. There's some noise with corporate and TSA as well as some of the general liability and other tariff impact. So in any way you can to kind of address that and the way you see it, what a normalized level of EPS could be in for the year?

Yes. I mean I think just as you look at the year itself, there are a lot of moving parts. And therefore, are the tariffs that we're facing right now, are they normal or not. So the real question here is sort of what you're normalizing for. I think the question, behind the question is, okay, what's that flow through look like for 2026? And maybe it's easier for me to answer your question using that lens.

When you look at the factors that are driving this year, we had, first going into the tariffs much higher tariffs then those tariffs settle down a little bit. And then in the most recent realm of tariffs, there was some increase in the number of countries in which we source. So think about India or Vietnam. So they sort of had this unusual shift to tariffs during the year. But if you actually looked at our pricing strategies, those strategies were designed as we moved into that sort of second set of tariffs.

As you look at the final set of tariffs, we've had some increase in this year. We did not take any further changes to address those tariffs, mainly because we felt like we had enough coverage coming through the actions that we had taken. And we had other cost benefits that were flowing through our P&L that we felt confident that we could keep the year intact.

And that was really important for us. So think about the flow-through from a tariff perspective to next year, is one that we're sort of running our P&L in a way to maintain our gross margin. We may need some tweaks up and down as we see any further changes in tariffs or as we manage costs, but our 5 levers are intended to sort of address that.

Final point is let me address the sort of one-offs in the year. And there are a couple of important one-offs you need to recognize. First, there is an increased cost of stickering, re-signage in the store. And that cost, when you look at it in total, it's somewhere around $115 million for the year to give you a number. If you take that number, offsetting that in this year are a couple of other items.

The first one is that we are taking the benefit from some inventory, which did not have that higher rate of tariff baked into it, that we're now -- that's now coming through our cash register at a higher price. That's a onetime benefit.

And then I think if you also then finally take the fact that we have costs coming through our inventory, our on-hand inventory revaluation, our on-hand inventory mark-ons, that's a onetime benefit that you saw a lot of in the second quarter, which will start to unwind. You'll see it again in the second quarter, in the third quarter and the fourth quarter, and that will unwind as we go through the course of this year and likely a little bit into next year.

So there's a lot there. I gave you a lot because it is actually a very complex estimate. But that's a lot to say that when we get to the end of the year, we balance that out. And I think if you looked at a lot of the onetimes, there are offsets to those onetimes. So difficult to say exactly what is the normalized number, but I'll wrap up by saying that if you look into next year, our plan is to maintain our gross margin.

Your next question today is coming from Matthew Boss from JPMorgan.

So I have a couple. Mike, maybe first on the sequential acceleration in same-store sales. Where are you seeing the largest gains by income demographic, if you broke it down. Second, on the initial pricing actions. Are there any categories where you've seen material pushback?

And then last, any change in comps so far in the third quarter relative to the second quarter performance? Or just how best to think about third quarter versus fourth quarter comps?

Yes. In terms of the sequential acceleration, when we started and we had our call and we were one period in, you were kind of done with the holidays and the events. And so we looked out, and Q2, I always say periods 5, 6 and 7. So Q2 and the start of Q3 are the toughest times for Dollar Tree because you don't have those big drivers, the real reasons people go to Dollar Tree.

And yet in Q2, we saw very strong performance, balanced ticket and traffic in those comps. And in terms of the drivers, where they come from income cohorts, yes, we saw the strongest performance from the higher income. But what was interesting was we still saw very strong performance from our lower income customer. So really, the pack sizes that we have, the ability to help them kind of stretch their budget and make it to that next paycheck, we saw that all strong.

In terms, Matt, of how the Q3 started, I mean, we raised our guidance for the full year to 4% to 6%. P7, again, doesn't have those big holidays, you start to get the back-to-school in it towards the end of it. We're within that range, albeit we are at the lower end of that range, but we're within that range and feel confident about looking out in the year and raising guidance for the full year on the top line.

Next question is coming from Chuck Grom from Gordon Haskett.

As you guys gain more experience with multi-price, how is the buying team evolve in its purchasing decisions? How are you handling incremental markdowns with multi-price as we move forward? And then can you help us frame out where you are on the journey of moving higher on the $1.25 price point to $1.50, $1.75, $2 across the fleet?

Yes. First of all, our merchant team is incredible. The amount of complexity that exists for them in a highly volatile environment. If you look at our 5 levers, and you go out and you say, okay, 30% for China, 10% for rest of the world, you start negotiating with our suppliers. You look at country of origin, they're re-specing product. There are some SKUs, they're just not going to carry anymore.

And then they're deciding what could go into the expanded assortment and have a higher price. And then halfway through the quarter, you're doing that and all of a sudden, in India or Vietnam or somebody goes to not 10%, but in India's case, 50%. So I give our merchants just a ton of credit for the work that they're doing. It's remarkable. And not just our merchants -- our global sourcing team, how our supply chain then handles that. And then, of course, in store, they are at the end of that whipsaw having to adjust. So the teams have done a great job in navigating that.

And what I do like, you never want this chaos, but I love the agility that it's created at the company. Every one of our teams that I've mentioned is far more nimble now than they ever have been and really looking at ways to have that lowest landed cost so that we can deliver a great value for our customer. And so what does it look like going forward? The $1.25 is still the $1.25. I mentioned that 85% of the store is still $2 or less. That's what we are, that's who we are.

But we also believe there's an opportunity to expand the assortment and provide value that quick convenient shop. And then with that expanded assortment really doubled down on that thrill of the hunt, discovery that you come into Dollar Tree, you're not exactly sure what you needed, and by the end of the first aisle, there's a basket there because you got more than you thought you would. That's the Dollar Tree magic. That hasn't changed. That will not change, and that's who we are. So that's where we'll continue to be.

Our next question today is coming from Rupesh Parikh from Oppenheimer.

So two on just on pricing. Just given the current tariff backdrop, what inning do you think we are in terms of enacted pricing increases? And then if you look at the increase that you've already taken and plan on taking, just how do you feel about your price gaps?

So in terms of what inning we're in, it's a little different for us because of the way the holidays work. So we've taken our price that we are going to take. So in that respect, I'll give you the -- closure is not in yet, but the setup man is in. And so -- but when you look out on Q3 and Q4, as a new holiday comes in and replenishment comes in, there is that opportunity on restickering, re-signage.

So we've taken the price we're going to take. Our team knows what they're doing, late inning on that, setup man is in, and we still have work to do because every time you get replenished from the DC or you take something out of a packaway, you are faced with that restickering and re-signage.

In terms of how it's been received, very well. We really look at what our customer tells us every day and their traffic, they vote with their feet and their ticket, they vote with their wallet, and we like what we see from them.

Next question today is coming from John Heinbockel from Guggenheim Partners.

Mike, two questions, somewhat related. When you think about the basket and consumable and discretionary items in the basket. So I mean how much are you getting a significant very high percentage of baskets with both -- and then how do you think about sort of chicken and the egg. Does treasure hunt drive traffic for consumables, does consumable repetition drive traffic for discretionary.

And then lastly, we've talked in the past about this zone pricing. And it sounds like your -- it just sounds to me like you're less interested in that today maybe than you were. Is that just because of the macro backdrop and timing?

Great questions, John. The first, the basket, it really is both in terms of the traffic drivers, consumables, and maybe there's a bit nuance by income cohort. So if I look at our traditional lower-income customer, they're driven by kind of everyday essentials. They're driven by pack sizes. They're trying to stretch a budget between paychecks.

So they're coming in for that purpose and finding the back-to-school find that just wows them. That $5 backpack that saves them a trip to a large mass merchant at a better price. And then you have that thrill of the hunt discovery customer that tends to skew more higher income. They're coming into our stores, they're targeting the seasons, the holiday, the back-to-school, all that. And they're saying, wow, I can't get over that I can get Dixie plates for $3. I mean, it's just incredible. They didn't know they could find that.

And so really, it's a very complementary ticket and traffic across all income cohorts. And then zone pricing. It is not that we've lost our interest in this. Think of it as priorities. If it was something we really wanted to test at the beginning of the year, when we were faced with the inflationary cost environment, the tariffs, et cetera, we really had to pivot to our tariff mitigation strategy.

And that has put zone pricing a little bit down the priority, but it's still something we want to look at. We're all about delivering an incredible relative value. And as you can imagine, that relative value in California or New York may be different than that relative value in other parts of the country. So maybe a little down the priority, but still something that we will lean into at some point.

Your next question is coming from Seth Sigman from Barclays.

I wanted to follow up on the performance across price points. Is there any way to quantify the overall lift to comps from that new multi-price point product.

And then specifically on the $1.25, Mike, to your point, obviously, that's still a bulk of the product, but with more variations on that now. I'm just curious, like how is the consumer responding to that? How is that part of the assortment performing?

Thanks, Seth. We really see across the entire envelope of offering, strong performance. We look at the balance that we're seeing in the basket. We look at the discretionary and the consumables and we look across all different price points. And really, our customer continues to find value.

And so their basket is fairly balanced. We do see a higher basket in multi-price. It does skew higher, but -- and there's -- it's got a good item flow in it. But there's no real breakout of how the different pieces determining their price point perform. We don't really see that across the entire basket, we see strong performance.

Yes. Maybe one other thing just to add, Mike. And that is to say that actually, if you look at the departments where we have had a change in merchandising strategy, i.e., the assortment has gotten broader, we have increased price points.

There's very clear data to show that those departments are performing well and use hardware as an example of that. We had $1.25 hammers before, we couldn't sell them. We've got $5 hammers now, we can't keep those in stock. And so think about those kinds of items is just creating more interest for consumers in a way that is very positive to the shopping experience and also to our revenue line.

Our next question today is coming from Scot Ciccarelli from Truist.

You seem to be making increasingly cautious comments on the consumer. Can you provide more color or maybe some examples of what you're seeing at the consumer level that's making it more challenging and volatile than before? And then just a housekeeping item, hopefully, what's driving the change to your TSA outlook?

The commentary around the consumer, I've been doing this a long time. I really look to say that there's a lot of unknown right now. If you look at how the world is developing? I mean, yes, it's been very strong so far. But you're coming up on a time, back-to-school time, you're coming up on holidays and seasons.

And we started the year -- we had incredible holidays. We'd like to think that will continue, but we're still cautious because if you look past over the last 4 or 5 years, prices have increased significantly across the entire retail landscape. Things cost more for families. And so as a result of that, we're cautious.

We still don't know the full impact of tariffs. We still don't know exactly, take China, we won't know until November where it ends up. Is it 30%? Is it something different? It's a very volatile time, Scot. And so that just leads us to be a bit cautious. We love the traffic we're seeing, the ticket -- I mean, that discretionary comp in Q2 is absolutely incredible.

So we're very pleased with how our business is responding. But if you look at the lower income consumer and you look at the challenges that they're facing every day just across their entire life, in terms of what things cost, it's just -- it's a cause for caution on our part. We think it's the right posture.

But let me finish by saying, no matter where this goes and where the consumer strength lands, we're very confident in the Dollar Tree solution to the problem. We think we are attractive to lower income. We think we're attractive to middle and then our thrill of the hunt just scores well with higher income. So I really do think we have the answer for Dollar Tree. But as you look out on that broader landscape, it's just -- it's a cautious environment we're in.

Yes. I think also we'll get through this next quarter, we'll have a much better view to some of the tariff items to what's going on with the consumer. And the bottom line is, I mean, we've delivered a terrific comp this year. And even if you look at the back half of the year, no matter where we end up, it's a very, very powerful -- it's a powerful outcome given the range we've put out there.

Let me take up on the TSA item for a second. You raised TSA with the expectation that TSA is slightly lower. I mean, the TSA income is something that's negotiated ultimately with the buyer. In this case, the buyer decided they needed fewer services than we thought they would need. But the good news is we gave guidance relative to our expectations for SG&A. We're going to hit that guidance for this year. So despite the fact that the TSA will come in a little bit light, we've got other cost savings that we've deployed for this year that will bring us in at the number.

I think, if you look at '26, that leaves us with a gap in '26, but we've got plenty of runway now between now and then to solve for the SG&A in 2026. So we're really pleased actually with the way that's worked out.

Our next question today is coming from Zhihan Ma from Bernstein.

So my question is on the store side of things with Q2 performance clearly coming in ahead of your expectations. How do you feel about the service level, the in-stock levels in store? Will you need additional investments to sustain the momentum into the back half of the year?

I'm very pleased with our stores. It's certainly a journey. But Jocy Konrad and her team have done a really good job on our -- what we call it our road to gold which is grand opening look daily. And as we score our stores and look at their relative performance, the improvements, the more stores scoring higher, the customer lens what they see when they walk in the door.

We continue to be pleased with that progress. She would tell you I have a long way to go. She's got a high bar for the team. And so do I, but we're very pleased. And then Roxanne Weng who runs our supply chain, she would tell you that this is the best position our DCs have been in, in recent memory.

This is our peak as we flow product to the stores for the upcoming holiday season and the position our DCs are in and the corresponding position on the shelf is very strong, and in fact, the best we've seen in a number of years. So the customer is going to walk in that door, they're going to find stock shelves.

They're going to find great value as they always do. And we're confident that they're seeing an improving shopping experience. We've started talking to our customer a lot more through customer insights, some third parties we've engaged, surveys, receipt-based surveys, and we like what our customer is telling us.

Next question is coming from Peter Keith from Piper Sandler.

Mike, I just want to follow up on the Uber Eats with just a couple of questions on that topic. So is that going out to all stores? And is there any maybe quantifiable lift that you've seen in early tests? And finally, are you a stand-alone offering? Or is it more part of their multi-store initiative?

Yes. As you probably heard in my comments, I'm very excited about this Uber Eats. When you look at kind of digital e-com, Dollar Tree is really an infant when it comes to digital and e-com. It is just not something we've ever really done. It's not been a focus area. And when I started in this journey as CEO, there were a couple of things I focused on, and one of them was, "I want to talk to my customer more in terms of customer insights and I want to look at opportunity to meet our customers where they are." Uber Eats is a perfect opportunity to do this. 25 million customers that they access. And for us, it's a customer that is very incremental.

When we look at the kind of age of the demographic, it skews younger, and they had not been or heard of Dollar Tree to the vast majority of them. So we're really excited about that. It will go to -- it's not quite all the stores, but it's 8,500 stores. And some of that is just, you've got lease restrictions. There's reasons it won't get to 91, 48 or whatever we're at now. But it's basically all the stores, it's large.

And then we haven't even started the marketing for it. The kind of grand opening, it had a soft opening. And we're pretty floored at the numbers coming in and the number of orders. So they're literally just finding us in their app, not through anything we're doing, and the volume flow is really exciting.

So yes, I think it's a great offering to our customer. It really accents convenience. We say value, convenience and discovery, convenience and Uber Eats just are synonymous.

Our next question is coming from Kelly Bania from BMO Capital Markets.

Just wanted to ask about gross margin, so your outlook now for 50 basis points of expansion. Can you just walk through some of the key factors that are driving that is a little bit lower than your prior outlook.

I'm guessing maybe that's just the incremental tariffs. But can you just parse out the impact from pricing actions you've taken, other factors such as freight or any of the other needle movers on the gross margin line this year? .

Yes, happy to pick up on that. As I mentioned in my commentary earlier, there are a lot of moving parts here, especially as it relates to the freight and how that's running through it. You also need to keep in mind my commentary around the accounting impacts of the revaluation of the inventory that's moving through. These things are depend on the mix of goods that are sold, the rate of those good things sold, et cetera. So there's a small bit of movement there.

I think if you look at other outstanding factors on the positive side, we continue to have a freight benefit, which we called out last quarter. And in this quarter, we pointed to higher markdowns, which are offsetting in the other direction. I think those are the main factors.

The broad picture I would take is that we are managing very, very closely here to maintain a strong gross margin. And I think if you look back at sort of our forecast, there was sort of an expectation that you would see some costs from some of the one-off stuff in the tariffs and not as much mark-on benefit coming in that second quarter. Now with that shifting to the third and fourth quarter, that's also a little bit of a drag.

The reason I made the commentary earlier about driving for maintenance of gross margin because that's how we're driving the business. That's what the 5 levers are intended to do, and we'll manage with tariffs and other costs in a way so as to keep the P&L whole.

Our final question today is coming from Michael Montani from Evercore ISI.

One thing I wanted to clarify was just last quarter, we had talked about, I think, $0.30 to $0.35 of impact from Family Dollar in the first half of the year. Did that -- can you just share where that ended up coming out?

I think you might be referring to the impact of TSA benefit. We were expecting about $95 million in the back half of the year. So that would be that sort of $0.30 you're talking about. I'd say, could just go back to the question I answered earlier, which is the TSA is coming in a little bit -- little bit lower than expected. We gave guidance, $55 million to $60 million for the year, sort of $0.20.

But we've got other savings that are coming through in stock compensation and payroll that are helping us to offset that. And then looking forward to 2026, we had a similar amount estimated for that year, and we'll have a little bit of a shortfall because of the new estimates for the TSAs, but we have plenty of runway between now and next year to work on the GAAP closing items to solve for that.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thanks, everybody, for the call. Have a great day.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.