Dollar Tree Inc DLTR
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/27/2013

Operator: Thank you for standing by. Good day and welcome to the Dollar Tree Inc. Fourth Quarter Earnings Conference Call. As a reminder, today's presentation is being recorded. At this time, I would like to turn the call over to Mr. Tim Reid, Vice President of Investor Relations. Please go ahead sir.

Timothy J. Reid - VP IR: Thank you, Mike. Good morning and welcome to the Dollar Tree conference call for the fourth quarter of fiscal 2012. Our call today will be led by Bob Sasser, our President and Chief Executive Officer, who will provide insights on our performance in the quarter and recent developments in our business. Kevin Wampler, our Chief Financial Officer, will provide a more detailed review of our fourth quarter financial performance and provide our guidance for 2013.

Before we begin, I would like to remind everyone that various remarks that we will make about future expectations, plans and prospects for the Company constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors included in our most recent press release, most recent current report on Form 8-K, quarterly report on Form 10-Q, and Annual Report on Form 10-K, all of which are on file with the SEC.

We have no obligation to update our forward-looking statements and you should not expect us to do so. At the end of our planned remarks, we will open your call to questions which we asked that you please limit to one question or one follow-up question if necessary.

Now, I'd like to turn the call over to Bob Sasser, our President and CEO. Bob?

Bob Sasser - President and CEO: Thanks, Tim. Good morning, everyone. Welcome to the call and thank you for your continued interest in Dollar Tree. This morning we announce our sales and earnings for the fourth quarter of 2012. I'm pleased to report fourth quarter comparable store sales increased 2.4%, this was on top of a 7.3% increase in the fourth quarter of last year.

This increase was split somewhat evenly between traffic and average ticket with a 1% gain in traffic and 1.4% increase in average basket size. Total sales increased 15.4% to $2.25 billion, anecdotally this was the first $2 billion quarter in the history of the Company and it was as always achieved largely $1 at a time.

In terms of geography, performance in the fourth quarter was relatively consistent across the country as all zones achieved positive comp store sales. The highest comps came from New England and the Midwest, this was followed closely by the Southwest, the Southeast, the Far west and the Mid-Atlantic.

Sales growth in the fourth quarter came from mix of both basic and discretionary products. Our top performing categories include housewares and home products, stationery, healthcare products, part supplies, food and beverages. Comps were positive every month with our strongest performance in December. Earnings for the fourth quarter were $1.01 per share. This represents a 26.3% increase over last year's $0.80 per share.

Operating margin for the fourth quarter 2012 was 16.2%, an increase of 70 basis points over the fourth quarter last year and net income rose by $40.7 million or 21.7% to $228.6 million. These results include the impact of the 53rd week which contributed approximately 125 million of sales and $0.08 earnings per share.

For the full year fiscal 2012, comp store sales increased 3.4% that's on top of the 6% comp store sales increased last year and a 6.3% comp in 2010 for a three year stack of 15.7%. Net sales were $7.39 billion, an increase of 11.5% over fiscal 2011. Operating income increased by $138 million and operating margin was 12.4%, an increase of 60 basis points compared with 2011.

Net income rose 26.8% to $619.3 million. This was on top of a 22.9% increase in net income last year. Earnings for the full year were $2.68 per share, an increase of 33.3% compared with $2.01 per share last year. In addition to the impact of the 53 week, the full year results include previously disclosed gain on the sale of our investment in Ollie's, which contributed $0.16 earnings per share in the third quarter.

Excluding the impact of these two items, earnings per share for the year rose 21.4% to $2.44 per share. I'm very pleased with these results. They were achieved in a tough environment. They speak to the value and continued relevance for our merchandise, the power and flexibility of our model and the day-by-day execution of our strategy across the organization. I'm extremely proud of our Dollar Tree associates who work every day to deliver on our promise of great value merchandise and a clean, bright and fun place for our customers to shop.

Looking forward, we're excited about our growth potential and continued relevance to the customer. Over the next several years we expect the consumers demand for value will continue to grow and intensify. Dollar Tree is uniquely positioned to take advantage of the continuing trend. Our plan is to grow our business by providing more value to a broader range of customers and we're doing this in many ways. The first way is through organic new store growth and we have a lot of room to grow.

For the full year 2012, we opened 345 new stores and relocated or expanded 87 stores for a total of 432 projects. Selling square footage increased 7.7%. We exceeded our original plan which included 315 new stores and a total of 390 projects and we ended the year with 4,671 stores.

In the fourth quarter this year boosted by January openings, we opened 47 stores and relocated and expanded 6 stores. In the past we've chosen not to open stores in January, but that's changing. In fiscal 2012, due to the efficiency of our store development teams, we accelerated the opening of 25 new stores and 5 relocations from early fiscal 2013 into January and we like the results.

In addition to generating incremental sales in fiscal 2012, these stores will now give us a full year of sales in 2013 and improved productivity. Excluding the 30 projects opened ahead of schedule in January, square footage growth in fiscal 2012 would have been 7.1%. This year our plan includes approximately 340 new stores and 75 relocations for a total of 415 projects across the U.S. and Canada. This is in addition to the 25 new store openings and 5 relocations that we completed early and opened in January 2013. Square footage growth is planned to be 7.3% over fiscal 2012, which included the 30 store projects in January.

In addition to opening more stores, our plan is to open better stores. I'm particularly pleased that average new store sales per square foot increased once again 2012 to the highest levels since 2001. New store productivity is now increased each year for seven consecutive years. This improvement has been a team effort. Our real estate department is focused on improved site selection and on the rightsizing our stores to the market.

Our merchants are working to develop more productive floor plans and expanding assortment with a focus on the most productive categories of merchandise and our field organization is opening stores faster and more efficiently through improved staffing and building the bench of qualified store management. This has been the key elements to increasing our new store productivity and we expect this to continue.

Efforts to increase sales per square foot are not limited to new stores, elements of the strategy to increase store productivity can be seen throughout the chain. In all stores we are developing more powerful seasonal presentations to create interest and a fun shopping experience.

Across the chain we are expanding our basis assortments in candy, stationary, health and beauty care, and home and household products to maintain relevant to our customers. These were among our fastest-growing categories in the fourth quarter. We have re-fixtured re-merchandised and expanded assortment at the front-end of our stores to create more merchandise energy and to drive (impulse) sales.

Store associates are emphasizing the friendly factor with more effective customer engagement and working to drive sales of related items through cross merchandising and through suggestive selling and our expansion frozen and refrigerated product continues.

We've installed freezers and coolers in 329 stores in 2012, including 190 new stores, exceeding our goal at 325 installations. We now offer frozen and refrigerated product in 2,549 stores. This important category is extremely productive that serves the current needs of our customers, drives traffic into our stores and provides incremental sales all categories including our higher-margin discretionary products. We plan to expand frozen and refrigerated product to an additional 475 stores this year.

Another key component of our growth strategy is the development of new retail formats, the expansion of our geographic reach, and the development of additional channels of distribution, specifically that means Deal$, Dollar Tree Canada and Dollar Tree Direct. Our Deal$ format extends our ability to serve more customers with more categories and increases our unit growth potential. Deal$ stores deliver low prices on everyday essentials, party goods, seasonal and home product. By lifting the restriction of $1 price point at Deal$ we're able to serve more customers with more products at value prices every day.

Awareness of the Deal$ brand is growing and the concept is building momentum. In the fourth quarter Deal$ had particular success is toys, softlines, stationary and HPC. I'm excited about the growth potential of Deal$ and particularly the opportunity that it provides to grow profitably in the higher cost of operations urban markets. We added 25 new Deal$ stores in 2012 and ended the year with a net total of 194 Deal$ stores. We plan to continue this growth rate in 2013.

Our Canadian integration and expansion continues through the investments made during 2011 in systems, training and infrastructure we now have consistence year-on-year data on which to base our sales and assortment planning. Specifically, we have visibility to our own hand, own order and sales along with a trailing history by store and skew. These are all key factors in the management of efficient supply chain and improving customer satisfaction.

With our merchant teams leveraging the buying power of Dollar Tree, Canadian customers are beginning to find broader, more exciting assortments and better values in our stores. Our recent Valentine's Day assortment reflected the best items from Dollar Tree and our customers responded enthusiastically.

Our focus continues on building and solidifying store teams and improving product flow to the stores. We're working very hard to increase the service level and in-stock position of basic products while improving the shopping experience through a more powerful seasonal presence and a higher level of merchandise energy and we're aggressively expanding our Canadian store base.

We began 2012 with a planned gross store count approximately 25% under the Dollar Tree brand. We exceeded this plan opening 41 new stores and we ended the year with 140 stores in Canada. Additionally, in 2012 we completed the rebranding of all the former Dollar Giant stores in Ontario to Dollar Tree Canada and we'll complete the transition with the rebranding of the stores in the western provinces by the end of the third quarter this year.

Merchandise in Dollar Tree Canada will reflect a combination of the Dollar Tree U.S. assortment expanded with unique high value offering sourced by our Canadian merchandising team. We see enormous potential in Canada and we expect to grow our store count by 25% or greater in 2013. As previously reported, we believe the Canadian market can support up to 1,000 Dollar Tree stores.

This is in addition to the 7,000 store potential for Dollar Tree in the United States plus additional growth in our Deal$ format. Our goal is to be the leading retailer in Canada at the single price point of $1.25, just as we are in the U.S. at the $1 price.

Adding to our gross strategy, Dollar Tree Direct, our E-commerce business is expanding as planned. This additional channel distribution provides an opportunity to broaden our customer base, drive incremental sales, expand the brand and attract more customers into our stores. Some key milestones achieved in 2012 by Dollar Tree Direct, include growth in the site traffic which exceeded 5 million unique customers in the fourth quarter, a 20% increase over the fourth quarter

Dollar Tree Direct now has over 2,600 items available online including 850 unique items that can be purchased in less than case quantities, and increase of over 65% versus the same time last year. We're using social media to drive brand awareness. Our 2012 holiday YouTube video was popular once again. The video had a 15% increase in views over last year's holidays video. Additionally, over 2 million people chose to interact with Dollar Tree via their mobile devices during the fourth quarter.

Through these initiatives and more, Dollar Tree Direct is gaining customers every quarter. We expect to see continued growth in our Dollar Tree Direct sales. One of the keys to achieving consistent profitable results has been our practice of adding infrastructure and distribution capacity to support growth ahead of the needs. In that regard, construction is proceeding according to schedule on our new 1 million square foot distribution center in Windsor, Connecticut. DC 10 will be automated and it's designed to increase capacity and provide cost effective service to our stores as we continue to expand in the Northeast.

In addition to our new Northeast DC in January, we announced plans to expand our DC and Marietta Oklahoma by 400,000 square feet bringing its total size to 1 million square feet. Both the Marietta expansion and the new Windsor DC are being financed through available cash and both will be operational in the third quarter this year.

Now, I'd like to turn the call over to Kevin, who will give you more detail on our financial metrics and provide guidance. Kevin?

Kevin S. Wampler - CFO: Thanks Bob. As Bob mentioned, our diluted earnings per share increased 26.3% in fourth quarter to $1.01. The increase resulted from our sales growth a 15 basis point improvement in gross profit margins and a 55 basis point reduction in total SG&A expense compared to the fourth quarter last year.

Sales and earnings for the quarter were also favorably impacted by the addition of the extra 14th week consistent with the 53 week retail calendar with contributed $125 million to sales and $0.08 earnings per share. Our gross profit margin grew to 37.9% during the fourth quarter compared to 37.8% in the fourth quarter last year, which is strong leverage and occupancy and distribution expenses reflecting impact of the 53rd week in the increase from comparable store sales.

We also achieved reductions in both shrink and markdown expenses as a percent of sales. The shrink improvement came primarily from our Canadian operations we brought thing full and full implementation of our SKU-based inventory system for both periods. The improvements were partially offset by increased freight cost due to a higher trucking rates and impacts of the continuing shifts in product mix, as basis consumable products increased by about 60 basis points as a percentage of sales in the fourth quarter.

SG&A expenses were 21.7% of sales for the quarter, compared with 22.2% reported in the fourth quarter last year. Payroll related expenses declined by approximately 25 basis points due to lower incentive compensation expense compared with the last year, partially offset by an increase in store payroll as a percent of sales. Depreciation declined by 15 basis points helped in large part by the extra week.

Operating expenses declined by 10 basis points due to reduction in insurance and utility expense as a percent of sale. Operating income increased $61.5 million compared with the fourth quarter last year and operating margin was 16.2%, an increase of 70 basis points from the fourth quarter last year and was the highest quarterly operating margin since 2002. For the full year operating income increased $138 million and our operating margin grew to 12.4%, up 60 basis points from last year, 11.8% operating margins.

The tax rate for the quarter 37% versus 37.7% in fourth quarter of last year; the lower rate reflects primarily the favorable impact of the American Taxpayer Relief Act of 2012 and a slightly lower state tax rate. For the full fiscal year the tax rate was 36.7%, compared with 37.4% in 2011.

Looking at the balance sheet and statement of cash flow, cash and cash equivalents at year end totaled $399.9 million, versus $288.3 million at the end of fiscal 2011. During the fourth quarter we invested $104.9 million for the repurchase of 2.7 million shares.

For the full year, we invested $340.2 million for share repurchase and repurchased 7.7 million shares at year end we had $860 million remaining in our share repurchase authorization. The diluted weighted average shares outstanding for the fourth quarter was 227.1 million. We will update you on additional share repurchases if any at the end of the quarter in which they may occur. We continue to focus on increasing our increasing our inventory turns. Our inventory turns increased in 2012 for the eighth consecutive year to 4.25. Consolidated inventory at year end was 12% greater than at the same time last year and selling's square footage grew by 7.7%.

Consolidated inventory per selling square foot increased by 4.1% which is down from the 5.2% increase at the end of the third quarter. This overall increase reflects inventory in our distribution centers relating the earlier Easter, our Spring Fling promotion and the first quarter store openings. In addition, store level inventory was slightly higher reflecting the timing of year end relative to Valentine's Day due to the 53 week.

Capital expenditures were $75.5 million in the fourth quarter 2012. This compares with $53.3 million in the fourth quarter last year. For the full year 2012 capital expenditures were $312.2 million compared with $250.1 million in 2011.

For 2013 we are planning consolidated capital expenditures to be in the range of $320 million to $330 million. Capital expenditures are focused on new store's remodels, the addition of frozen and refrigerated capability in approximately 475 stores, IT system enhancements and approximately $37 million towards the new distribution center in Windsor, Connecticut and $25 million for the expansion of our D.C. and Marriott Oklahoma.

Depreciation and amortization totaled $46.9 million for the fourth quarter versus $44 million for the fourth quarter last year. For the full year, depreciation was $175.3 million, a 10 basis point decrease from last year. For 2013, depreciation and amortization is estimated to be in the range of $190 million to $200 million.

Our guidance for 2013 includes the following assumptions. First in regard to freight expense, we will soon be negotiating new ocean rates to become effective on May 1. As always, we cannot predict the outcome of these negotiations, nor can anyone accurately predict the direction of diesel prices for the next year. For this reason, our guidance assumes that Ocean freight rates and diesel prices will be similar to the current levels on average throughout fiscal 2013.

Second, Easter is one week earlier this year and it moves in March. This represents about a $4 million sales challenge in the first quarter. Also as we look ahead to the fourth quarter, this year, there are six fewer selling days between thanks giving and Christmas which represents a $25 million sales challenge to the fourth quarter.

Our guidance also assumes a tax rate of 38.1% for the first quarter and 37.8% for the full year. Weighted average diluted share counts are assumed to be 226.2 million shares for the first quarter and 226.7 million shares for the full year. While we still see share repurchase as a good use of cash, our guidance assumes no additional share repurchase.

With that in mind, for the first quarter of 2013, we are forecasting sales in the range of $1.84 billion to $1.89 billion and diluted earnings per share in the range of $0.53 to $0.58 which would represent a 6% to 16% increase compared to the first quarter 2012 earnings of $0.50 per diluted share.

Sales range implies a low single-digit comparable store sales increase and 6.8% square footage growth. For the full fiscal year of 2013, we are forecasting sales in the range of $7.79 billion to $7.97 billion based on a low single digit increase in comparable store sales, and 7.3% square footage growth.

Diluted earnings per share are expected to be in the range of $2.54 to $2.74. This represents an increase of 4% to 12% over 2012 earnings per share of $2.44, which excludes the impact of 53rd week and gain from the sale of Ollie's in the third quarter.

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

Bob Sasser - President and CEO: Thanks, Kevin. Once again, I am very pleased with our Company's performance in fourth quarter and for the year of 2012. In summary, our comp store sales increased 3.4% and total sales grew 11.5% to record $7.4 billion. Operating margin increased by 60 basis points to 12.4%, that's the best in the past 12 years and earnings per share increased by 21.4% excluding the positive impact of the 53rd week and gain from the sale of Ollie's.

We opened 345 new stores in 2012, we expanded and relocated 87 stores and we ended the year with 4,671 stores and square footage growth of 7.7%. Last year, our new stores achieved the highest sales per square feet in 12 years since 2001, when our average store size was much smaller. We expanded frozen and refrigerated product to 329 stores for a total of 2,549 stores across the U.S.

At Deal$ new customers are pleased to find surprising values in consumer basics and you can see it in the results. Comp sales at Deal$ benefited from both increased traffic and increased average ticket. Customers are shopping more frequently and buying more on each trip. We opened 41 new stores in Canada representing a 40% increase in our Canadian store-base and we are beginning to translate our investments and systems and to better merchandise assortment for our Canadian customers.

Significant enhancements to Dollar Tree Direct such as expanding great pack, enhancing our mobile capabilities and increasing our social media presence or attracting more customers. In order to efficiently support our continued growth we broke ground on a new 1 million square foot DC and one's with Connecticut and we've announced plans for the expansion of our Marietta, Oklahoma DC.

As always, we continue to manage capital for the benefit of long-term shareholders. Last year we repurchased $340.2 million of our stock. We sold our interest in Ollie's in the third quarter with a gain of $60 million and a contribution of $38 million to net income and we executed a 2-for-1 stock split in June.

2012 was another great of great accomplishments and I will tell you that we're singularly positioned to do even better in the future. We have a vision of where we want to go and the infrastructure and capital to make it happen.

We're opening new Dollar Tree stores and there's plenty of room to grow. We're growing the productivity of our stores in both new stores and in comp stores. We're growing through new formats like Deal$ and Dollar Tree Direct and we're growing through expanded geography. Canada provides a great opportunity for a substantial growth.

We will now address your questions so that we can accommodate as many callers as time permits. We ask that you limit your questions to two.

Transcript Call Date 02/27/2013

Operator: Dan Wewer, Raymond James.

Dan Wewer - Raymond James: Can you talk about what changed from the third quarter when same-store sales were struggling to be slightly positive to 2.4% gain in the fourth quarter and particularly the comparison actually became more difficult during the fourth quarter? Also curious as to why you are not expecting same-store sales to accelerate in the second half of 2013, given the comparisons have become quite a bit easier?

Bob Sasser - President and CEO: Well, Dan, in reflecting back over the last year, the third quarter we were up against the big comp in third quarter too as I remember. We were especially up against a big comp in our consumer products, it was probably the highest – you didn't know that, but the highest consumer products comp that we were up against for the year. So there was a little difference when you are looking at third quarter versus fourth quarter about what we're selling in the midst of what we're selling. Of course, in fourth quarter we had couple of – we have the holidays and at Dollar Tree we're always – we come into our own at the holidays and I think that's what you saw. We were up against in fourth quarter the largest comp of the year and the largest quarter of the year and came out with a 2.4% comp and I think it was just really great execution. We invested in the stores, standards and qualities and we've got great execution, we had great merchandise in the fourth quarter, great values and by that we overcame the 7% plus comp from the year before. As to your second question, I believe about this year in the second half, we're really excited about the second half of this year. We're giving guidance to you based on what we know from internal and what we see from external. We can give the first quarter guidance and guidance from the year. In uncertain times, our guidance – our visibility of first quarter is a lot better than it is of fourth quarter, so we're factoring in some of the uncertainty in the business that we're looking forward. I do expect the second half of the year to be particularly strong. So, that's how we got to the guidance. We know what we know, less visibility the further you get out.

Dan Wewer - Raymond James: If you're right, let say that same-store sales are in fact low single digit for all of fiscal year '13, historically if you look at the inflation pressure at the store level, it runs about 2% to 3% a year. Do you see any opportunities to ratchet down the rate of expense growth, so they can have a chance to get expense leverage with only 1.5 or a 2 comp?

Bob Sasser - President and CEO: Dan we've proven, we can get leverage on 1.5 or 2 comp. Third quarter we got leverage on our expenses this year on a 1.6 comp fourth quarter 2.4 comp, we got a leverage on expense, so yeah, there is continued opportunity to leverage our expenses on those low single digit comps as we go forward.

Operator: Matt Nemer, Wells Fargo Securities.

Matt Nemer - Wells Fargo Securities: Could you talk – any impact you've seen from the payroll tax or the delayed tax refunds trends in January and February are any different than what you saw during the full quarter?

Bob Sasser - President and CEO: Look the consumer is under pressure, burdened and concerned as a way we sort of characterize the consumer right now, they are facing not only higher payroll taxes, but rising gas prices and with the tax refunds being delayed, they really under pressure. Overall, less money to spend and you had that job concerns and uncertainty that everybody sees out there right now. But at Dollar Tree we think of our self as part of the solution. We're seeing the effect on the consumer, but we think we're part of the solution and a destination for a cash grab customer that's trying to balance their budget. We have all the things that you need over half of what we sale now 50.1% are products that are needed most often and must haves in everyday life high-value and they are only a $1 and when our customers are in the store, they can still splurge at Dollar Tree on the discretionary products, yes. You can afford at Dollar Tree, it may be discretionary, but it's only a $1 also. So, we believe as we said for years, we're right for all times, we believe we're more relevant today with the consumer under pressure than we've ever been and we think that's going to continue for few years, several years.

Matt Nemer - Wells Fargo Securities: Then secondly, can you talk to the cadence of the cooler, freezer expansion this year and then are there any other significant SKU additions or deletions planned for this year?

Bob Sasser - President and CEO: The cadence is going to be throughout the first half especially and maybe in third quarter. We take a little break around Easter, we don't want to do anything to disrupt our customers shopping experience around that important time of the year, but we're rolling out the 475 pretty regularly throughout the year especially in first half. What was the second question?

Matt Nemer - Wells Fargo Securities: Any SKU significant category expansions or SKU additions this year?

Bob Sasser - President and CEO: Yeah, we're looking at across the business. We're looking at where we think we have opportunities to increase our market share to drive sales, to drive margins. You are going to see expansions in our stores through the course of the year in our household products area and our candy, snacks and beverage area. In our stationary business, we are very excited about our stationary business and also and our party business. So, as we look at our business in addition to 475 more stores with frozen and refrigerated product, we're expanding lot of variety categories in the business. We're also have – we have and continue to reengineer the front-ends, 40% more SKUs on the front-end, permanent homes for our drive items, more and better customer engagement at the front of the store. We really want our customers to be challenged by great value and to purchase great product from the time they enter the store, until the time they leave the store. So you check out assortments, there are more SKUs, better variety, a lot of value, ever-changing mix on the front-end of the stores, the front table items of the week and especially in the seasonal department.

Operator: Aram Rubinson, NOMURA.

Aram Rubinson - NOMURA: Can you tell us about your customer a little bit specifically how they indexed to tobacco and to alcohol, I guess what I'm trying to drive out is whether or not that push by Family Dollar and Dollar General to those categories even though they are different formats may have any impact on your own business or customer?

Bob Sasser - President and CEO: Our customer probably indexes the same as their customer does to tobacco. We have no plans to add tobacco in Dollar Tree stores, it's bad for you, but it's also bad for our margins at Dollar Tree. So there are no plans for tobacco. We're going to continue driving sales through again as I said to the earlier question we're really excited about frozen and refrigerated business rolling out another 475 stores, and expanding a lot of our variety categories, as well as expanding our wow items throughout the year. In times where consumers are in need of value we've always been able to step it up and offer even more value for the Dollar. We're looking to do that throughout the year this year with what we call our wow items, bigger sizes, bigger savings, still just $1. By the ways, operational excellence we've put rate value on running great stores and a shopping experiences our customers find pleasurable.

Aram Rubinson - NOMURA: If you don't mind a follow-up about inventory management. Your inventory management has been fantastic for many years, so my question is a little counter intuitive, but I'm wondering whether or not you might be able to sell more if you stock more inventory? Again I know it's counter intuitive, but can you and have you tested whether plugging inventory can drive enough incremental sales from here to justify the investments?

Bob Sasser - President and CEO: Yeah, just speaking anecdotally to that and not to figures, but more inventory doesn't always equate into more sales. What we want to have is the right amount of inventory in our stores for our customers when they want to buy it. So, higher opportunity continues to be the supply chain and delivering the right amount of inventory at the right times. We can still increase our turnover. We can still lower our average inventory levels and still satisfy our customers even better with less inventory in some cases. So, I do appreciate the counter intuitive question. The one that our merchants ask me all the time, but at the end of the day the proof is in pudding and high inventories do not equal high sales, it's all about the right merchandise and the stores and then the productivity of that.

Operator: Matthew Boss, JPMorgan.

Matthew Boss - JPMorgan: From a competition standpoint have you see any impact on your traffic from a competitive standpoint, any recent actions worth noting from your peers and are you feeling any incremental pressure on any categories from a pricing perceive as a result of anything you've seen out there recently.

Bob Sasser - President and CEO: We look in the completion all the time, we watch them closely. I have great admiration for what they do, but you've heard me say this before, we're just different and we're small and we're convenient and we're well located where Middle America either lives or shops or both. At Dollar Tree everything is at $1, so the idea of staying focused on what we do the best is what we're about the Dollar Tree store 10,000 square feet everything is $1. It's an honest proposition disarming to the customer and that's our goal is to continue to exceed their expectations for what they can buy the Dollar Tree. We do watch the competition. I do watch what they do. We respond really more to the customer than we do what the competition is doing and that has worked well for us.

Matthew Boss - JPMorgan: On more home discretionary, have you seen, can you talk about any trends in the quarter on the non-consumable side, any bright spots in home seasonal and any in-store initiatives to drive the basket going forward? Then finally, tax refunds are beginning to trickle back in, have you seen any improvement over the last couple of weeks?

Bob Sasser - President and CEO: I will tell you last couple of weeks, at first – when the year – three weeks now and it's a story – true story on this year. Three weeks into the – I'll share with you what I think is going so far is and what the changes could be, but first of all we had a terrific Valentine's Day, and we don't break all that stuff out. It's too early to report, but I do want to tell you that Valentine's Day occurred and was probably the best sell-through we've had in years and years. We're extremely pleased with our Valentine's business. On the flip side of that point, we've had the worse weather we've had through the center of the country and then up the East Coast. It seems like there was a storm a week and so that has been sort of a drag on our business. Overall its three weeks and we're still – we just gave you our guidance, so all of that's baked into that, but that has been more of what we've seen, it's really hard to see when those storms sweeping through and dampening all that snow and closing stores and people losing electricity and can't drive, it's really difficult to see what the core power of the businesses in these past three weeks with all the disruptions from storms and, of course, Valentine's holiday that we had. My feel as though that as the refund checks get out that people will be out shopping, those people who get them will be spending them as they have in the past, that's a good thing. My feeling is that as the economic environment throughout the year becomes more transparent, and it will, and there will be more visibility and I feel that things are going to improve over what they are now for the consumer that we'll see the impact of that. We prefer more people working, we preferred more certainty, less uncertainty and I'm hopeful that we can see that. In the meantime, we are absolutely zeroed down on the customer that is under pressure from high gas prices from the tax refunds being later and from the higher taxes. So, if you're under pressure, my gosh, we want to have it, when you come to our store, we want to have the things you need. We want to have them in stock, we want to exceed your expectations with more value on the things that you need and we want to have a fun shopping experience, that's where we are.

Operator: Stephen Grambling, Goldman Sachs.

Stephen Grambling - Goldman Sachs: Just to change gears a little bit, maybe if you can talk to just your thoughts on the buyback and maybe the willingness or ability to take on leverage at all to even increase the buyback going forward?

Kevin S. Wampler - CFO: Sure. I mean obviously as we look at our capital allocation every year and we put a lot of thought into it and obviously our first priority is fund the business and its growth, as we've always said that the best use of any dollar is to build another Dollar Tree store, which we're doing plenty of that and as Bob said, we have a lot of room for growth out there, so that's going to continue. As we spent more of the last year or two on infrastructure from the standpoint of expanding our distribution network as well, so the Windsor, Connecticut, the total price on that is about $97 million on an overall basis another 25 from area. So, obviously we're continuing to fund the business through that manner. From a share repurchase standpoint, obviously it has been an important part of what we've done and we believe it's very important as a way to return to our shareholders $340 million this past year, $645 million in 2011 and $414 million in 2010. So, it's obviously been a big piece of it and we still have $860 million outstanding in our authorization, so that's one piece. Obviously as we always look at acquisitions, if there's something out there that makes sense, we're open to that. We haven't done anything since Canada which we purchased in the fall of 2010 but obviously we always keep that consideration out there. The Board and the Company talks about dividends from time to time, we don't believe we're in a point where we want to do that. So, as we look at share repurchase, we look at it as a great way of returning value to our shareholders. I would tell you on overall basis that one of the other things I look at is our overall return on invested capital. If you look since 2008 our return on invested capital is 16% and we've since growth it the last two years, it approximated 30% and we feel very, very good about that and I think you would benchmark that against others within our sector that you'd see benchmarks very favorably at the end of the day. So we kind of look at it from an overall perspective return on invested capital as well. The question is would we leverage up to buy additional shares? Historically, within the last few years we've not done that. We intended to spend our free cash flow. It doesn't mean that if the opportunity presented itself that we wouldn't. We obviously have a line of credit in place that we have a lot of availability on, so it wouldn't be hard to do. This just not been our nature at this point in time. As we said we've bought them back over $1 billion in the last three years and that's without basically borrowing a dime to do it. So we feel good about it from that perspective.

Stephen Grambling - Goldman Sachs: Then one quick follow-up if I may. This one may be for Bob. You had referenced that you're still below your prior peak sales per square foot. I'm wondering is that a target that you think that you can reach longer-term even with a bigger store is that kind of the appropriate way to think about it?

Bob Sasser - President and CEO: We think about it as year-over-year growth incrementally improving our productivity of our stores, our new stores, our existing stores, those small stores year ago, we're 5,000 square feet and pretty much peaked out in year one and the comps then become stubborn if you remember that. The new larger stores when we started over, sales per square foot went down, but it gave us a longer runway by which we could serve more customers for a longer period of time without reinvesting in the store and expanding the store. So, we've been building it back over the years, we continue to build it and yes there is still plenty of opportunity to drive sales per square foot in all of our stores.

Operator: John Zolidis, Buckingham Research.

John Zolidis - Buckingham Research: A question, if we look back over the course of the year and Bob I noticed your tone today is considerably more upbeat than at the Analyst Day when there were some typical months in there, what gives you the confidence given the volatility we saw last year that in 2013 we won't see similar volatility in comp trend. How do you feel about the business, the consumer, maybe with more distance looking back, what happened in the October quarter and how do we as investors feel good that the trends can be more consistent as we go forward?

Bob Sasser - President and CEO: John, it's back and up, and looking at the past year, it was a terrific year. Even at our Investor conference, I was upbeat about the business, the longer-term view of the business and if you look back at third quarter, I think we had record operating margin, higher inventory returns. We didn't like the comp, 1.6 comp, we always want more but the P&L was just really spectacular, frankly. So, we had every reason to be proud of third quarter. It was a big quarter to be up against. We came into fourth quarter, another big quarter. At the Investor's Conference, if you remember last year I was saying, we've given you the information of how we looked at third quarter. By the way fourth quarter was going to be a big hurdle for us and I didn't look at that as not being upbeat, I looked at it just being transparent and reminding you of what we're (replacing) and how we are going to go about it. So, that's what we did and at the end of the day, I am really proud of third quarter. I'm really proud of fourth quarter and the year. I always want more comps, I always want higher operating margins, I especially want high returns. So, those are the things that we are focused on. I think maybe what gives me confidence going forward, it is tough calendar, we know that and we plan for it. Easter is early. Easter is not good for the top-line growth typically, but we plan for that. It's a tough fourth quarter, its six less day, selling days between Thanksgiving and Christmas. We've planned for that. We have exciting plans for third quarter next year. Third quarter this year is 1.6 comps (we're up again). So we're sort of the reverse of last year. So I see that as great opportunity as we go – and we are making plans to make third quarter very good. But I have just great confidence in the model, our flexibility. We've been doing this at Dollar for 27 years. We feel pretty confident that we are good in all times. We have seen uptimes and downtimes and we performed well. We've been able to offer more value to our customer over the 27 years, we haven't raised our price. Our product is better than ever. Our value is better than ever, our operating margin continues to rise, it maybe counter intuitive. So, 2013 we have great merchandise, we have great products, we have great plans in this tough year and by the way, the consumer and their search for balancing their budgets. They're making less and spending more on everything else. At Dollar Tree you can buy everything for a dollar, you can help balance your budget. By the way you have a good time buy toy for your child, have a party at the school and everything still at $1. We're excited about our business.

Operator: Scot Ciccarelli, RBC Capital Markets.

Scot Ciccarelli - RBC Capital Markets: Bob, can you talk about what you guys are seeing on merchandise margins, and then second question is going to be, what are your expectations for the Canadian operation from a profitability standpoint for '13?

Kevin S. Wampler - CFO: Well, let me start with second one first. The Canada, we're really excited about, we're still in the investment mode. It was about $0.02 to $0.03 pressure on this year's earnings. For next year we have planned, we think that we're going to improve over that, but we still have some investments to be made. I think for Canada the opportunity we're seeing growth in the top-line next year, we're excited about that. We're getting our stores rebranded and with the rebranding remix, remerchandise and bringing to bear all of the (information) that we put in. Only a year ago now, we're just starting to see the numbers from that. So I think there's going to be a payback from that. So, there could be still some pressure in 2013 on the bottom line for Canada, but less than this year, and this year was only $0.02 to $0.03. We invested in our future in Canada. As I said, we think we can open around 1,000 stores there. In order to do that we want to get them right in the beginning and that's what we're doing. The margin overall – I've said this before and I'll say it again, we're in control of our margin. We don't plan a gram items, there's nothing that we have to have. Our buyers, our merchants are encouraged to offer the highest value for a dollar price point, add a margin that we are willing to accept and the one we're willing to accept is one we plan. So, we're just about always going to hit margin on items and on departments, on categories and subcategories. If you look at any of the – most of the margin, gross margin changes, which we've been it, we manage it through in a pretty tight band over the years, but it's usually all about mix and when the mix is more consumer products, so a little pressure on the margin and when the mix is more variety product, and I guess better times, then you're selling a little more variety merchandise. Throughout the years though it's been managed within a very tight band and I know that we can continue to do that. We don't see – I don't see – there's always something that's going up, there's always something that's going down, but with our velocity of not having to have anything, we are going to be able to manage through this year once more. You heard Kevin say our guidance includes pretty much the same kind of ocean freight rates as we experienced. So, we're not expecting pressure there. It would be nice to get a little improvement, but we're not expecting it. The merchandise margins are good, improving flat to last year, maybe even up in some cases. We just had the trip, the January trip, which is one of the big trips of the year to Asia. I'll tell you, it was well planned. Our merchants were knowledgeable and enthusiastic. It was the best trip that I've been on with our group of merchants using historical data. They armed with the financial plan for every category and a strategy to back that up. They had already shop to market here, they knew what the winners were out across the country and what the losers were and we went off and went to Asia with a real plan worked with the vendors, got the best prices and I got to tell you with merchandise that's coming from that trip first of all, for fourth quarter next year, our mark-on is going to be on plan from the import side. We've already done that. The merchandize is going to be really exciting. We have new home and textile products, your own trend, our housewares categories are exceptional especially our dinnerware is just striking really what we're able to do – what are merchants are able to do for the dollar price point, they've updated our stationery assortment, they've updated our party assortment, our toy department was completely overhauled. It just really was an exciting trip and frankly it's the best trip I've been on since I have been with Dollar Tree. So, I'm encouraged on the margin side, I'm encouraged on the value side for fourth quarter.

Operator: Peter Keith, Piper Jaffray.

Peter Keith - Piper Jaffray: I was hoping you could just give us the stats around your credit and debit card penetration and perhaps provide some commentary just on how the MasterCard acceptance is 75% of the stores has been received initially in the fourth quarter?

Bob Sasser - President and CEO: Sure Peter, I'd be glad to do. So, in general, between debit and credit, it's basically for the year it was roughly about 38%, 39% of sales, so it continues to increase a little bit. We've seen basically in the fourth quarter we did see strong growth in the credit card business, it was up about 180 basis points. So, again that we roll as you said we rolled MasterCard out to additional 3,500 stores roughly, leading into the fourth quarter. So, it was obviously well received and anecdotally we heard from a lot of stores, where customers were very happy to see that we are now accepting it chain-wide. So, we do feel that has been successful. So, overall the expectation as the industry continues to grow. We expect our shift to debit and credit continue although it's obviously not near what it was the few years ago when we had initially put in place.

Peter Keith - Piper Jaffray: I guess just a follow-up on that the 180 basis point shift in credit would be pretty sizeable from what you guys have during recent years and MasterCard is a pretty lively health card. So, is that – as sort of awareness is building, are you seeing that credit should actually accelerate as the months go by. And then to kind of couple with that your ticket growth was one of the best you had in I guess about a year, is the ticket growth being impacted by that MasterCard acceptance as well?

Kevin S. Wampler - CFO: I would say in general the 180 basis point increase as we look at it I really believe as we've analyzed to where it came from, part of that conversion is people – half of that conversion is people are paying cash previously that now paying with the credit card and other half was somebody who changed from a card they were using maybe to MasterCard, so you might have seen some people leave debit and go to credit in some instances even. So, I think in general from a ticket perspective it's obviously beneficial to have our average ticket for a credit/debit transaction is significantly higher than a cash transaction. So, it's not a bad thing to get that conversion. I think it's a small piece of the pie as far as the growth in ticket. I actually believe that a bigger piece of it always related back to the merchandise in the stores and store operators setting up great displays and we've done work around our front-end (impulse) side and things like that which I think are important as we continue to go forward as a big initiative for us on an overall basis. So, I think that's probably more important tot eh overall ticket.

Operator: At this time I'd like to turn the call back to Mr. Reid for any additional or closing comments.

Timothy J. Reid - VP IR: Thank you, Mike and thanks to all of you for your participation in the call today, particularly for your interest and most important for your investment in Dollar Tree. Our next scheduled conference call will be on May 23, 2013, when we announce the results from our first quarter. Thank you, again.

Operator: Again, that does conclude the Dollar Tree Inc. fourth quarter earnings conference call. We do appreciate your participation. Have a good day.