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Executives

Timothy J. Reid – Vice President, Investor Relations

Bob Sasser – President and Chief Executive Officer

Kevin S. Wampler – Chief Financial Officer

Analysts

Charles Grom – Deutsche Bank

John Zolidis – Buckingham Research Group

Matthew Boss – JPMorgan

Adrianne Shapira – Goldman Sachs

Dan Wewer – Raymond James

Edgar Roesch – NOMURA Equity Research

Daniel Binder – Jefferies & Company

Dollar Tree, Inc. (DLTR) Q4 2011 Earnings Call February 22, 2012 9:00 AM ET

Operator

Good day and welcome to the Dollar Tree Inc. Fourth Quarter 2011 Earnings Release. 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

Thank you, Kate. Good morning and welcome to the Dollar Tree conference call for the fourth quarter of fiscal 2011.

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 guidance for 2012.

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 Provisions 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.

In addition, as we have previously disclosed, in the first quarter of fiscal 2010, we recorded a non-recurring, non-cash charge of $26.3 million or $0.13 per diluted share, relating to a change in retail inventory accounting. Diluted earnings per share in the full year of 2010 were $3.10, including this charge. You are advised that all earnings and margin comparisons in today's remarks from this point forward will exclude that charge unless otherwise noted.

At the end of our planned remarks, we will open your call to questions, which we ask that you limit to one question and one follow-up question if necessary.

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

Bob Sasser

Thanks, Tim. Good morning everyone. Welcome to our call. This morning, we announced our sales and earnings for the fourth quarter of 2011. I’m pleased to report that our comparable store sales increased 7.3%; driven primarily by increased traffic, this was our largest fourth quarter comparable sales increase since 1999 and a much smaller company.

Total sales increased 12.8% to $1.95 billion. Earnings for the fourth quarter were $1.60 per diluted share. This represents a 24% increase over last year’s $1.29 per share. Operating margin for the fourth quarter 2011 was 15.5%, an increase of 50 basis points over the fourth quarter of last year; and net income rose 15.6% to $187.9 million.

For the full year fiscal 2011, comp store sales increased 6%; that’s on top of a 6.3% comp store sales increase last year. And net sales were $6.63 billion; an increase of 12.7% over fiscal 2010. Earnings for the full year were $4.03 per diluted share, an increase of 24.8% compared with $3.23 per share last year. Notably, operating income increased by $125.8 million. Operating margin was 11.8%, an increase of 70 basis points compared with last year and net income for the year rose 18% to $488.3 million. This was on top of a 29.1% increase in net income prior year.

I’m very pleased with these results. They speak to the value and relevance of our merchandize, the power, and flexibility of our model, and the day-by-day execution of our strategy across the entire organization. Our stores were well stocked and merchandised. Our seasonal merchandise assortments exceeded the customers’ expectations for style and value. Seasonal transitions were well executed and we were consistently in stock on basic items that customers need everyday.

On top of all of that, weather was favorable throughout the quarter. As a result, customers continued to respond in record numbers. Sales growth in the fourth quarter came from a mix of both basic and discretionary products. The top performing categories included food, snacks and beverage, health and beauty care, housewares and home products, party supplies, and of course, seasonal merchandise.

The success of Dollar Tree, as it has always been, is based on our focus on the customer. We aim our efforts at increasing the value of the merchandise for a $1, improving the quality of our shopping environment and providing the infrastructure that supports the business. The Dollar Tree merchandising model is flexible and we use this strategy of ever-changing assortments to our advantage.

Our assortments are planned to offer the greatest value to the customer for $1 and to do so at a cost that delivers our required merchandise margin. To the customer, this means, there’s always something new at Dollar Tree. As customers strive to balance their budgets, they can find the high value basics they need, while enjoying the thrill of the hunt on every visit. Seasonal assortment are fresh, colorful and fun, and provide merchandise energy in the stores.

This strategic advantage has been validated by results. History shows that we’re consistently able to manage through inflationary and deflationary cycles by changing the product or changing the source. Our merchants work everyday to deliver an exciting assortment of product with the best values ever, and our planning, allocations and replenishment organization directed to the right stores.

As a result, inventory productivity continues to improve. Inventory turns increased to 4.22 turns in 2011, compared with 4.17 turns in 2010. This is the seventh consecutive annual increase. Our store teams continue to consistently deliver on the promise of a clean, bright and fun place to shop. Seasonal transitions have been well executed with fresh and timely displays of merchandise for every season. In the fourth quarter we executed quick transitions throughout Christmas and on to big game in Valentine’s Day.

We are now set for DollarDays in St. Patrick’s Day and we’re building for the Easter season. As we continue to grow, we pay very close attention to our infrastructure needs. The Dollar Tree infrastructure has been built to be solid and scalable. This year we expanded our distribution center in Savannah, Georgia, from its original size of 600,000 square feet to 1 million square feet to support continued growth of our business in the southeast. This project was completed on time and on budget with the total of $19.5 million of capital investment using existing cash.

As always we plan to add capacity strategically to support our growth ahead of the need. In this regard, we’re currently finalizing plans to increase our logistics capacity in the northeast, and I expect these plans to be finalized over the next three months.

Our current logistics infrastructure can support sales nationally up to $8 billion. It provides efficient service to our stores today and asset leverage as we continue to grow. For the full year 2011, as planned we opened 278 new stores, and relocated and expanded 91 stores for a total of 369 projects.

Selling square footage increased 6.9% and we ended the year with 4,351 stores. Our plan for 2012 includes approximately 315 new stores and 75 relocations or expansions for a total of 390 projects in the U.S. and Canada.

We view growth opportunities in several ways. In addition to opening new Dollar Tree stores, we have a tremendous opportunity to expand categories, to grow new retail formats, to expand geographic reach and to open more productive stores. I am pleased to say that we continue to make progress in store productivity.

New store sales per square foot are increasing driven by improved site selection, by right sizing our store to the markets, by opening new stores earlier in the year through improved staffing, building the bench of qualified store management and by emphasizing and expanding the most productive categories of merchandise.

Average new store productivity increased once again in 2011 to the highest level in 10 years. Our expansion of frozen and refrigerated product continues. We installed freezers and coolers in 376 net additional stores in 2011, including 125 new stores and we now offer frozen and refrigerated product in 2,220 stores. This important category is extremely productive, it serves the current needs of our customers and it drives traffic into our stores, which provides incremental sales across all categories, including our higher margin discretionary product.

While faster turning lower margin consumer products continue to lead the way and comp increases, our traffic has increased and our overall comp increase has been the result of growth in both consumer products and in higher margin variety merchandise.

In addition to opening new Dollar Tree stores, increasing new store productivity and expanding new categories like frozen and refrigerated, a key component of our growth strategy is the development of new retail formats, and the expansion of our geographic reach.

Deal$ is our multi-price format, that Deal$ is not everything as a dollar, but everything as a value. By lifting the restriction of a $1 price point we can serve even more customers with more products and more categories. As we grow and refine the Deal$ concept customers are responding favorably, more customers are signing us everyday, comp sales are impressive in order the result of increases in both traffic and average ticket.

We are excited about the growth potential of the concept and the opportunity that it gives us to serve even more customers across the country. We opened 28 new Deal$ stores in 2011 and end of the year with a net total of 182 Deal$ stores. We plan to continue this growth rate in 2012.

Our expansion into Canada is proceeding and progressing, as you may recall, we acquired Dollar Giant in the fourth quarter of 2010. At the time it was a chain of 86 stores. In 2011 we increased the store count by about 15% and we ended fiscal 2011 with 99 stores in Canada.

While short-term performance has lagged early expectations, our primary focus in 2011 was rationalizing merchandize assortments for the Canadian market, investing in infrastructure, integrating processes and staff, developing real-estate plans and training and building store teams and merchandize teams for the future. Our goal in Canada is to operate on an identical platform to the merchandizing and productivity systems that supports U.S. stores and we have made great progress toward that goal in a short period of time, I’m very pleased.

Highlights include, aligning merchandizing plans and working to solidify our logistics model in Canada. In addition, we are now supplying product to our stores using our U.S. WMS system through distribution centers in British Colombia and Ontario. We completed the installations and training of store-level POS and enterprise-level merchandising systems in the third quarter of last year. This was a critical step in our plan as sales data from these systems supports planning, allocations, and replenishments. And we recently completed year end SKU level inventories in all stores.

With our core technology in place, we now have visibility through our sales on hand and on order by SKU in store. Equally important, we are building history by store’s SKU, all key factors in the management of an efficient supply chain.

With this information, we are beginning to rollout (how to) replenishment of basics and employing smart allocations of new and seasonal merchandise, just as we did successfully in the U.S. And as we’ve experienced in the U.S., the result will be an improved flow of product to the stores on a timelier basis, allowing for most efficient store operations and increased level of in-stock or basic product. Higher store productivity increased inventory turns and an overall improvement in customer satisfaction.

I’m extremely excited about the opportunity for Dollar Tree, Canada. I’m proud of what was accomplished in only one year, and I know that we can do much better. We have a highly motivated and energetic team and I’m confident that the results will be well worth the effort.

This year, we intend to grow our Canadian store base approximately 25% under the Dollar Tree brand. And over the long-term, we believe the Canadian markets have support up to a thousand Dollar Tree stores. This is an addition to the 7,000 store potential for Dollar Tree in the U.S. plus additional growth in our Deal$ format.

Dollar Tree Direct, our e-commerce business is providing an opportunity to reach new customers through an additional channel of distribution. New customers continue to discover Dollar Tree Direct everyday. Traffic on the site grew to four million visitors in the fourth quarter. That was a 25% increase over the fourth last year. We are using this opportunity to drive direct sales, expand the brand and to attract customers into our stores with the offer of high-value merchandize and free shipping for pick up in any of our stores across the country.

Sales continue to grow as many customers prefer the convenience of online shopping; especially for larger quantities needed for parties or events or by small businesses and organizations. If you haven’t had the opportunity, I would invite you to take a look at our site at www.dollartree.com.

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 S. Wampler

Thanks Bob. As Bob mentioned, our diluted earnings per share increased 24% in the fourth quarter to $1.60. The increase resulted from our strong sales; a 20 basis point improvement in gross profit margin and a 30 basis point reduction in total SG&A expense compared to the fourth quarter of last year.

Starting with gross profit, our gross profit margin grew to 37.8% during the fourth quarter, compared with 37.6% in the fourth quarter of last year. This is our highest gross profit margin since the fourth quarter of 2001. We achieved strong leverage on our occupancy and distribution expenses; reflecting the 7.3% comp store sales growth, which more than offset the impact that the continued shifts in product mix and basic consumable products increased by about a 140 basis points of that percentage of sales in the fourth quarter.

The higher cost relative to sales of our Canadian stores and the impact on our shrink from our first SKU-based inventories of Dollar Tree Canada and a slight increase in our freight expense relative to sales as savings on ocean freight partially offset the impacts of diesel prices that averaged more than $0.62 per gallon above the same period last year.

SG&A expenses were 22.2% of sales for the quarter, which a 30 basis point improvement from the fourth quarter last year. This was driven primarily by a 20 basis point reduction in depreciation, a 10 basis point decline in payroll related expenses due to the increased store labor productivity, and leverage on comp store sales, as well as lower utility costs reflecting the milder winter weather. These improvements were partially offset by an increase in general liability insurance expense.

Debit and credit card fees were flat, reflecting growth in usage of these types of tender offset by the lower legislated rate. In the fourth quarter, compared to the fourth quarter last year, debit card penetration increased 120 basis points, and credit card penetration increased 30 basis points. SNAP penetration although small continues to grow.

Operating income increased $43.3 million compared with the fourth quarter last year and operating margin was 15.5%, an increase of 50 basis points from the fourth quarter last year, and was the highest operating margin since 2002. For the full year, operating income increased $125.8 million and our operating margin grew to 11.8%, up 70 basis points from last year’s 11.1% operating margin. Dollar Tree’s operating margin remains among the highest in the value retail sector.

The tax rate for the quarter was 37.7% versus 37% in the fourth quarter last year. The higher rate primarily reflects a lower percentage of state tax credits compared with the fourth quarter last year, which also included some benefit from the favorable tax treatment of the Ollie's dividend.

For the full fiscal year, the tax rate was 37.4%, compared with 36.9% in 2010. Looking at the balance sheet and statement of cash flow, cash and investments at year end totaled $288.3 million versus $486 million at the end of the fiscal 2010. During the fourth quarter, we invested $300 million for share repurchase through an ASR and repurchased 3.5 million shares.

For the full year, we invested $645.9 million for the share repurchase and repurchased 8.7 million shares.

The diluted weighted average shares outstanding was $117.6 million for the fourth quarter and $121.2 million for the full year of 2011. In October, the Board of Directors authorized an additional $1.5 billion for share repurchase. As of year end, we have $1.2 billion remaining in our authorization. We will continue to view share repurchase opportunistically and we will update you on additional share repurchases if any at the end of the quarter in which they may occur.

As Bob mentioned, our inventory turns increased in 2011 for the seventh consecutive year to $4.22 and this includes Canada. Consolidated inventory at quarter end was 8% greater than at the same time last year and selling square footage grew by 6.9%. Consolidated inventory per selling square foot increased by 1%. The slight increase in inventory on a per square foot basis supports the earlier Easter selling season as well as inventory for new stores that are opening up early in Q1. We are well positioned as we begin the year and expect continued improvement on our inventory turns in 2012.

Capital expenditures were $53.3 million in the fourth quarter of 2011. This compares with $32 million in the fourth quarter of last year. For the full year of 2011, capital expenditures were $250.1 million compared with $178.7 million in 2010. For fiscal year 2012, we are planning consolidated capital expenditures to be in the range of $330 million to $340 million. Capital expenditures will be focused on new stores and remodels, the addition of frozen and refrigerated capability to 325 stores, IT system enhancements, and approximately $80 million towards a new distribution center in the Northeast U.S. The total capital investment anticipated for this facility is approximately $95 million.

Depreciation and amortization totaled $44 million for the fourth quarter versus $42.1 million in the fourth quarter of last year. For the full-year, depreciation was $164.2 million, a 25 basis point decrease from last year. For 2012, depreciation and amortization is estimated to be in the range of $170 million to $180 million. Our guidance for 2012 includes a couple of assumptions.

First, in regard to freight expense, we will soon be negotiating new ocean rates that become effective on May 1st. 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 their current levels on average throughout fiscal 2012.

Second, Easter is two weeks earlier this year. This represents about an $8 million sales challenge in the first quarter. Third, due to the retail calendar, 2012 will include 53 weeks and the fourth quarter will consist of 14 weeks. This is expected to add $120 million to $130 million in incremental sales and $0.13 to $0.15 of earnings per diluted share to the fourth quarter and the full-year.

Our guidance also assumes a tax rate of 38.4% for the first quarter and 37.7% for the full-year. Weighted average diluted share counts are assumed to be 116.9 million shares for the first quarter and 117.1 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 2012, we’re forecasting sales in the range of $1.65 billion to $1.69 billion and diluted EPS in the range of $0.91 to $0.97, which would represent an 11% to 18% increase compared to the first quarter of 2011 earnings of $0.82 per diluted share. The sales range implies a low-to-mid single-digit comparable store sales increase and store square footage of [about] 7%.

For the full fiscal year of 2012, we are now forecasting sales in the range of $7.25 billion to $7.42 billion based on a low-to-mid single-digit increase in comparable store sales and 7.2% square footage growth. Diluted earnings per share are expected to be in the range of $4.65 to $4.90, representing an increase of between 15% and 22% over our record earnings per share of $4.03 in fiscal 2011 and takes into account the 53rd week that will be included in the fourth quarter of 2012.

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

Bob Sasser

Thanks Kevin. Once again, I’m very pleased with our company’s performance in fourth quarter and for the year. There were many notable accomplishments in 2011. Comp store sales increased 6% and total sales grew 12.7%. We achieved record sales of over $6.6 billion, largely $1 at a time. Despite high fuel prices, operating margins increased by 70 basis points to 11.8%, the best in the [track] of 11 years. And earnings per share increased by nearly 25% on top of a 36% increase in the prior year.

In addition, this year, the company completed the expansion of our Savannah DC, a key element in supporting our contingent growth in the southeast. We opened 278 new stores and completed 91 relocations and expansions. We achieved the highest new store productivity in 10 years since 2001 when our average size store was much smaller.

We gained traction, growth, and new customers with our Deal$ model. Comp sales at Deal$ benefited from both increased traffic and average ticket. In 2011, we built a solid foundation for growth in Canada. We expect Canadian performance to improve throughout the year, especially as we gain traction in the second half. We made significant enhancements to Dollar Tree Direct including break pack, Spanish-language and mobile capability.

We repurchased $645.9 billion of stock in 2011, and we announced a renewed authorization from the Board for an additional $1.5 billion of share repurchase, of which $1.2 billion remained. By any measure, it was an outstanding year and I’ll tell you that we’re singularly positioned to do even better in the future.

I see great opportunity ahead for Dollar Tree because our stores, merchants and support teams are guided by a strategic vision that involves every element of the business revolving around the customer because the business model is powerful and flexible tested by time and validated by results, we’ve proven that Dollar Tree can adapt to a changing environment. Through good and bad economic times, the company has consistently increased sales and earnings. And we’ve never been better positioned for continued growth and improvement.

The balanced mix of high value consumer basics and the unique assortment of fun, seasonally correct discretionary products, positions Dollar Tree stores to be relevant to customers in all economic circumstances.

At Dollar Tree, yes, you can afford it. We have a solid and scalable infrastructure that we’re leveraging for better inventory management, increasingly efficiently supply chain logistics, more productive stores, and crisper overall execution. And there is more to come. There are plenty of opportunities to grow our business new Dollar Tree stores, more productive new stores, category expansion, new formats, DEAL$ and Dollar Tree Direct and expanded geography. Canada provides us an opportunity for a substantial growth.

All of this provides a roadmap for sustained profitable growth. At Dollar Tree, we have a vision of where we want to go and the people and the infrastructure and capital like it happened. 2011 was another terrific year at Dollar Tree and we’re off to a great start in 2012.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Again, we do ask that you limit yourself to one question with only one follow-up question. And we’ll take our first question from Charles Grom with Deutsche Bank.

Charles Grom – Deutsche Bank

Hi, good morning. Just on the SG&A expense line. If we exclude depreciation, it was the least favorable – the year, but you guys actually posted your best comp of the year. So I’m just wondering if you could shed some light on why there wasn’t more leverage. Is that because of that general liability expense was so substantial or was there something off that cost that not have as much leverage?

Bob Sasser

I think if you look at the quarters through the year, Chuck, one of the places we’ve gotten a lot of leverage is in our payroll-related area. We didn’t get as much leverage this quarter there and there’s a couple of reasons for that. One it was such a great quarter; our sale, bonus incentives at the store level saw a nice increase, which is great. You know we’d love to reward our sales managers out there when they do a great job like they did in Q4.

Also we saw a little bit of an increase in our payroll tax line item and then the other place we’ve been getting some benefits throughout the year and – was in health insurance. And as I spoke to at earlier in the year, I said, you know we cannot expect, necessarily expect that to continue throughout the year, and we didn’t see that in the fourth quarter. So I think that’s probably the biggest change on a quarter-to-quarter basis within that category of expenses.

Charles Grom – Deutsche Bank

Okay, great. And then just one follow-up if I could, can you just remind us on the (inaudible) there in the quarter. What the mix of traffic and ticket were and if you could shed any lights on February is off to an okay start, just wondering if you could maybe quantify that for us relative to the guidance?

Bob Sasser

Chuck, this is Bob. I think I can add some colors to sales throughout the quarter. Sales were very strong throughout the fourth quarter from November, December and January. They actually picked up pace November or December, picked up the pace over November and January over December as far as comp sales increase. Our sales were strong across the whole geography. Everybody was basically up. The highest growth, comp store growth constant growth was in the Midwest followed very closely by the Mid-Atlantic and then New England. So it was very tightly packed in that regard.

The sales were driven almost entirely by traffic. Ticket was up just slightly for the quarter. As I’ve said earlier, the weather was favorable across the whole country, we didn’t lose much because of store closing with weather, and we are really pleased with the cadence of the comps during the quarter.

Charles Grom – Deutsche Bank

Okay, great. Thanks very much.

Operator

Thank you. And we will now hear from John Zolidis with Buckingham Research Group.

John Zolidis – Buckingham Research Group

Hey, good morning. Fantastic year.

Bob Sasser

Thank you.

John Zolidis – Buckingham Research Group

Two questions. One on the traffic with the large increase that you saw, could you talk about what you think is driving traffic, is it incremental customers, is it existing customers coming back more frequently. And in conjunction with that, can you talk about what advertising and marketing you do and whether that’s having an impact. And then the second question is on assortment changes, you mentioned the importance of having newness and different items within the stores.

Can you specifically talk about some items that you added, some changes that you made that may have benefited sales in 2011. And then looking forward to 2012, do you see as much newness and maybe you can give us a specific example of items you are adding to assortment next year. Thanks.

Unidentified Company Representative

What’s the first question? What’s driving traffic?

Bob Sasser

What’s driving traffic? It was a combination I think, we believe of both new customers finding us all the time, it’s still pretty tough out there, unemployment is high, we sell things people need everyday and it’s only a Dollar, and through word of mouth, they are learning about that and they are trying us and they’re coming back then more often. So as new customers and I believe they are shopping with us, I know they’re shopping with us more often. The mix of consumer products that we have now, which is about 50% of our business, that’s more frequently purchased. So people are coming back more often to buy that.

And we will tell you that, when they are in buying the consumer products, we are also seeing a lift in our variety merchandise, it’s not growing as fast as the consumer products, but it’s growing pretty significantly. So we are very pleased with what we are getting from the traffic there. As far as new items, we are always adding new items there, if you look at our Christmas assortment this year, you saw just a lot of tremendous new merchandise things, you had seen a Dollar store anyway, Dollar Tree [per Dollar], you may have seen it in the department stores, but you wouldn’t have seen it in a store like ours from only a dollar to a themed ornament wall that we had was all color relevant and very timely to the business.

We’ve had the little solar items with the dancing flowers and the solar stakes and all that we’ve done with that this year that’s all new merchandise. But we change about 50% of our assortment every year, every season at least 50% every season and 50% every year. So part of who we are is always that ever changing assortment of new merchandise that adds fun and as I call it merchandise energy to the store. It adds opportunity a reason to come back more often. It started what we call the thrill of the hunt.

So, go and take a look around, you’re going to find something that you didn’t see last time, and the fronts of the stores we pay particular attention to changing those out with our items of the week and our drive items and of course our seasonal sets in the front of the store always changing.

John Zolidis – Buckingham Research Group

Thank you.

Bob Sasser

You’re welcome.

Operator

Thank you. (Operator Instructions) We will now go to Matthew Boss with JPMorgan.

Matthew Boss – JPMorgan

Hey, guys from a merchandising perspective, can you speak to the opportunity in the second half, given the more depletionary environment and along those same lines can you talk to the potential gross margin opportunity as well.

Unidentified Company Representative

Well it’s a – the second half we’re very excited about second half 2012. We just came back from our import trip in January. As always it was successful, just the very nature of how we plan our business, we’re always going to come back with hitting or exceeding our planned markup targets for the trip, because that’s the way we build our merchandise assortment based on the cost. This is the most value that we can give the customer for a $1 at a margin that we’re willing to accept. So, we just finished our January trip. It’s very successful, and our markup is higher this year, and our value is even better than ever, because not only with the, I think I would characterize it as a more stable price environment in China versus a year ago.

We’ve always been able to manage our margins because we’re in control of it, but it felt like just anecdotally this year that business is down a little bit in China, and we’re good buyers and big buyers, and for that reason we’ve got good relationships, and as a result there did not seem to be as much pressure overall on the cost of the items we’re able to get the prices that we needed, and increase the value at the same time, which is what we tend to do. If there is deflation in cost, we tend to put more value in the product, because that’s how we drive the sales. Our price is $1 whether there is pressure on cost inflation or deflation, our retail is still $1. So, our goals and is to provide the most value for the dollar at the margins that we need.

It was very favorable. I would characterize the January trip is very favorable. I’m excited about the new assortments coming in, not only in the second half, but right now as you know our spring business I’m expecting some good results there. Easter looks really good out there. If you haven’t been in one of our stores it’s really it’s starting to build the Dollar Days promotion that we kicked off the year with, is looking good. It adds lot of color to the front of our store. And our stores teams, I’ll tell you, did the best job I’ve ever seen in transitioning from Christmas and to the Big Game and then into Dollar Days and eastern St. Patrick's Day. So, Kudos to those people, and our customers are responding very favorably to that. Thank you.

Matthew Boss – JPMorgan

That’s great. Second question, with traffic contributing almost the entire comp today, it seems like there’s a real opportunity on the ticket side as well, especially with our average basket at less than $8. If we are in a slightly improving economic environment here, with you guys slightly a higher demographic than some of your peers, any initiative to drive the ticket and how big of an opportunity do you think this is?

Bob Sasser

Well, I think it’s always an opportunity. And first of all, fourth quarter traditionally has more of the sales pop coming from traffic than ticket. It’s just sort of the way the rhythm of our business works. So this wasn’t that unusual. But taking advantage of that traffic is really a big opportunity. Initiatives that we’re focused on is all about the front of the store; from the time you walk in, to the first feature that you see, the drive item, the item of the month, item of the week, changing those things out. [We’re] really measuring the productivity of the fronts of our stores.

We’re looking at our checkouts, all the impulse locations on the checkouts, in front of the checkouts, the front end-caps that have faced the checkouts; that whole front aisle we see as a huge opportunity with impulse and related sales and the chance to get that last one item sold from the customer. Throughout the store, you’d see a lot of related merchandise end-caps and features. We’re not only selling the paper towels, but we’re selling the paper towel holder and the rest of the cleaning supplies; and just always that suggestive selling on all of our features throughout the store.

Clip-strips, we’ve done a big job with clip-strips, getting those placed around the stores; that’s productivity issue for our stores, because it’s a way of hanging out a lot of merchandise in a pretty quick order and also it gets a lot of related sales out there throughout the store.

So you’re right, you’re right on. There’s a big opportunity to take advantage of this increase in traffics that we have to raise that average ticket and also to keep these people coming back; because we want to make sure that they enjoy the experience, the store is clean, it’s seasonally relevant, the shelves are full, the basic in-stock is bigger. With gas prices going up, they don’t want to would have waste a trip to the store. I want them to have that – the glass clear and the dish detergent, the (inaudible) towels that – whatever they came for; we want to have that for them and then while they’re in the store, at every turn we challenge them to buy another item.

Matthew Boss – JPMorgan

Thank you.

Operator

Thank you. We’ll continue on to Adrianne Shapira with Goldman Sachs.

Adrianne Shapira – Goldman Sachs

Thank you. Kevin, I was just wondering if you could follow up on the question on the leverage, appreciate the (inaudible) to why we didn’t see better leverage on such a strong comp. Maybe you could have us think about on a go-forward basis; what’s the appropriate run-rate, what sort of comps we need to leverage expenses and how we should be thinking about sort of the puts and takes going forward?

Kevin S. Wampler

Yeah, I would tell you in general, what we have said over the last two years that to leverage our SG&A, we’d probably need a 2% comp or – for there about to give or take a little bit, it kind of depends on the quarter as well. You know, I think as we look at the guidance we gave you, if I look at it for the year, and you’d see the improvement in the operating margin, the expectation I think would be for the gross profit to be – fairly flat. And that we would potentially see the benefit, an improvement in the SG&A inside of our business. So that’s kind of the way we think about it as we go forward.

Adrianne Shapira – Goldman Sachs

Great, that’s helpful. And then when we think about long term EBIT margin – as Bob you mentioned 11.8% is where you’re entering the year, it’s the best than the past 11 years. Maybe you help us think about long term, what is the appropriate EBIT margin’s target for your business and how we should think about getting there between gross profits and SG&A?

Kevin S. Wampler

Well, as we look at that, again, the guidance that that we gave basically, our short-term goal is to get above a 12% operating margin, okay. And basically, guidance would get you there. The longer-term goal is 13%, 13% is the highest operating margin we have ever reported as a public company and that was in 1999. So that is our longer-term goal.

Obviously, we are going to continue to grow, we are going to continue to grow our store base, which is going to help us create leverage, we’ve done a good job leveraging our occupancy and distribution; we’ve done a pretty good job leveraging our SG&A and keeping that growth to a reasonable level. And again, from a gross profit standpoint, from a margin standpoint of product margin is important that we – the value of our products is what is really important and so if we do go through deflationary cycles, we don’t put that in our pocket, we put it back into the products and our customer really appreciates that, and that’s what they look to us for. So I think, we think 13% is the reasonable goal, long-term.

Operator

Thank you. And we’ll continue onto Dan Wewer with Raymond James.

Dan Wewer – Raymond James

Okay. Thanks. Hi, good morning, Bob.

Bob Sasser

Good morning, Dan.

Dan Wewer – Raymond James

Canada, every call when you purchase the Dollar Giant, they were using a multiple price point approach similar to Dollarama, (inherit) effect going forward, all of that new Canadian stores will be branded as Dollar Tree. Does that imply that all of the merchandising strategy will change to, I guess, (inaudible) approach in Canada or will you stick with multiple pricing approach in that market?

Bob Sasser

No, we don’t have a multiple price, and what we have is everything’s a $1.25 or less. The other guys up there have the multiple price approach up to I think [now $3]. Dollar Giant had changed before we had purchased the company to the everything’s a $1.25 or less, and that’s what we’re staying with. We’re going to Canada opening up Dollar Trees that’s $1.25 or less. We will be the only major single price point retailer at $1.25 or less in Canada, and that’s the focus that we have.

The Dollar Trees that we open Canada will be [$1.25 Canadian]. So we’re really not changing that strategy. I think it’s a good strategy. We like the single price point strategy. We know how to do a single price point strategy, and what we have to do is get the value equation right. That’s why our Canadian team is extra important and that’s the reason that we wanted to partner up with a Canadian company versus just going greenfield is so that – they do understand the margin equation, what a [$1.25 Canadian], what’s the value of that is.

So as we’re building these assortments, there’s a little bit of difference in the value equation. We think it’s stronger, we think it gives us a better opportunity frankly in Canada. Right now, the currency is at parity, but it hasn’t always been. So this gives us the ability to manage the value for the [$1.25 Canadian] and for those customers even more value.

Dan Wewer – Raymond James

And the $1.25 item would be comparable to a $1 Dollar Tree item in the U.S.?

Bob Sasser

Well, some are. We have things in Canadian assortments that we don’t exactly have the same in the Dollar Tree assortments and a lot of things will be the same.

Dan Wewer – Raymond James

Okay.

Bob Sasser

We’re buying extra value well items for Canada, just like we buy well items of our Dollar Tree assortment and they may or may not be the same. So, our Canadian team we have in place there that’s one of their main focuses is to maintain that value comparison for the Canadian currency versus the U.S. currency.

Dan Wewer – Raymond James

And when you’re alluding to Canada, not meeting your expectations this past year, were you referring to the revenues for store or are you thinking more about the support logistics systems integration

Bob Sasser

The Canadian we’re really excited about Canada. I mean I’m particularly excited about our future. Short-term we faced headwinds there of our own doing, but it was something that had to be done. The main headwinds that we faced in Canada this past year were around rationalized in the merchandise assortment, dropping some of the SKUs adding some new SKUs, adding the import piece that we’re doing in the U.S. getting the basics end lines. There is a lot of turmoil in the assortment in Canada. And you always drop things faster than you could imagine that, plus we are in the process of setting up two new distribution centers and moving them. And as a result, we lost some sales and that as a result lost some leverage on our occupancy cost. So, that’s one thing.

The second thing was we did our SKU inventory. It was the first SKU inventory that’s ever been done there. It’s very critical to the way we’re going to run the business, but we did that in fourth quarter, and shrink was a little higher than we expected. So, the combination of those two things sort of teamed up and my expectation, I don’t think met any of expectations, but on the plus side it was such a great accomplishment that we made in a short order. Maybe we didn’t have any right to expect this better than we had. We solidified the logistics model now new DCs and DC and in Ontario we’ve got the Dollar Tree WMS system in there.

We have POS in the stores – all trained in all of the stores. We got the SKU level inventories and that’s going to allow us to do a lot of things with allocation – smart allocations putting the right products in the right stores, based on sales, based on inventory. It’s going to help us with replenishing the basics. It’s going to take our store people in Canada a little more out of the reordering process and more into the merchandizing process, telling the counters, and running the cash raised here.

So we’re really excited about what we’ve done and what that means for us in the future. Result of all of that, as I said in the prepared remarks, that is more timelier deliveries of products, more seasonally relevant stores because of the timelier deliveries, it’s going to be a more effective store, by knowing what – having visibility of what’s coming into the store, our store teams can plan their payroll accordingly and get the product to the shelf faster. It’ll make for a fuller and a funnier store and a more complete store and at the end of the day, it will be more satisfying customer.

So we’re expecting a lot from Canada, from all that we’ve done in 2011, it was a year of investment, it was a year of integration, it was a year of staffing and training and at the end of the rainbow there is – the rewards are just terrific because it’s kind of provide for sustainable growth for us for years to come as I said we can operate a 1000 stores over the longer term in Canada. So what does that mean? This year, I’m expecting improvement throughout the year, especially as we enter into second half and into fourth quarter.

Dan Wewer – Raymond James

Great, thanks Bob. I appreciate it.

Bob Sasser

Thank you.

Operator

Thank you. And we’ll continue on to Peter Keith with Piper Jaffray.

Unidentified Analyst

Hi, this is (inaudible) for Peter. Thanks for taking our questions. So you’ve been a little more aggressive over the last few quarters with your repurchases and based on the sizable authorization you have in place, what is your current position on taking on leverage to repurchase stock in 2012?

Kevin S. Wampler

Well, as we’ve looked at our repurchases and our thought processes around that, I don’t know that it’s really changed. We’ve looked it opportunistically. It’s become maybe a little more as a regular program maybe over the last couple of years with regular repurchases, and given our cash flow that we generate, that does made sense. We feel it is a great way to return value to our long-term shareholders.

Historically, we have not been one necessarily to take on a lot of leverage in that regard. It’s something we can think about and we do think about and we talk about as far as our overall capital structure, but its one piece of an overall though process as it relates to the capital structure. And again, we’re going to have some larger outlays for capital expenditures this coming year with the upcoming expansion to a new DC up in the Northeast. So we have taken all those things into consideration as we look at it. We obviously do believe though that it is a good way to return value.

Unidentified Analyst

Okay, great. And then, I know you mentioned weather was a benefit in the quarter and I was just wondering if you might be able to maybe provide an estimate on how much you thought it impacted comps?

Bob Sasser

You know that’s hard to say [as a] same thing, because we’re on a roll anyway and things were well executed. But certainly weather has been almost perfect this year. It’s been the best fourth quarter weather that we’ve ever had. We didn’t have the snowstorms; the snowmageddon that we had last year in Washington D.C. in North up into the Northeast. We didn’t have the blizzards across through the middle of the country and we basically kept our stores open throughout the fourth quarter. And I can’t really – I don’t how to quantify that for you except that 7.3% comp for the quarter is positively impacted by that.

Unidentified Analyst

Okay. Well, thanks a lot. Good luck next year.

Bob Sasser

Well, thank you very much.

Operator

Thank you. And we have time for just a few more questions. We’ll now go to Aram Rubinson with NOMURA.

Edgar Roesch – NOMURA Equity Research

Hi, good morning. This is Ed sitting in for Aram. How are you?

Bob Sasser

Fine, Ed.

Edgar Roesch – NOMURA Equity Research

I just want to speak to you about your openings next year. Can you just speak to maybe the real estate profile, strip centers and such, and different types of locations? Is it pretty consistent and also on the geography, the openings are those factors fairly consistent this year with last?

Bob Sasser

I think so, we are looking for that approximately 10,000 square foot store, sometimes we take a little more depending on the availability and the economics, sometimes we take a little less on the availability and economics. But somewhere around that 10,000 square foot is what we like to have, we like to place them where Middle-America (work for) shops and that has a change, then we have 48 state footprint plus Canada now, and the distribution capacity and the people and the systems to reach all of those.

We are still looking at although West Coast is one of our most populous areas, California I think our biggest state now. We are still looking at growth in California. We built our new San Bernardino DC and Southern California there last year to help provide support for that growth. We still like the Southeast. We expanded Savannah this past year, because many stores as we have in Florida. And in the Southeast, we think there is room for more, the customers really like us there and we’ve been able to serve them very well.

So growth I think with that 10,000 square foot footprint, the Deal$ stores are aimed largely at the more urban markets, it’s a multi-price point higher volume model that we are building there, it’s one that can leverage those higher fixed costs that we have and say, Brooklyn or Bronx or in the Northeast. So – and we are seeing good results from there; we are seeing some leverage from there; we are seeing the volume from those customers as we improve that model. So although those – some of them live in suburbia, you will see a lot of those being aimed at those urban city center kind of markets, whether it’d be Miami or Atlanta or New York, New Jersey.

So, a real estate strategy is onward and upward, we have an economic model that we have to meet. We have – we take strip centers, we take pre-standards, we new construct and when we can bind it, there has been a little more themes like little up-tick in there slightly not much. But we take most any way shape or form as long as it meets our demographic concerns, our size constraints and also our economic model.

Edgar Roesch – NOMURA Equity Research

Thanks for that. And there is a model, the rental rates per foot going forward, and I have been factoring in faster growth from Canada where you have higher occupancy cost there. Are there any other trends or the underlying trends in the U.S. in terms of rates per foot?

Bob Sasser

We are always in the market to – we try to take the building as it is more and more, because we can take control of them earlier, because we can do the investment the way we want to that we can build the store out, the way we want to and then we can build a store out the way we want to. So that in general tends to lower the rental rates. We really look at it more as how much volume we can do; the occupancy as a percent of the store sales is the most important thing that we look at. So we can pay the prices of rental per foot in New York and leverage that, and we can pay the price in North Carolina and leverage that. But it’s two different numbers.

Edgar Roesch – NOMURA Equity Research

Thank you.

Bob Sasser

Thank you.

Operator

Thank you. And we have time for one additional question. We’ll now go to Dan Binder.

Daniel Binder – Jefferies & Company

Hi, good morning. My question was related to the combination of mix and your comments on margin for the year of being roughly flat. I’m just curious what your best guess is on where the consumable mix will go in the coming year roughly and how that marries with the gross margin; I think you said flattish. Particularly since your China trip, it sounds like it’s gone so well.

Kevin S. Wampler

As we look at this past year, our consumable mix moved about 130 basis points for the year, and so it’s a little higher than that in the fourth quarter, but for the year it’s about 130 basis points. I think our customer obviously is looking for those goods, those basic everyday consumables and we’re providing that. And that part of our business is comping a little faster than our variety business, but it’s the mix that works very, very well.

As Bob mentioned, the [flying trips] for our import goods have gone very well and we continue to come back with better IMUs than the year prior and we’ve said that consistently. So that bodes well for the year. So that helps us with that shift in mix a little bit. The other things that roll into that are kind of the wild cards are things like freight. And you heard us talk to freight, as far as what our assumptions are for the year. It’s pretty hard to be able to predict, what’s going to happen with diesel especially with some of the geopolitical issues out there, and as far as the ocean freight rate, obviously that’s negotiated and we don’t have those results yet.

So, I think all of those things kind of play together, but we think yeah, on an overall basis with our comp that we can continue to comp that low to mid single-digit that helps us on the occupancy and distribution and kind of at the end of day kind of all comes out in the wash kind of a flat gross profit margin so that’s kind of how we look at it I think.

Daniel Binder – Jefferies & Company

Okay and my follow-up question was more of an operational question not necessarily specific to this quarter, but as we – given that some of your stores particularly in the Tri-State area they seem like a pretty high volume stores and I’m just curious as these stores continue to comp well how are you handling to the operational challenges around getting the stock getting these shelves restocked in a day just seems like in certain instances that we will see a little bit of hole here and there its more of an exception in the norm, but as these stores keep comping well it seems like you may need to add some labor to the stores do you see anything there?

Bob Sasser

Dan, that’s one of the biggest learning that we’re undergoing right now in those very high volume urban stores, funny you should mention that we’re in the process right now of developing a new delivery model it’s not necessarily more people, its more people at the right time doing the right things, and entire volume in these city locations, but it’s also a tougher model to run, how do you get the freight in the door on the shelf, the cardboard out the door and out of the street. And other people have done it, we can do it too, and we’re learning this. So (inaudible) last week looking at a new delivery method coming into the city, that looks like it’s going to have a lot of – certainly the stores (inaudible), because it comes in more sorted and ready to go to the shelf versus the way we do it in the suburban stores.

But the answer to your question as we do have some improvements to be made and how we deliver our stores in tri-state area, the higher volume stores; how we manage the stores in those areas; how you manage the volume; how you manage the ways; how you – all the things, when you’re doing more volume, everything is more. So that’s one of the things we are trying master right now.

Daniel Binder – Jefferies & Company

Great, thanks.

Bob Sasser

Thank you.

Operator

Thank you. And ladies and gentlemen, with no additional time for questions, I would like to turn the conference back over to Mr. Tim Reid for any additional or closing remarks.

Timothy J. Reid

Thanks, Kate. Thanks all of you for participating in the call today. And most of all, thank you for your interest and your investment in Dollar Tree. Our next sales earnings release and conference call is scheduled for Thursday, May 17th, 2012. Thank you.

Operator

Thank you. And ladies and gentlemen, once again, that does conclude today’s conference. We thank you for your participation and have a good afternoon.

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