DLTR
#Interest rate for the fourth quarter, as in our guidance, is projected at $98.4 million if you look at the table.
I believe it's the last table in the Schedules to the press release.
It details out the expected interest expense so that number is what we would expect without any rate increases on an overall standpoint.
As far as operating income, we have said, generally speaking, our belief is that we can over time, get Family Dollar back to historical operating margins which, I think we're ---+ if you look at the last 10-year period, they were basically 7% to 8% for a vast majority of that timeframe.
There is no belief that we can't do that.
I think that's really the way we're focused on it as opposed to a specific number of $500 million or whatever.
It's really more about continual improvement.
It's the way we think about the Dollar Tree business and we're thinking about the Family Dollar business the same way; continual improvement.
How do we continue to make the merchandise more relevant.
How do we run in the stores better.
How do we control our costs and how do we bring it to the bottom line at the end of the day so there's difference there.
But there is nothing structurally or competitive-wise that would preclude us from, over time, getting back to that 7% to 8% range.
Well, basically what we did, <UNK>t, is with it ---+ what we've done here is taken our reported income before income taxes and really adjusted for items that we had not previously given the Street.
The Street had been given detailed information via our second quarter call as well as an 8-K that we subsequently filed in regards to really the three biggest items being: inventory step-up amortization as well as the depreciation for the harmonization of the policies as well as the favorable lease right amortization.
We've given you all those information so we assume that would be in our number because we've given it to you.
What we've done here is basically reconcile the things you didn't know so the inventory step-up was actually $38.4 million as opposed to the $26.9 million we had given you.
So we've adjusted for that $11.5 million difference.
We took an additional $13 million of markdowns for our red tag clearance sales so we've adjusted for that and then acquisition fees and the integration of divestiture-related costs, which on the Street, could not have predicted or we did not give any numbers around.
So that's the way we thought about it.
It's really trying to reconcile our number based upon information that is not been previously given.
We have looked at the cannibalization.
There is some degree of cannibalization this year from the 200 stores that we're rebannering.
There will be some cannibalization next year from the additional rebanner stores as well as the rebannering of the Deals stores to Dollar Tree and some of them to Family Dollar.
So there will be continue to be some cannibalization.
There always is when we look at these stores to rebanner as well as when we look at new stores.
We look at the sales projections for the particular stores.
We also look at the ---+ any cannibalization that's going to occur in the market so we look at surrounding stores and we define what we think the cannibalizations are going to be.
We then look at the market returns when we're opening up the new stores.
We're going to continue to do that.
We've done it with the rebanner stores for Family Dollar.
We're doing it with the Deals stores going to Dollar Tree.
We'll do it with our Family stores.
Cannibalization is just part of it after you open up the first store, you get the second store and there's cannibalization in the market.
So ---+ but I will tell you we've done our homework on it.
We are pleased with the results that we are getting also from the ones we've already rebannered.
The Deals stores that we're going to rebanner we built that on model of ---+ a real estate model for Dollar Tree so that is one of the reasons that most of those are turning into Dollar Tree stores because they will serve our interest better than with higher returns as Dollar Trees, than if you were going to Family Dollar.
So cannibalization is part of it.
We will talk about it.
We'll point it out but it's really the growth in the market and the growth in the business for the Company that's most important.
We will it include in our guidance and I think that's the best way we can share it with you is that as we give guidance, we've included all the things that we know including cannibalization, including anything that would come in there.
Thank you.
Well, <UNK>, I want to say couple words and I'll pass it to <UNK> because he is living and breathing this every day.
But obviously, we intend to be competitively priced on our national brand products, where we intend to offer a selection of private label, name brand equivalent products that is a value to the customer at lower retails than the national brand but equivalent quality.
We think there's a big opportunity for our customer.
I think they will appreciate the value of being able to buy a name brand equivalent product that costs 30% less, for example, or 20% less or less than the name brand.
So the combination of name brands compared with the price name brand equivalent products at a nice discount to the name brand price as well as some special opportunities in all the things that we can do with our size to take advantage of opportunities that exist throughout the year.
<UNK>, would you like to add anything.
<UNK>, let me maybe start with your first comment on the $135 million.
Keep in mind, that was the retail value before we started the markdowns.
So we start with a cadence that was already discounted in stores somewhere between 10%, 15%, 20% off and then we start the markdown cadence of 50%, 75%, 90%.
When you think about the units that we cleared out, the actual retail sales that we were receiving from that pile of goods was fairly static over that time.
I think the good news on the clearance was when folks came in for that event, they tend to buy something else in-store at our regular retails.
And so I think the energy and just getting our stores cleaned up a bit, getting our end caps reclaimed, organizing a clearance event which is no small task to make it look like something, all served us pretty well.
Maybe just to tag on to <UNK>'s comments, there is an art and science to pricing and the science piece is we do want to be grounded against our strategy on competition.
You always have an eye on them.
But what we're really focused on at Family Dollar is what's meaningful to our customers.
What is it that they need for first of the month.
What is the basket set they are looking to buy on a weekly and monthly basis and so our strategy is one that talks to what is on promotion and what is on shelves.
The addition for Family Dollar of a private-label program that could be polished up and really enhanced, opening price points and some of the assortment gaps we have is a great one, not to mention the addition of ---+ we have a great import program but that can also drive additional value into the store.
So we really see all those arrows in our quiver as we get rooted in what do we need to be competitive.
But really stay focused on what our Family Dollar customer needs to drive value and into her basket on a weekly and monthly basis so that's the approach we're taking as we go through our category reviews and looking into 2016.
<UNK>, I think the customer, especially our customer are middle income, low middle income to lower income customers are still under pressure and they are concerned.
They have seen the lower gasoline prices and that's helpful.
But at the same time, it's not enough to gear that lower income customer.
It's not enough to make a change in your shopping habits.
And at the same time, they've seen lower gasoline prices.
They've seen higher food prices.
They've seen higher rent prices.
They've seen higher healthcare costs.
They've seen higher taxes.
So they are still concerned; they're still under pressure.
The concept of Dollar Tree and at Family Dollar of serving those people is serving us well.
At Dollar Tree, we've said that we are right for all times.
We have great products that people need everyday.
Consumer products, things you've got to buy to live, things you have to have every day and the price is only $1.
Alongside things that may be discretionary that you would like to have but everything is $1.
Through good times and difficult times, we've tended to do very well, usually better than the market at Dollar Tree.
At Family Dollar, with that low income customer, the more we focus on what that lower income customer needs, offering the great value, improving our in stock and giving the better shopping experience, exceeding their expectations when they go into our stores, the better served we're going to be especially during difficult times because the ---+ that lower income customer really needs us at Family Dollar and Dollar Tree in order to make ends meet throughout the month.
So to answer your question, I think they're grateful that gasoline prices are lower but not much else is in their world.
And they've got to come a long way really to get their head back above water, many of them.
In closing, I'd just like to make one comment in regard to that last question.
I will close with this but as a combined organization, both banners, our focus is on growing our earnings power for years to come.
There's a lot of things that we're doing right now that are in regard to getting us positioned and for the future.
Our decisions are always with our eyes on the horizon but managing in real-time so what you're going to see from us is our decisions are going to be made for the longer-term.
Now I'm not telling you it's going to take forever to make the ---+ to bring value.
I'm just saying our decisions are based on building this large entity, combining two great banners, for the long term.
But we are dedicated to managing the business in real time and that means every month, every day, every quarter, it means every expense line on the P&L.
It means looking at our customer in the eye and trying to deliver the product that they need from us and identifying the position that we hold in the market, using our size and our leverage to offer the greatest values for that customer.
So we're going to do both.
And I think, I'd like to tell you that my expectations as we're going to continue to improve quarter over quarter.
This is the first full quarter that we've had the combined company.
I think we had one month in the last earnings release but it's the first full quarter that we've had and we've shown improvement.
And some slight improvement, mind you, but improvement and I think I would tell you that I expect that to continue quarter over quarter.
We will show improvement.
We're going to share with you all the information that we know that is pertinent to where we're going with this thing.
We're not going to surprise anybody with it.
But we're not going to give you information until we can absolutely get our arms around it and share with you how that looks going forward.
Thank you for your time and before I turn it back to <UNK>, I just want to say thank you for your support and hope everybody has a great Thanksgiving.
Our next quarterly earnings call is currently scheduled for Tuesday, March 1, 2016.
Thank you and have a good day.
