May 25, 2017
Executives
Randy Guiler - Vice President of Investor Relations Bob Sasser - Chief Executive Officer Kevin Wampler - Chief Financial Officer Gary Philbin - Enterprise President
Analysts
Alan Rifkin - BTIG Michael Lasser - UBS Stephen Tanal - Goldman Sachs Vincent Sinisi - Morgan Stanley Joseph Feldman - Telsey Group Alvin Concepcion - Citi Patrick McKeever - MKM Partners
Operator
Good day and welcome to the Dollar Tree First Quarter Earnings Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Randy Guiler, Vice President of Investor Relations.
Please go ahead, sir.
Randy Guiler
Thank you, Christina. Good morning and welcome to our conference call to discuss Dollar Tree's performance for the first fiscal quarter of 2017.
Participating on today's call will be our CEO, Bob Sasser; CFO, Kevin Wampler, and Enterprise President, Gary Philbin. 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 8-K, most recent 10-Q and annual report on Form 10-K which are all 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 the first quarter, the receivable balance from Dollar Express related to the transition service agreement for the [technical difficulty] stores was $50.9 million.
As discussed in our press release and financial tables, the Company has impartibly entire receivable. And additional receivable of $2 million or more from Dollar Express expected in the second quarter, which we anticipate will also be impaired.
The Company plans to take all appropriate actions, which we expect to include litigation to enforce our rights. Thus, we are unable to provide further details or take any questions related to this matter.
Unless otherwise noted, all SG&A, operating income, net income and earnings comparisons presented today do exclude the impact of the $50.9 million receivable impairment charge for the first quarter of 2017. Please refer to the table in today’s press release for a reconciliation of the GAAP financial measures to the non-GAAP financial measures that exclude the impairment charge.
At the end of our prepared remarks, we will open the call for your questions. Please limit your questions to one and one follow-up question if necessary.
Now I will turn the call over to Bob Sasser, Dollar Tree’s Chief Executive Officer.
Bob Sasser
Thanks, Randy. Good morning, everyone.
This morning, we announced our results for the first quarter of fiscal 2017. Consolidated sales for the first quarter increased 4% to $5.29 billion.
Same-store sales increased 0.5%. By segment, same-store sales for the Dollar Tree banner increased 2.5% and for the Family Dollar banner same-store sales decreased 1.2%.
Our combined gross margin rate improved 20 basis points to 30.8%; consolidated operating income increased 5% to $439.7 million; and our year-over-year consolidated operating margin improved from 8.2% to 8.3%. Total net income for the quarter was $232.1 million and our adjusted EPS of $0.98 met the high end of our range of guidance.
Excluding the one-time tax planning benefit of $0.09 per share in the first quarter last year, our EPS grew by 10.1% from the adjusted $0.89 a year ago. I am extremely pleased with the first quarter performance for our Dollar Tree banner and with the continued progress in rebuilding the Family Dollar business.
For the combined banners, total sales were near the mid-point of our range of guidance. Same-store sales were positive for our 37th consecutive quarter; consolidated gross margin and operating margin rates improved; SG&A expenses across both banners were well managed; and importantly, our adjusted EPS at the high-end of our range of guidance at $0.98 per diluted share.
Performance of the Dollar Tree banner continues to be strong and consistent. Same-store sales increased 2.5%; sales markdown, including freight expense, improved; trade declined and our sector leading operating margin grew 50 basis points to 12.3%.
Our Dollar Tree merchants and operators continue to raise the bar for sales and profitability. At Family Dollar, our customers are seeing cleaner stores, better product assortments, greater values, more consistent in-stocks and an elevated level of customer service.
I’m confident that each of these elements, over time, contributes to winning back repeat visits and share of wallet. But that’s just the beginning.
We are in the early stages with many of our key initiatives that are expected to bring continued improvement. Our remerchandising and renovation programs have just begun as we enter second quarter, and we’re confident that our customers will be thrilled with merchandise synergy and excitement in our stores as these initiatives gain traction.
Our strategy is consistent and increasingly relevant, to deliver great values and convenience to our shoppers every day. With more than 6,400 Dollar Tree and more than 8,000 Family Dollar Stores, we have the unique opportunity and value retail to serve more customers through all types of markets.
I believe we are in the most attractive sector in retail. Shoppers today are focused on value and convenience now more than ever, and that’s exactly what Dollar Tree and Family Dollar Store provide, value and convenience.
Looking forward, our banners are positioned for increased relevance to our customers, sustained growth and improved profitability. We have multiple opportunities to continue growing and improving our business.
Our real estate and finance teams recently completed a rigorous analysis assessing the current store opportunity for each of our banners. As a result of their efforts and analysis, we’re now confident in our opportunity to operate more than 10,000 Dollar Tree’s and more than 15,000 Family Dollars across the United States.
With a combined store count currently of approximately 14,200 stores in the U.S. we have many years of growth opportunity ahead.
In addition to opening more stores, we’re keenly focused on increasing the productivity of all of our stores by leveraging our buying and operational synergies across banners, we have continued opportunity to increase sales, improve margin and manage expenses. With a keen focus on the customer, our goal is to maintain relevance in the market, offer extreme merchandise value and convenience, while operating stores with a full fun and friendly shopping experience.
We plan to operate and grow both banners. At Dollar Tree, everything is a dollar.
Family Dollar is your neighborhood discount store. We have the opportunity to serve customers with one or the other or both banners, depending on the market and customer demographics.
Our Dollar Tree Canada business continues to perform extremely well. Our merchant and store teams in Canada are doing a terrific job in managing their business.
Their efforts in serving our Canadian customers are resulting in annual improvements and store productivity. Comp sales in our Canadian stores outpaced our Company average in the first quarter, driven by increases in both average ticket and customer count.
Leveraging the size and scale of Dollar Tree, our merchants continue to source higher value product, and our customers are finding broader and more exciting assortments and better values in Dollar Tree Canada stores. We want to be recognized by customers as the leading retailer in Canada at the single price point of CAD1.25, just as we are in the United States at the $1 price point.
We now operate 225 stores in Canada and believe we have an opportunity for 1,000 stores over time. In addition to Dollar Tree, Family Dollar and Dollar Tree Canada, our online business at Dollar Tree Direct is growing in size and performance.
Doll Tree Direct provides an opportunity to broaden our customer base, to drive incremental sales, expand brand awareness and attract more customers into our stores. While Dollar Tree Direct is a relatively small component when compared to our overall business, I continue to be very pleased with the year-over-year trend we are seeing in both traffic and sales.
And we're seeing material increase in number of visits from mobile devices. We strive to run world-class stores and engage with our customers via conventional and digital marketing channels such as email Facebook, Pinterest, Craft Videos, Twitter and more.
And I invite you to check us out at dollartree.com. In April, we announced the location for Dollar Tree's 12th distribution center; it will be in Warrensburg, Missouri less than 60 miles Southeast of Kansas City.
We plan to break grounds soon our new 1.2 million square foot facility, which will be operational by the end of second quarter 2018, and will support our continued store growth in the Midwest. This $110 million project will create approximately 375 jobs for Johnson County Missouri and surrounding communities within three years.
Now, I'll turn the call over to Gary to provide more detail on our performance and our priorities.
Gary Philbin
Thank you, Bob. Good morning everyone.
We're pleased with our overall performance for the first quarter as we met the top end of our EPS guidance range. But we know we're certainly capable of doing better.
Retail environment was dynamic and we saw a number of factors impact our business. These included delays in tax refunds and a shift in the timing of Easter.
We continue to focus our efforts to achieve continuous improvement and drive our key business initiatives that are aligned to deliver better in-store shopping experience, top-line sales growth margin enhancements and effective cost management. For the quarter, our enterprise same store sales increased by 0.5%.
For the Dollar Tree banner, total sales in Q1 increased 7.9% to $2.57 billion and same store sales increased 2.5%. This was achieved through increases in comp transaction count and average tickets.
Gross profit margin improved 50 basis points over Q1 last year and first quarter operating margin was 12.3%, an improvement of 50 basis points over last year's 11.8%. Dollar Tree highlights for the quarter include sales in the top performing categories; snacks and beverage, candy, toys, seasonal products and healthcare products; sales performance was led by our consumables line of business in both consumables and discretionary comp positively for the quarter; as we expected April, which benefited from the Easter shift, was the strongest same-store sales of the quarter.
Geographically, Dollar Tree same store sales growth was strongest in the Midwest, Northeast and Southwest and each of our operating zones delivered positive comps greater than 1%. The Dollar Tree business continues to be strong, consistent and growing.
This represent our 37th consecutive quarter of positive same-store sales and our operating margin continues to lead the value structure. Our first quarter performance continues to validate the relevance of the Dollar Tree brand.
Customers continue to shop for value and convenience. For the Family Dollar banner, total sales increased 0.5% to $2.72 billion and same same-store sales decreased 1.2%.
The first quarter represent our toughest prior year comp comparison we will face in 2017. On a two year stack basis, for the first quarter, comps were positive for the Family Dollar banner.
Gross profit margin declined 30 basis points to 26.9% and operating margin was 4.6%. For Family Dollar, the highlights for the quarter include the sales in our top performing categories; snacks & beverage, health & beauty care and men’s apparel.
Our comp performance was driven by consumables, which comp positively slightly in the first quarter. Timing of sales through the first quarter was impacted by various factors, including the material delays and the timing of tax rate funds, later Easter holiday and cycling of the staff benefit reductions from 2016.
As a result, our comps by month varied from mid single-digit negative for February to mid single-digit positive for April. Geographically, Family Dollar same-store sales growth for the quarter was relatively balanced with the west, Mid-Atlantic and mountain west zones being the strongest.
Less than two years into our integration, we continue to make meaningful progress at Family Dollar around the key foundational elements that will drive performance. Our store table stakes focus on merchandizing value and the consolidation of shared services.
Our efforts are focused towards our customer facing initiatives that the shoppers continue to give us credit for and we are working to improve and scale these across all 8,000 stores. Our customers are seeing, clearing a better merchandize stores to have more compelling end cuts with pricing for everyday basics and holiday wants.
And while we have more to do at Family Dollar, we are on the right track with our continued investment in the basics of our Family Dollar brand; these customer facing programs to drive and show value throughout the store, and tend to lead the momentum for our smart way to save marketing problem. Our customers continue to respond to the value and savings across all of these elements; delivering value for our Family Dollar customers; our smart way to save messaging reflects the values and the execution of the merchandizing in our stores.
This includes our EDLP pricing on everyday value; sale items that reflect most meaningful value on key items; Dollar well that drives the surprise and opening price points throughout the store; compare and save to shut out the excellent value of our private brands; price drop, great value on the items our customers buy most often; and smart coupons, the easy way to find additional savings. We believe our customers are giving us credit across the store on our smart way to save and that gives us flexibility to drive value and convenience for our customers fill and shopping trip.
In particular, our customers are continuing to respond and embrace smart coupons with more than 2.5 million customers enrolled since our Labor Day 2016 kick-off. For our regular shoppers, this program provides the no hassle shopping experience to national and Family Dollar exclusive offers.
We are seeing a measurable lift in the average ticket for the transactions where a smart coupon has been applied. For Family Dollar is a great way for us and our suppliers to reach a customer demographic that’s uniquely served by Family Dollar, it enhance the delivery of our smart ways to save message.
Over the past 18 months, we’ve invested a significant amount of time, test and learn effort to improve to our Family Dollar store layout. We are pleased with results we are seeing and now this is the format we will be utilizing for both our new stores and current renovation programs.
We believe our customers will respond enthusiastically to this format as we roll down in months ahead. Elements for the layout, include; improved adjacencies and more productive end caps; expanded beverage and snack, including immediate consumption core near checkout; expanded assortment of food and coolers and freezers; and updated airfare assortment expanded the beverage in some stores; and efficient power alley to promote Dollar well items and affect through checkout process for the customers.
Our first renovations have started in earnest in Q2 and we look forward to making progress in our target of 250 or more renovations this year. As performance becomes measurable and predictable, we have the ability and intention to ramp up accordingly.
Most new stores will now open with our assortment and adjacencies that reflects our latest thinking of our report. Another key element of driving improvement in the Family Dollar business is the development of our private brand program.
We’re in the process of moving away from family branded label such as Family Wellness, Family Gourmet and Family Chef with the intention to drive relevant brandings with new and improve packaging to refresh our assortment. Some of these examples in our stores a day, you will see Homeline replacing Family Dollar brand in household products.
You also see we’re transitioning from our private brand candy assortment from Family Gourmet where you will now see candy Company. In the months ahead, we’ll be transitioning labels in several other pipelines mainly on the consumables categories.
These private brands are being developed to provide national brand comparable quality and terrific values to support the compare and save component of our smart ways to save program. Each of our brands will continue the 100% customer satisfaction guarantee.
We look forward to providing you update on our progress in the quarters ahead on this important program. While we have more to do, our team at Family Dollar is motivated and energized to be the best to delivering value to our shoppers that are unique in many ways and often underserved.
Our store serve the customer that counts on us and responds and redeliver value convenience for quick trips in a small format and a Family Dollar shopping experience that backs up our promise of friendly service. Now looking at real estate in the first quarter; we opened a total of 164 new stores, 89 Dollar Trees, 75 Family Dollars; we relocated or expanded 51 stores, 35 Dollar Trees, 16 Family Dollars; a total 215 projects during the first quarter; we also added freezers and coolers into 131 Dollar Tree stores during the first quarter; bringing our total Dollar Tree stores with freezers and coolers to 4,918.
During the quarter, we closed 16 stores, five Dollar Trees and 11 Family Dollars; and we ended the first quarter with 14,482 stores, 6,444 were Dollar Tree, and 8,038 were Family Dollars. I’ll now turn the call over to Kevin to provide more detail on our first quarter performance and our outlook for Q2 and the full year.
Kevin?
Kevin Wampler
Thank you, Gary. I would like to remind everyone that our discussion, as previously noted, excludes the effect of the $0.13 per share receivable impairment charge, unless otherwise noted.
Total sales for the first quarter grew 4% to $5.29 billion. Dollar Tree segment total sales increased 7.9% to $2.57 billion, and Family Dollar segment total sales increased 0.5% to $2.72 billion.
Enterprise same-store sales increased 0.5%. Aiding currency fluctuations had minimal impact on our comps during the quarter.
On a segment basis, same-store sales for the Dollar Tree banner increased 2.5% and for the Family Dollar banner decreased 1.2%. As expected, we experienced incremental cannibalization from Family Dollar and deals stores that have been converted to Dollar Tree stores.
We estimate the incremental cannibalization impact to the Dollar Tree banner comp to be approximately 30 basis points for the quarter. Gross profit for the combined organization increased 4.7% to $1.63 billion for the first quarter 2017 compared to the prior year’s quarter.
As a percent of sales, gross profit margin improved 20 basis points to 30.8% versus 30.6% in the prior year’s quarter. Gross profit margin for the Dollar Tree segment was 34.9% for the first quarter, a 50 basis points improvement compared with the prior year’s fourth quarter.
Factors impacting the segment’s gross margin performance during the quarter included lower merchandise costs, favorable freight costs and lower shrink as a result of favorable inventory results; partially offset by higher distribution and occupancy costs as a percentage of net sales, resulting primarily from our Cherokee County South Carolina DC opening in Q2 of last year. Gross profit margin for the Family Dollar segment was 26.9% during the first quarter compared with 27.2% in the comparable prior year period.
The 30 basis point decrease was primarily due to higher markdown and shrink expense in the quarter, partially offset by improved merchandise costs. Consolidated selling, general and administrative expenses as a percentage of net sales in the quarter increased to 22.5% from 22.3% in the same quarter last year.
Q1 SG&A expense for the Dollar Tree segment as a percentage of sales was consistent when compared to the prior year’s quarter at 22.6%. Higher store payroll costs and stock compensation were offset by lower health insurance costs, lower store supply and professional fees as a percentage of sales.
SG&A expense for the Family Dollar segment as a percentage of sales was 22.3% compared to 22.1% in the prior year’s quarter. The increase was a result of higher payroll costs, resulting from loss of leverage from the comp sales decrease and higher advertising costs, partially offset by lower depreciation costs and lower store repairs and maintenance costs.
Operating income for the Enterprise increased to $439.7 million compared with $418.7 million in the same period last year. Operating income margin increased to 8.3% for the quarter from 8.2% in last year’s first quarter.
Operating income margin for the Dollar Tree segment improved 50 basis points to 12.3% when compared to the prior year quarter. Operating income for the Family Dollar segment decreased $13.7 million to $124.3 million, a 50 basis point decline as a percentage of sales when compared to the prior year’s quarter.
Non-operating expenses for the quarter totaled $75 million, which was comprised primarily of net interest expense. Our effective tax rate for the first quarter was 36.1% compared to 29.8% of prior year's quarter.
Prior year's quarter included a one-time benefit related to the state tax planning. For the first quarter, company has net income of $232.1 million or $0.89 per share compared to the reported net income of $232.7 million or $0.98 per diluted share in the prior year's quarter.
Prior year included $0.09 one-time benefit to the EPS and a lower than anticipated tax rate as previously noted. Excluding the $0.09 one-time benefit for the prior year quarter diluted earnings per share of improved 10.1% for the adjusted $0.89.
Combined cash and cash equivalents at quarter end totaled $1.15 billion compared to $866.4 million at the end of fiscal 2016. Our outstanding long-term debt is approximately $6.3 billion.
Inventory for the Dollar Tree segment at quarter end was essentially flat to the same time last year, while selling square footage increased 6.5%. Inventory per selling square foot decreased 6.1%.
We believe the current inventory levels are appropriate to support scheduled new store openings in our sales initiatives for the second quarter. Inventory for the Family Dollar segment at the quarter end decreased 3% from the same period last year, and decreased 4.2% on a selling square foot basis.
We continue to be pleased with the progress we are seeing in our in stock levels on key items. We are continuing to review merchandise assortments and believe our current inventory levels are appropriate for the second quarter.
Capital expenditures were $110.3 million in the first quarter of 2017 versus $175.9 million in the first quarter last year. For fiscal 2017, we're planning for consolidated capital expenditures to range from $760 million to $780 million.
Capital expenditures, will be focused on new stores and remodels, including fee development stores; renovating 250 Family Dollar stores in 2017; the addition of further refrigerated capabilities for a total 400 new and existing Dollar Tree stores; the expansion of frozen and refrigerated of 300 Family Dollar stores IT system enhancements and integration projects; start up construction of our new Dollar Tree banner distribution center Warrensburg, Missouri; and the continued build-out of a new office building for the Store support center here in Chesapeake, Virginia. Depreciation and amortization totaled $153.9 million for the first quarter.
Depreciation and amortization expense was $162.3 million for the first quarter of last year. For fiscal 2017, we expect consolidated depreciation and amortization to range from $610 million to $630 million.
Our updated outlook for fiscal 2017 includes the following assumptions; fiscal 2017 anticipate 53rd week, the extra week in the fourth quarter is expected to add $400 million to $430 million of sales and $0.19 to $0.22 to earnings per diluted share, both of which are included in guidance. We expect continued pressure on store payroll based on state increasing minimum wages and general average hourly rate increases.
We have budget higher import freight costs in the year ago starting in Q2 and higher diesel costs for the year. Net interest expense will be approximately $75 million per quarter in Q2 and Q3 and approximately $81 million in Q4 due to the extra week.
Our guidance does not include any share repurchase for 2017, and we cannot predict future currency fluctuations where we have not adjusted our guidance for changes in currency rates. Our guidance also assumes a tax rate of 36% from the second quarter and 36.5% for fiscal 2017.
Weighted average diluted share counts assumed to be 237.7 million shares for both Q2 and the full year. For the second quarter, we are forecasting total sales to range from $5.18 billion to $5.28 billion and diluted earnings per share in the range of $0.80 to $0.88.
This represents an increase of 11% to 22% over the $0.72 reported EPS for Q2 last year. These estimates are based on a slightly positive, the low single-digit same-store sales increase and year-over-year growth of 3.4%.
For fiscal 2017, we’re now forecasting total sales to range between $21.95 billion and $22.25 billion compared to the Company’s previously expected range of $21.94 billion to $22.33 billion. The Company now anticipates diluted earnings per share for fiscal 2017 will range between $4.17 and $4.43, which includes the $0.13 receivable impairment charge.
Excluding the $0.13 impairment charge, the top of the guidance range is consistent with our prior guidance. These estimates are based on a slightly positive to low single digit same-store sales increase and 3.9% square footage growth and includes the benefit of the 53rd week occurring in Q4 of fiscal 2017.
I’ll now turn the call back to Bob.
Bob Sasser
Thanks Kevin. Again, I’m extremely pleased with another terrific first quarter performance at Dollar Tree and I’m equally enthusiastic about what lies ahead of us at Family Dollar.
The teams have worked incredibly hard at rebuilding the foundation for a very successful and profitable business. I believe that we’re well positioned in the most attractive sector of retail to deliver continued growth and increase value for our long-term shareholders.
Dollar Tree is now a diversified combination of 6,000 store chain and an 8,000 store chain each with its unique ability to effectively serve more customers through all types of markets. With the combination of these two great brands, we have great flexibility in how we choose to grow while expanding our opportunity to grow.
We will continue to focus on providing greater values to our customers, while delivering superior returns to our long-term shareholders. The Dollar Tree business model continues to grow and improve; it’s powerful, flexible and more relevant than ever providing extreme value to customers while recording record levels of sales and earnings.
While our price point has remained the same $1 for the past 30 years now, our operating margin continues to grow and lead the discount sector. As always, we will continue to employ a thoughtful disciplined approach to driving key strategic initiatives to the combined enterprise through improved communication, analysis, collaboration and incentives.
Most importantly, we will maintain a laser focus on the customer, maintaining relevance to their needs and above all delivering value, convenience and a full fun and friendly shopping experience. Our fundamentals have been tested by time and validated by results, we are confident that continuing to place our emphasis in these areas can materially enhance the operating performance at Family Dollar with improvements in sales, margin, expense control and greater customer satisfaction.
Through good times and difficult times in all retail cycles, consumers are looking for value and convenience no matter the state of the economy. At Dollar Tree and Family Dollar, we have both.
It all starts with our associates, our merchandize teams and our field management and leadership teams, our talented, experienced, energized and incredibly motivated. It’s a great time to be Dollar Tree.
Operator, we are now ready for questions.
Operator
Thank you [Operator Instructions]. We’ll take our first question from Alan Rifkin with BTIG.
Alan Rifkin
Bob, can you maybe just provide an update on where you are with the expected synergies now that almost two years through the acquisition. I recall your original guidance speaks 300 million and even this last quarter you said you remained comfortable with that number.
Could you please give us an update there?
Bob Sasser
We are confident with the 300 million that we have guided to. We feel very -- we feel like we’re squarely in the zone where we need to be at this time.
As you remember there was 300 million run rate synergies by the end of third full year with an investment of 300 million to achieve those. So I can tell you that we’re right on target to achieve the 300 million.
Alan Rifkin
And could you just tell us the Missouri DC that will be added. Will that emulates the St.
George DC, which was fulfilling both banners, and now that you’ve had some time to take a looking and evaluate the St. George.
What’s the prognosis for the DC supporting both banners, which I believe would give you a significant supply chain savings? Thank you.
Bob Sasser
Alan, it’s another good question. The Missouri DC will -- we will be using catalyst, which is the WMS that we use in our Family Dollar DC, it’s also the one that we modified in St.
George Utah in order to ship both banner. So we’re taking the modify version of the St.
George WMS and we’re going to open the new Missouri DC with that WMS. That will be our go to WMS as we open and continue to expand or convert distribution centers as we go forward.
Operator
We’ll take our next question from Michael Lasser with UBS.
Michael Lasser
As you put in all the hard work with Family Dollar, have cleaner store it’s been in stock, elevated levels of customer service. Surely you didn’t expect comp down 1% is or in your experience with this business.
Why do you think it’s not better than this?
Gary Philbin
I think the sale of Q1 really speaks to what happened in the marketplace, especially on the tax refund. So just to give you a little color; obviously, one knows the tax refunds are delayed.
In particular, the earned income tax credit was delayed to week of 27th. In fact you could see by day when it actually hit.
So when we take a look at the quarter period one month of February not only was impacted by the discretionary piece of the business that our customers weighed on because that tax refund and spend but really becomes a capital investment for them and that was delayed until really the last week; and while we saw that pop compared to year ago that was probably two-week shift and go back two years and really was in entire month of February. As we went through March, even with the shift in Easter, we were on track with where we thought sales would be for March.
And I think Easter at Family Dollar was in the target zone too. So if you got back to a regular cadence, we could see our customer respond.
So clearly, we’re never happy when we see a negative comp. But what we could measure qualify and see both across just top-line sales and as you go down to a line of business was a delay in the income tax credit that our customer experienced in the month of February.
I don't think it's anything structurally different with the business. We continue to invest, I think, in the right things in our business, invest in clear stores, get exciting merchandising on end caps and on the frontend of the stores, give our folks a reason to drive comp store sales.
Those are the things that we're going to build over the long run that's going to drive the business. So we’re very focused as we go into May into second quarter businesses back to focus on what's going to happen in the summer season, and for Family Dollar that means grow out.
For Dollar Tree that means we're in midst to just passing Mother's Day graduations or in full bloom and Memorial Day is ahead of us. We have the right product the store to drive Q2 business, and we're focused on doing that across both banners.
Michael Lasser
Thank you, Gary. And my follow up questions is, first, do you think Easter shift and can you quantify how much Easter shift contributed to the mid-single digit comp that you experienced at Family Dollar in April.
And now that we're -- now that SNAP drag from last year has been anniversary. Do you think that cause income improvement in the business that should continue into the second quarter and beyond?
Gary Philbin
Michael, I’ve missed the second part of the questions. What was the second, [multiple speakers], thank you.
So for the first part, I think -- listen our later Easter helps Dollar Tree tremendously and Family Dollar, not only is it the Easter Holiday it really becomes the kick up to spring. So while we hadn’t qualified it for enterprise, both banners had a better Easter than the year ago, because of just warmer spring weather and the Family Dollar that also means some of our other categories outside of peer Easter apparel, health and beauty responded the right way.
Secondly, on staff benefits I told you before at Family Dollar I view it as sort of the canary and the mind shaft, listen it's a small piece of our business. To me, it gives us a great every first of month how we're doing.
And while we know benefits of what the market at the Family Dollar banner, we’ve seen it all consistently to last year. At Dollar Tree penetration is down a little bit, but I think that speaks to a little more of Dollar Tree was doing first the month and getting ready for us.
And at Family Dollar, it’s really been our focus now. So I think it shows up in our staff benefits.
It gives us confidence that we're getting ready on first of month in a better way across our stores. They have -- its spread out by state differently, but first 10 days are still so important for our Family Dollar customer to getting ready being in stock and having our folks ready to give great service.
Operator
Our next question comes from Stephen Tanal Goldman Sachs.
Stephen Tanal
I guess, I've been most focused to start on the Family Dollar margin rate. And I'd be curious to know kind of how you're thinking about both the level in Q1 and how the year-on-year should trend over the balance of the year?
And then any comments maybe on a longer term levels that are achievable in that business will be helpful.
Gary Philbin
Let me start off Stephen. Q1 was -- besides the sales in the items that impacted us a year ago, we were coming out of our cleanup of inventory.
We got the benefit of both the fact that we start off with great strength at the beginning of 2016, we just cleans up a lot of the dribs and drabs that had accumulated in store. We also came out of the winter time with basically cleaned up in a nice way on apparel too.
So once you sale on some of the margin piece, just maybe back to normal cadence, we can only do better, but a normal cadence of where we are on strength and our markdowns in Q1. But again, the one thing that was really different in period one because of the tax refunds being late was the mix shift, and the impact on what our customer buys.
Our consumables were slightly positive for the quarter. They bought what they needed to get by.
The difference of what they wanted to buy across the discretionary departments and it’s really what we felt in period one that we could measure that impacted margins in a big way for the quarter. So that was a story for Q1.
But Kevin I think comment on the forecast, but obviously we've put everything that we know at this point into our forecast for the balance of the year.
Kevin Wampler
So I think consistent on a consolidated basis with what we said last quarter; if you would look at a range of guidance, the mid-point of our operating income is roughly an 88 or 89 basically. And also that compares to I think about H2 last year.
So also, we're overall expecting improvement. As part of that, we do expect to see the Dollar business, as we go through the year, improve upon where we were during Q1.
So I think there is an expectation overall that the business will improve there and as we go forward. So had some -- Gary mentioned, some various timing thing that affected Q1 a little bit more than maybe expected, but we're looking for some better things as we go forward.
Stephen Tanal
And then just the follow up, I think you said the synergies, maybe the one-time costs there that are flowing through OpEx. Can you maybe give us an update, was that a net benefit or a net drag year-on-year and how that will play out as well?
Kevin Wampler
Well, I don't know how to speak to it from a drag or a benefit. I think obviously the cost that we're going to be spending that we're aware of are in our forecast as always along with the associated synergies that we're expecting this year.
So that's no different than any other time. From an overall standpoint, we said $300 million to achieve a little bit more frontend loaded.
And again that was true if you remember right we re-bannered basically 300 stores, 300 Family Dollar stores, we re-bannered 200 Dollar deal store to Dollar Tree. So there was a lot of CapEx costs associated with that in the first year and half basically, so that was a big part of it.
As I said before, when we started this process, we said that the $300 million our best guess was OpEx half CapEx. And as I’ve said as we went through this, it’s probably been little bit more CapEx at the end of the day and little less OpEx.
But again, still have been our targeted range of what we would expected from the beginning from an achievement standpoint as well as a cost to achieve.
Operator
[Operator Instructions] Your next question comes from Vincent Sinisi with Morgan Stanley.
Vincent Sinisi
You said earlier in the call that you feel like you’ve gotten the basically the format for Family Dollar in place now that you kind of use going forward. Can you just give us a sense for do you think that in terms of the pricing versus competition, you feel like you’ve kind of have the majority behind you and that you’re in good shape going forward there; of course, tweaks and what not, but maybe just around pricing?
And then also just in terms of the buying synergies, any sense for between the two banners, how much overlap there is in there and how much maybe more is to be realized?
Gary Philbin
Let me comment on the pricing, I think they were in retail we’re going to pay attention just about a weekly basis. And so clearly, while we’re pleased with what the format does because I think it makes some logical adjacencies for our customers to shop Family Dollar in a more productive and easier way for the customer that shows value.
When it comes to pricing, we still are going to highlight the smart way to save, which our customer responds to across all the elements that we’ve been talking about. We’ve got to show everyday prices on the shelf.
We got have price drop, sale items that resonate with them on the things they buy most often. Compare and save.
But we’re excited about this private brand redo and make it because we have a pretty good private brand program, but the values that we can show our customer and now we’re freshening up the label as we think will go a long way. But the pricing piece will continue to be something we watch now and going through, it’s just the nature of the beast as we make sure that we have the right retails on shelf and gives us flexibility with the smart ways to save whether electronic with smart coupons are on the shelf.
Synergy, I would tell you that merchants work together on a couple of different elements. One we basically think about it in two ways, one it’s our domestic supplier.
So what we have maybe about 10% overlap of between skews, it’s bigger than that when we consider some of the similar items we buy; so aluminum foil might be that poster child, we’re most likely five square feet at Dollar Tree bigger size for Family Dollar. But I would tell you on the import side, there is also an opportunity that we want to cycle through those buying trips four times a year.
So we get four chances to get our integration going and have the merchants talk about what’s going to be bought for the following years. So keep in mind as you’re taking a look at some of the import side, the lead time is longer what’s to show up in the synergy takes that amount of time for us to review our assortment to buy it, ship it, take it through the holidays then we revamp and redo for the following season.
We’ll have more of it. There is certainly more opportunities for us to continue above and beyond what we had targeted to drive synergies.
And I would say as much as anything reviewing assortments and driving excitement inside the assortment.
Vincent Sinisi
And maybe just as a fast follow-up, just now with the Family Dollar format kind of fully in place. Any qualitative or quantitative way we should think about footage growth annually by banner more of the split in there kind of post this year?
Thanks very much.
Gary Philbin
We haven’t really spoken to that, I would just tell you maybe what excites us from a customer perspective is the way they shop the store across the categories that we’ve invest in. I mentioned immediate consumption.
Our front-end that’s more productive the fact that you can party and toys and gift cards are now in similar adjacencies that a mom who comes in the store can buy new born infant, toddler apparel next the diapers. So just some maybe retail one-o-one items that I think just drives better business and make it easier for our customer to shop.
Operator
And our next question comes from Joseph Feldman with Telsey Group.
Joseph Feldman
So wanted to go back also on Family Dollar business. Are you -- can you help us understand when we should start to see the operating margin improvement, I guess, accelerate?
I think certainly there are some out there, including myself, that would have thought that we’d be seeing a little bit better margin improvement, not necessarily gross, but just overall operating margin improvement at the Family Dollar business at this point. And I just wanted to get your sense of timing on that?
Bob Sasser
I think a couple of combinations. I think you’ve heard us talk about the foundation of things that we’re putting in; we said we’re in this for the long run.
And we’ve done the things that we think as on the right path for running better stores, better assortments, better value on shelf; I think what we’re describing, what the renovation program now and something and that’s maybe a little more visible for our customer to see, which also is going to be one of the engines that helps us drive overall margin growth; so as we do our 250 renovations this year as the new stores come out with the new format. Now, our customers is going to see something in fiscal way in a store that’s cleaner, fuller, fresher and that’s really another piece to the puzzle here that we’ve been focused on to say let’s change the complexion of the fleet of stores and that’s what you’re going to see in the back half of this year.
And I am anxious to get those out of ground, because I think those are the elements that combined with all the things we’ve been talking about; table stakes, merchandising energy in store assortments. But we also have to touch the fiscal plan to these facilities to make sure our customer sees a nice new fresh store when they’re going to make a decision of where they’re going to shop.
So its hand-in-hand, we got to do both. You’ve heard us to talk and about really in the first portion at this point in the renovation new store program is really next piece to this.
Joseph Feldman
And then just as a follow-up. With regard to some of the clearance activity, I guess not clearance, but with the rebranding of the private label, I guess.
I’m curious how that will impact the clearance of the older inventory and how that’s baked into your outlook?
Bob Sasser
I would say in most cases, we’re just flowing at the high of the whether it’s the candy or whether it’s the trash bags; most of these consumables, they turns pretty quickly. And while we may have some, it’s all baked into our forecast.
Most of these are going to be flow throughs with the existing SKU on the shelf being replaced by a new package.
Operator
And our next question comes from Alvin Concepcion with Citi.
Alvin Concepcion
Last quarter, I think you mentioned, you hadn’t seen much change in the past year and half in the competitive promotional environment. Did you see that stability continue to 1Q and further into the second quarter?
Bob Sasser
I think competitions always part of our life. I watch intensely as does field operators and our merchants and what the competitors are doing from a couple of points of view are they doing with merchandise mix and businesses that they’re driving, as well as price, the pricing statements that they’re making.
So we continue to shop. We see a lot of -- there is a lot of new competition out there, or coming in, especially in the grocery business.
We’re not a grocery store but we still sell some food and sell beverage and snacks and those types of product. So we’re watching that intensely.
But at the same time, we remain focused on our customer, what our customers’ needs are and how do we put together that value equation for our customers. Gary was taking a Family Dollar that all the different ways to save with our add prices and our every day prices and price drops, which are surprising price value to our customers.
So we’re going to stay focused on that; we’re going to watch what the competition does; we’re going to shop the price on key items, name brand items as we always have diligently; it’s different by market; we pay attention across the country. And we’re doing to evolve our business based on what our customers need.
This new renovation program is just rolling up in second quarter, and we’re really excited about it, because it does take a lot of the components that we’ve been talking about and testing in different stores and puts some together. So our new stores are starting to rollout with the new adjacencies with the new mix of products, with the new store designs, as well as going back and renovating.
Right now, we’re seeing 250 stores obviously based on performance we got put on the accelerator that exceeds expectations we certainly would jump on all over it. And then the other thing is radically rollout the renovations.
The things that we found that are really compelling to the customers to the new stores we still have the ability to roll pieces in parts out to the existing fleet where we know it’s going to be a home run. So competition is retail, retail is competition.
I have great respect for all of them. We’re going to keep watching them and we’re especially going to stay focused on the customer and how they respond to what we offer in our stores.
Alvin Concepcion
And just a quick follow-up on the comps. It sounds like you’re seeing more normalized trends in the second quarter, enough to give you confidence in the annual number.
Just wondering if you could give us some more color on what you’re seeing in second quarter since they were many issues in 1Q you called out?
Bob Sasser
I wish I could tell you exactly, but it's early. Yes, we feel good about our guidance we have all that we know embedded into our guidance for second quarter.
We have a lot of -- still that was just early on in the quarter; Mother's Day was good; this weekend is Memorial Day holiday; and we’re expecting good things from that; and of course graduations based in our Dollar Tree business, is a big idea; and the Father's day and beyond. At Family Dollar it's all those things plus a bigger seasonal summer offering, because at Family Dollar we sell fans.
So when it gets hot, we can sell lots more fans and beach supplies and coolers and charcoal grills and all the things we're cooking out. This should be a big weekend for that, as well as the apparel business at Family Dollar.
As the weather warms, as we get bright blue sunny skies we’re seeing the apparel business take off; so there is a lot of bright spot. And just to step back and I would tell you that the big issue once more in first quarter on sales at Family Dollar was the delay in the tax refund checks.
They were late and the business was in February was stubborn and difficult. But when the checks it you could see it day-by-day and you could see improvement in the sales.
And then we came in to March where we lost Easter at pretty good March and met our expectations. We had a good Easter, but we could not make up what we lost in February.
And that's the story that you see. Our discretionary business is what suffered, our consumer -- the things that they needed even with a bad -- with getting the checks like what they brought what they needed.
So our consumable business was slightly up over the quarter, but our discretionary businesses were all of the comp decrease was. So that really is the story, but what happened at Family Dollar is it was structural it was do with our new assortments, it was more to do with just way things spell on those tax check, especially for that low income customer which we have a lot of Family Dollar.
These tax checks to those lowest income customers they wait for them they count on them, and that's when they buy things like clothing and that's when they buy the things that they'd like to have but just can't afford to have of the times of the year.
Operator
We have time for one more question. Our question is from Patrick McKeever with MKM Partners.
Patrick McKeever
I'll just ask a couple of big picture questions, first of all, on the border adjusted tax. Just wondering, I know it's very iffy as to what happens there, but if that something that you're thinking about and is there any kind of contingency planning that things around it if it were to come to be?
And then second question is just Bob, I know the past few conference calls you've had somewhat cautious comments about the economic well being of the -- of your core customer. And I know that later tax refunds were a big issue in the first quarter.
But just thinking about your core customer, do you still feeling little cautious, or do you feel like things are getting better there?
Bob Sasser
Well, to that first of all, the border adjustable tax is still out there, still being debated in Congress. And I was watch on last night, night before last, reruns on C-SPAN of the House Ways and Means Committee and as they were talking to some retailers about the border adjustable tax and trying to get more tax and frame their position on that.
It is still up in the air, it’s not until we know what it is we really don’t know how to organize around it. I think we’re doing exactly what we should be doing and paying attention to it and trying to understand it as well as what’s going and talking to our congressmen, talking to our senators, working with RILA and the other groups that are out there supporting retail and putting our position forward.
So that’s what we’re doing, and we’re actively been doing that and we’ll see how it goes. I don’t want to sit here and prognosticate one way or other what Congress will do it.
But I think at the end of the day hopefully they will get it right and we’ll have good result to this. So they are on to initiatives going on right now what is this and what is that; there is too many what ifs and too many open questions to make anything meaningful right now.
So I would do exactly what we need to be doing right now, Patrick. On the health of the consumer, we serve the lowest consumer up through middle income consumers.
So we serve a broad swath of consumers out there and I believe what I said in the past that the consumer was under pressure and concerned. I still think that’s the case, and I think some of the -- whether it’s the economic questions that are out there with healthcare and Healthcare Reform and tax reform, and all of the issues that we’re working with at Congress.
I think all of those had uncertainty as long as there is uncertainty, then the American consumer is -- they’re focused on being the light bill; they are focused on paying the rent, house payment, care payment; all the things; employment, will have a job, do I have a job until you get confident in their position that they do have a job and they can’t pay the bills; there’s going to be continue to be uncertainty. At Dollar Tree and at Family Dollar, we card every day to be one of the answers to their issues as they strive to balance their budgets, as they try to take their paycheck and spread it across the month, for the week, whatever the pay cycle is.
We want to be part of the solution to their issues. We want to help them balance their budget by the things they want at great prices, great values surprising value.
And at Dollar Tree you can slur because everything is still a dollar. Yes you can afford it at Dollar Tree you can go in and have a great party birthday party for the kids and for the family buys your seasonal product and still pay only a dollar.
Operator
And that concludes today’s question-and-answer session. Mr.
Guiler, at this time, I will turn the conference back to you for any additional or closing remarks.
Randy Guiler
Great, thank you, Christina. Thank you for joining us for today’s call and for your continued interest in Dollar Tree.
Our next quarterly earnings conference call to discuss Q2 results is tentatively scheduled for Thursday, August 24, 2017. Thank you and have a good day.
Operator
This concludes today’s call. Thank you for your participation.
You may now disconnect.