Dollar Tree CEO on mitigating China tariffs: ‘We play hardball’

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It might look easy, but Dollar Tree has used “a lot of discipline” over the past year to mitigate the impact of tariffs on the products the company sells, CEO Gary Philbin told CNBC on Monday.

He said the discount retailer has worked with vendors to adjust its approach to shipping products from China, where the U.S. earlier this month imposed a fresh round of duties on imports. Dollar Tree negotiated prices, canceled orders and diversified vendors in order to mitigate costs, Philbin said, and is keeping a watch on the impact of new tariffs.

With a high operating income, the company has managed to turn a profit on its dollar items, Philbin said.

“I give great credit to both merchants’ teams. The things that we do, we’ve enlisted our vendors … The last thing we want to do is take any value out of the package at all,” he said in a one-on-one with Jim Cramer on “Mad Money.” “We play hardball, but I would say we’ve always been fair.”

Philbin said it’s important for the discount chain to keep costs down for the customers it serves.

“I think our customer, with unemployment [being low], has had a better opportunity to have a steady job. I find our customers are often one paycheck away from not doing so well,” he continued. “I think what we offer them is just a way of saving money, which is so important to them.”

Dollar Tree is making steady progress in renovating Family Dollar-branded stores and the discount store is seeing the results pan out for shareholders, Philbin said.

The company has finished remodeling 1,000 of its more than 8,000 Family Dollar locations and plans to complete 150 by the end of September, he explained in the interview with Cramer. The H2-branded rehab project includes a format redesign in Family Dollar, which Dollar Tree acquired in 2015.

“This is an important quarter for us,” said Philbin, who sat down with the host at a revamped location in New Jersey. In the past three quarters, same-store sales at Family Dollar have improved from 1.4% to 1.9% to 2.4%, he explained.

“We need to do more H2s, but the whole fleet of stores did better in this last quarter,” Philbin added. “We sold more of what we are creating in our impact sections across our stores, so it’s a great quarter for all those reasons.”

As part of the store changes, nearly 300 Family Dollar shops were closed and more than 100 locations were rebranded as Dollar Tree. Merchandise at Family Dollar sells for between $1 and about $10, as opposed to Dollar Tree, which has a discount variety of products that sell at the fixed price point of $1.

In its most recent quarter, Dollar Tree as a parent reported earnings of 76 cents per share, which was short of its own guidance and analyst consensus of 83 cents a share. Sales, however, topped Wall Street estimates, thanks in large part to the performance in Family Dollar.

Sales in Dollar Tree stores slightly missed analysts’ expectations, but Family Dollar posted a 1.9% surprise, according to FactSet. Aggregate revenue beat estimates $5.74 billion to $5.71 billion.

Shares slipped less than 1% in Monday’s session. The stock is up more than 20% this year.

WATCH: Cramer sits down with Dollar Tree CEO Gary Philbin

2019-09-09 23:05:00

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