Welcome Vice President, Investor Relations, Randy Guiler.
Good morning. Good morning. Welcome to Dollar Tree's 2023 Investor Conference. This is a terrific turnout. Thank you to each of you that have traveled to Southeast Virginia to be with us today. It's great to see so many familiar faces, many of which I've known for about 20 years. I also want to thank all of those that have tuned in to our investor conference today virtually. This is a big day for Dollar Tree, our first investor day in 10 years. Today, you will hear from our Executive Chairman and Chief Executive Officer, Rick Dreiling, and his executive team, as they speak to the tremendous opportunity ahead of us, and importantly, the path to get there. As you can see from the agenda, we will have a mid-morning break and a break for lunch.
For those in attendance, please spend those times to visit our Merchandising Expo booths. Following lunch, we will host a one-hour Q&A with our executives. At the conclusion, around 2:00-2:15 P.M., we will provide each of you attending with a small shopping bag that includes a flash drive of the presentation and some of our great private brand snacks. As always, before we begin, I would like to remind everyone that various remarks that we will make about expectations, plans, and prospects for the company include forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. Our actual results may differ materially from those indicated in these forward-looking statements.
For information on the risks and uncertainties that could affect our actual results, please refer to the public filings with the Securities and Exchange Commission. We caution against reliance on these forward-looking statements made today, and we disclaim any obligation to update or revise these statements, except as may be required by law. It is now my great pleasure to introduce our Chairman and CEO, Rick Dreiling.
Before we get started, I want to take a minute to acknowledge Randy Guiler, who is retiring today. I think this ends at 2:15. At 2:16, he's retiring. Anyway, let's give him a round of applause for... Well, it's great to see a lot of faces that I haven't seen in a long time, and as the saying goes, it's good to be back. I want to talk about a few things. I basically want to set the stage, and then today, you're going to see what we're going to do to get ourselves where we need to be.
Number one, the first thing we have to do is we have to build a foundation for this company, and the trouble we have, somewhere along the line, no cost and low cost got confused, and we've spent several years not investing in the franchise, several different areas. I want us to, as we start to talk today, think about a solid foundation, then lots of un-investment, and we're taking the action now in four key areas that we believe will ultimately propel the company going forward. The key here is we have broken the dollar on the Dollar Tree side. Believe it or not, that was incredibly important, and that now opens up merchandising potential that we've never had before.
The second big thing that has happened is we now have price parity with our number one competitor. As we tighten that gap up, we also widen the gap with drug and grocery and close the gap with the big box retailers out there. The next thing that's starting to happen is we're getting the SKU base right in the Family Dollar side. Larry's going to talk about the fact. I don't want us to miss this. He's going to add over 2,000 SKUs, but net will be a little under 1,000. That means he's discontinuing 1,000 SKUs that aren't selling as well. Again, as we move past this chart, I think even though we're talking about a three-year plan, 2024, 2025, 2026, that doesn't mean it caps out in 2026.
We believe there's tremendous potential going forward as we begin to right the ship. Okay, this is where we've had a lot of problems with being consistent in regards to financial performance. These are the six buckets. Number one, no cost versus low cost. The trouble is, we didn't invest in our stores. We have many stores in this chain that are in pretty rough shape. As you all know, in retail, the life expectancy of a store before it needs a refresh is five-seven years. That's because stores, they get beat up. They have a lot of traffic. We were not investing in that store base. Along the way, we haven't refreshed the decor.
Our decor right now in both banners is right out of 1975. There's that refresh that has to take place, so the store is more compelling to shop in. Over the years, we've begun losing share to our competitors. The supply chain. We unload a 2,000 to 3,000 piece truck off the deck of the trailer. Now I want you to think about that for a minute. I don't know who has stood in a trailer before. When it's 110 degrees outside, it's probably 130 inside that truck. People are manually taking stuff off that truck, one case at a time. All right? It takes us anywhere between three and four hours, with three or four people, to unload that truck.
The future, that Mike Kindy's gonna talk about, it's gonna take 95, I shouldn't say that, less than an hour, probably, to unload that truck. Not only that, the items on that truck will be sorted by aisle. Along the way, because of our lack of performance with the vendor community, we weren't exactly on the top of the list for on-time arrivals. All right? Something that's been significantly changed. Our trucks, 60% of the trucks' inbound freight came in on time. 60%. That means when the store draws that product, it wasn't even in the warehouse to send it to them. We had delayed store deliveries. We are now in a position where we guarantee a four-hour window. One year ago, a store manager did not know when their truck was coming.
Now, I want you to think about having to unload that truck, and there was nobody there in the store to do it. Of course, that all led to a terrible service level in the stores at the point of sale. As you all know, Dollar Tree was resistant to change. It took a lot of bravery in this building, in this city, to change that price. There was a lot of resistance for it, but it's been done. What happened was, the old philosophy was, it's there's no planogram, but the philosophy was, if the cost goes up and you can't get it down, discontinue the product. Well, we went through the pandemic when the availability of product was diminishing. Consequently, the assortment in the store began to suffer, and it led to customer traffic declining. Our wage structure.
I'm gonna talk a little bit about culture at the end of this meeting. I will be remembered not for turning this company around by the over 200,000 employees. I will be remembered for the culture that we bring to the table, and we have to start by paying people properly. It doesn't mean we have to pay everybody the same everywhere, but we have to have the sensibility to realize markets are different. Because of our pay structure, Mike Creedon's gonna talk to you about the excessive amount of turnover we've had to deal with, particularly at the store manager and district manager level. Our model is predicated on a store manager and a district manager. IT. The underinvestment in IT is amazing.
Bobby's gonna show you all of the systems we're going to update and the benefits that we're gonna be able to get out of that. One of my favorite stories with Bobby, he came in and said, "Geez, Rick, the code is so old, the people who used to write this are all retired now." We're having to go in and rebuild all of our ITs. Finally, I wanna say one thing about Family Dollar. I think Family Dollar is the victim of short-term solutions. Rather than getting out and doing all of the right stuff, what we tried to do was manage it like we were managing an everyday low price operator like Dollar Tree. This is two different go-to-market strategies, and you're gonna hear me talk about this as long as I'm here.
One is high-low, one is consumable retailing, Family Dollar, and one is dead net cost. There is a difference between how you take those to market. Here is again, just a different look at those four key areas. You see average hourly wage, where we're going to reinvest. Repairs and store maintenance, we're gonna get our stores looking like they should look, period. That's coming. Supply chain, I mean this. Mike's gonna talk about this. We'll start shipping out of one warehouse at the end of the year on the roto carts. All right? They. I think the store managers will run me for President of the United States when we start shipping that way because we're not taking those hours. We're gonna reinvest those hours in customer-facing activities.
Last but not least, you can see the ramp-up in IT. The important chart are the two on the bottom, and I would like for you to take a look at the green bars. The green bars are our traffic, our transactions, and as you can see, the things we are putting in place, we are gaining transactions both on the Dollar Tree side and the Family Dollar side, and Rick and Larry are gonna talk about that. One of the top chart in the upper left, one of the things our company struggles with is because of our wage structure, we have a significant amount of stores that do not open on time 'cause they don't have proper staffing. They close early because they don't have proper staffing, and because of the maintenance issues in the store, sometimes they don't even open up.
We have made significant progress on this. Mike Creedon is gonna talk about this, here's the number: If we got every store open when it was supposed to be open, and every store stayed open as long as it should stay open, that's worth 1.5% comp. All right? There's something nice to chase. Now, again, here's an example of what has happened in the markets that we have adjusted our wages in. Number one, this opening late, closing early, we've reduced that by 51% in those markets. Number two, most important, the number of applicants who want to come to work for us has increased by 25%. Number three, on top of how that store's doing, we get an incremental 2.75% increase in sales.
Last but not least, which I think is probably the most important, we reduced store manager turnover by 33%. Again, I wanna reinforce, our model is driven by the store manager and the district manager. All right, this is a new change in philosophy for us. Historically, when it comes time to renovate a store or remodel a store, it's kind of a shotgun approach. You pick a good store, and you go clean it up, you go fix it up. We have arrived at the conclusion that based on the state of the union, it is much better for us to go in and take a market. Here's the very first market we went into, and Larry's gonna talk more about this. The very first market, 17 stores, nine of them are Dollar Tree, eight of them are Family Dollar.
Let's go down to the green bar. Let's look at the nine Dollar Tree stores. We spent $69,000 per store, cleaned them up, straightened up, filled them up, adjusted the wage structure, and the store got an incremental 10% lift on what it was already doing. Most importantly, units, and I'm talking about the stuff we sell, went up 10%, and we got a payback in less than half of a year. That's a pretty powerful return. The Family Dollar side. It took a little bit more money. They were beat up pretty bad. We invested $134,000 per store, got a sales lift on top of how they were doing of 19%. In fact, we had a unit lift of 7.8%, and the payback is two years, which is still outstanding.
Larry will talk about our new market approach and how we're going to capture a market. Small box retailing, I believe, is probably the most attractive retail segment out there. Limited amount of SKUs. The consumer thinks a national brand is a national brand. Doesn't matter if it's Tide, doesn't matter if it's Gain, doesn't matter if it's Del Monte or Green Giant. A national brand is a national brand, which gives us tremendous leverage with the vendor community that we're now starting to put in place. We're in a position now where we have price parity, and we're very proud of that, and we bit the bullet and got it right. Second is convenience. The beauty of again, it's small box, it's easy to get in and out of, and they're much closer to where the consumer lives. Number three, the competitive advantage.
We are beginning now to leverage the potential of 16,000 stores, not 2 8,000 store chains, which was what it was going on a year ago. All right? Larry and Rick are working very close because there is some things that we can do across both banners. Number four, the trade-in. I'm gonna be honest, when people talk about the consumer trading down, I think the economy's driving part of that, the higher end consumer is used to more consistency in store standards.
As we begin to appeal to more and more people, the key driver on this is not only gonna be our price, but it's gonna be the condition of the stores, and that's what we're working incredibly hard on now, and we are seeing a higher income customer trade down. Last but not least, I believe, and I always have believed, there is considerable white space for growth out there, and Mike Creedon is gonna talk about the number of small box stores that we think we have potential to build. Just as importantly, there's room for a lot more Dollar Trees as well. When we're talking about this, it's not just Family Dollar. This is my favorite slide. It's my favorite slide because it talks about the most important thing I learned a long, long time ago, and that's retail fundamentals.
It's interesting. Retail fundamentals is a fancy way of saying fantastic execution. I think as you look at the history of companies, they do a fabulous job of executing, then they get all wrapped up in big-time strategies, then they pull back to execution. We are in the execution stage right now. That's our number one goal here, and we have a, the potential for growth for us is fantastic, and it's gonna start comp sales growth. A lot of people in this room know who I am, I always talk about sales per square foot, transaction growth, and unit growth. Those three things are the key drivers in retail, everything follows after that. We're gonna talk about merchandising today, we're gonna talk about renovations, and we're gonna talk about sales per square foot.
Those are the drivers that we need to get going. Over on the left, new store expansion. It says, "New formats." What that really should say, as I reflected on it last night, it should say, we are maximizing, refreshing the formats that we got. We are seeing a lot of potential on the changes that we're implementing, and Larry and Rick are both gonna talk about that. We're gonna talk about the potential for new geographies. Let's go to the right. Workforce management. When people see that, what they historically think is, well, they're gonna go out and cut a bunch of hours, and that is not what this is saying. What this says is, we're gonna eliminate unnecessary work and redeploy that human capital to customer-facing activities, filling the shelf, getting stores cleaned up, and getting people out of the store.
You know, we have a very, very simple business model. Stuff comes in the back door, it goes onto the shelf, it goes out the front door. What we do is we tend to make things more complicated, that's what we're really, really moving on now. In fact, I'm very pleased. We got a long, long way to go, we are making progress. Last but not least, we have to build the capability of the organization, there are, again, three key areas. We have got to get our IT systems right, we have got to get the supply chain fixed, last but not least, we're gonna get our culture right. We're gonna build a culture where people aren't afraid to speak up. Three key takeaways.
I think you're gonna hear today from the team, we have a very, very compelling merchandising plan in both banners, and we have the steps to get us there. You're also gonna hear about operational improvements. You're gonna hear some really neat stuff in the supply chain. As you listen to all of this, when you hear what we're doing on the merchandising side, the changes that are taking place in both banners, the changes that are taking place on the supply chain, I want you to really note how fast it's coming. I think, again, if you take anything away from today, we are moving at breakneck speed. Part of the beauty of that, you know what? We talk about stuff we uncover every day. "Oh, my gosh, we found this, Rick. Oh, my gosh, we found that.
Oh, my gosh! I gotta tell you all something, we've got a management team that's been there and done that. While we're uncovering stuff, it's fixable. It's simply a matter of us getting it done, and that's what's going on with the team I have in place. We think we have nothing but upside on comp sales growth. Again, I just want to take a moment and reinforce here, why we're talking about $10+ in EPS, and we're talking about that over three years. I want you to remember the upside for us, the upside goes far beyond 2026. All we're merely doing is getting that foundation right, getting that base right. I do believe that we have one of the most experienced...
We have a management team in place in this company for the first time that are all subject matter experts, and it's really, really interesting to see them work together. Here's what the day is gonna look like. Larry Gatta is gonna come up here and talk to you about Family Dollar. Rick's gonna come up and talk about expanded price points in Dollar Tree. Mike Creedon's gonna come up here and talk about the real estate side of the business, our growth strategy, as well as what he's doing to give the consumer a consistent experience inside the store. You'll have Mike Kindy come up and talk about supply chain. Mike is gonna show you, I think you probably saw him out there, how we're gonna ship product to the stores. There's lots of cool stuff on the supply chain.
Bobby's going to come up and tell us how he's going to manage all of the IT issues, and more importantly, he's going to run the old system and the new system together for a period of time, so we don't have to be too dependent on the new system too fast. Jeff's going to come up and talk to you about our EPS and our go-forward strategy, and how he feels where we're going. Here they are. This is Larry Gatta, who is the Chief Merchandising Officer at Family Dollar. You can see Rick there, who's the Chief Merchant at Dollar Tree. Mike Creedon is our new COO. There's Mike Kindy, who's a protege of John Flanigan. The two of them have worked side by side, and they complete each other's sentences. It's really, really good.
We will not miss a beat with Mike. There's Bobby. Bobby's goes back a long way with me. Jen is our new chief people officer. She could not be here today. Jen's son broke his leg in a skiing accident last week, and he's having surgery today, so she sends her best. Then, of course, there's Jeff Davis, who has a long, rich history as a CFO. With that, thank you so much. I'm gonna turn it over to Larry Gatta, and I look forward to chatting with you through the course of the day. Thank you all very much.
Good morning, everyone. How is everyone today? I'm so excited to share with you today our Family Dollar transformation. My presentation today will be focused on our key operating priorities of improving sales productivity and enhancing gross margins. Family Dollar now has the most diverse customer base in retail. Over 50% of our sales come from non-white shoppers. This speaks to our continuous opportunity on tailoring our assortment and marketing across our customers' demographics. This is probably the money slide. Everything starts with our customer. We put the customer at the center of everything we do. Every vendor meeting that I sit in, every vendor meeting that my team sits in, it starts and ends with our customer segmentation to ensure that we are meeting their needs and shopping experience. Our most loyal customers are Patrice and Peggy. They represent close to 50% of our sales.
They are under severe pressure. They live paycheck to paycheck. It is our job to stretch that paycheck. We are excited about our new trading customer, Emma. She now accounts for over 14% of our sales. Over the last four quarters, we picked up a net of over 2 million new shoppers. We are also geographically balanced footprint. 24% of our stores are in urban, 42% are in the suburbs, 34% of our stores are in rural. Our urban stores are our most productive on a sales per sq ft and gross margin based on company average. Doesn't say that we don't have a lot more opportunity in our urbans, because we do.
Our largest opportunity, though, is on both sales and square feet and gross margin are in rural stores, which account for about 34% of our sales or 34% of our stores. Our rural stores have our highest consumable mix, we feel there is a significant opportunity to drive sales and gross margin based on our forthcoming strategies. Price is the number one motivating factor for our customers to shop at Family Dollar. At looking at this chart, you could go back to Q1 of 2022. We were at a 104 index versus our competition on the full book. That represents close to 7,000 items. Our full book is represented by that blue line. The yellow line is represented by our known value items.
These are our top 700 selling items that are price shopped on a weekly basis across all major market areas. The full book is price shopped on a monthly basis. Since the third quarter of last year, where we made our investment in the second quarter, we are now in the best price position versus our competition in over a decade, consistently at price parity. Our pricing actions, promotions that get customers off the couch, and planogram optimization has led to traffic and ticket growth. Significant improvement in trips from last year. If you could look at last year again, when we didn't have our price investment, 3.7% in the Q1 versus 2022, versus 2023 at a 4.1%. Additionally, look at the basket growth. Significant improvement in our basket growth, and it continued to accelerate.
We are now taking back share. Q1 was our highest share growth in over 15 quarters. We came up with a 10.7 share growth versus the market at an 8.9%. You have to go back again. If you look at Q1 of 2022, we were at a 3.5%, while the remaining market was growing at an 8.8%. Most importantly, Rick talked about it, right? Is unit share. We have our highest unit share growth in over 14 quarters. We are super laser focused on growing units because this provides us with a more sustainable long-term strategy. We are at a +0.8%, while the market was down 2.1% in Q1 of 2023.
Once again, go back to Q1 of 2022, prior to our price actions, we were at -8.1% on units, versus the market at -1.2%. Shifting gears and focusing on how we're going to improve sales productivity and enhancing gross margins. First is our emerging formats. We have three distinct formats to support our customer base. Our first is our new H2.5, which we embarked on in Q3 of 2022. Our H2.5, again, our primary format, has selling sq ft of 6,700- 8,700. In our new H2.5, we improved the overall shopping experience by fixing the adjacencies. We removed the dry aisle, which was a previous space dedicated to displays and the wow bins down the main aisle of our store.
Thinking about this, and to put this into perspective, all we did was put gondola in, 24 ft of gondola. By adding that gondola, it equated to an incremental 60 stores based on our 2023 projects. That incremental gondola enabled us to expand categories that had a significant leakage and that our customers were asking for, such as personal care, pet, seasonal, which is that treasure hunt, frozen food, immediate consumption, energy, and tea. In the fourth quarter of this year, we're gonna be launching Hispanic foods and beverages in our highly penetrated Hispanic stores. We have incorporated a new customized endcap displays that enhance the overall shopping experience in our H2.5s. The likes of Coca-Cola, Frito-Lay, Procter & Gamble, and every one of those customized endcaps has a value offer for our consumer who's looking for value.
We will end Q1 of this year, I'm sorry, with 500 H2.5s. We'll have an estimated 700 additional stores completed by this year. The results are really encouraging, 8% more sales and 14% more cash contribution. This is the overview. This is our format. This is the H2.5. You walk into the store, down the center is our seasonal. To the left-hand side of the store is our consumables, in the back is our highly penetrated categories, such as paper, but this is kind of a typical gondola. What you're gonna see, especially in consumables, is congruent shelves. Everything will be billboarded. No longer up and down, everything is gonna be straight across. A more compelling shopping experience for our customer. Our next format is our rural.
This is really the complement to our combo strategy. These stores are over 8,700 selling sq ft. Once again, these stores have all the H2.5 elements, along with a broader seasonal selection. We are maximizing the Dollar Tree seasonal assortment. All the work that Rick McNeely and his team do in order to create that treasure hunt, that thrill of the hunt, we're capitalizing on that opportunity. We optimized and got more prescriptive on our Dollar Tree assortment, focusing on the categories that grew incrementality in both dollars and in units. This freed up additional space and allowed us to expand to 34 doors of cold space with the additional consumable categories. In those 34 doors, we're adding frozen food, private label frozen food, vegetables, frozen food, fruits. We're adding protein chicken, more items, more selections into the coolers.
Furthermore, we developed a more engaging, impulsive front-end queue line. We now have 188 rural stores completed as of Q1, with an estimated 200 more for the remaining of this year. Look at the results, 20% more sales and 22% more on cash contribution. The last format, which I'm extremely excited about, is our extra small box, also known as XXB. This format is less than 6,700 selling square feet. There are hundreds of stores across our store base that have not been remodeled in years due to the fact that they didn't meet our primary format side. The extra small box stores are individually optimized based on space and sales productivity. Some categories are contracted, some expanded, some will be eliminated based on the overall market criteria and store performance.
It's a very thorough heat map process that we go through, making sure that we optimize the box. This unlocks additional real estate opportunities, especially in space-constrained urban markets. This year, we will complete over 1,000 remodels, and our plan is to accelerate our remodels every year. Rick talked about it. About six months ago, we began testing market-based renovations, and we are super pleased with the outcome. We are now embarking on a larger market renovations, with close to 50 stores being updated to our newest format. We have all cross-functional teams assembled to ensure we deliver to the highest level of execution. We are leveraging all the efficiencies, and in the fall, we are planning on a major grand reopening of this key market. Shifting over to expanded and improvement in the assortment.
After price, assortment is the second motivating factor for our customers to shop with us. We will introduce, as Rick talked about, over 1,900 new items into the mix that our customers are asking for. About 1,000 items will be deleted. They did not meet our movement criteria, with a net of 900 new SKUs. This will maximize our sales and our space productivity by merchandising now to 78 in instead of 72. That's like adding an additional 300 more stores into our arsenal. That space is free, remember that. We will be completing this year 25% more resets, with the goal to have every planogram reset in 2023. Finally, we are strategically increasing our shelf promotions to drive multiple purchases, buy two and save, that are being subsidized by our vendor partners.
This, again, we are a limited SKU retailer. In a lot of cases, we can't carry those larger sizes, but when our customer wants that value, we're going to give her that value. The first of the month, she's looking for value. At the end of the month, she's looking for more affordability. We talk about assortment localization. This speaks to the importance of localization. We tailor our assortment based on the demographics, demand index, shrink, and store volume now. Even though 85%-90% of the SKUs may remain the same across all stores, we have to alter our assortment to serve our customers. Just some examples of a localization. Look at pet. We now have 350 versions of pet. It's based on cat population, dog population, large bags, small bags.
There's a science behind everything we do, and we're working with our vendor partners, too, in collaborating with them on optimizing each and every one of our planograms. We also, because shrink is top of mind, we have more shrink protection, more shrink planograms than we ever had before. This is an example of a most recent reset, condiments. Kind of gives you the picture, right? You see on the left, the 72 in, and on the right, the 78 in gondola. We added two additional shelves. We increased the SKU count by 20%, and we got the same amount in comps, 20%. The next example is in bleach.
We merchandise again, 78 in, gives us more holding power for faster-turning categories instead of products sitting in the back room. Remember, 98% of our stores get one delivery a week, and those stores that have a higher rate of sale might have to have backstock. This now pushes all that inventory right to the shelf. In dental, we enhance the assortment and address navigation and point of purchases. It is imperative we become the dentist on the shelf. We must now educate our customers on the importance of regimen dental care. Just think, an average African American child does not go to the dentist until the age of 14. An average Hispanic child at the age of 16. We have to be there to, again, help them through the regimen.
We currently have 38% of our resets optimized, with a goal of 100% completed by November of this year. This will be the first time in over 10 years that Family Dollar has fully optimized every one of their planograms in one year. Next is private label. Our customer needs more value and more trusted private brands than ever before. We are in the process of improving our entire private brand presentation with our customers based on full insights from qualitative and quantitative research. We are in an initial process of completing our brand refresh in a more defined brand architecture. We will introduce new brands such as Family Beauty, Family Flex, and Sweet E in the second half of this year. When you go out to the expo, you're going to see some of those live samples.
All other consumable private brands will be refreshed throughout the course of the year. We recently opened our test kitchen back in February of this year. This now allows us to enhance our quality controls with increased testing and rigor. We test not only against national brands, but also leading retailers' private brand items. Our new Family Wellness rolls out starting in Q4. We plan to launch over 70 new items in over-the-counter. 300 new items will transition from a control brand to a private label under Family Wellness. What does a control brand look like? On the left, you'll see the control brand. On the right is our Family Wellness. Our new private label vitamin line, once again, outside of the expo, we're launching 35 new SKUs in Q4 at an incredible value.
This truly speaks to the value of private brands and what it delivers to consumables. Think about this, 11% of the SKUs accounts for 23% of our comp growth in consumables and 19% on gross margin. The importance of private brand. By increasing our private brand share by 100 basis points, is now worth 14 basis points in consumable gross margin. We will be expanding our share from a 14 to a 20 in less than four years. In the Q1, we grew our share by 80 basis points in Q1 on private brand. Our last initiative is enhanced marketing. The goal is to build a stronger relationship with our customers through our enhanced digital capabilities, to help her do more with her money. We talked a lot about what we're doing internally, but we gotta also win externally, too.
70% of our customers are influenced by digital. We are improving our digital experience through rewards and engagement, a more end-to-end shopping experience. Emily Turner, our Chief Marketing Officer, outside the expo, will be sharing all of our new capabilities. This is our new print ad. We talk about having the right items, right? The right items, the right price, the right promotion, the right placement. Getting items that get the customers off the couch and into the stores. We made the ad a lot more cleaner, more impactful. This is both print and digital. In summary, this is our path to success: to improve store productivity and enhance gross margins. The journey continues for Family Dollar. We will remain focused on delivering across all of our operating priorities.
Our customer needs us now more than ever. It is imperative that we continue to deliver value and convenience that she expects. I would now like to turn it over to Rick McNeely, our Chief Merchandising Officer for the Dollar Tree side. Thank you.
Great job! Good morning. I'm thrilled to be here today to share with you our transformational journey that's underway at Dollar Tree. A journey that is already driving comp sales, a journey that's returning us to attractive gross margins, quite frankly, a journey that the customer is responding to. Everything we do starts and stops with the shopper. Our first priority is our retail customer, we also see our stores as our customer. 8,000 store managers depend on us for assortment, simplicity, a way to take care of these shoppers. I wanna walk through how we think about the shopper. First, you'll see the passionate. Represents 25% of our sales, 4 million households, a staggering 69 trips per year from that shopper.
Our monthly shoppers, 21 million households, roughly 50% of our sales, she's shopping us 22x a year. The two that we're gonna focus on, the infrequent, 20% of our sales, $66 million, or 66 million households, are only shopping us 5x . The question is, why? What do we do to move her to monthly? The most exciting, though, is our new shopper. In the last 52 weeks, Dollar Tree's gained 3.3 million net new shoppers, representing about 5% of sales. The good news is she shopped us 5x . The other good news is our average transaction is $12 in the fleet, and her basket is over 14. What we're gonna talk about next is, what are we going to do to retain that shopper?
We need to make sure that we have clean, bright, well-stocked stores, great values, fun, friendly, and well-located, that Mike Creedon will talk about. The other key point is Dollar Tree has 94 million annual shoppers, and that's the 4th highest in all of retail in terms of household penetration. We intend to focus that and move that number up even higher. Every household should shop at Dollar Tree. I'm gonna briefly share with you the rationale and the success of breaking the dollar price point. We're gonna spend more time on the Dollar Tree Plus initiative and its evolution. We've talked a lot about multi-price within frozen, and we're gonna talk about where we are there and where we intend to go. Finally, the opportunities that are ahead. All of these are designed to drive productive sales while enhancing margins. Breaking the dollar worked.
It was the first step forward in returning us to solid, positive comp sales performance and allowed that restoration of attractive margins. Year one produced a 9% comp, most importantly, we broke a link to the past. We had everything $1 on all of our customer-facing elements, from storefronts, to walls, to signs, to shelf tickets, shopping baskets. It was everywhere, so we needed to cleanse the stores of that. Finally, the most important part, this is the gateway to the future. We now have the platform to expand our assortment and our price points. While we did move the opening price point for the assortment to $1.25, that is not our expectation for the future. We're extremely focused on delivering compelling value to customers on new product at a different price.
We will have a limited opportunity to move on some of the current assortment that's $1.25, based on where the market's moving and our competitive situation. There again, we're always going to deliver value, regardless of the retail. Also, the $1.25 price point allowed us to bring in a more compelling proposition, a more complete shopping experience, and an opportunity to gain more share of wallet. Here are just a few examples of the items that we enhanced the value proposition. Sunny Delight juice went a 40 ounce to a 56 ounce when we moved from $1- $1.25. The 2 L water increased to a liter and a half. Cookies, we moved from 11.8 oz-1 6 oz. These are just examples of over 1,200x that we reinvested some of that $0.25 to get better value while enhancing margins.
The items on the left are items that were discontinued, as Rick Dreiling mentioned. When the price went up, we had to either drop the item, resource the item, or de-spec. In this case, these items dropped from the assortment completely. The items on the right are examples that never worked at $1, but now work at $1.25. Breaking the $1 also restored long-term health of comp sales. The four-year comp CAGR demonstrates the comp recovery that's driving those at attractive growth. The solid line is the total banner. The bottom line is consumables, which has been under pressure for a number of years, but is showing a solid rebound. The top line is discretionary. It was always good, even got better. Our unit share has also improved in consumables. As you see, from Q2- Q4, a solid improvement.
Units went positive in Q1 and continued to improve. The customer is responding to what we've done. Here's some examples of market share, we track market share at units at Dollar Tree because of the price point. In Q1, we had a 13% growth in unit share in candy, that's on top of a 12% growth last year. Grocery grew by 2.3%. Frozen grew by 1.6%. Health and beauty, 8%. Household, a large department, phenomenal growth at 12.6%. Finally, pet, 3.3%. These are just a few examples of our consumable categories and the growth that we're seeing there. I'm gonna now walk you through Dollar Tree Plus, what's been done, what we're doing, and what we intend to do. First, we'll talk about the rationale of pricing above $1.25.
It's driven by data from Numerator, and what we found was our shoppers, our best shoppers, were spending more than 90% of per wallet outside of Dollar Tree at an average price of $3.93. They were buying from competitors after leaving Dollar Tree. As the 6th largest importer in terms of TEUs or shipping containers, we have the core competency to source better than anyone. Global sourcing is a distinct advantage, both strategic, and we have the foundation and the right to win there. Many of the new categories that are opened up to now at $1.25, did not work at $3.00, $4.00, and $5.00. The world is our oyster. We have the right to win here, and our customers are buying it. They're just not buying from us.
They are now in the early stores, we have an ability to expand that even further. This initiative started in 2019. It's just core to our assortment strategy. We finished 2022 with 2,500 Dollar Tree Plus stores. We intend to add 1,800 stores more this year. Today, the assortment's mostly discretionary. We're expanding that into consumables, which I'll share with you in the frozen, in a minute. At the end of the year, we'll have this now in seven distribution centers and over 4,300 stores. More than half of the fleet has been converted to Dollar Tree Plus. Multi-price is also driving comp sales. The Halloween and Thanksgiving examples are outsized because of COVID and the COVID rebound.
If you look at Christmas, we drove a 6% comp with the addition of multi-price. In Valentine, the fleet was at a 4% comp at $1.25. Aided by multi-price, we drove that comp to a 10% for Valentine. Finally, in Easter, a 2% comp in the fleet, but we had a 12% comp in stores that had Dollar Tree Plus. Dollar Tree Plus is driving comp sales. We're gonna walk through some examples of multi-price, what we're currently doing, and what we intend to do there. We started the year with two major initiatives. Dollar Tree Plus was the major initiative, and I said we are on track for 1,800 stores and 4,300 by the end of the year. The second major initiative was frozen.
We ended the first quarter with over 4,000 stores converted to the frozen assortments, which you're gonna see in the expo outside. We intend to add another 1,600 stores this year. It's driving traffic. The customer is responding very well. The price points are absolutely no issue. The customer is loving what we're doing. In parallel, we're looking at the existing assortment, and we're augmenting with new opportunities inside of that. I've got one example here, helium-filled balloons. The margins have been compressed over time. The helium shortage has driven costs up. The marketplace has now moved to $2 on opening price point. We tested 142 stores in April at $1.50, and we experienced zero unit decline. That allows us to upgrade our offering.
We can add more value, we can add licensed product, a better value for the shopper as we take the price point to $1.50, still well below the market. We continue to be the price leader. You'll also see the Hallmark greeting card set in the expo. It's the same assortment, same footprint. We took the mix from 1/3 $1 cards, expanded that to 2/3 of the footprint. We reduced the two for $1 to 1/3. The quality is the same, made by Hallmark, tremendous value. We simply remixed. We started with our highest volume stores in April, 1,500 highest volume greeting cards. We're running at 11% comp in that category. Again, the customer is responding to better values at the price point. All stores will be complete by January.
I mentioned 11% comp, that's growing. You're gonna see that assortment, it is the best greeting card assortment in retail. We're also adding a prepaid gift card suite. We piloted two stores in March, expanded to 50 stores in May. We're on pace to have the entire chain set by September. This is driving traffic. It completes our shopping experience. Also inside that transaction, 48% of the tickets have high-margin greeting cards, 60% have high-margin party, which is one of our largest departments. These are working well together. We tested branded bread. We're expanding that to 400 stores this year. We've got work underway to expand that even further. Branded ice cream was added to 1,400 stores in May on a direct store delivery. Very positive initial results. We're adding another 1,400 stores this year.
It is now on pace to be the most productive frozen door that we have, and the newest. We've upgraded our ice program from a 5-lb bag to a 7-lb bag. This is an example where the 5-lb bag was basically custom-made for us. The market was at seven. We did convert 2,800 stores in the first quarter, driving 11% comp. We're adding 2,100 additional stores this year at $2. We improved the margin, and we improved the value for the shopper, and we've also improved sales. It's a prime example that Rick mentioned. We were on the verge of losing the ice program at $1.25. It was custom-made. The vendor didn't want to make the item. They were raising the price, and we had nowhere to go. By the way, ice is in the top 50 every week.
It's a key item for us. The customer's loving it, now it's working at $2. Just another example of what we have in terms of future opportunities. We're testing a $3 door of frozen and refrigerated in California in 140 stores. Very positive reception early. We're looking at the performance and looking at a rollout schedule there. This is an example of where we were and what we've moved to. At $1.25, we found ourselves really a single-serve or a novelty offering. As we moved to $3, $4, and $5, the assortment became a destination. Meal solutions, we've added protein that fell out of the assortment, the branded ice cream that I just mentioned.
All of these are now making us more relevant, providing a better shopping experience and a more complete shopping experience. Here's the validation that the strategy's working. After multiple years of double-digit comp declines, the inflection point has been reversed and is directly attributed to the multi-price assortment. Comps are now running in the high teens every week. We only have three of our 10 doors at $3, $4, and $5. One door at $3, one door at $4, one door at $5. We have a plan that I'll talk about the expansion there. As we look at where we started, the top bar, the gray bar, is where we were 18 months ago. All 10 doors were $1.25. The middle section is where we are today, seven doors at $1.25 and three doors at $3, $4, and $5.
You look at the future of the opportunity, eight doors will be at $3, $4, and $5. two doors will remain $1.25. We expect to fully deploy this by 2025. Multi-price is also driving the ticket. When a Dollar Tree Plus item is in the transaction, the ticket's over $26. When a multi-price frozen is in the ticket, it's $27, and that compares to the chain at $12. I'm now going to spend a few minutes talking about the opportunities ahead as we see them, and there's many. The key tenets of multi-price for us, number one, opening price point will remain our core assortment. We will build upon that assortment. I will tell you that there's roughly 300, maybe 400 items that we're looking at the price, we're looking at the marketplace price, and we're going to move back to $1.
The key unlock there was price clarity. Before, we had no way to shelf label. We didn't have the technology we needed. A major unlock that I'll share with you in a minute, we find that is important, and we're attacking that now. We're gonna add multi-price to the assortments that give us a compelling value proposition, but they also complement the current assortment, and they need to be incremental to our core business. We intend to have limited and fixed price points. We're not gonna have every price under the sun. I mentioned that the price that we're looking at on the opening price points, price clarity is gonna be a key issue there.
We're looking to add additional purchase occasions and allow her to complete her shopping trip in size and brands that matter, in size and brands that we have not been able to offer in the past. We're gonna gain leverage through higher sales. We're gonna deliver that price clarity to shelf that's so important. We're gonna focus on store execution as the key success factor. We're going to keep it simple. We don't believe we need to move into a high-low situation. We're gonna remain the Dollar Tree that the customer loves as we add better and incremental assortments. We're partnering with A.C. Nielsen and Numerator for data analytics. In the past, really wasn't necessary for Dollar Tree. We wanted all the product we could get at a price. Market data and insights really didn't matter. This is new for us.
It's a new muscle we're developing. We've added a lot of expertise there. We're actually leveraging a lot of Larry's team because they pioneered this. They're the best in class in terms of prices, the multi-prices. We're using this data to prospect where do we go first, and then where do we go next? I've only listed four examples here out of probably 20 that we're looking at. In household products, there's a $50 billion-$60 billion addressable market, and Dollar Tree only represents 2% of that total. If you look at by price point, there's $2 billion market from below $2, and from $2.01-$5, there's a $12 billion market in that category. In health and beauty care, there's a $121 billion market. We represent less than 1% of that market.
The market at below $2 is almost $3 billion and $16 billion at $2.01-$5. Huge opportunity there. Most exciting is food, a $500 billion market, and we're less than 1%, and $52 billion is available to us at $2 and below. From $2.01-$5, there's another huge market that is untapped for us. That's where we're going first, and this is our future. Not only have we've upspec'd 1,200 existing items at $1.25, we've added that, complementary items that we could not offer before. The $1.25 headphones we upspec'd. We increased the count on basic dough for kids. The seasonal items to the left have all better value, larger sizes.
At the same time, you see the items on the right, an over-the-ear headphone that we couldn't carry before, gaming accessories, earbuds. We've added branded items like Play-Doh, full-size door grease, and battery-operated decor. The $1.25 also allowed us to bring in branded candy, national brand toys, and even better values in seasonal. Imagine large Easter candy, Halloween candy, and Christmas candy at $3 and $5 that we have not offered before. Dollar Tree sells over 50 million Christmas ornaments. Imagine the possibility of adding light sets, Christmas trees, to complete that shopping experience. She's buying them somewhere, she's just not buying from us, yet. Imagine a back to school with backpacks, lunchboxes, Crayola products. She's buying those, and we intend to be that source.
We're targeting key consumable areas that I mentioned for multi-price that include healthcare and baby, snacks, beverage, seasonal candy, pet, and finally, center store. On the discretionary side, with the rollout of Dollar Tree Plus, we capture seasonal, which is our largest department, toys, electronics, apparel, which is basically license-holding T-shirts, and all of household, closet, storage, plastic, as well as home decor and candles. Huge unlock! As we expand the assortments, we're gonna be working with Larry and his team to leverage our buying power, to leverage the synergies that we have. In terms of private brand, when I need a $3 laundry, I just knock on Larry's door. We combine the spend, we combine the buying power and the leverage of the distribution. It's theirs. They've done the heavy lifting.
In terms of operating efficiencies, we're raising the gondola height, like Larry mentioned, to 78 in. This is really key. From 60 in- 70 in adds 100 linear selling space to a typical store. If you look at that on a rollout, that would equate to over 600 new stores where we own the air rights. There's no additional expense. We get more selling space, we can decrease cases in the back, we can get more holding power on the store, easier for the stores to run, more productive, and it's a win for everyone. You're gonna see that on display as well. In this seasonal set outside, we get 22 more cartons of seasonal at $32 a case. It's out of the stock room and on the sales floor. Big unlock there.
When we add a Dollar Tree Plus assortment, we have to decrease 100 linear feet of selling space at $1.25 to make room for Dollar Tree Plus. With this, it basically eliminates that. We keep the standard assortment as we cut Dollar Tree Plus in. Space and productivity, it's gonna be a focus for us moving forward as we right-size the assortment. We're gonna dense up the sales floor. We're gonna reduce freight in the stock room. You're gonna love what you see there. The stores are loving that. Right now, we're rolling it out to conversions, remodels, and new stores. We have a plan to roll out 1,000 new stores with the higher fixtures next year. I mentioned price clarity. That's job number one, 'cause our customers know Dollar Tree for single-price retail.
As we cut in multi-price, she doesn't need to be surprised with what is the price. Working with Bobby Aflatooni and his team, we've got a new technology on shelf label. Every warehouse carton that we ship will have a removable label that will drop into the shelf strip with the item and price that meets the most stringent pricing requirements of unit measure. Simply stock the product, drop the label in. It also has an adhesive that will stick to the license plate on the peg. We believe we've solved the majority of our issues with price clarity. We're gonna continue to grind on that until we get it right. In addition to that, we're gonna pre-price in the artwork in all of our imports, the pre-price on the package, so the stores only have to stock that.
By the way, that represents over 40% of what we sell. We believe we have the right approach, working really close with Mike Creedon and team. We know it's paramount for the customers to understand the item and price. All of that is designed to run a better store, a more efficient store, and the stores that the shoppers love to shop in. I'm gonna spend just a few minutes talking about the opportunities that are ahead of us and the key takeaways. The journey is far from complete. We've made progress. There's much more to do. However, the path forward is crystal clear, and it's bright. We have more runway ahead of us than behind us.
We're gonna leverage those 68% of the household penetration to gain even more share. We're gonna increase that 68%. With a keen focus on convenience and value that Dollar Tree is known for, we're gonna keep simplicity in the model. Complication is not our friend. That's gonna drive the productivity we're looking for. Nobody owns the thrill of the hunt and treasure hunt like Dollar Tree. We're gonna continue to make that a cornerstone of what we do. Our strategy starts and ends with the shopper. We're gonna retain our position as the destination for value, regardless of the price point. I have the honor now to introduce my partner, Mike Creedon. Thank you.
All right, good morning. It is not lost on me that today is the longest day of the year, and I'm the one standing between you and a 30-minute break. Appreciate you hanging with us, and I need you to hang with us because all of the exciting things that you hear from Rick and Larry, the changes they're making in assortment, the changes they're making to the store, the new customers they're inviting in, all of those changes, all of that excitement comes to life in our stores. When we look at our stores, we look at it in terms of our worker, our work, and our workplace. In fact, if you go into my office a couple miles down the road, you'll see on my whiteboard behind my desk three things. These are our North Star.
These are the things that I focus on every single day. It's make it easier to work here, it's a career, not a job, we're gonna build it to last. I tell my team, whether it's the real estate development team, whether it's store operations, the folks that operate Family Dollar, the folks that lead Dollar Tree, if you're doing something, if you get confused, if you're not sure of what you're doing, go back to those three, 'cause that's what matters the most to our associates, that's what matters the most to our customers.
I tell them, "Folks, we need to wake up every single morning, maniacally focused on our worker, our work, and our workplace." When we take care of our associates, when we make it easier to work here, when they stay here because it's a career, not a job, when they know we're not kicking the can down the road, and we're building it to last, they take care of our customers, and everything else takes care of itself. Looking at our worker, I want people beating down the door to come work at Dollar Tree, Family Dollar. I want to be a talent magnet in retail. To do that, we have to pay a competitive wage. You heard Rick talk about that earlier, we have made investments in our wages. This is about more than money.
We have to train our people, invest in them, show them how to do the job. We need to show them a career path. There are very few companies where you can go from hourly associate, to running your own box, to running a district, to being a zone leader in the amount of time you can do that at Dollar Tree and Family Dollar. In fact, I have two of my zone leaders, so there's six for each banner. two of the ones on the Dollar Tree side as cashiers. They're now zone vice presidents, and I'm very proud of the 63,000+ promotions since 2022 alone. Think of that flow.
When somebody's talking to you about an extra $0.10 o r $0.15 , the first thing we do is we talk about our total compensation, our benefits, and we talk about that career path. Where do you wanna go? We have the examples of people you can look at who have done it before you. Our focus is paying off. We talk about Big Three turnover. The Big Three are the most important positions in our company. This is our district manager, our store manager, and our assistant store managers. You got one that manages freight, one that manages front room cashiers and all that in most stores. The turnover in every single one of these, and this is on a trailing 12-month basis, has come down period after period and has come down significantly. Why has it come down?
Wage investments, yes, are a part of that, but telling our story to our associates, letting them know we're going to invest in your stores, in the assortment, we're going to make it easier to work here. We are making it easier to work here, and we're making the workplace better for you to work in and better for your customers to shop in. All of those pieces come together to drive turnover down, which is so key. When you have folks that know what you're doing, when you have folks that attack a holiday season, having years of experience doing that, it makes such a difference in our performance, and it's why we focus on it so much. I'll transition now to our work, making it easier to work here.
It's important that it's a career, not a job, but unless we make it easier to work here, we're just not gonna make the progress we need to make. Someone told me, Rick talks about it, this is a simple business. It is. Retail is simple. It's not easy. Two big differences there. We engaged with a third party to come in and do a thorough, activity-based, engineered standards review. We tore apart every activity we ask our folks to do. We observed hundreds of thousands of activities in our store, events, whatever you wanna call it, checking a customer out, sweeping a floor, stocking a shelf, unloading a truck. We looked at all of those, tore it apart to find opportunities to make it easier to work here.
We looked at the workload planning, making sure that the bottom of the funnel, the store, is not overwhelmed by all the great ideas in the top of the funnel. We're investing in technology. We know that we need to make it easier to work here by making these tasks easier. Eliminate some? Yes. Rick tells me all the time, "You know, the best way to improve something? Eliminate it." You don't have to make that mistake again. We have looked at that, eliminating some of the tasks and putting our folks towards customer-facing activity. The tasks that we have to do, we're leveraging technology to make it a little easier to do it. Bobby and his team have just been incredible partners for us in terms of doing that.
If you ask any associate in our store, I walk around with my iPad and my Apple Pencil, I always tell them the last thing I say is to the store manager or the associate, say, "If I could turn this into a magic wand, what would you have me do with it?" Every single time they talk about freight. If we truly want to make it easier to do here, freight processing is where that happens. Mike Kinde is gonna talk about it a little bit more later. Our roto carts or RCs, as we call them, you'll see some out there. That is the key to us. You heard Larry and Rick talk about expanding holding power on the sales floor.
When they talk about a sky shelf, or they talk about going up to 78 in, that's cases, hundreds of cases, over a thousand cases, that get out of the back room and get into our front room, which is a lot easier for us to manage. As I look at our workplace, where it all comes to life, whether it's a Dollar Tree or a Family Dollar, we're gonna transform the workplace. Going around here and looking at each of these, you'll see that we're gonna take the roto cart to the RCs for both banners. Now, instead of loading off the deck of a trailer, instead of having 4, 5 people waiting for a truck to arrive, it's as simple as open the back door, the truck's here. Driver, he or she rolls them into the back room, and our folks work them.
Looking at the movement of 78 in and sky shelves and cap shelves in both banners, this gets more product out to the front floor. We want to transform our back rooms from storage rooms to just receiving areas. We want that product not to sit back there, where it has no chance of getting sold, but to sit on the front floor and flow out there. Investments in the technology I mentioned, self-checkout we're looking at, investments in the maintenance of the stores, I'll talk about a little bit, making them look and feel better. Finally, shrink is on every retailer's mind. We're leveraging technology. We're partnering with Larry and Rick on the merchant side and their merchant teams on how we can defensively merchandise. We're training our associates.
Our key to battling shrink exists within our four walls in training our folks. I call it extreme customer service. "Can I help you? I see you have a lot of items. Perhaps you could use a basket. Why don't I take some of that and hold it at the front for you so you can keep shopping?" Training our folks and then also training them in de-escalation to make sure they're prepared to keep themselves safe and keep our stores safe. You get the worker, the work, and the workplace, you make all this progress, and everybody knows, I'm sure, in this room, the Hawthorne effect. You shine a light on something, it gets better. As soon as that light shifts, the focus shifts, it goes back to where it was. The key in retail is sustaining your improvements.
I want a consistent experience in 16,000 stores across 200,000-plus associates. That's my number one goal. I want someone to walk in, I get feedback all the time. We get letters. There's nobody in this room that doesn't shop at a Dollar Tree or know people that do or get feedback on a Family Dollar. I want it to be consistent. How do we keep the improvements we're making, the improvements in turnover, the improvements in facilities, how do we sustain that? That's where this year we launched our GOLD program, Grand Opening Look Daily. What we discovered early on, our people didn't know what good was. The can had been kicked down the road prior to acquisition. Post-acquisition, it got kicked further.
You had, with the level of turnover we saw, in some cases, 2x in certain positions, like DM or store manager, they're brand new. They've never been through a holiday. Last holiday, we had 38% of our store managers never been through a holiday. How do you sustain it? The first thing we had to do, I'm big on accountability, but I'm not gonna hold somebody accountable when I don't tell them what I'm holding them accountable to. With the GOLD program, we took one store per zone, so six at Family Dollar, six at Dollar Tree. We certified that store Grand Opening Look Daily. Me, my leadership team, we invited our executives in. Those 12 stores are gold. They stand tall. Invited each of the regions, so we have about 34-36 regions per banner.
We brought those regionals into each of those zone stores. "This is what good looks like. This is GOLD. Now you go out, and you certify one store per region." That's where we get to the 72. 72 GOLD stores. We brought the district managers in. "This is good. This is GOLD. This is what your stores should look like." They went out, and we're just wrapping up now. We have over 1,100 GOLD certified stores. These are, every single store has every single district has a store where you can invite store managers in, bring their teams in, and say, "This is GOLD," and then we take it to the chain. We love what we're seeing.
At Dollar Tree, if I look at the 12- 14 weeks before going GOLD, and the now 12 weeks and counting, after going GOLD, we saw almost a 7% lift at Dollar Tree and almost a 4% lift at Family Dollar. We love what we're seeing when a store goes GOLD. You get this discipline, you get this investment, you get this focus. To me, that focus, sustained over time, is what earns us the right to invest in our real estate and to grow our stores. We earn the right to open more stores, to renovate old stores, and to modernize our store base. We wanna get to a point where we're opening 1,000 new stores per year.
We're renovating or making the DT Plus or multi-price investment in over 3,000 stores per year. We constantly are optimizing and modernizing 5,000 stores. Not episodic, not because we had an issue, because it's part of our DNA. It's part of what we do with our stores. In our new store strategy, we're gonna own suburbia on Dollar Tree. Talk about those new customers coming in. Those new customers are coming from a higher income bracket. Those new customers are in suburbia. We're gonna continue to grow Dollar Tree there. You saw Larry's slide, talked about the penetration in suburban America for Family Dollar. You see the opportunity to grow in urban to grow in rural. What I'm so excited about with the SBX or the small box, is we've got a strategy to win in urban.
When you can get below 6,700 sq ft, there's a lot more real estate that becomes available to you in urban. The work that Larry's done on our rural strategy gives us a tremendous amount of green space to grow Family Dollar in rural. In addition to opening these new stores, we've got an outsized opportunity to grow share with the stores we already own. I love when Rick McNeely talks about, "We already own that airspace." There's no new permitting, there's no new lease, there's no new landlord to deal with. When we look at these projects, Family Dollar renovations, 1,000 per year over the next couple of years, you look at the Dollar Tree Plus and the multi-price rollout, over 2,000 projects per year, and you look at that optimizing and modernizing stores.
Let me give you a sense of this scale, 'cause, you know, 1,000, 2,000, 5,000 here. Let me just give you a sense of what that means. We open 10 new stores per week. We renovate about 20 Family Dollars a week. We have 40 Dollar Tree Plus multi-price renovations going on every week of the year. Then you throw in about 150 touch the store projects. It could be simple. It could be changing out a gondola or a reset. It could be making an investment in floors or fixtures, about 150 of those per week. That's the kind of scale, that's the breakneck pace that Rick is talking about. It's what gets me incredibly excited.
What's interesting is, when you talk about that turnover, our people love when we're making investments in their store. They want a better place to work. Our people are our customer. They live in our communities. The pride they have when we go to new stores blows me away. In fact, Larry and I were at one of our small box stores about four weeks ago, and a woman came up to us, and she said, "Do you work for Family Dollar?" I said, "Yes, we do." She said, "Can I give you this card?" She gave me a handwritten card thanking us for what we had done to her store. She said, "Nobody cares like you care." It was a powerful moment.
We, of course, saved that card. The customer and our associates are loving what we're doing, and they're showing us by staying. You see those applications up, too, that Rick talked about. Bringing it all together, you know, the new store development, contributing on an accelerated basis across both banners. New stores, renovation, multi-price, and most importantly, a new disciplined approach to building it to last, to not having it be event-based or somebody made us make this investment. It's all about optimizing and modernizing our stores on a schedule. We, in fact, in our new stores, P&Ls, pro formas, we build in a renovation now at seven years. It is so critical to us to make sure we build this to last, and we don't get in a position again like we're in today.
My last point here, then I promise I'm gonna send you to break, in fact, you've been so amazing. It says 20-minute break. We're going to give you a 30-minute break. I know you've been sitting there a lot, when I look at the key things, the things that get me most passionate, it's the opportunity. It's the room to grow at both Dollar Tree and Family Dollar. That's grow in terms of our people and their careers, that's grow in terms of improving the stores that we already own with those projects I talk about, then in new stores, the significant opportunity to grow. We look at stores per population break.
We look where our competitors are, how many stores they have per population, and we look at the significant opportunity between where we are today and where they are, and where the market is. 15,000-20,000 stores out there, up for grabs, opportunity for us. Not just Family Dollar growing in rural, where there's tons of green space, but Family Dollar growing in urban markets and Dollar Tree growing in suburban markets. All these new customers coming into Dollar Tree, we're going to make sure they love what they see, they want to come back, and they're going to find more of us conveniently located to where they live.
It is an incredibly exciting time to be a part of Dollar Tree and Family Dollar. I couldn't be happier to be what I call the promise keeper of the amazing promises that our promise makers, Rick and Larry, are making to our stores, to our associates, and to our customers. I am very proud with my team to keep those promises. Thanks so much. 30-minute break. That gives you, let's say 10:05, we'll go back live. Thanks so much.
Good morning! Please find your seats. Our program will begin shortly. Please welcome Chief Supply Chain Officer, Mike Kindy.
I'm sorry. Good morning. Rick has always reminded us that if we do our jobs correctly, no one will know we exist. Unfortunately, over the last few years, the supply chain has been front and center, and everyone has known we've existed, but we're going to change that. This morning, I'm going to talk about how we are shaping our future. You've heard from Larry, Mike, and Rick about their plans, and our supply chain is building a network to support the store and sales growth they mentioned. We're upgrading our systems for greater speed, functionality, and efficiency. We're developing our people to be more versatile, proactive, and engaging, and we're going to change our store delivery method. I'm going to start with an overall DC and transportation network development. In our DCs today, we have interior temperatures that are affecting our work.
We have over-the-counter products that require storage within a particular temperature range, and there are times of the year where our internal DCs exceed those temperatures. To combat that, we've added small temperature-controlled rooms to 13 of our DCs, and we store all set temperature-sensitive products in those DCs. In order to ship these products to store service by the other 12, we pick the product in the temperature-controlled DC, we load it on a refrigerated trailer, we move it via cross-dock to the non-temperature-controlled DC for shipment to the stores. The process is cumbersome, and it's inefficient. As you're also aware, we have a number of DCs that are located in very hot and humid areas of the United States. We've got Savannah, Georgia, we've got Marianna, Florida, we've got Odessa, Texas. You get the idea.
In those facilities, we have conveyors also that generate heat. When you take that heat, coupled with the heat from the summer, we get very, very warm DCs, and we get very, very low morale and performance out of our associates. To alleviate both issues, the OTC issue and our performance and our associate challenges, we're adding temperature control to all of our distribution centers by late 2024, with our first DC plan to go live next month. This will allow us to set and maintain reasonable temperatures year-round in the entire DC, not just one room. With the entire DC and network being temperature-controlled, we can do a couple of things. One, we can eliminate that expensive cross-dock. Two, we can store that over-the-counter product anywhere in the DC.
Three, we can keep the buildings cleaner because we won't have to open our ventilation to pull in cooler air at night, which ultimately pulls in dirt and dust. Four, we can maintain comfortable temperatures year-round, which will lead to increased performance. I have to tell you that I've been involved in doing this in the past for our associates. Single best thing we've ever done for our associates. Rick talked earlier about being voted president. I think I got that job for doing this, so Rick's going to have to... he'll follow me, I guess. We're also adding storage and selection racking to our current DCs. This racking will do a number of things.
It will allow us, our DCs, to increase their storage capacity, in some cases up to 5%, which can expand the number of stores they can service from the same footprint. It's going to allow us to more easily support merchandising SKU growth and expansion. It's gonna help us prevent what we call SKU rodeo. SKU rodeo is a term that I've learned at Dollar Tree, and it's a situation where we have more items than we have selection locations. We have to run reports, determine which items are not shipping, pull those out of the selection location, and then bring in the items that are shipping. It's not real effective, and it's certainly not efficient. We're building a large automated distribution center in Ocala, Florida.
Florida is a strong growth state for both banners. The network modeling loves having another presence in Florida. Ocala is gonna be roughly 1 million square feet. It's gonna be 140 ft tall. It's about 11-story building with 110,000 storage locations. In a typical Dollar Tree and Family Dollar distribution center, we have about 1 million square feet and about 60,000 storage locations. Ocala is gonna have about double the capacity that we have in our other DCs. This is our first foray into having a highly automated DC, so we're proceeding cautiously to ensure a positive outcome. I feel good about our plans, I feel good about our progress, and I feel good about our leadership.
Our vice president of supply chain engineering came to us from an e-commerce giant, and he was heavily involved in the development of their European automated facilities. This is right in his wheelhouse. We're currently shipping Dollar Tree from the facility right now, and we'll add the Family Dollar stores in mid-2024. Adding Ocala to our network will get us really three benefits. The first is, it will naturally reduce stem miles and transportation costs due to its proximity to a large store base. Second, it will reduce our labor needs and our dependence on the labor market. Third, it will allow us to service both banners from one DC, which will then allow us to have both banners on one outbound truck.
I have to tell you, I have a home in Florida, or I'm moving from Florida, it drives me crazy to think that we have Family Dollar products shipping from a Family Dollar distribution center in Florida. We have Dollar Tree products shipping from a Florida distribution center, we have two trucks rolling down I-95 side by side, over 300 mi down to Miami, pulling off of the same exit, one delivering to a Family Dollar, the other delivering to a Dollar Tree, 1 mi apart. We're gonna be able to consolidate those loads. While we have a lot of activity with the Ocala DC, we still need to ensure that we have a national network that can support the growth of both Dollar Tree and Family Dollar.
I'm gonna kind of walk you through an example of how we go through and determine where and when we build a distribution center. First of all, we take a national map. We put 100 seed locations on there. We go place our current distribution centers, we place our current store footprint, we get information from our real estate group about where the store growth, where they see that going. It may not be perfect, but we get some generalities in zones or areas, and we plot that on the map. We go in and we factor in sales growth, transportation costs, and we also include each DC's capacity into the equation.
The modeling runs multiple iterations and really focuses on what our network should look like over the next five years, we can go 10 years out if we need to. The modeling comes back and makes recommendations on potential locations for a DC, which DC should ultimately take on additional store count. Once we know the areas we need, we work with a commercial real estate partner. We do a site search. We go out and typically look for some pretty large properties. You know, we'll call it at least 100 acres. We want utilities out to the site. We want to be close to a freeway, we can get those trucks rolling down the road, we need to be near a great labor pool.
We purchase the land, we work with our general contractor to build the facility, we lay out our plans to open the facility. Really, from modeling to a new DC starting to ship, the process can take roughly three years. I'll give you a good example from this slide here. The maps on the screen provide a great example of how our modeling works, the map on the left is our current Family Dollar service for the Mid-South. I took off some of the other distribution centers that service Family Dollar also just so it didn't kind of cloud the picture. You can see the one on the left, that's our current service network, the map on the right shows our modeling recommendation.
It's basically a DC in the Arkansas, Tennessee, Mississippi triangle, as I call it. That makes sense because we removed West Memphis from this general service area last year. Adding a DC to the area will provide network capacity relief, it'll reduce stem miles, and it'll reduce trans-transportation expense. Also, during the modeling, in addition to the location that it mentioned here or modeled here, the software also came back and made recommendations for the West, and it was mainly to reduce stem miles. We're working on our plan of action. We've got a plan to make our recommendations to our board in August to continue to grow our network. As part of the modeling process, we're also going to be reviewing the viability of co-bannering new DCs. For transportation, we need to invest in our trailer fleet.
There's a multitude of reasons for this action. On the Family Dollar side, our fleet is aging, and it needs to be updated. Today, 25% of our trailers are more than 20 years old, 50% are more than 15 years old. Typical lifespan for a trailer is anywhere between 12- 17 years, depending on how much you use it. We also know that reliability decreases and maintenance costs increase as trailers age, no different than a car or any other piece of equipment. Our five-year goal is to have a fleet with an average age of 10 years. On the Dollar Tree side, today, we don't own any trailers. When we go out and talk to our carriers and take bids, we ask them to bid the tractor, the driver, and the trailer.
I know that we are more than covering our carriers' depreciation, our carriers' trailer depreciation and maintenance expense and the rates we pay, because we can compare it to our Family Dollar rates with our own trailer ownership. Updating the Family Dollar fleet and buying trailers to support Dollar Tree will do three things for us. First, it will improve cost control through improved trailer utilization and in-house maintenance. Two, it will maximize our fleet efficiency by allowing us to move trailers from banner to banner based on volume shifts. Three, it will allow us to change our store delivery process away from floor loading, which I'll touch on shortly. I spent a number of years working as a management consultant, and I helped a lot of companies implement supply chain systems.
I've also spent a lot of years being an end user of inventory management, warehouse management, labor management, and transportation management systems. I've learned that good systems always beat great manual processes, and system functionality can drive efficiencies and results faster than people or equipment. At Dollar Tree, our supply chain has been rooted in systems and processes for a long time, and we need to adjust and reflect the current industry offerings, and we're moving quickly to get caught up with the times. I'm gonna share some of the challenges we face and the actions we're taking. At Family Dollar, unfortunately, our DC service levels have been below our targets, which has created a store and stock issue. Vendors have not been meeting the pre-COVID levels, not been shipping our entire order quantity, and they've been placing us on allocations.
We've taken a couple of steps to address. First, we've implemented a top-tier inventory management and forecasting engine that is currently generating orders into our DCs and creating store orders. This was rolled out with Family Dollar in December and Dollar Tree in March, so we're still in the learning and growing phase, but we like the results so far. Second, mid-last year, we implemented an OTIF compliance program, and OTIF is on time and in full. If vendors, if they don't ship our orders in full, they face punitive fines and fees. We'd prefer to get our product rather than the fines, but we need to get our vendors' attention, and we need to change the results.
Three, we've coordinated top-to-top meetings with supply chain leadership at key vendors to talk about how we can work together to improve our fill rates and drive in stocks. Our actions and our systems are already driving results. In Q1, we saw a 500 basis point improvement in Family Dollar DC service levels. Today, across our enterprise, we are operating multiple warehouse management and labor management systems. Our warehouse management systems are more than 27 years old, and the functionality is from the 1990s. We need to consolidate, and we need to update. We don't need a lot of bells and whistles. We just need systems that are strong in the areas that are critical for us. I don't worry about what's going on in the industry. I just wanna make sure that it's best and most efficient for us.
Last fall, we selected a best-of-breed, Tier 1 supply chain suite to act as our warehouse management, labor management, and yard management system for our entire network, both banners. We're in the process of configuring the system now for our first DC implementation with a go-live schedule for this fall. We're excited about the suite's seamless integration, real-time communication and user-friendliness, functionality to maximize space utilization and associate productivity, and its ability to upgrade easily via the cloud. You guys are all aware of the ongoing challenges in transportation. We got driver shortages, we got high fuel costs, we got volatile swings in rates, cost, and service. While it can't solve all the challenges, world-class transportation management system can reduce their impact. At Dollar Tree, our current TMS is no longer supported, and its functionality doesn't meet our needs.
We need faster route planning. We want the system to run multiple iterations for the most efficient routes possible. Then allow us time to review the results and make adjustments before we turn over to the DC. We ensure that we have the most efficient loads out there. Second, we need updated mapping. We need updated mapping to give us access to all trucker-available roads and routes. We need visibility to our inbound and outbound load statuses. We need the ability to plan routes based on overall cost or driver count constraints. I think about this like Waze. You know, when you go out and you plot your destination location on your phone, and it'll come up with two options.
One is a shorter amount of time, but more miles, or the other is a longer amount of time, but a shorter distance. Depending on what may be going on, whether we're having challenges getting drivers or we're just focused on the cost, is we wanna ensure we're delivering on time, we wanna be able to go in and factor which constraint we can maximize our service against. We finished our RFP, and we plan to have an agreement on a new transportation management system shortly. COVID certainly impacted the warehouse labor market, and it changed people's work expectations and their needs. We've made some strides to address, but we've got some work to do.
Earlier this year, we asked all of our DC associates to participate in an engagement survey, and happily, we got a tremendous response from the group. We had a high rate of response, we got a tremendous amount of insight into their priorities. Off their feedback, we've taken a number of steps. First of all, to improve their work area. As I already talked about, we're gonna put temperature control into the buildings. We're improving the systems that they're gonna be using. We're putting LED lighting into many of our buildings. If you haven't seen the difference in a distribution center between LED lighting and the current lighting, massive difference, and the associates have really appreciated it. We've hired safety and sanitation resources in each one of our DCs.
We want our associates to know that we are focused on providing a clean, safe work area and work processes. We've invested in wages across the board. We want our associates to know we financially value the work that they do. We've rolled out management training to improve our interactions with our associates, and we've increased our recognition, and I've got a really great example from that I experienced. I've been with Dollar Tree now just about six weeks, and I was in our Morehead, Kentucky distribution center two weeks ago. Morehead was our Family Dollar distribution center of the year, so we were gonna celebrate with a barbecue lunch. We got them T-shirts, a commemorative coin.
I went to Morehead with a couple of people from my team on the supply chain executive leadership team, and we went out to serve them, and it was great. We got to talk to them. We got to talk to them about why they worked there. We got to talk to them about the challenges they saw. We got to talk to them about what we were doing, and I think they really appreciated it, and they really enjoyed it. The part that really struck home best to me was when we showed up at 11:30 at night on Thursday night, and the associates looked and were a little bit surprised to see the corporate supply chain group there serving them lunch at 11:30 at night, and they were very appreciative.
The management team certainly enjoyed us being there. I think it sent a really different message about how we were gonna change things and how things are gonna be different from the way they've been. Okay, you know, the expo center has probably already stole some of my thunder. I know some of the other presentations have stole my thunder here, too. I was really excited about this portion, but obviously, we're moving away from floor loading, and we're gonna move to cart loading. Many of you are familiar with our delivery process and our impacts and the impacts of it. You've written about it in your analysis. Let me walk you through our current loading and delivery process. Today in our DCs, cartons come down a conveyor into a trailer for an associate to load. The inside of the trailer can be hot.
There are a lot of cartons coming down the conveyor quickly, and the associate needs to stack the cartons while taking into consideration the size, the weight, and the crushability of a case, all while ensuring that he's filling the trailer. It's a human version of Tetris. Once the load is complete, the load is turned over to a driver, and upon arrival at the store, the driver works with a team of store associates to manually unload the trailer, stack the cartons on store carts, and take them into the back room of the store. Imagine unloading a trailer for hours in central Texas in the summer or in Minnesota in the winter or in a hard driving rainstorm. That's not a fun job. After the unload, the store associates sort the product by family groups and ultimately stock the product.
Here's what we know about our process. Our loader position in the DCs is one of our highest turnover positions we have. Our carriers tell us that from a truck driver's standpoint, floor-loaded loads is the least desirable type of load that a driver wants to haul. We also know that our store associates dislike truck day, they dislike the disruption from a late delivery, and they dislike the physical work. Where are we gonna go, right? Well, we're gonna move to an easier, less physically demanding delivery process. Our plan is to use trailers with lift gates to deliver the product via carts, thus the need for our own trailers. Here's how we see the unload of the future. The DCs will pick or load directly into the carts by family groups. I don't know if you guys...
If you didn't, take a look at how that looks out there and just think about the dynamics of being able to wheel that cart into the store and really take it out to the store sales floor and get that product stocked. When the driver arrives at the store, Mike mentioned this, all he needs to do is go in, have somebody unlock the door. He starts to unload the carts via lift gate. He can wheel them back into the back room. He can neatly stage the carts, when the associates arrive, they can take the carts right out to the floor because they're stacked by family groups. Here's what we expect to get. We expect to get improved associate and driver morale and lower turnover.
We expect to get quicker unloads and better driver turns. A driver unload time per stop will go from roughly about four hours- one hour. We expect to get reduced impact and frustrations from stores if a delivery is running late. You think about that, too. We're running late with the delivery. We have associates there. "Hey, can you guys go home? Can you come back tomorrow when the truck arrives?" I don't think any of us would like that situation. We also expect to get increased windows for store deliveries. Because the unload time will move from roughly four hours- one hour, we don't have to cut off the delivery processes early each night. We might have to cut off at, let's say, 4:00 P.M. in the afternoon, the truck could be finished at 8:00 P.M.
We can arrive at seven o'clock and still finish by eight o'clock. It gives us a lot more flexibility, again, driving driver turn. We also expect Our associates then can focus on stocking or supporting customer needs, not unloading a truck. What's our game plan with the carts? First, I'm extremely familiar and comfortable with using carts for the delivery process. We have a number of people with us at Dollar Tree that also understand this process and the equipment, and our plan is to leverage the industry methods that are available today. We're gonna leverage our knowledge of the end-to-end process our associates actually follow, and we're focusing on refining the components of the cart. We need carts that are lightweight but durable.
We need to have carts that have wheels, that work well in the DCs, but also are maneuverable in parking lots with very heavy loads. We need carts that have components that allow us to break the carts down for backroom storage, freeing space and preventing outside storage and potential theft. We need carts that can be easily reloaded and worked around by drivers, ensuring timely and full return of all components. We're calling our carts Ro Carts, or RCs for short. We still have some testing to do with the carts. What you see out there, I don't think will be our final version. I know it's not gonna be our final version. We're focused on finding the best delivery method possible.
We're rolling out our cart delivery to our Matthews DC in late 2023, and we expect to have the second DC up and running in Q1. I really can't wait to get this process going. I think the upside to the stores is gonna be tremendous. I think I've covered a lot. I'm gonna go back to the quote I started with my presentation from Rick. "We have some work to do, but our supply chain is on its way to get back to where nobody knows we exist." Let me leave you with these six points. First, we're building a distribution and transportation network to support the stores and the merchandising growth. Two, we're gonna roll out the cart deliveries to all DCs and stores by 2027. We're very confident in making this process change work.
Three, we will operate a co-banner DC in 2024, with neighboring Dollar Tree and Family Dollar stores delivering on the same truck. four, we are implementing game-changing systems across all aspects of the supply chain. five we will leverage our inventory management system and improve store in-stocks by more than 500 basis points, and DC service levels by more than 1,000 basis points by this time next year. six, we are driving short and long-term associate engagement. I want to thank you for your time tonight, or today, this morning. Wow, I'm already moving into the nighttime. Anyways, I'd like to introduce Bobby Aflatooni to the stage.
Great job. Thank you. Good morning, everyone. I'm here to talk about the technology transformation to help enable the company transformation that's already underway. In this transformation, as everyone knows, as we've been talking about it, the company has had a lot of technology debt. We're working with a lot of older technology, older systems, older processes, so everything has to be touched, and everything has to be changed. In order to get this moving, there's three parts: obviously, the technology stack itself, to modernize the application, modernize the environment. Data and analytics is gonna be a key part of it, to provide right information at the right time, to make better and quicker decisions. Of course, the people itself.
We have to continuously improve our processes, continuously improve our implementation manner, bring in standards, best practices, to establish a high-performance team. The team that's coming in has already been handpicked. They're experts in their fields. They've done this before, and they are extremely good at their job. One thing I do want to highlight here is, as we're going through our technology transformation, bringing all these new applications, we want to make sure that we highlight the implementation of a composable architecture. Composable architecture gets us in a place where it gives us more flexibility. It gives us autonomy that we haven't had before.
What that means is that we're no longer dependent on one application or a set of applications and gives us the speed to market. How do we get all this done? Obviously, the investment's gonna have to be in people, processes, and technology. As we're making these investments, in the next two - three years, excuse me, we'll be deploying these set of applications that are gonna help the enabling of the business transformation. We're changing our corporate and daily analytics. We are changing our merchandising system. We are upgrading our supply chain, which includes transportation management, warehouse management, labor management, as stated before, and of course, the point-of-sale, that will open up new avenues of revenue, including digital and omnichannel.
One of the key drivers for us is to equip the store manager with technology systems and tools they need to be effective. Data has shown that once the store manager is more productive, sales are higher to the comparative stores. How do we get that done with all of the changes that are happening? We're changing our supply chain, store and omnichannel, our merchandising, our human capital, finance and real estate. How do we get this done? We have built mini IT departments to align with the business towers to help with the speed and flexibility of delivery. At the onset of every one of these mini IT departments, there is a business information officer that's in charge of strategy, in charge of alignment, and in charge of priority.
Every one of these folks that are in place now, on their way, they have been there and done this before. This is again, we're bringing systems that are tried and true. They're best-in-class. It's nothing extraordinary. It's stuff that's already working. We're just bringing it into the environment and helping with our business transformation. At the same time, in order to absorb all of this change, what we need to do is modernize our infrastructure. To modernize our infrastructure, we're going with a cloud-first strategy that gives us the flexibility and speed to deliver. We're also implementing a project management office to help us stay with manage the change and stay within our budget and priorities. This is a quick recap. This is a lot of work that's being done.
It's, it's a snapshot of everything that is going in place that I've been talking about. As we go through the entire stack to change all of the systems within our organization, again, we're looking at best-in-class and systems that are already effective and placed in the market. We're working in the store, upgrading our store environment, significantly upgrading the infrastructure. We're gonna be deploying stuff that actually works and works everywhere within the store. A couple examples are, today, the handhelds don't work everywhere in the store. They're cumbersome.
We're gonna upgrade the network within the store and into the store, giving the store manager the ability to work and be efficient all over the place. The point-of-sale system that we're gonna be deploying, obviously it's a next generation. It is going to enable our omnichannel. It's gonna be less lead in the learning curb, and it's gonna open up new avenues for revenue. Our merchandising system is gonna enable us to have to take advantage of the power of the chain that we have, take advantage of our scale, have the synergies that Larry and Rick had talked about, getting the buying power that we need for both systems and giving us better leverage with our vendors.
As Mike discussed on the supply chain, we are going to optimize our entire distribution network. We're also going to put in place a distribution system that can give us any product assortment at any time. On the HR and human capital, we're looking to really be able to hire, recruit, grow, and manage our employee sets. With real estate and finance, we're looking to increase our store counts, maintain our current stores, and of course, reduce complexity for the environment. Why are we doing all this? Again, increasing sales and reducing complexity. For us, the ultimate goal would be a frictionless sales experience, excuse me. A customer that comes in, we want to be able to have that right product at the right time, at the right place, and of course, at the right price.
This makes a successful shopping experience for our customer. It is a filler. They do have trouble coming to the store. It is important for us to have what they need. At the same time, with all the data that we have, all the information we've got at our disposal, we can personalize and customize the sales experience for the customer today and continue that for tomorrow. A few key takeaways. As I mentioned before, it is a three-part process: technology, process, and people. We are upgrading all of our technology systems and stack to enable better sales, future growth of our business, and rapidly deploy applications when necessary.
Data and analytics to provide better, quicker, and faster decision-making, and of course, building the centers of excellence to create an IT department that can serve today and continue serving tomorrow. Thank you. I'd like to introduce our Chief Financial Officer, Jeff Davis. Thank you.
We're definitely coming into the home stretch here. This morning, a little bit of a teaser, the press release came out. We got a lot of the headlines, so you got the what. Hopefully, over the course of this morning, you're getting a lot more of the how. Some really information-rich presentations that the management team has put together for us. We're ahead of time, so that's a good thing. We're actually making good progress, and I'm really excited about moving into this next section. Once again, you've heard a lot about the initiatives that are gonna drive productive sales growth, operating efficiency, and the development of new capabilities, as Bobby just covered off.
I truly have the honor now to really translate this and bridge the quantum of all these actions into what is our long-term targets. Before I get into three-year targets, I want to take a moment and reflect on the here and now and our FY 2023 outlook. I'll then recap how our early actions to fortify the base that Rick has mentioned earlier, and the initial strategic actions, how they're leading to meaningfully easy, early results. I'll take a moment to review the essence of our healthy balance sheet and our strong free cash flow generation, and I'll bring it all home once again by laying out our financial targets for FY 2026. We're seven weeks already into this quarter, the 13-week period.
Sales are on track, we got good momentum with respect to our Q2 outlook, and it's being led by great customer traffic. Consumer sales mix and our shrink, it continues to be a headwind for us, but it's definitely in line with our stated expectations. Our teams are being very disciplined with their expense and capital expenditures as we're executing against many of the initiatives and strategies that we've outlined here this morning. We continue to expect our Q2 diluted earnings per share to be in the range of $0.79-$0.89, and FY 2023 full year, fiscal year diluted earnings per share to be in the range of $5.73-$6.13. Moving on to the sales and profit growth.
You heard earlier about several quick and very decisive actions that we took to fortify the base. This was coupled with a number of strategic initiatives. We needed to do both at the same time. It wasn't an or, it needed to be an and. These strategic initiatives were very meaningful to help change the trajectory of our business, as you're seeing over the course of this year, and delivering very positive top-line results for us. Most of these initiatives have had considerable interdependencies, and they will have so going forward, which actually requires us to have very precise coordination and ultimately will govern the pace at which we can execute. That is something you want to keep in mind as we move forward. We are confident that these early positive results are sustainable.
We're encouraged, we want to expand very rapidly. We're just getting started. Let's turn now to take a look at Family Dollar. Until Family Dollar. I'm sorry, this is Dollar Tree. Until Dollar Tree broke the dollar in 2022, it consistently provided low single-digit growth. It delivered 250-300 net new stores in combination with low single-digit comp growth. With the introduction of the $1.25, the $3 and $5 product offering, sales productivity was quickly boosted, that all came despite some initial reductions in customer traffic, which you've seen now as we've gone into this fiscal year, that has reversed.
The expansion of multi-price offering, coupled with, once again, this expansive merchandising initiatives that Rick has outlined, the accelerated net new store growth, all of that will produce a mid-single digit comp CAGR, compound annual growth rate, over the next three years, with comps ramping up through the forecast period. With respect to gross margins, we expect additional relief from several areas. First, lower ocean freight rates as our long-term contract rates and our charter rates expire across 2024 and 2025. Many of you have seen in prior discussions with our earnings, we had outlined that approximately 47% of our estimated freight in 2023 is actually under long-term contract rates or charter rates. We're not having the opportunity to move to some of those lower rates at this point in time. They will roll off in 2024 and 2025.
In addition, we expect improved in-stock and higher-margin products, such as over-the-counter and private brands. This will be partially offset by our extension of higher price points with greater price competition. As we move into other multi-price points, there will be a little more competition at those price points, yet we believe that we will continue to grow gross profit dollars as a result of higher comps and deliver operating leverage in the business. Over the three-year period, we anticipate product mix to stabilize into historical norms, around 50%-52% in discretionary. Our operating margins, they will continue to expand also. One, from gross profit dollar growth. Two, from SG&A operating leverage, which is continued investment. From an SG&A perspective, we will have continued investment above inflation, offset by efficiencies and that we've outlined today.
Overall, we do know that by accelerating our real estate expansion, we'll have higher depreciation and amortization associated with these elevated levels of CapEx, not only in new stores, but as a result of supply chain and in IT. Moving forward to Family Dollar. As Rick illustrated earlier, Family Dollar experienced real inconsistent financial performance as it relied on certain short-term measures to address more systematic challenges that were in the business. Today, with a commitment to sensible and sustainable long-term results, the Family Dollar team is confident that they can deliver a mid-single-digit comp on a compound annual growth basis over the next three years, with those comps also ramping through the forecast period.
Through this comprehensive merchandise expansion that the team has spoken about, predominantly in private brands, we believe that this will ultimately be one of the biggest drivers of that comps to growth. This coupled with the, once again, the consistent supply of essentials around over-the-counter, and other products that today have been a little more restricted for us as a result of our supply chain, that will also help support this top line growth. Once again, having the ability to have a consistent acceleration of net new store growth in real estate. The really compelling portion of the Family Dollar story is that we believe that we are well-positioned to expand our gross margins 200-300 basis points by 2026.
This is predominantly gonna come through the merchandising initiatives, combined with reduced freight and once again, the supply chain improvements that have been outlined here over the course of this morning. In addition, we believe that improved sales profitability or productivity, so increased sales productivity, will generate meaningful SG&A leverage for us. These SG&A efficiencies, once again, coming from our supply chain initiatives and improved employee turnover, will offset continued investments that we'll be making in this particular business manner. When coupled with the gross margin expansion, Family Dollar is well positioned to generate operating margins of 5% or more by 2026. Once again, we believe that as we get into 2026, there are a number of initiatives that have not reached their full run rate potential, and our expansion will continue beyond 2026.
Moving now to our balance sheet and free cash flow. You'll see here that through, you know, several operating cycles, we've been able to maintain a very ample level of liquidity, manageable levels of debt, and across, of course, our maturity towers. All of which has provided really some broad optionality for us to fund the future growth of the business and return capital to shareholders. Our long-term operating plan continues to support this strong liquidity position. Currently, we are undrawn on the revolver and expect to only have normal seasonal draws to meet our working capital needs. Now, given the years of underinvestment that have been spoken about across the business and the underlying accelerated transformation that we're embarking upon, we will be making considerable business investments with attractive anticipated returns. In the near term, our focus is gonna be on new store growth.
It's gonna be on store renovations to improve sales and profit productivity. We're gonna be updating and expanding our supply chain and building our IT capabilities. These investments will continue at an elevated level through 2024 and 2025, before moderating back in 2026. What we believe will be returning to more efficient levels post-2026. We expect to generate, excuse me, we expect to generate approximately $10 billion of net cash flow from operations. This is gonna come on the strength of our increased earnings and in working capital improvements. Approximately 2/3 of our net cash from operations is gonna be reinvested in high-returning business investments, which is gonna yield approximately $3.5 billion of free cash flow. Now, given our investment grade rating and ample access to debt capital markets, we expect to refinance all of our near-term maturities.
With this quantum of earnings generated over the period, coupled with our targeted 2.5x- 3x leverage financial policy, we have the option to issue additional leverage while still maintaining a very strong, healthy balance sheet. We will have ample capacity to return capital to shareholders. We will continue to evaluate share repurchase, our EPS target does not include any potential tailwind from these repurchases. The three-year targets. You've heard the what, the how, now it's the actual individual measures as we look out to 2026. These are what the targets would be for 2026, with a ramp-up to these numbers from 2023. Net new store growth across Dollar Tree and Family Dollar, mid-single digits in Dollar Tree and Family Dollar, low single digits to mid-single digits, just in new store growth.
Once again, that ramp. From a comp store basis, both banners had a mid-single-digit level, once again, on a three-year CAGR. If we take a look at our gross margins, on a gross margin basis, as you saw in some of the earlier slides, as it relates to Dollar Tree, still being able to manage within that 36%-37% range. Once again, a focus on growing gross profit dollars. We believe gross profit dollars is what's gonna be able for us to deliver greater levels of operating income and ultimately shareholder value. Family Dollar, once again, 26%-28%, a full 200-300 basis points from where we are today. Operating margins for Dollar Tree continuing to be in that 14%-15% level, maybe on the upper end of that.
Family Dollar is gonna be fivefold greater than what we were at the end of 2022, at least 5%. From our store operating, excuse me, our store support centers, we expect those to operate at about 1.5%-1.7% of net revenue over the period. All of this would generate $10+ in EPS by 2026. Approximately $2 billion of CapEx. Once again, it'll be moderating back down to $2 billion of CapEx by 2026, that would generate approximately $3.5 billion, once again, of free cash flow. That's just 2026, as I had alluded to earlier, we believe there's ample runway ahead as we move forward.
Many of these initiatives are just either getting started or they are in some of the earlier phases. We believe that as we continue to roll out the multi-price initiative, as we look at other merchandising opportunities across both banners, that we would be able to generate above-trend comp sales growth. We believe that in both banners, once again, a lot of the work that we're doing in the supply chain and the IT, it is multiyear, multiphase, so you will get the full scale of the enterprise later in the forecast period here that we're providing, but we still have not reached full potential on that. I believe that Mike Creedon had mentioned very specifically around what the white space opportunity is for new store growth on both banners with respect to new geographies, are opportunities for renovations.
If you also take a look at Family Dollar, for example, and Dollar Tree, particularly on the Dollar Tree side, our customer is spending more of her overall wallet outside of our particular banner, especially above that $1.25 price point. As we continue to move to these other price points, as driven by her needs, her wants, and continue to deliver value all the way, that we will be able to gain a greater share of that wallet. All of that will help us continue to give and provide that above baseline level of growth beyond 2026. Of course, we are continuing to experiment with new formats and into different markets. That is the quantum of the elements I just covered off today.
If I think about, just kind of wrapping it up, hopefully what you've heard today, and then bringing this all back to the financials, is a very compelling merchandise strategy. Plenty of initiatives. Everything is coming together, I think, at the right place, at the right time. We've got a great opportunity for gross margin expansion. We've got continued opportunities for increasing operating efficiencies, and once again, these operating efficiencies are gonna allow us to reinvest in other ways that are gonna be more customer-facing and for their stores. Family Dollar, fivefold increase in improvement in its operating margin, over the period of time.
We're gonna be able to generate significant free cash flow in this business to help support the investments that we're gonna need to make in CapEx, which will allow us, once again, to have meaningful capital for return back to our shareholder base. All of this while maintaining, once again, a very healthy balance sheet along the way, which is very important for us. With that, I want to call Rick back up to the stage, and maybe close us out.
We are running ahead of schedule. We're running ahead of schedule because we don't have our culture presentation, so I'm gonna try and do it. Anyway, we'll have lunch at 11:30, and then we look forward to engaging with questions and answers. I wanted to kind of take a few minutes here and go back to where we started. We have heard a lot today, and I think if I was to say anything now, it would be that not only have we heard a lot, but you're dealing with a management team that knows where to look, and that's the most exciting thing I think that has come out today. This is not rocket science, and the fact that we are intensely focused on retail basics doesn't mean that we're not gonna look down the road, too.
It would be sad to work incredibly hard for three years and then still be behind. What we're trying to do today is plant the flag of where we're gonna start, and what we're gonna start with, and how we're gonna get it done. The story on Family Dollar is that there is structurally nothing wrong with that franchise. In fact, you actually saw the balance of our stores across the three different areas. It's actually pretty good. It gives us good opportunity, both in the urban market, the suburban market, and the rural market. The work that's being done on the SKU base, I hope that you all heard that. 2,000 new SKUs coming in, basically 900 net. The fact, if you listened to Larry, he's not bringing in large sizes, 'cause your customer doesn't buy those from us.
He's bringing in new items, different items, health and beauty, drug items, the basics that will fill out that basket. The multi-price journey in Dollar Tree, I think that is one of the biggest unlocks that we have. I will say this, and I've said this to a lot of people in this room, a well-run Dollar Tree is a very powerful store. It is the only place in my career where I've ever seen a $200,000 Mercedes sitting next to a $12,000 beat-up Acura, and both those customers are in the store shopping it. It has a tremendously large, broad appeal. Again, it's important on this multi-price journey, this isn't about having two sizes of the same SKU or the same item. It's two different SKUs.
Again, that makes it a little more complicated for the merchants. At the end of the day, at the end of the day, that's gonna be the power of success. On the operating side, Mike Creedon, who I think is a fantastic operator, has his hands full. I'd like to look at you all and say our store standards, on a scale of one- 10, are about a nine. They're not. In fact, our store standards are erratic. One of the things you learn as a retailer, on a scale of one- 10, if the best you can give me is a six, just give me a six every day. Don't give me a three one day, a 10 one day, a two. The customer doesn't know what they're going to get when they come into the store.
That's what Mike's task is and Mike's GOLD store standards, where he's doing it the old-fashioned way. He's showing everybody what it needs to look like, he's holding them accountable. You know, one of the things that we've talked a lot about in the Dollar Tree franchise, we have to be careful that we don't just stand up and say everybody needs to be fired and replaced. What we have to be responsible for is the fact that we have a lot of people that have never been taught what they need to do, and that's part of the journey we're on now, too. We're teaching people, "This is what you do for a living. This is how you do it." I truly believe 99% of the people in our company want to do the right thing.
They just don't know how to do it, and they're not getting measured against it. Those are the sorts of things that Creedon is managing for us. The supply chain, if I can recap what we heard, it is a new day on how we're gonna move merchandise through this channel, through our franchise. The other big key takeaway is the carts out there are gonna be in both banners, which is gonna make it basically much easier for our store manager. We're gonna redeploy that work in keeping those shelves full and taking care of our customers and keeping our stores clean. All right? Bobby.
Bobby is undertaking a massive change, and what Bobby's gonna have to do is, while we implement all these new systems, at the same time, he has to keep the old systems running till we're really comfortable we've got this solved. Then we'll make the decision that it's time to shut everything else down. If you look at all of the things on these pages, on this page, we're talking about getting a lot of this moving and changing the trajectory of this company in three years. That is actually about 10 years' worth of work, and we're gonna get it done in three. That's our goal. That's what we're driving towards.
You take all of those things, and I think what we always have to be careful with when you talk to a retail team, I tell you what, and maybe it's just me, I can't remember more than three or four things at one time, right? Retailers are always moving so fast, if you give them too many things, everything becomes a priority, and then nothing's a priority. That's one of the things we're doing. You sit in the ivory tower, where I'm at, on Mahogany Row, everybody's got an idea that only takes five minutes. Trouble is, all those five minutes add up to days and weeks worth of work for a poor old store manager.
What we're doing now is we're trying to focus our store managers and our entire team on four things. Someday, when you come back to see me in a year, hopefully, you'll stop in a store, and they're gonna tell you these four things and how these four things apply to them. Number one, we're gonna drive productive sales growth, right? We're gonna do that by having the right items at the right price, and we're gonna have the right strategy. One of the things we talk a lot about is we are not a charitable organization, and profit is not a four-letter word. What we wanna do is we wanna drive sales that give us the proper returns for what we're doing.
Our operating efficiencies, we have upside on the margin, we have upside on how we work and what we how we need to be working, and we're gonna make smart investments. The key thing is technology is an enabler now. When I was a store manager years ago, you had a mechanical cash register. You didn't have any technology. Now it is a true enabler, and our store managers and district managers are at a disadvantage. I went to our first, very first, and you're not gonna believe this. I went to my very first district managers meeting in the company last August, and we found out that the district managers in this company did not have a laptop. I don't know about you, but dragging a damn desktop around in my car, that don't work.
We expected those kids to know exactly what was going on. Bobby stands up and gives them all a laptop, and suddenly we've enabled them to read reports, read spreadsheets, and be able to do their jobs better. This culture is very, very important to me. We have a culture that, to be frank with everybody, I think we have a culture where people are afraid to speak up. In fact, I think we have a culture where if I wanted your opinion, I would ask for it, and we have to get away from that. This is gonna be a hard, hard lift, but I am really committed to this. I wish Jen was here because the work that's been done on this is absolutely fantastic.
We did our first survey and went out and asked the warehouse people, the store people, the district managers: "What do you think? How are we doing?" It would have been really easy for me to wait for a year or two to do that, right? When I feel like we're doing lots better, and everybody's going to be smiling. No, we did it right now, and we're getting ready to do a pulse survey, where we'll go out and spot-check our results. At the end of the day, we came down to these five values, is what I'll call them, and you can see them there. The idea of accountability, you know, we gotta live up to our results. Of course, belonging, you know, people feel that they're valued. Empowerment, which is this idea that I'm not afraid to speak up.
Taking pride in the job I do, and integrity, doing the right thing. I'll share something with you that I have never shared this, except with the people I work with. I carry this in my pocket, and I'm gonna have trouble reading it. My dad was a very tough guy, and he passed away when he was 50 years old. He was tough. Now, whether or not he wrote these or he took these, but I have carried these six things with me, which, when I read them to you, they're awfully close to what this is. I thought I'd just take a minute today and read them to you, okay? Like I said, this is what he told me.
Number one, as an investor, you'll love this one: "A promise made is a promise kept." When you say you're gonna do something, you gotta get out and do it. That's what we have to do. All those things you're looking at, that's a promise we made to you that we're gonna get it done. The second one: "The road to hell is paved with those with good intentions." At the end of the day, you just gotta get it done. Same thing. All those things we put up there, we just gotta get them done. This one, culturally is very important for our company. Right is right. Right is right. Right is right if nobody does it. Wrong is wrong if everybody's doing it. Again, I consider that to be words to live by.
By the way, my father thought I could be a good store manager someday. I guess I proved him wrong, right? This is the one that he told me is the most important thing you learn in life: "You can tell anyone to go to hell you want, but you make sure they're looking forward to the trip when you get done telling them." You think about that. That makes a ton of sense. One thing that we are learning inside our company right now is we are not gonna debate the facts. The facts are the facts, and we're spending too much time arguing about if that's a fact.
Last but not most important, "I'd rather do the right thing than be right." Like I said, I actually read those. I've read those a few times in my career, I just thought, with this, it's kinda where we're heading. I'm very, very proud of this chart because all of this has changed in a rather short period of time. The ESG movement is very important, and it's also very important to me. This is a chart that really reflects the changes that we're making in our company to be more inclusive and more diverse. You can see that our board of directors, 36% of the board members are female, 24% of our executives, 70% of our people leaders, that's store manager and up, which is a very impressive number.
of course, our workforce is also 60%. when you look at people of color, our board is composed of 18%, our executives, 27%, our people leaders, 40%, and our workplace, 55%. That's an example of when you're focused on something, how fast you can move the numbers. again, I'm very, very, very proud of this, and I sit on a couple boards that are equally focused on this. like Wayne Gretzky, we are skating toward we think the puck's gonna be, and this is about fortifying the base but also realizing that sooner or later, we're gonna have to advance the ball, too. We're trying to get to that spot, and that's what is gonna take some really hard effort, but we've got the right people.
All of the things we're doing, all of the things we're finding, all of the things we're changing, this is the management team that has done this before in other venues. Very, very important we take that away. Family Dollar, I'm gonna say it again, there's nothing structurally wrong with Family Dollar. It's just a matter of how it's been managed. We're gonna look at that in a different way. This is not about we get to 26. Everything stops. This is the journey to 26, knowing that there's plenty more to go after we get there. I think Dollar Tree is incredibly exciting. I also think there's tremendous potential there. There's upside there. We can do a better job of placing those stores in markets that we have historically kinda gotten away from. The supply chain, for us, is game-changing.
I can't imagine what it must be like to unload a trailer by hand in this day and age. Then we wonder why we can't get stuff on the shelves, why we're always behind. I mean, I don't get it. The, the important thing on the supply chain, sooner or later, that will make major differences on the P&L. I do think that the team here, and we have to prove it, I think the combination of these people might want to be one of the best in retail right now. Obviously, I'm biased. I do think once we start getting this flywheel going, you guys, you're gonna be very, very, very, very impressed.
I do think that the playbook for Family Dollar, particularly what we showed you today, has been implemented before, so it's not like it's new stuff. Well, that's all I have. We're gonna have lunch. Where's Kristen? Kristen? Okay. Take a nice, easy hour for lunch, and then we'll come back, and Mr. Davis and I will take all your questions. All right. Thank you all very much.
Please find your seats. Our pro gram will reconvene in 5 minutes.
Okay, we've had a good day, we've had a busy day, and appreciate all of you staying around for the Q&A session. We've got about 60 minutes for this, so we'll go till 1:20 P.M. Courtney, on this side of the room, and Kate on that side of the room, are gonna help me with the Q&A. They'll come around. We'll start with Rupesh in row two right here on the far end. Thank you, Kate.
... and who they work for?
Thank you for taking my question. Rupesh Parikh, Oppenheimer. I had two questions just on the, on the guidance. The $10+ in EPS power, any color you can provide in terms of the phasing, you know, between 2024, 2025, and 2026? The same thing for the comp acceleration, if you can give any more color in terms of how to think about that comp acceleration by banner.
Yep. Let's take the latter part of that question first. We talked a little bit about it during the presentation. As we think about the comps, that the comps would basically ramp to the levels that we've outlined from 2023. As it relates to the $10 of EPS, we're not here to talk about the interim years. We wanted to give you flavor around what the components are, but just a couple of things to think about. One, FY 2023 is a 53-week year, so you have to adjust 2024, understanding that.
I think many of you would be anticipating as well, as we believe that we'll be able to deliver on the recovery of additional freight in, you know, 2024 and 2025 and beyond. For the most part, if you think about all the things that we've been discussing as it relates to supply chain, as it relates to IT and capabilities, which is gonna be a great unlock and enabler for us, it's gonna take time to get through those. You, as you think about how that would impact us through the through the time period. We're not in the position to talk about individual years.
Okay, the end of row two here. I should have said earlier, please state your name and your company, please.
Good afternoon. It's Michael Lasser from UBS.
Hi, Michael.
You clearly have the team has done this before. You know the playbook. often, as is the case with these transformations in retail, there are either unintended consequences or factors that are unknowable today that materialize in the future, that disrupt the progress of a retailer doing a transformation. A, what are those unintended consequences, and how are you working to prevent those from happening down the road? my follow-up question is, how much more investment is needed, maybe in 2024, in order to unlock the potential of this business? I'm talking about operating expense investment.
I'll take the first one.
Please.
Unintended consequences. Let me say a couple things. I look. You know, I've been here a year, pretty close to a year, and I reflect back on a year ago in the C-suite, and now I have a totally different C-suite, and I have a C-suite filled with subject matter experts. I think as I reflect on this, if you'd asked me that question a year ago, I probably would've gone, "Oh, my gosh! You know, who knows? Oh, my gosh." We've had time now together. It's a totally different team that has a lot of precision in it. Could there be an unintended surprise? The answer is yeah.
I don't foresee that. I would also say to you that even if we dig something up, the caliber of the individual that's here, we'll be able to work our way through it. The one thing that I do think is very important, when you look at the number of initiatives we have, a lot of them are interdependent on each other. When you all talk to me over the course of the next couple of years, it should be that we're moving all of the boats up. I don't think it's gonna get a little wonky if we go like this, right? This idea that we've got to move everything together. Right now I'm pretty confident with the numbers we've thrown out.
Maybe just add a couple other points to that. If you think about this business and where we're taking it, and where this leadership team has already made, I think, some pretty good inroads, what we're building out is more optionality than what we've had in the past. Being able to go to multi-price, being able to look across the whole consortium of our product offering. If you think about what's gonna help us drive from a margin perspective that we didn't have previously, because we didn't have the volumes, we didn't have the relationships, we didn't have the know-how, necessarily, in the business to partner with our supplier base. If you think about some of these new capabilities that we're gonna build over time, that's gonna allow us to be more agile in responding to different unintended consequences.
Let's face it, there's gonna be a lot of uncertainty and volatility. That's just the environment we're in. It's around being able to be responsive through that, and I think that's what we're building into this organization. As it relates to operating expenses, if you really get down to some of the targets that we've given as it relates to gross margin, operating margin, embedded in that is the SG&A. Our SG&A is expected to actually grow at a higher rate than what our historical baseline has been. If our baseline previously was growing low single digits, mid single digits, it's gonna be in around that same level, call it mid single digit level.
We need to do so, in order to, at many times, add the additional functionality that we need to in our stores, to handle multi-price, to handle, being once again responsive on a market basis to some of the challenges that we have in wages and other things. You do have sort of that elevated level of SG&A, not necessarily at the quantum that you saw in this last year as far as an uptick, but you will expect to see still elevated levels of SG&A.
Okay, Karen?
Hi, Karen Short from Credit Suisse. A couple questions I just wanted to clarify. You obviously provided the comp bridge, and you provided the gross margin and SG&A components as well. I guess, could you clarify, if it's more of a linear progression, or is it going to be lumpy in terms of the timeline for 2025 and 2026? I guess I wanna just also ask a little bit about whether or not you've factored in a competitive response, because I imagine you will be getting a pretty fierce competitive response.
I'll take the second one.
Okay. You want to take that first?
Yeah, I'll take the competitive response. Hey, retail is retail. As far as the pricing market right now, it is as stable as I've seen it in a long time. Promotional activity, I could actually make an argument, it's down, and not as intense as it's been in the past. Do I think there will be a response? Yeah, there could be. That doesn't mean that... We are positioning ourselves to be a stronger player. I was explaining to somebody at lunch, to be frank, I'd rather be number two and moving forward than being number one, protecting my flank. I think that should give us a little bit of confidence here, what we think we're capable of.
Once again, just maybe to add to that, if you think about also where we are continuing to take share, we're taking more share out of grocery, out of convenience, out of some of the other markets in retail. We believe that we will continue to be able to do so with our product offering, continue to provide value to that customer, and once again, in the, in the product offerings that in the past, we may not have been able to supply our solution on.
Can I say one more thing before you move on?
Yeah.
'Cause he jogged my brain here. The beauty of our model is your average store volume is about $1.4 million a year. The beauty of our model is the convenient locations and how it has historically worked in the past, is you take $20 from this individual, maybe $150 from this one, maybe $30 from this one, and nobody misses it, and it adds up to a real comp for us.
Okay-
As it relates to this, I think the first part of your question around the bridge, what we've outlined today is a number of different initiatives that will ramp up over time. Multi-price, if we think about private brands, if we think about the additional SKUs that we're adding, that has a ramp-up effect. In doing so, we talk about from a supply chain perspective as it relates to Dollar Tree, Dollar Tree Plus, for example, bringing on additional DCs that will now be able to service our stores. All of that is our best way of indicating to you that it ramps over time because you have just the initiation, and then you build upon, you know, one period after another until you get across the entire enterprise.
Okay, Scott, row two, name and company.
Scot Ciccarelli with Truist. You guys talked about getting to a 5% EBIT margin for Family Dollar in the next three years from effectively 0 today. That would imply about a 20%-25% contribution margin, and that just seems pretty high given where your grosses are. I guess the question is: what gives you confidence you can achieve that kind of level of, you know, profitability when you have all these other investments you still need to make? Thank you.
You want me to start off? First of all, it's multifaceted. If you look at the Family Dollar business, one of the great unlocks, and Rick was just speaking to this earlier, is around increasing the sales productivity per store. As we increase the sales productivity per store, that's gonna allow us to substantially improve on our operating margins, just for the flow-through of that against other fixed costs. I think, on top of that, it's the gross margin expansion and that gross margin expansion coming from a number of different things. It's more than just private label. It's around different products today that we haven't had the opportunity to have as broadly in our offering, and we talked about over-the-counter and health and beauty aids, that today, due to some limitations we've had with respect to our distribution.
As it relates to gross margins, the other thing, when you get a sales productivity increase the way that we are, we have certain fixed expenses within gross margins, like occupancy and distribution costs, that you're gonna get leverage on. All this to say that that's gonna allow us to be able to flow more dollars. The further unlock for us is also as it relates to and from a store operations perspective. We're talking about how we're gonna deliver to stores, how stores are now gonna be able to use that labor to either redirect to customer-facing opportunities or it's labor that we would be able to redirect overall. Some of it may even fall to the bottom line.
The combination of all those things are what's gonna be able to drive more than just a gross margin impact, a flow-through.
Yeah, everything he said.
John, row one.
Hey, John.
John Heinbockel, Guggenheim. Two questions. Overlap between FDO and Dollar Tree customers. I know it's not that significant, but when you think about real estate going forward, more density versus cannibalization. How do you think about that, particularly as Dollar Tree adds the $3, $4, $5 cooler items? That's question one. Two is, you know, when I look at that infrequent customer at Dollar Tree, which I think is about 70% of the households, how big or what contribution do you think that makes to that mid-single-digit comp? You know, is it 70%, 75%? Is it the bulk of it?
I'll let you think on the second part.
Yeah.
I'll take the first one. The overlap between the customers, between Dollar Tree and Family Dollar, while there is some overlap, it's probably not as large as we would think. Any people in this room would think. The Dollar Tree consumer is making probably close to... What was it, $70,000? No, or Family Dollar's making about $50,000. I can't remember the chart. Anyway, the Dollar Tree customer is making more. The $50,000 at Family Dollar can take up to two incomes to get there. All right? It's a different customer base. I also think, I think, John, it would be fascinating to put two of them in the same shopping center to see how they would respond, because I do think the customer is different. The product offering is exceptionally different.
The allure of the price point is great in Dollar Tree, obviously, at a buck and a quarter, you'd still have a hard time filling out everything you need to take home. I consider them to be different shops. I think what we're working on now, what is the right balance of new Dollar Trees and new Family Dollars? That's the big question that hopefully we'll be disclosing sooner or later, sooner rather than later.
I believe on the second part of your question around, in my mind, with sort of the untapped opportunity with our customer, to increase their purchase frequency.
The infrequent customer.
I'm sorry.
The infrequent customer.
Infrequent. For me, it's always, you know, what's driving that infrequency? Is it the idea that we don't have the particular product, that we? Is it our store environment? You know, what is behind that? We believe that the actions that we're gonna be taking should be solving many of those situations where hopefully we become a much more attractive place, where we know that we are a great value in the marketplace, but we need to have the right offering. We have to be able to service her the way that she would like to in an environment that she wants to, that she finds inviting. It's the confluence of all these things that will ultimately provide to the comp targets that we've provided.
To a certain degree, I believe it helps us de-risk to the extent that there's other elements that may not be delivering against, that we have, you know, a number of different avenues that's actually going to drive our comp. It's not just one particular.
Okay, Michael, right?
Great. Hi, guys. This is Michael Kessler from Morgan Stanley on behalf of Simeon Gutman. First question, a lot of new executives in the last couple of years. Can you talk about the degree of difficulty in executing against all the supply chain and other initiatives that you have, doing that in a time of a lot of macro uncertainty? I guess, how do we get confidence that you can execute these transformation initiatives with new management without running into any speed bumps or impacting the customer experience in the meantime?
Great-
A quick follow-up will be, sorry. On store growth ramping to 1,000 per year in a few years, why is now the right time to accelerate store growth? Thank you.
I'll take a kick at it.
Mm-hmm.
I think the speed bump question, the management question, the times, I think we should feel incredibly comfortable with the management team that's in place now. I've said it two or three times: We're dealing with a bunch of people who are subject matter experts. Could there be a bump in the road? Yeah, there could be. I do feel that if there is a bump in a road, there's enough levers out there, we have enough things going, that we would be able to overcome any of that. I do think that it's important that as we laid all this out for you, this stuff's all interdependent, and it's about getting everything working together as we advance the ball. What was the second question?
It's regarding new store growth and the advancement.
New store growth. I want to say one other thing, too. When times are tough is when you strike, and I think the environment right now is very similar to 2008 and 2009, and that is actually creating trial. The sooner we can get our boxes right, the more sticky that trial is gonna be. I think one of the things when I start talking about store growth, I think it's important, which Mike brought up, that we should start talking about real estate projects. When you accelerate store growth, you don't just throw a switch, and it starts tomorrow. You have to go out and get a team in place. You have to find the right stores. You have to do the analysis on it.
It's kind of like buying merchandise in Hong Kong. You buy next year's stuff this year, and it's the same principle, so.
Some of our highest returning investments that we can make is in our real estate.
Mm-hmm.
New stores and renovations. We believe that if you just take what we have today, with the merchandising tactics we're using, with the supply chain that we have, the operations that we have, it is still some of the highest returning investments that we can make. When you layer on top of that, the actions that we believe, and we're very confident to execute against, it's even gonna further accelerate that. We wanna get out in front of it.
Okay, Peter, in row five.
Hi, thanks. Peter Keith, Piper Sandler. I wanted to just talk about core Dollar Tree and multi-price point. Core Tree for a long time has had this great value proposition, with everything is one price. Real simple, real easy, pretty profitable. What does Dollar Tree look like in five years? As it seems like there's some pretty compelling data on the sales lift as you went to multi-price point, but five years from now, you just have a general merchandise store, multi-price, it could look like a Family Dollar. Then maybe just very specifically, if you look at, like, Eggo waffles in the frozen section, is the strategy to have that at a discounted price to grocery and mass or just be competitive? Just using that as an example.
Great question. Will Family or Dollar Tree morph into Family Dollar? I would say no, not a chance. Will Dollar Tree look different? Sure, it will. It's gonna have several more price points. We're actually working on what are the right price points. I don't want anybody walking out of this room thinking we're gonna have a $1.25, a $1.30, a $1.35. That's not what we're gonna do at all. We're gonna create the right umbrella and the right gap, which will allow us to keep the merchandising mix refreshed. The secret to Dollar Tree, the beauty of Dollar Tree, is there are no planograms in that store. The store manager sets it. We give them kind of a guidance book, but then they do what they wanna do, which creates that excitement, that treasure hunt.
That's what Dollar Tree will always be about. That is, and that is the treasure hunt. Family Dollar is traditional consumable retailing, where you have to have a reliable SKU base that has to be stocked and ready to go every day that you're open. Two totally different concepts. The Eggo waffles, the idea there is putting something in that brings tremendous value, very similar to Family Dollar. While it's Kellogg's Eggo waffles today, might be Aunt Jemima down the road, you know? That's part of the beauty of these two boxes, that we have the ability to modify the SKU base based on giving the greatest amount of value to the consumer.
Okay, next is, Ed, in row three.
Hi, thanks, guys. It's Ed Kelly at Wells Fargo. You've laid out a goal of a 5% EBIT margin in Family Dollar in 2026. If you fully load that for a corporate cost, right, that's probably 3.5% or so. Dollar General's sitting at about 8%. How do you think about what the right margin of this business should be over time, particularly if Dollar General realizes that they may need to make some more investment in their business? The second question I have is related to the Dollar Tree gross margin that you've laid out of 35.5%-37.5%. You talked about 36%-37% in 2023 without the full benefit of freight.
What could potentially yield that margin being a little bit lower over time?
Let me take the second part first. It's a great question, Ed. As we move to multi-price, we'll be moving into a more competitive set with respect to our product offering, and our expectation is that, once again, we're gonna drive higher levels of sales at a great margin rate, and we're gonna generate even more gross profit dollars. We are going to drive gross profit dollars and not be so beholden to necessary rate, but it's really as a result of that multi-price mix and our overall that we'll see, would anticipate to have a little more muted margin than the rest of the box, if you will.
The 5% versus the 8%, I think that's a very fair question. I think we have a lot of things in motion. Gave you our best shot here. I will say this: There's structurally no difference between the two banners, Family Dollar and our number one competitor. There's no difference. I think there is a matter of the maturity curve where we are all on. Our main competitor started their journey in 2008. We're starting ours in 2023. It's gonna take some time to ramp our initiatives up. I'll say it yet again, structurally, there is no difference between the banners.
Okay, Kelly, right here.
Hi. Thanks for all the details. Wanted to ask about turnover. You gave a chart with some really interesting metrics that's headed in the right direction. I think in almost all cases, Family Dollar was pretty much above Dollar Tree. Just sort of begs the question, does Family Dollar need to make any more incremental wage investments? If not, what else? Is it the labor and the, you know, heavy lifting in the stores that you expect to close that gap?
Great question. We are continuing to look at wage investments, I think we're in pretty good shape now. Not saying that there isn't a market or two where we'll need to do something. The Family Dollar model for a store manager and the store employees right now it's tough. It really and truly is hard. To be honest, we're throwing a lot of work at the Family Dollar people right now. We've lowered all of our prices. That means you gotta go in and hang new tags. We're developing a new in-display program. We're resetting the stores. There's a ton of work going on, there's also a ton of work being done on eliminating work to make it easier. Unfortunately, we've gotten ahead, and we're not far enough ahead on the eliminating the work.
I do believe that, we're reducing our turnover significantly on district managers and store managers, and our model is driven by those two positions. There are countless examples with a long-tenured store manager, how the store looks and the shrink, employee turnover. I'm pleased that we're getting our store manager turnover almost down to normal retail levels. That's been a long time in this franchise.
Just to add on, I maybe come back to a question that was asked earlier. Embedded in our model and the way we're thinking about this business over this time frame, we were anticipating that from an inflationary standpoint, that the inflation moderates back to 2%-3%. If you take a look at our OpEx, our OpEx are growing at a faster rate than that. That was really to reflect the opportunity for us to continue investing where we needed to, selectively across the enterprise in order to achieve the things that you just outlined and with Rick has responded to. It's the combination of those two, I think if you keep those in mind.
Krisztina Katai, row three.
Hi, good afternoon. Thank you for taking the question. Krisztina Katai from Deutsche Bank. Just wanted to follow up on margins, right? You talked about the opportunities, especially to expand gross margins at both banners, and it sounds like the sales lift can be quite significant. Dollar Tree as an enterprise, hasn't really achieved that level of comp growth historically in the past, right? My question is, how do you think about opportunities to drive incremental margin upside if sales were to be below the plan? In essence, how much flex is there within the organization to still achieve the $10+ EPS numbers by fiscal 2026? Thank you.
Um, I-
If Rick McNeely doesn't make his margin target, he won't be here next year.
Does that answer that question?
No. Listen, if you think of, once again, across the enterprise, we are gonna run this business for long-term shareholder value. Beholden to margin rates is, I think, is one of the challenges this organization's gotten itself into in the past and has driven us to some short-term decision-making.
Yeah.
We believe that the actions that we're gonna take is going to drive top-line growth. It's gonna allow us to get better leverage in our business. It's gonna allow us to, quite honestly, give us more flexibility and agility to respond in ways that we haven't been able to in the past. A combination of these things should allow us to continue to grow this business and deliver shareholder value at and above the levels that we've just outlined.
I would like to add one thing. I've reached the stage of the game, I look across the room, and I could probably be everybody's father in here. I will say this: I learned a long time ago that everything follows sales. As long as we can keep our sales momentum, everything else will catch up. It might be a little bump in the road, but right now, we're making strides in the right spot, and I'm really, really comfortable that if there is a bump in the road, that we could probably overcome it.
Row four.
Hey, thanks, guys. Paul Lejuez, Citigroup. Two questions. One, you mentioned something about the inflation assumption you were using 2%-3%. As you think about the mid-single-digit comp algorithm over the next several years, how are you thinking about transactions as a driver of that comp versus the ticket for each of the banners? Second question on CapEx. We're at $2 billion this year. We're gonna go up a little bit, come back to $2 billion, but $2 billion's higher than where you've been. I'm curious if that's the new run rate once we get beyond 2026 or if we might come back down from there. Thanks.
Very good. Start at the end, come to the front. CapEx has been elevated in this year. Our expectation will continue to rise over the next couple of years. What we tried to do on that particular slide, it's really hard to see in a quick moment, is give you the breakdown. A large portion of that growth is coming from new stores and renovations. It's coming from supply chain and IT. Those are the first portion with respect to new stores and renovations. The expectation is that's gonna grow over a period of time as we ramp to 1,000 new stores and over 5,000 new sort of renovations and interactions at our store level. Supply chain and IT is a little more. First of all, it's multi-phase, multi-year.
It'll run out through the period. It'll start to come down in 2026, as we will get through a number of the major systems and through most of the enterprises as it relates to the distribution centers. As you get beyond 2026, we believe that it will continue to moderate down, and part of that is that, once again, we haven't reached all of the enterprises as it relates to some of these systems, but it'll be coming down pretty rapidly.
Now our growth, or our focus on CapEx will be predominantly in areas like new store growth, renovations, and then episodically in a few things that we may need to do more broadly around the supply chain, but not in some of these larger programs that we've outlined so far. As it relates to the gross margin, and I'm trying to remember the first.
The how much of the comp.
correct. Ticket versus transactions?
Transactions.
The way we think about it's going to be across really all three. From a standpoint of transactions, ticket, basket growth, we're looking at sales productivity, and it's a combination of all of that. When we build this out, our expectation is that, in the Family Dollar end of the business, as it relates to the inflationary growth, yes, in a normal basis, 2%-3%, we'll be able to the extent that we actually see those types of price increases in our product offering, so forth, we'll be able to handle that or pass that through at some level. On the Dollar Tree side, historically, it's been a little more of a challenge because we were fixed priced at $1 or $1.25.
The optionality that we now have, not so much to raise a particular price of an item, but look for other opportunities to replace a product or bring in something new in order to still have an offering for our customers. That will allow us, in years past, where we may have had to give up on ticket or traffic because we didn't have the right product offering, it'll allow us to continue to be quite attractive across both.
If I could add one thing, as you follow us, you're gonna hear me talk about three things. Transaction growth. I believe transaction growth is a very important component of comp. I also think when you hear a retailer saying, "I've got less people coming, but they're spending more," that is the first signal that something's going a little haywire. The second thing is, along with transactions, we have got to grow our units. You saw for the first time, we are posting unit growth. When I say units, I'm talking about stuff. I'm not talking about new stores. Those two things lead to sales per square foot, and that's probably the biggest opportunity we've got. Every week, Jeff looks at me and says, "When are you gonna fix your store productivity?" Sales per square foot is the true measure of that.
Those are the three things you're gonna hear us constantly talking about.
Next is Robbie, right here in row one.
Well, hi. Thanks. Robbie Ohmes from BofA Global Research Rick, I think two questions. The first would be: what are you, what do the CPG companies think of the strategy you guys are putting in place? Is it a big opportunity for you? Are they offering you better deals than normal? Do they see opportunity, a big unit volume growth through 2026? The second question is, what do you think the mix of business is gonna be in 2026? Do you think consumables will be a lot larger as a percent at both Family Dollar and Dollar Tree, or will discretionary make a big comeback here?
Two great questions. The consumer packaged goods companies, I believe we are the fastest-growing, consumable retailer in the United States now. Fastest-growing, I’m saying we’re not the largest or anything. What has happened is, we are doing. The secret to the consumer packaged goods companies, to get incremental funding from them, is you have to do what you say you’re gonna do. Historically, we did not do that. When Larry and Mike, particularly in the Family Dollar, agreed that we’re gonna put an end display of Kellogg’s Special K in our Family Dollars, 8,000 stores, it goes on that front display, and Mike’s team makes sure that’s where it goes.
Larry Gatta can pick up the phone and say, "Guess what just happened?" Thanks to Larry and his team, we are reinventing, for lack of a better phrase, our relationship with the consumer packaged goods companies. Consumer packaged goods is about two things. Number one, you gotta do what you say you're gonna do, and growth. We're providing both of those now, which is new for us. I can't remember the second question. I apologize.
Mix.
Oh, yeah, the mix! Thank you. Thank you. Yeah, I actually, I actually think the mix will normalize back. I think we're dealing... It's, with the consumer right now, it's just a little bit different because of the inflationary pressure, and what's happening is it's taken more of their wallet just to put dinner on the table. That will take care of itself with a little bit of time, and then I do think it's gonna normalize. By the way, our, on the Dollar Tree side, our non-consumable business is still growing, so.
Okay, let's go to Joe on the back left.
Great. Hi, guys. Way in the back here. Joe Feldman, Telsey Advisory Group. Two questions for you guys. One is, are there areas where you can accelerate some of the initiatives? Like, you've done a lot of great work. You showed a lot of different initiatives that are showing really great results, like 10%, 11% comp lists. Are there any of those that you can lean into faster? Second, sort of unrelated, but from a cultural standpoint, Rick, how do you change the culture? Like, how do you get people to ask questions or to say, "Hey, that's not good. Let's do it this way," versus just, as you described, being quiet and accepting? Thanks.
Two great questions. Let's do the culture one first, all right? I think it's obvious I've displayed that's very important to me. Culture, this will probably make you all laugh. Culture is not hanging a poster in the back room of 16,000 stores. It's just not. Unfortunately, that's usually how this stuff starts. Oh, my... The next big one is the mission statement. "This is who we are. If you don't like it, quit." That's the kind of stuff to me that is all superficial. Culture changes by, which I've said to 200,000 employees, great culture is merely treating each other like we want to be treated.
You know, I can talk about leading by example, you know, all the, all the cool phrases you wanna hear, but at the end of the day, it's that simple. I tell you another thing, we are not, particularly somebody like me, I am not judged by how well things go in this company. I'm judged by how badly they go and how I handle it. We're working really, really hard. I've had, I've been in this job now for a quarter, and I've already had two town halls, right? Talking to people and making them feel good and acknowledging what they're doing. That list I shared with you, I actually shared with the organization at the last town hall, and it's pretty basic stuff. It's.
You gotta get out there and talk to them and make them feel good. Can I accelerate the all of the initiatives? Again, there's a thing called organizational capacity, and you think of all the things we're doing, it's like having a 2.5-in pipe shoving 2 gal of water through it. What I wanna do, I don't wanna stumble, and I would rather take our time, do it right, and actually then I can stretch, I can stretch the improvement over two more years at the same time. I don't know, Jeffrey?
Oh, I think you've said it well. We are looking at a number of different ways to try and accelerate as best we can. We are, as an organization, doing things that we probably haven't done in a decade, which is making multiyear commitments to certain organizations in order to get consistency of supply where we can. These are the types of things that the pace at which we'd like to go many times is restricted by just access to what we're gonna need as, you know, some of the supportive product.
To Rick's point, I think that one of the things that is really important is, given the interdependency of a number of things, we do not want to get to a point where we're at a breaking point where the organization cannot support it, cannot move in the direction and the pace that we need to. I think we're gonna learn a lot along the way, and it's going to be iterative, and it's important for us to have the opportunity to make those marginal corrections to actually even get even better results as we move forward.
Okay, on the back right here. Courtney?
Hi, [Dion Plav] from Circle Well. Thanks for taking the time. Can you talk a little bit more about your philosophy around returning capital? You talked about the $3.5 billion of cumulative free cash flow if everything goes according to plan. You mentioned stock repurchases, potentially.
... philosophically, can you expand on, you know, the circumstances and also the potential for a dividend if, for instance, the stock was not at a level where you thought it would be attractive to repurchase?
Yeah, great question, Dan. You want me to start?
Go ahead.
As I think about capital allocation and the way that we look at it as a, as an organization, as I'd mentioned earlier, one of the best uses of our capital is for us to continue investing in great business investments that are gonna give us, you know, some of the most attractive returns. We believe we're doing that in the model that we've just outlined. At this point in time, we don't see anything that's attractive from an M&A perspective. That's not necessarily from a inorganic basis that we'd be focused on. As we think about where we sit today from a overall leverage perspective, we're pretty low levered at this point. We have very manageable maturity towers out in front of us.
Our expectation is we would probably go ahead and refinance those when it's appropriate and given the market opportunities to do so. Which is gonna leave us with a significant amount of free cash flow still left to possibly return to shareholders. That's the piece that as we look at the intrinsic value of our business and how we believe that we have a strong view of what that is, to the extent that the markets and our intrinsic value, there's a divergence, then we would look possibly to do more or repurchase. Also, at some point, we're gonna have to evaluate as to whether or not maybe a dividend or some other opportunity to return, you know, capital back to shareholders is an option for us.
All of that is a lot further ahead of us. We believe that as we continue to move through this journey, and if we find other ways to accelerate this transformation, once again, if this is the right business investments, we're gonna want to put money into that 'cause we know that we're gonna get higher returns. I'm answering and maybe not answering your question as to exact amounts, but we believe that we're gonna have a significant amount of cash flow available for us over the years. In doing so, we'll be looking for the right combination of opportunities to do that through, you know, back to the shareholders.
right here on the end of row three, Matt.
Matt Boss, JPMorgan. Rick, at Family Dollar, maybe higher level, what do you think is different about this turnaround plan that you're laying out here relative to others in the past? On the multi-price point opportunity at Dollar Tree, what's the timeline for higher price points, as well as maybe the timeline for the reintroduction of the $1 price point that you cited before?
Yeah, great questions. I would say, in all honesty, the steps we're taking here is no different than what I've done in the past. The difference is when we did that last time, and a lot of people in this room were with me, we were private for two years. A lot of the bumpiness or the grinding, nobody saw that, right? We're doing this now in full view of everybody. If you think about what we've done, the very first thing we did was get our pricing right. You heard from Larry that the most sensitive thing we deal with is the price on the shelf. I remember years ago, I was sitting, listening to a earnings call for Family Dollar with my chief merchant, and I remember like yesterday, he...
Evidently, I wasn't in the room with him, evidently, he holds up a stapler, and he holds up a pad of Post-it notes and says to the audience, "No one knows the price of these items, and we're gonna take advantage of it." My merchant and I looked at each other and said, "I hope he does, 'cause they do know in our channel." That was really the beginning of a very tough spiral. As far as. We're investing in our employees. Again, the first thing we did, and we've done it here, is we're aligning the bonus structure with our store managers and DMs. The steps are the same. Yeah. The second part was?
Multi-price points.
Multi-price points. Another very good question. The 1 dollar price points, we're actually moving on now, as Rick identified. And, you know, it's pretty hard to have a banner like that, and you have an item that everybody else has at about a dollar, and you're at a buck and a quarter. I would imagine that in the course of the next couple of months, we'll have that taken care of. The first buying trip for multi-price point, the kids just got back, and we are looking for sourcing opportunities in South America, as well as China. What has happened is Rick has opened up the door. The trouble with the non-consumable side of the business, you have to buy, Matt, about one year in advance.
What we're really battling with, and we're making great progress, is: how are we gonna put it on the shelf? How are we gonna tag it? How are the stores gonna manage it? That is the most important step, and we're spending a lot of time on that and making really solid progress. Thank you. I'm not leaving till I answer your question. You've held that thing up since the beginning.
You're next.
Hi, Kate McShane from Goldman Sachs. We want to ask a question about retail media. We saw it out here in the hallway, it wasn't talked a lot about in the presentation today. Just in the next three years, how big do you think this business can be, and is it contributing at all to the margin lift that you talked to today?
Larry, do you wanna answer that for me? Larry is the master of this.
Master of it. Emily is the master of it, but I'll speak to it. You know, we are amplifying what we're doing to engage our customer. More convenience than ever before. Our customer needs that convenience. Retail media is a big opportunity for us to connect our vendor partners and personalize the business. That opportunity also opens up monetization, right? Our vendor partners want that connection. That return on advertisement spend is one of the best returns they have. Once they have that connection and that personalization, that opens up the avenue for them. We're connecting, again, our vendor partners with our customers on a personal basis.
Thank you, Larry.
Okay, right here in row one.
Yeah, hi. Scott Mushkin from R5 Capital.
Scott, you're persistent, man, with that hand. I give you credit.
... By the way. I wanted to get back to Dollar Tree, just quick clarification. Going back to a dollar, what percent of SKUs is that gonna be?
Roughly 400 SKUs.
400 SKUs.
Percentage, though?
Oh, how many we got in there? It's gonna be a small percentage.
About 8,000 in total.
Yeah, 8,000 in total.
Great. Kind of stepping back, going to Dollar Tree, obviously, the brand was synonymous with the dollar for a long time. Very differentiated in the marketplace. As you guys move forward, multi-price points, obviously, you have a great buying organization, but the go-to-market strategy, the branding, the messaging to consumers, the store prototype, you know, is there more work to be done? 'Cause I would argue you could do high single digits if you get it right.
I would say there's more work to be done. I called it out. The decor package in both banners is out of date, significantly. The color schemes, you know, black is very popular now inside a retail store, and the store layouts, even, as all of that hard work you saw on the H2.5, Rick is also doing some of that work now in the Dollar Tree, so there's more to come. I do think how we present the store is gonna be different, to be honest about it. But that, again, is a work in process. I am excited about the multi-price opportunity, and what the multi-price is gonna do is gonna expand the number of SKUs and the value, Scott, that we can offer to the consumer.
I was always fascinated by the dollar price point, but the environment we're in right now, we've just. It's a choice of getting rid of stuff and not having enough to sell or making the choice, and the hard part has been done. That leap to $1.25 was painful, but that is done now, and it's time for us to capitalize on it.
Okay, Brad?
Thank you. Brad Thomas with KeyBanc Capital Markets. Two questions on operating margin building blocks. If you could talk a little bit more about shrink and the outlook and some of the things you're doing there, how that's factored in. Obviously, with the increase in CapEx, depreciation's going up. Can you give us a little more context about how that factors in?
I'll take the shrink piece, or do you wanna do it?
No, please.
I'll let you handle the CapEx. Hey, listen, shrink, number one, it is a, it's a retail problem right now. Here is a, to me, is a very fascinating statement. We have four shrink categories for our stores. zone one, or group one, two, three, and four. Group four would be the, what I would call the higher theft areas, Group one would be suburbia. Our shrink is going up the same amount in all four categories, which tells you that it's not just internal. It tells you there's a, there's a retail organized crime going on out there. There's also the issues now where the police will not respond to any shoplifting incident that's less than $1,000. It's not additive.
I could go in and steal $900 every day and not be in trouble. That's leading us to a new way of the way we're looking at things. I don't know if it makes sense to lock everything up, but there'll be some categories where you can probably get away with that. I personally think, and I know Larry and Rick agree with me, that we'll take higher shrink categories and just take them out of a store. Believe it or not, men's underwear is one of the highest shrink items we've got, and we've got stores that, quite frankly, we probably need to take it out. I think that's what you're gonna start to see retailers do, 'cause I'm gonna tell you, when you put it under lock and key, you don't sell it anyway.
You might as well not just have it. Of course, you've got certain categories that you can put behind the cash register. We've got stores that have cigarettes, obviously, back there, deodorant back there. There are certain ways to play it. But I think what's important here is we're all wrestling with it. I do think as shrink time tends to follow economic times, and I think as things ease up, we might see the shrink numbers get back to more normal levels.
In our overall plan, one of the things that we have done is we're assuming that there's a number of actions that we're taking in order to address shrink, but yet we're not assuming any significant improvement in shrink over the period. It's just a modest increase or improvement, if you will, as you think about that in your, in your model. The first part of your question, once again, was.
Depreciation, yeah. Which is a great observation, and hopefully, when you have a chance to actually take a look at some of the slides, what we tried to do was reflect. There was one of the actions that was actually going to be an offset, if you will, to some of the positive, in fact, factors of operating margin expansion was in real estate and depreciation and amortization. That was really meant to cover two things. One, as we start ramping up in our new stores, there's new stores coming online, they're not gonna be operating at the same level as the rest of the fleet, so that does have some operating margin impact.
The second piece is, because of the elevated levels of CapEx, the higher levels of depreciation and amortization, that's having an impact on the operating income and operating margin. Those two factors were really meant to reflect that.
Okay, we're gonna go to Chuck, then Mike, then I'll see if Rick wants to make a closing comment.
All right. Great. Thanks, and good luck, Randy, on retirement. Chuck Grom from Gordon Haskett. Rick, as you're more than well aware, people have been trying to fix Family Dollar since back when I had hair 25 years ago. I guess I'm curious what you think the biggest problems have been and why people like Howard Levin and some of your predecessors haven't been able to accomplish it?
You know, fantastic question. You know, I don't think you all remember when I was trying to buy Family Dollar, and it's interesting, I'm getting paid, Chuck, to fix something I said would never work. I will say this, I think and I was talking to some people at lunch about this. You go back to 2008, all three of us were basically in the same spot, not only in terms of stock price, but where we were. I think, Chuck, I'm not saying anything bad about anybody, but I think we knew the reason we were doing things, and I think Family Dollar was copying them, not understanding what we were doing. I'll give you all a perfect example.
I remember when we made the decision in 2008 to raise the shelf profile to 78 in. We're sitting there, and we make that decision, and it took us four years to do it. It took four years to do it because there was absolutely no need to raise the shelf profile unless you had new product to put in it. We did 25% of the store. Larry was actually doing this. We did 25% of the store. We went in and redid all the category work, and it took us four years. I remember like yesterday, Family Dollar announces they're raising the shelf profile in their store. They raised the shelf profile all the way across it, and all they did was spread out what they already had, right? Which is, so what? You just got more inventory.
There's repeated examples of that sort of thing. I do think that we have an incredibly qualified team, and, I'll put it all in focus for you when we, when we finish up here. I think that it is fixable. I don't think there's anything that can't be conquered. Now, maybe we're gonna have to be a little more persistent than the past. I also think if you look what we're doing, we're There not too much of the organization, Chuck, we're not touching. I mean, it's that kind of a fix. I am excited about it, and, I do believe we've got the right team. Hopefully, I can help you grow that hair back in.
Last question from Mike. Rick will have a few closing comments.
Thank you. Mike Montani at Evercore. Just the first question I had was around the store incentives. If you could maybe just update us on how those might have changed in the past couple of years to try to incentivize the consistent execution we discussed, and then just a margin follow-up after that.
Michael?
Sure. On the store incentives, the first thing we wanted to do was make sure that we weren't incentivizing bad behavior. One of the things that we had in there was that they get paid by their labor usage, you know, hours, being compliant to hours. It drove bad behavior. It wasn't driving the right results, which are you'd cut here, and then you wouldn't get the job done, you wouldn't recover the sales floor, you wouldn't get the sales, and it became kind of a vicious circle. We eliminated that. Our folks are paid on their sales now, and then they do have a, an annual shrink number. The other piece that we focused on.
This is where somebody had asked earlier about Family Dollar, and do you need more wage investments? When you look at our folks achieving their bonus, the number of stores that make bonus, Dollar Tree was pretty consistent in achieving bonuses. Those folks got paid pretty regularly. Family Dollar, it was anemic in terms of that conquering, winning, and getting paid for it. We tell our folks, "You max bonus, it's like getting a fifth paycheck, a fifth week of paycheck." What we've seen is our stores are now achieving at a much greater rate, that bonus. They're getting paid what's out there for them, and it's helping us with our turnover, and it's helping us where we talk total compensation. Everybody will talk wage and hourly rate.
You gotta look at both the hourly rate and the ability to go make bonus and benefits and all those other good things.
Thank you. Just on the margin front, I guess, for Jeff, when we were looking at prior margins, I think 2018 was just north of 8% for the enterprise. I was getting to sort of something similar on the $10 figure, and I just wanted to understand, is there any structural impediment that that couldn't be higher, or is that maybe what the opportunity is at?
I think the way that we've outlined it really says it all from the standpoint of the two banners. Once again, 2026 is not the endpoint. We believe there's opportunity beyond that, is driven by just a number of different factors. You know, as you think about the value that this business will be able to continue to drive beyond 2026, it is, in our minds, still substantial.
Good. Number one, thanks for coming. Number two, structurally, there is no difference between these companies. Number three, we have lots of opportunities. Yeah, there could be some bumps in the road, but I do think we are better prepared, better focused, and the right people are here. I was thinking about this the other day, and I think about the culture change that we're going under, I read a lot. I just read the book on Secretariat. I don't know, probably you're all familiar with Secretariat. There was a couple wonderful observations in that book that I thought were fascinating. The first one was. I think they apply to Family Dollar and Dollar Tree. The first one, the average weight of the heart in a horse is 8 lbs .
When Secretariat passed, they found that his heart weighed 22 lbs, and it wasn't that it was a hereditary problem. His heart was just big. I gotta tell you, there's a lot of heart at Family Dollar and Dollar Tree. There's a big heart there that's trying to do the right things and trying to do them in the right way. The last thing they said about Secretariat, when the jockey first climbed on him, and of course, Secretariat went on to win the Triple Crown, and Secretariat won the Belmont Stakes by the widest margin in history, like 24 or 25 lengths.
The jockey gets on the horse for the very first time, and they're working the horse out, and the trainer walks up to him, and he says, "What are you doing?" He says, "Well, I'm riding the horse." He says, "No, you're not. That horse don't need you to ride him. That horse just wants to run." Just wants to run. All these people wanna do, sitting in this front row, is run, and they're getting that chance now. For the first time, they're getting the chance to do what they want to do. All right? Thank you all. I look forward to seeing you again, and please travel safe. Thank you.