Good day and welcome to the Dollar Tree, Inc. first quarter 2008 earnings release. (Operator Instructions) At this time, I would like to turn the call over to Tim Reid, Vice President of Investor Relations. Please go ahead, sir.

Thank you, [Cindy]. Good morning and welcome to the Dollar Tree conference call for the first quarter of fiscal 2008. My name is Time Reid. I'm Vice President of Investor Relations. Our call today will be led by Bob Sasser, our President and Chief Executive Officer, who will provide insights on our performance in the quarter and recent developments in our business. Katy Mallas, Vice President, Controller, will provide a more detailed review of our first quarter financial performance and provide our guidance for the second quarter and full fiscal year 2008. Before we begin I would like to remind everyone that various remarks that we will make about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors included in our most recent press release, most recent current report on Form 8-K, quarterly report on Form 10-Q, and annual report on Form 10-K, all of which are on file with the SEC. We have no obligation to update our forward-looking statements, and you should not expect us to do so. At the end of our planned remarks we'll open the call to your questions, which we ask that you limit to one question and one follow-up question, if necessary. Now I'd like to turn the call over to Bob Sasser. Bob?

Thank you, Tim. Good morning, everyone. This morning we announced earnings for the first quarter of $0.48 per diluted share. That represents a 26.3% increase over last year's $0.38 per diluted share. As previously announced, total sales for the quarter were $1.051 billion, an increase of 7.8% over the first quarter of fiscal 2007. Comp store sales increased 2.1% for the quarter on top of a 5.8% increase last year and a 4% increase the year before. Our comparable store sales increase was the result of a 2% increase in traffic and a small increase in transaction size. These results were accomplished despite an earlier Easter, which we believe cost us about $15 to $20 million of lost volume compared to the fiscal 2007. Obviously, I'm very pleased with these results. We've been operating in a very challenging environment, with consumers facing a lot of pressure from record high fuel prices and general economic uncertainty. But for Dollar Tree in the first quarter that translated into increased demand for basic consumable products. Customers relied more than ever on Dollar Tree for great value in food and household consumables as well as health and beauty care basics. As most of you know, one of our key initiatives over the past few years has been to increase the selection of consumer basics to our merchandise mix, and we're now getting credit from our customers for doing this. We've added more of the things that people need every day and that are more frequently purchased. For many customers, we've become a destination for categories such as basic cleaning supplies, health and beauty care and a variety of consumer basics, things that people need every day. These are some of our fastest growing categories and we continue to improve our product assortment and our…

Thank you very much, Bob. Good morning, everyone. As Bob mentioned, our earnings per share increased 26.3% in the first quarter. This increase was driven by a 50 basis point improvement in gross margin to 33.9% from 33.4% in the first quarter last year. Two main factors contributed to this performance improvement. First, we had improved merchandise margin driven by continued improvements in our sourcing. Second, our shrink rate for the quarter was lower than last year. This is the result of an intense focus for more than a year by Operations and Loss Prevention, including additional training and new procedures to minimize shrink. Moving down the P&L, SG&A expense was 27.3% of sales for the quarter, an increase of 30 basis points from the first quarter last year. This was driven by a planned increase in advertising, higher utility costs, and increased fees for debit and credit cards resulting from our recent rollout of Visa credit cards and continued growth and penetration of debit cards in our overall sales mix. Depreciation and amortization was $41.8 million, unchanged from last as a rate of sales. We continue to expect depreciation of $160 to $165 million for the year, which, as a rate of sales, should be down about 20 to 30 basis points. Our operating margin for the quarter was 6.6%, a 20 basis point improvement compared to the first quarter last year. The tax rate for the quarter was 36% versus 37.2% in last year's first quarter. The decrease is due to the recognition of certain tax benefits in accordance with FIN 48, which offset a reduction in tax-exempt interest income. The lower rate resulted in a benefit of approximately $0.01 compared to last year. Looking at the balance sheet and statement of cash flow, our cash balance approximated…

Thanks, Katy. Before I turn the call over to you all for questions, I want to leave you with just a few summary observations. For the first quarter we're on track to accomplish our goals. Our sales increased nearly 8% and earnings per share were up 26%. Our gross margin improved by 50 basis points and operating margin increased by 20 basis points. Our investments in infrastructure continue to translate into better inventory management, more efficient stores, improved in stock position and better execution of our model, and most importantly, a better overall shopping experience for our customers. However, as we all know, fuel and energy prices are high and they continue to rise. In the first quarter of 2007, diesel fuel averaged $2.66 per gallon versus $3.78 on average in the first quarter of this year. That's over $1 higher. Since then, since the end of first quarter, we're already nearly an additional $1 higher at $4.72 a gallon. We've been able to mitigate much of the increase in past quarters through improved operating efficiencies, better trailer utilization and better routing, which has reduced some miles. But now, with diesel prices $2 above where they were this time last year, there's little doubt that our freight costs will be impacted for the remainder of the year and possibly beyond if diesel prices continue to rise. We've incorporated this into our guidance. In addition, we do not know exactly how the consumer will react to higher gasoline prices. We do know that they will find no better place to stretch their dollars than at Dollar Tree. In this environment, Dollar Tree values are more appreciated than ever. Our new Deals concept is progressing and it's exciting. We're opening new stores in new markets. Customer acceptance is strong. We continue to demonstrate the ability to self-fund the growth of our business while generating substantial free cash and we're dedicated to building value for our long-term shareholders. This means running the business as effectively as possible and managing our capital in a way that enhances shareholder return. Looking to the second quarter, record high fuel prices, declining home values and tighter credit are putting pressure on family budgets at all income levels. To succeed in this environment, we have to provide our customers with great value for their dollar and a selection that meets their needs as well as their wants. I believe that Dollar Tree is consumer relevant for these times. Our stores are well positioned with a great seasonal presentation. Our merchandise value and our increased mix of consumer basics differentiates us now more than ever, and it's all just $1. We're off to a good start in the second quarter with the launch of our everything you need for great summer promotion last week, and we are excited about our business. We are now ready for your questions. So that we can accommodate as many callers as time permits, we ask that you limit your questions to two.

Thank you. (Operator Instructions) Your first question comes from Mitchell Kaiser - Piper Jaffray.

Bob, maybe you could comment, there's been a lot of commentary on gross margin and particularly cost pressures coming out of Asia, but yet you showed nice gross margin expansion in the quarter. Could you maybe talk about product cost coming out of China and how you might be able to mitigate some of that pressure, if there is some, and then maybe just briefly a comment on kind of where you are in terms of the buying process for the remainder of the year?

We import about 40% of our product from foreign - mostly China. We've always been able to manage our merchandise margins very well. There's always pressure. There is pressure now on costs on products from China with the exchange rate and just with the general business conditions in China already. But we continue to grow in size and scale, and our larger buying power continues to translate into lower costs. In first quarter our merchandise margins were higher than last year. Margin at Dollar Tree is really all about the mix of product and not so much driven by the individual item cost. And that is a different way of doing business than others may do. Our model is really very flexible. We're not locked into a specific item. We don't have to have anything. No planograms gives us flexibility to move quickly from one item to the next. And frankly, from China we like moving from one item to the next. We like bringing new products in, things that the customers haven't seen. So we're in control of that 40% of our mix. We shop the market. We find the best value for the customer at the price that fits within our margin, and we're able to bring tremendous values to our customers because of the focus at the $1 price point. As we go forward, and you heard me talk about pressures but on the merchandise cost side we're able to manage that. I feel confident that we're going to continue to be able to manage that. That doesn't mean that we may not drop an item, add an item, change an item, things we've done for 20 some years. We'll continue to do that. But the pressures on margin as we go forward really center around two…

Your next question comes from Adrianne Shapira - Goldman Sachs.

Bob, could you just talk about, you know, you've done a very good job on the marketing front, can you talk about what plans you have in place in light of the checks hitting home, how you're looking to grab a greater share of that spend?

You know, Adrianne, a lot of our customers are getting those checks, and we hope that they'll come and spend some of it at Dollar Tree. We have promotional campaigns in place in the stores that include window banners and signing in the store and "Stretch your dollar here" and we're really talking it up with the consumers. Go into our stores; you'll see the marketing campaign around that. You'll soon see one that says, "Look what $20 will buy." That's 20 items, by the way, and there's a picture of a pile of 20 items and it covers the whole banner. So we really are hoping that we'll get our share, and we think we will get our share of those stimulus checks. We looked back, tried to find some history of this, and it was really hard to look because this is the biggest one ever. But in the past, we have seen some evidence, when there was a stimulus program, that we did get our share of that. I think we're getting some now, actually.

Your next question comes from Karen Short - Friedman, Billings, Ramsey & Co. Karen Short - Friedman, Billings, Ramsey & Co.: I'm just curious. I know you just talked about the shift, a little bit more of a mix shift to the consumables, and I know in the past I think you've commented that basic consumables were 8% to 9% of the mix. Can you just maybe discuss what that percent is currently and whether or not you see that being a risk to your margin just given what inflation is doing in the basic household consumable area?

The basic consumable part of the mix - and I'm talking about food and candy and household consumables and those kinds of things - what I've said in the past is that's about 40% of our business. First quarter, that was about 1.4% higher than it was first quarter last year, so not a dramatic effect there. And the shift that we're seeing is not a shift in the product offering. It's that our customers need it now. They're coming to us for it because it's only $1. So we're attracting new customers, and they're coming for these kinds of things. A day doesn't go by that I don't get somebody sending me a newspaper article or a TV - where they heard about recipes that you can buy at your local Dollar Tree, buy the ingredients for only $1 and how to stretch your dollars and the whole dollar sector really is getting some good press about that. We're not expanding our consumer mix in the store, the space to it, but it certainly is something that our customers are looking for now from us, and they're buying more. We're gaining more customers from it. There's times when you can sell them their wants, and there's times you've got to sell them their needs. And right now it's needs based. They're under pressure at the gas pump. Got less jingle in their pocket, and we're right for the times. We're there for them.

Your next question comes from Meredith Adler - Lehman Brothers.

If you could talk a little bit about your plans for share repurchases for the rest of the year? I mean, I know you don't have anything [said] specifically, but is there any reason you wouldn't buy shares? What would be an obstacle to buy?

Well, Meredith, we still have the authorization out there, over $450 million. We've never announced that we're going to buy shares. We've always done it opportunistically and reported on it basically after the fact. So it's still there. It's an option for us. I will tell you that we took a position first quarter because we exceeded all expectations - we bought $470-some million worth last year, which is more than our free cash flow last year, by the way - on buying back our shares. We ended up the year, began this year, with about $80 million in cash on our balance sheet. Still a nice number; everything's fine. But it was a little less than we historically had begun the year with. And as I looked out in the future and I see a lot of these uncertain times, I felt like it was a good time to conserve cash throughout the first quarter. As we go forward, we'll continue to assess the opportunities. We'll continue to assess the share repurchase, how it fits into our go forward plan. But we're going to manage our balance sheet responsibly, I guess, in these uncertain times. And that's the position that we took first quarter. We'll report on at the end of the quarter what we do.

You have talked in the past of a cannibalization of Deals or that you're looking at it closely, and I was just wondering if you have any updates for us?

I really don't, Meredith. The new stores and the new markets have exceeded the performance of the original stores that we bought in the existing markets. What I do know is some of the stores that we bought were in the same shopping center or across the street. That's too close. So going forward we're looking for some spread in the two stores because we do better when they're a couple miles apart anyway. But I really can't scientifically give you any data on that. It's more of we knew when to go into these new markets and into opening up new Deals stores on Dollar Trees. So it's something we're going to have to you're just going to have to wait and we're going to learn as time goes by.

Your next question comes from David Mann - Johnson Rice & Company. David Mann - Johnson Rice & Company: If I could ask, on gross margin, you didn't talk about occupancy. Can you give a sense on how occupancy expense performed in gross margin, what your outlook is for the rest of the year?

Going into second quarter there may be a little pressure on occupancy. That's in our guidance. We have a little pressure on occupancy going into the second quarter. And first quarter, we actually had some pretty good results, but we also had some true ups in one of our accrual accounts in the first quarter that was a positive effect to our occupancy costs. It had to do with accrual of our percentage rent that we trued up. David Mann - Johnson Rice & Company: And how impactful was that accrual?

That was in the first quarter, maybe $0.01, something like that. Right, Katy?

Yes, about $0.01.

But going forward, I know that in our guidance we implied - implicit in our guidance, part of our guidance is a little pressure in the second quarter on occupancy. David Mann - Johnson Rice & Company: And then if you could talk a little bit about the multi price point tests you have in the Dollar Tree stores, the [oops].

The oops, yes, it's there. It's something that we continue to do in 20-some stores, in our Dollar Tree stores. Just for everybody's edification, we've gone into - get my notes here - we've got 29 stores in the test, and we went in and we put in things that are more than $1, $5 or less, but more than $1, a mix of products. It could be closeouts, special purchases, extreme value items, or things just in some larger sizes, where people like to buy bundle packs of toilet paper and paper towels; we put in some bundle packs. And our signing is "Oops, we know it's not $1 but the value was too good to pass up, so we're passing the value on to you." The result so far, we've ran about - recently sales in the first [quarter] ran about 1% of total store sales. It hasn't been something so far that we've declared victory and are going to roll out to lots more stores, but we are still aggressively merchandising it, testing it, and working in these markets with doing some new things. One of the things we're going to be doing in one of the markets soon is adding gallon milk, and it's not gallon milk and eggs, for example. You know, you can't sell a gallon of milk for $1 but you can for $4 or $4.50, depending on the market price. So as a matter of convenience for our customer, because gas is expensive and we know our customers need milk, so why go anywhere else and burn your gas, buy it here. We know it's not $1 but we have the milk and the eggs for you convenience, dozens of eggs. So we're testing lots of new things, David. We've got some limited success with an item here, an item there, but overall it has not been something that has been worthy of a major rollout. Everybody loves it when everything's $1. There's something about the store where everything's $1. It's not everything except this. It's $1. And right now we are getting terrific response, even more than ever. New customers that never shopped with us before. That's anecdotal. I can't prove that. But people that ordinarily would have gone to other locations, other types of venues, are coming to Dollar Tree now, and they love the fact that we're $1. That doesn’t mean we won't keep trying and testing new things, but so far it has not been an overwhelming success.

Your next question comes from Michael Baker - Deutsche Bank Securities.

So two questions here. One, your inventory per foot or per store is up a little bit and you gave the reason for that. It's the first quarter in awhile that we've seen that, so is that a change in strategy that you could elaborate on? And then my second question, some of the gross margin pressures that you talked about maybe impacting you in the second quarter, the mix, the fuel costs, etc., I imagine those were prevalent in the first quarter as well, yet you clearly had a very strong gross margin. I'm wondering if you think they're going to be worse for some reason in the second quarter than they were in the first quarter, which seems to be implied by your guidance.

The one about inventory, the inventory increase was a snapshot in time, up 2.8% per store. It's not a shift in strategy. It was more intended to - after the early Easter, we really went after business. PreEaster was Valentine's. We went after the Easter business, and we went aggressively after the business immediately following Easter and into early second quarter. So that's what you're seeing there is some of the promotions that we had put in. They have been very successful, by the way. Our turns in the first quarter were equal to last year, no decrease, and we still anticipate and expect to have an improvement in turns for the year. So no strategy change. We're still on the case with our inventory turns, and it's really a matter of balancing the sales and the inventory and the flow of product as much as anything there. We're excited about the improvements that we've made. In talking about the gross margin, implied, yes, we did have pressures on gross margin in the first quarter, but we were able to overcome it mainly for a couple of reasons. We had improved merchandise mark on in the first quarter, so inflation was not the bogey that you thought it might be. We had some improvement in our shrink in the first quarter. We haven't taken all the credit for that, but our shrink is improving, so that's a good news item in the margin line. As we go and look into second quarter, fuel prices were $1 higher in the first quarter than last year. They're already looking like $2 higher a gallon than last year. And what you're seeing in our guidance on pressure on the gross margin, yes, I really don't know what it's going to be. It's all…

Your next question comes from Patrick Mckeever - Mkm Partners LLC.

A similar kind of question, but my question is more on the distribution and transportation side. You've talked in the past about how higher fuel costs impact distribution and transportation costs by quarter and said that some quarters it hurts more than others just given the cadence of your shipping and the holidays and so forth. Which quarter would it have the biggest impact on? Is the first quarter where there would naturally be less of an impact as a percent of sales and second quarter, third quarter greater because of the volume going into the holidays, that kind of thing?

Patrick, I think the key here is the fact that the diesel fuel prices are high and they continue to rise. So what you saw reflected in fourth quarter, they were higher in first quarter and they're still rising as we go into second quarter. So you'll see more impact on the high prices sort of after the fact because we actually buy the goods, transport it, put it in the DCs, then put it in the store over a period of, I don't know, weeks. So there's a little lag, I guess, before you actually see that show up in your gross margin. That's one thing. But I think the real bully in the room here is the fact that it just keeps going up. And at some point it's got to go I think it will go down at some point. Our forecast, our guidance, assumes, though, that it's not going to go down. We've picked the number, we've spread it out to the rest of the year, and that's kind of where we've guided you to. So it's in our guidance.

(Operator Instructions) Your next question comes from Charles Grom - J.P. Morgan.

Bob, regarding your ability to better navigate price inflation, clearly, your ability to rotate skews is a big factor and the lack of strict in-store planograms is a factor as well. And I'm wondering if you could help us quantify that to some extent and, in that matter, could you share with us how many skews that you had in the store on average in the first quarter were held over from a year ago or conversely how many were rotated out? And then separately, could you share with us the average ticket in the Deals stores? I believe a year ago it was around $16.36. I was wondering what it was this year.

Chuck, the average ticket - I'll go with that one first; let me look that up - the average ticket grew slightly, overall, $8.57. Top store average ticket grew $8.57 to $8.60. The new market average ticket was $9.75. I think what you're referring to is our average ticket when we had something in the basket that was over $1, and that was, this year, in first quarter, the original markets were $15.45. The new markets were $16.14. So that's the average ticket with something more than $1 in the basket. The first quarter was in regard to skew count. Let me give you a little color on it. I don't know that I can quantify it as much as just tell you how we go to market. We'll have 5,000 to 7,000 skews at anytime in our stores. We import probably 40% of our product. Of that 40%, a lot of that's seasonal product, and I would say probably half of that is new product, year to year, season to season. Because of the nature of our customer desires and what we stand for, we like to show a new product. The first year you have it, it sells really good, the second year's usually not quite as good, and you really ought to be changing it by the third year. So that's kind of the way we look at our seasonal and our imports, and it's that ever-changing component of fresh product. Now having said that, we have a margin plan and a sales plan by department, by category. So when we are in Asia and we're negotiating our plan for a category, we know what we did last year, we know what we sold, we know what our plans are next year, if we're going to add…

Your next question comes from Joe Feldman - Telsey Advisory.

Bob, earlier in the call you mentioned that you feel like you're attracting more customers, and I was curious as to what's driving that beyond, obviously, the type of product, but are you seeing a trade down or do you think it's market share gains against your competitors or, you know, where is that exactly coming from?

I think it's more of a trade down, as much as anything. We're more relevant than ever, and we give them every reason to trade down. We're offering great stuff at only $1. We have a real estate strategy that puts our stores we try to put it in Middle America, where they shop or live. We try to offer a nice shopping experience. That's one thing that we pay a little more attention to than I think maybe some others, but we believe that the shopping experience is something that sets us apart, with bright, clean, friendly stores. And now we've got an expanded mix in our stores that has happened over the past few years, actually, with more of the things that people need every day, with the frozen and refrigerated and the food and the HBC and all those kinds of things. So I think people are trading down, and I think they're trying us because they're under pressure at the gas pumps. I don't know if, you know, it cost you probably $60 to fill up a car these days. That was a lot less last year, so you've got $20 to $30 less than you had this time last year after leaving the gas pump. So I think people are trying us. They're under pressure. Let's try this Dollar Tree store. And when they try us, they're obviously liking a lot of what they see because it's showing up in the sales of some of these - all the products, really, but the consumer products are growing faster than any other part of our business.

And just one quick follow up on a separate topic. You mentioned the new store productivity at the Deals has been very good, and I was just wondering if you could comment on the core Dollar Tree stores, if you're still getting the strong productivity that you typically get from a new store?

First quarter productivity was up over last year, and I say that with a - I sort of hold my breath because first quarter's a dangerous time to be forecasting success over the full year because you just don't have quite enough stores yet to do that. The facts are that our stores that we opened first quarter, the productivity in those stores are ahead of last year and ahead of our plan right now. We'll just tell you, it's early. I'm committed to this. We're going to improve the productivity of those new stores, but I'll share with you at the end of the year after we've done it more than at the first of the year when we've just begun.

Your next question comes from John Zolidis - Buckingham Research.

I was wondering if you could contrast the first quarter sales performance, which exceeded your expectations, with the fourth quarter sales performance, which fell a bit short. What would you attribute the difference in trend? Is it macro, is it merchandising, is it some other factor? And then what gives you confidence that you can continue to perform in line with the results in the first quarter and we won't see kind of a step backwards relative to the improvements that you just reported?

That's a good question. That's a tough one, and I can only tell you what I think about it. The fourth quarter last year, it seems as if we were cruising along, if you remember, in that 4% comp range and all of a sudden fourth quarter came and us and everybody else, it seemed as if you hit a wall. And I believe that it was the sudden surge in some of these macro issues that started creating that uncertainty in our customers' mind. And, you know, they shopped late. It was a late season, and by the time they came out, they really came out in droves. But there just really wasn't enough - I wish I had another day or two, right? I mean, there just wasn't enough time left from that. Since they I believe that the pressure has risen, the pressure has continued, but I do believe there's a psyche, a consumer psyche there that says it's not as much of a surprise now. I've got to figure out how to make do with my $60 gas tank. I've got to figure out how to redo my budget. I've got to work it in somehow. And, by the way, I think they're looking for alternatives, and I think that's one of the things that is putting more people into a Dollar Tree store, as I said earlier. So I think that's really kind of what's going on out there with the customer. What gives me confidence is that I believe that we really are relevant for these times. We run stores with a little shopping experience, we're a little different, we've got fun and exciting things that we've always sold with things that they want in the party and the seasons and the color and the ever-changing mix. And then we also have things to eat and we have dental supplies and household cleaning supplies and all the things you need, and it's only $1. So they're coming in, I think, and they're finding us. They're liking the value, and I think they're going to keep coming back to us for that. It's up to us. We have to run good stores. We have to set high standards, great merchandise values. As long as we stay true to that, I think good things are going to be coming from these new customers. But I can't tell you why it stopped in October, November, and I can't tell you why it seems to have accelerated other than I just think it's a consumer psyche of when things are abrupt, they respond by stopping, and then they start trying to figure out how to work it into their budgets. And we're in the right place. I'd take my lot over a lot of the higher end wants-based retailers, by the way. I kind of like our position today.

Your last question comes from William Keller - Ftn Midwest Securities Corp.

Just looking at the uses of cash and you mentioned share buybacks; you did not do any in the first quarter. Is that your preferred use of cash going forward or do you have some other things perhaps in mind should you decide to be a little less conservative with the cash balance.

You know, at this point it's really all about choices. And given the share repurchase activity we did last year and the economic environment that we're in today, we're still growing our business and so we prefer to use our money and put it back in the business so you'll see Capex in line with where you've seen it in the past and using a lot of our money to put back into the business to open new stores, relocate stores, install freezers, all of those sorts of things. It's really a choice at this point what to do with it.

And at this time, I'd like to turn the conference back over to Mr. Reid for any additional or closing remarks.

Okay. Thank you all very much for participating in the conference call today. Thanks, Cindy, for monitoring it for us. Our next conference call is scheduled for August 27, 2008, when we will discuss second quarter results. Thank you, again.

Thank you. That does conclude today's conference. You may disconnect at this time.