Good day, and welcome to Dollar Tree, Inc.'s Fourth Quarter Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Randy Guiler, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Keith. Good morning, and welcome to our conference call to discuss Dollar Tree's performance for the fourth quarter and full year fiscal 2015. Participating on today's call will be our CEO, Bob Sasser; CFO, Kevin Wampler; and Family Dollar's President and Chief Operating Officer, Gary Philbin. Before we begin, I would like to remind everyone that various remarks that we will make about future expectations, plans and prospects for the company constitutes forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors included in our most recent press release, most recent 8-K, quarterly report on 10-Q and annual report on Form 10-K, 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 prepared remarks, we will open the call to your questions. [Operator Instructions]. Now, I'd like to turn the call over to Bob Sasser, Dollar Tree's Chief Executive Officer.

Thanks, Randy. Good morning, everyone. This morning, we announced results for the fourth quarter and full year fiscal 2015. Total sales for the quarter increased to $5.37 billion, and same-store sales on a constant-currency basis increased 1.7%. Total sales for fiscal 2015, which included nearly 7 months of Family Dollar sales, were $15.5 billion. Net income for the quarter was $229 million and adjusted net income was $239.4 million, near the high end of our range of guidance. EPS was $0.97 and adjusted diluted EPS was $1.01. I'm extremely pleased with our company's accomplishments in the fourth quarter. Sales were solid and at the midpoint of our range of guidance. SG&A expenses were leveraged and well-managed. Our Dollar Tree segment continues to deliver sector-leading operating margins, and earnings were very near the top of our guidance. Our customer base is large and it's growing and we continue to meet our milestones and remain on schedule with our integration of Family Dollar. We have truly an incredible opportunity ahead of us as a combined organization, and the strategic rationale for the combination continues to be as compelling as ever. In the early stages of integration, there have been no surprises that diminish our vision and plans for value creation. In fact, as we improve retail operations, there is increased enthusiasm for the opportunity to grow and to serve more customers in more ways as a combined company. We have confidence in our disciplined approach to continue improving the customer experience at Family Dollar and in our ability to capture synergies for the combined organization. With a focus on managing our business in real time, our eyes are on the horizon as we develop the foundation for a larger, stronger and more diversified business that will generate cash and build shareholder value…

Thanks, Bob, and good morning. As a result of the acquisition, year-over-year comparisons are difficult. However, we have included tables with our press release, which we believe will be helpful in better understanding the components of our business. Total sales for the fourth quarter grew 117% to $5.37 billion, which includes our second full quarter of Family Dollar sales. This was at the midpoint of the sales guidance range of $5.32 billion to $5.42 billion. Dollar Tree segment sales increased 8.6% to $2.69 billion, while Family Dollar segment sales decreased 2.7% to $2.68 billion. Year-over-year sales comparisons for Family Dollar were impacted by 205 rebannered stores and 325 divested stores. Same-store sales on a constant-currency basis increased 1.7% versus a very strong 5.6% in the prior year's fourth quarter. The increase was driven by both traffic and ticket. Adjusted for the impact of Canadian currency fluctuations, same-store sales grew 1.3%. All of the recently acquired Family Dollar stores and newly rebannered Family Dollar and Deals stores are considered new stores and are excluded from our same-store sales calculation. Gross profit for the combined organization increased by $734.5 million or 80% to $1.65 billion for the fourth quarter of 2015 compared with the prior year's quarter. The majority of the dollar increase was driven by Family Dollar's gross profit of $673.7 million. Gross profit margin for the Dollar Tree segment was 36.4% during the fourth quarter compared with 37.1% in the prior year's fourth quarter. Approximately 1/2 of the 70 basis point declined as a percent of sales was related to actual accrued markdowns associated with the planned conversion of all Deals stores locations. Other factors contributing to the year-over-year decline in gross margin rate was occupancy costs, higher distribution costs and shrink, partially offset by improved merchandise costs. Gross profit…

Thanks, Kevin. I want to close by saying the strategic rationale for the Family Dollar acquisition is as compelling as ever. This is an extremely large and complex transaction involving more than 13,000 retail store locations and 23 distribution centers. While we are still in the early stages of the integration process, I am very pleased with our process and our progress. Gary Philbin and the leadership team at Family Dollar are working the plan effectively and efficiently. We continue to have great confidence in our ability to deliver at least $300 million in annual run rate synergies by the end of year 3. I believe we can exceed these expectations. These synergies will be achieved through a combination of lower end costs from both direct and indirect sourcing, banner optimization, logistics and overhead. I'm extremely proud of our combined Family Dollar and Dollar Tree teams. They have accomplished extraordinary feats in a very short time. But this is just the beginning. There's much more to do, and I will tell you that, as always, we will employ a disciplined approach to driving key strategic initiatives to the combined organization through improved communication, analysis, collaboration and incentives. We're confident that placing our initial emphasis in these areas can materially enhance operating performance of the Family Dollar brand through improvements in sales, margins, expense control and greater customer satisfaction. I will close the prepared remarks by saying the Dollar Tree business model is powerful, flexible and more relevant than ever, providing extreme value to customers while recording record levels of earnings. Our model has been tested by time and validated by history. For 32 consecutive quarters, the Dollar Tree banner has delivered positive same-store sales increases. Through good times and difficult times and all retail cycles, consumers are looking for value no matter what the state of the economy. While our price point remains $1, our operating margin continues to lead the discount sector. With the addition of Family Dollar, we're a larger, stronger and more diversified business, better able to grow in more markets, while serving more customers with exactly what they're looking for, great value in every store, every day. Our future has never been brighter. Operator, we're now ready for questions.

[Operator Instructions] We'll take our first question from Michael Lasser with UBS.

On the core Dollar Tree business, this is third the quarter in row where the comps were below 3%. Are you seeing any indications that you're running into some of the limitations of your merchandise flexibility with the single price point model? And along those lines, what are you anticipating on the merchandising side to see the benefit given what some of the Asian currencies have done and given how much that you source your product overseas? And then I have a quick follow-up.

Michael, thanks for the question. To the first part of the question, we're not limited by the merchandise assortment or the price point. We have more assortment than ever. Our values are better than ever, our stores are larger, they're -- more merchandise and more assortment than we've ever had. So there's no limitation to that. If you look at the fourth quarter largely, we're up against a very big fourth quarter last year, 5.6% comp, and the year before. So basically, in sort of a tough economy, we are up against a fairly difficult comparison, 5.6%, and I think the 1.7% comp that you see is admirable considering what we faced with that comp last year. As to China, our sourcing continues to be strong and vibrant. We still import a lot of product. About 40% of our business is in product that we import, and that continues. Our pricing out of China has been very positive. We've been able to not only improve values in our product by taking the lower costs and turning that into more value for the customer, but also, we've been able to reduce costs on things that we buy every quarter, every year that we keep in our stores all the time. So the basics, we've been able to reduce costs on that, especially on the last trip. You had a follow-up question?

Yes, my other question was on the guidance for the year. What have you assumed on wage increases, additional investments in the stores and the costs to harvest the synergies within your outlook for the upcoming year?

Michael, as we worked to put our guidance together for the full year, we were obviously taking all of those things into consideration. Obviously, from a wage perspective, there are, continue to be certain states in the U.S. as well as provinces in Canada that continue to raise their individual minimum wages. And obviously, we put those into the mix as we look at our business, no different than any other year. And to the point, we've historically said we're competitive in the markets we're in and that's important because you have to be to get good employees at the end of the day. So I don't think that's really changed, but it is within the guidance. As you look at the synergies and you look at the costs achieved, obviously, we have an expectation that we will achieve synergies this year. There are synergies baked in, we haven't specifically said the dollars, and part of that is due to the timing is a little bit hard to nail specifically down. We are well on our way to meeting or beating the first year run rate of $75 million of synergies. So I think we've baked things in accordingly. But still a lot of work to be done to make that happen, but we feel good about where we're at today.

And our next question comes from Scot Ciccarelli with RBC capital.

The first question is, is there an estimate that you guys have in terms of the impact of cannibalization in the quarter? Obviously, Kevin, you made that reference, and I think you guys talked about it last quarter as well.

Yes, I think as we look at it, and we obviously analyze it, and we analyzed it going into it, as we said within the prepared remarks that the expectation was there was going to be some effect, and it was a little less than 0.5%, but I think directionally, that's exactly where we expected it to be. So in some ways -- and that was all related to rebannering, so in some ways, I guess you could say without that, we would've been above a 2%. But I think we all know that for the improvement of the business, we're doing the right things with these rebannerings. They are going to be great stores, great opportunity to put the best store in the best location for our customers and put our best foot forward, and it will show in the bottom line as we go forward. So I think that's the way we think about it.

Okay, that's helpful. And then is there a synergy number that we can kind of think about for the quarter that's just completed? Or is the bulk of that $75 million really going to happen in the first half of 2016, just given that the timing issues that you already mentioned?

Yes, I mean, as we think about, there's -- it's probably more to the back half a little bit. There is a little bit within the first quarter, but we're not really going to speak to a specific number at this point in time, but it is built into our guidance.

And was there anything that you were able to capture in the fourth quarter that you can outline?

Yes, I think obviously, there was a little bit in the fourth quarter as it relates to the exact match process that Bob spoke to in his comments. The merchants worked hard on that, and there was some of that, that did go into effect in a sense. But what you've got to remember is you've already got merchandise on hand basically at the prior price. So it takes a while to work through the system to see the benefit is kind of the way you need to think about that.

In other words, just for final clarification here, the bulk of the synergies for first year we're really going to start to see accelerate in 2Q of '16?

I think that's when we'll start to definitely see some things hitting that will make a difference.

Our next question comes from Stephen Grambling with Goldman Sachs.

Just a follow-up on the guidance. Can you just provide a little more color on how you think about the profitability by segment, maybe excluding the synergies? Just whatever the high-level puts and takes to think about are.

At this point, we're going to give guidance as a combined company. I think as you look at it, at the midpoint of our guidance, our operating margin for Q1 basically gives about a mid-7% number. If you look at it for the full year, you're at the high 7s, approaching 8%. We're going to give guidance as a combined company. We'll give you color at the end of each quarter, but that's how we're going to factor that as we go forward.

Okay, fair enough. And then, is there any detail you can provide on what you're seeing from these rebannerings as it relates to the productivity so far and profitability? And then any other color you can provide on the next group of stores and how they may differ from the first set?

Yes, I will tell you that rebanners are meeting our expectations. We started off, as you know, with an analysis of the stores that we thought could be better served -- better serve the customers as a Dollar Tree than a Family Dollar. And Family Dollars that were underperforming, frankly, because obviously, we can improve the performance of those Family Dollar stores by turning them into a Dollar Tree. We're going to -- we'd like to take a look at doing that. We modeled against really the Family Dollar -- the Dollar Tree model to come up with a large list, and then we went through the process of reviewing those stores, actually, going out and sending people out to visit the sites and put their eyes on it as well as having the analysis. So from that is how we picked the first 200, 300 stores now. We'll continue the analysis. I will tell you that we haven't learned a whole lot different from what we first did in regard to analyzing the Family Dollar stores. Again, they were underperforming Family Dollar stores that we put through the Dollar Tree real estate model. And from the Dollar Tree real estate model, we came up with a sales projection. And from that, we knew what we could do, what we thought we can do as a Dollar Tree. So that's how we chose them. I don't think there's -- it's really early. One of the reasons we're doing 100 this year instead of maybe more is the fact that we would like to let the first 200 sort of burn in and have a few months. Some of them we've only had a few weeks on with results, and at most we've only had a few months. So with a little more time, then I think we will probably find some more opportunity to improve that model and to improve the location and the rebannering project. But I will tell you, it's exciting. The rebannering is absolutely hitting our expectations of what we can deliver, and, by the way, I think by running better stores then obviously we can improve, as we do in all Dollar Tree stores, from opening to really going after the customer in those markets and running great stores for those neighborhoods.

And one last one if I can, and then I'll yield. On the transition service agreement, I think you had talked about with the divested stores, was that in place in the quarter? Is there any way to help us size that?

The TSA was in place in the quarter. Obviously, from the standpoint of we divested of the 325 stores at the beginning of the quarter. We do support Sycamore Partners for these stores on an ongoing basis. And again, as we called out last quarter, there are certain costs that we are incurring and expect to incur as part of that. On the flip side of that, we do get some reimbursement as per the TSA for some of those services provided. It was -- it's on a go-forward basis. My expectation is that it will be, hopefully, fairly neutral, but it's not totally known based upon all the services that we have to provide. But we will be providing accounting services, the merchandise is still bought and distributed by us to those 325 stores. We're really accounting services and HR services and various things like that. So it's a fairly involved process, realistically.

[Operator Instructions] We'll go next to Dan Wewer with Raymond James.

Bob, on the 1% to 2% same-store sales gain at Family Dollar, were you initially thinking it could be a bit better than that given that you've taken the 200 underperforming Family Dollar stores out of their comp base? And as you alluded to, the in-store standards are better, in-stock levels are better. Is it seems like the Family Dollar segment could have achieved a little bit better same-store sales growth.

It's just early, Dan. I think we can achieve better, more consistent same-store sales growth at Family Dollar, but boy, there was a lot of things going on there, including a clearance event that was ending sometime in early November, and then changing around the store, the end caps; getting rid of old merchandise; working on improving the in-stock position; setting holiday merchandise that had already been bought and displaying that appropriately; and just engaging in the customer. So they really accomplished a lot of things at the Family Dollar business early on in addition to all the synergy work that's being done there and the combining with the shared services. So a lot was accomplished there. I'm pleased with where we came from with the Family Dollar, frankly, business. I mean, we divested 325 stores, $0.5 billion in sales, that we rebannered 205 stores. All those moving pieces have an effect on the base. It's a little bit from -- it's a lot to do for an organization in a short period of time. And at the same time, the business environment in the fourth quarter for the consumer just wasn't as robust as you might have wanted it to be. So let's give it a little more time. I expect it's going to continue to improve, and I have great confidence in the management team to do the things, to focus on the customer, engage with the customer, provide more value in that business, which that's where we're putting our focus. Just like Dollar Tree, we're going to run great stores. we'll win by running great stories at Family Dollar.

And then a follow-up also related to revenues. When you look at the core segment, the Dollar Tree store sales per-square foot is now the highest I believe since 2002, and of course, back then, your stores were only the prototypes, only half of the size that it is currently. With that in mind, just mathematically, it's really difficult to get to 3% and 4% same-store sales growth because the denominator is so large. So going forward, do you think 2% is kind of the appropriate bogey for the core segment same-store sales?

I wouldn't agree on the 3% to 4% not being out of reach, or even more. I mean, it's really about how well we serve customer and there are some headwinds out there from time to time in the economy and the economic environment and employment and all those things that we sort of whine about that we can't do much with. But at the same time, they cycle in, they cycle out, and over the longer haul, we can do more in our Dollar Tree stores. Our sales productivity per foot is not at the peak of where it can be. There's always -- there always are things we can do by expanding categories that are growing, by pulling back on categories that are declining, by increasing the value. The idea of buying better with a combined larger company and leveraging the power of our pencil to buy better, to distribute goods better, the logistics costs, we ought to be able to leverage those for both banners and provide more efficient and better supply of merchandise to our stores. So I mean, model as you wish, but for the long haul, I believe that our Dollar Tree business is going to remain vibrant for years to come.

Do think that you're at a point where maybe you need to reinvest some of that industry-leading margin in the Dollar Tree segment back into the market share initiatives?

We should always take a look at that, and we should always let the market and the customer be our guide on what the value equation needs to be. Everything's a $1. Other retailers will raise or lower their prices. At Dollar Tree, we change the product. We'll either improve the value or take a little more in margins. So we'll continue to do that. I will tell you this, though, there's really room -- there's a lot of room in our operating margin to improve it, and one of the things I'm most proud of is the sector leading operating margin, and there's a few things that we can do to improve that, even though it's sector leading. We can continue to grow that. We don't have to take away from it to invest in the customer. We can run our business better still. And it's driven by just a few factors. First of all, we've got to improve our DC costs. By improving our DC costs, we'll be able to improve our operating margin. By improving our -- by the use of better staffing models and leveraging engineered standards, we can improve our DC costs. Our shrink is higher than it should be. It's grown over the last couple of years. We can improve that. We've always been able to run a very well-managed shrink component in our business. And I expect that we're going to get back to a better shrink number. Unfortunately, shrink, as you know, has a tail. Once you know it and see it, then all of the initiatives that you do to bring it back in line sort of don't show up until you cycle through some inventories and the like. But we're on top of it, and we can improve our shrink. We can also improve our -- we'll leverage our occupancy with our comp store sales increases. We've had 32 straight quarters. Whether it's 2% or 3% or 4%, we'll will continue to leverage those fixed costs with our comp sales increase. And then another big thing is by leveraging the combined companies, as an individual banner, 1 plus 1 doesn't equal 2 here. As we start bringing together our shared services for both banners, we're going to lower costs across both banners in the back office functions. So there's room for us to continue to grow our comp sales. There's room for us to continue to invest in our customer and be relevant and offer the best values in the business for $1 and at the same time, improve our operating margin.

And our next question will come from Joseph Feldman with Telsey.

I wanted to ask, you made a comment about the integration of systems and technology, and I guess, I just wanted to get an update on where that does stand because -- and how you're kind of platforming across the 2 businesses?

Joe, well, we've got a plan, we've got a road map that sort of -- we're not doing everything at one time, some things have to be done before you can do the next step, by the way, but we have a plan for that for over the next 3 years, of systems integration. We're doing a lot of work around what -- bringing together shared services as a priority, being able to, for example, get everyone on the same financial system so that we can pay all the bills the same way using the same system. We're currently, you've heard me reference St. George, Utah. We're currently working on combining and integrating the WMS systems. We're taking a Family Dollar bannered DC in Saint George, Utah, and we're doing that right now. We'll start receiving some time April, May, the Dollar Tree merchandise along with the Family Dollar merchandise, and we'll start shipping and testing that shortly after that is the plan. And of course, when we get that right and we have confidence that we can do that other places, then we'll begin rolling out and combining some others, DCs as appropriate, to do 2 things. One is to give us more capacity in the buildings that we own, whether it's Family Dollar that needs the capacity or Dollar Tree that needs the capacity, by being able to ship both banners out of any building will enable us to use the capacity better. And secondly, to improve the cost structure by rationalizing the DC network, getting the DCs in the right places to serve the right banner. So that's some of the priorities that we have. We're going to keep the merchandising separate. There's some of the back office things to do with merchandising we'll try to leverage, but Family Dollar buyers are going to be buying using Family Dollar systems and Dollar Tree alike, using the Dollar Tree systems, as far as retail purchasing right now. We're going to combine some of the back office things and leverage our international sourcing, leveraging freights across both banners, leveraging our international organization across both banners, our QA, QC, all of those things we'll be leveraging. So that sort of gives you a color. There is a road map for the entire network, system by system, and it spans the next 3 years, with the most important things to get -- to glean the most value the earliest at the front end.

And then -- just as a follow-up, can you help dimensionalize maybe this $300 million in synergies. I know there's the 4 buckets, and I know we've talked about some of the merchandising ones probably coming earlier in the process of the 3 years, but like how should we think about how big each bucket is going forward?

Yes, as we've talked to them, the 4 buckets, the biggest one by far is the procurement bucket, which includes both merchandise and non-merchandise spend, basically, and that's roughly -- it's over 60%, basically of the overall $300 million. So that's where the -- that's very -- it's a wide net, as you might imagine, not only when you think about all the things we buy. So merchandise is merchandise, but when you look at all the services and goods that we buy as organizations, being able to leverage that across both organizations, streamline processes, determine the best way to go forward for both banners is really very exciting and very powerful. So that by far, is the biggest bucket. The second biggest bucket that we spoke to in the past is the rebannering process and taking underperforming stores and turning them into stores that are performing at a higher level, at an average Dollar Tree rate. So that's the second one. And the third and fourth buckets are smaller. We've always said that the distribution and logistics has a chance to be a big number, but it's a longer-term project. So to Bob's point when he was speaking to the work being done today on looking at systems and how you ship both banners out of one distribution center, that potentially has some big payback, but it's a little further down the road. So that's kind of directionally how to think about it.

Our next question comes from Matt Nemer with Wells Fargo Securities.

This is actually Trisha Dill in for Matt. So I just had a question first on the core Dollar Tree operating margin that came in a little lighter than we expected and down versus last year compared to, I think, your expectations were relatively flat, even x the Deals markdowns. And SCO came in a little above our expectations, so I was just wondering if you could comment on what was different there versus your expectations in both segments? And then I just had a follow-up after that.

Yes, I think on the Dollar Tree side of the equation, I think obviously, the Deals markdowns were a known number, and that was by far the largest portion of the decrease in our gross profit. On a lower comp, we don't get as much leverage on occupancy and distribution as we normally would. And again, to the point of what we're trying to do there, and as to Bob speaking to it, we know we can do better from a distribution standpoint. And then shrink being the other item, which we're not happy with our performance this year, and we've obviously got teams focused on that. But that was a headwind. What was really positive at the end of the day was the fact that our merchandise costs continued to be better. The mark-on was up, so we're buying better. Freight was a benefit. So a lot of things going really well there, and that's very positive and will continue to be positive, we believe, as we go forward. I think the other thing I would say about the Dollar Tree business is even on a lower comp for the quarter and even the year, we were able to leverage our SG&A expenses. So to me, that's very powerful to the model. There's a lot of companies that would not be able to leverage their SG&A at this type of a comp level, so, again, it's part of our disciplined approach as we go forward. I think speaking to the Family Dollar business, I think in general, I think the gross profit came in about where we thought it would. I think we've made some good strides, the team there working to, again, a lot of work being done to make sure we get the -- some of the best net debt costs that we can in the system and be able to track that and base our business off of that, so I think that's very positive. I think as we spoke to in the prepared remarks, some of the headwinds as far from a comparability standpoint relate to incentive compensation, divestiture costs and some things like that. So overall, I don't know that there were a lot of big surprises. Obviously, if sales maybe would have been more towards the -- the good thing is sales were at the middle of the range, earnings were at the top end, towards the top end of the range, but I think with the flow through was actually pretty good at the end of the day. So I think that's how we think about it.

That's very helpful. And then just a quick clarification on the full year EPS guidance. Last quarter, you provided a reconciliation with a few adjustments leading to adjusted EBITDA, and I'm just wondering if you can help us understand what those same adjustments would be for your '16 guidance?

Yes, I think we've really laid them out to you in the sense of the prepared remarks. Obviously, we talked about the fact that the inventory step-up amortization is $6 million in Q1 and $2 million in Q2. As we look to the purchase accounting items that we've talked about since the day of the first quarter, you'll continue to see favorable lease rights amortization, it's about $18.7 million for Q1, $74 million for the year, and that $18.7 million steps down about $200,000 a quarter, roughly, at the end of the day. And then you have additional depreciation above the historical run rate related to the revaluation of assets and the change in policies. And basically, that's about $8 million in Q1 and $5 million in Q2. So those are really the items as we see it. So that's, again, why we gave them to you today in the prepared remarks, and that should help you to be able to do any of the adjustments that you want to within your processes. Our viewpoint is we gave GAAP guidance today. That's where we're going to continue to give GAAP guidance on a go-forward basis. We think that is obviously the cleanest way. Obviously, we're required to do that to begin with. But secondarily, it is -- the items are known, the adjustments are known now. I think everybody understands them, and I think it will be cleaner for everybody.

We'll go next to John Zolidis with Buckingham Research.

My question is on merchandising at the Family Dollar stores. When you take a look at those stores and compare the model to the core Dollar Tree, is there any idea that maybe you can add some new categories of product to Family Dollar that might help to improve the productivity that simultaneously wouldn't take away sales from your core Dollar Tree stores?

John, Gary Philbin, good morning. Let me start by maybe just describing -- one of the reasons we did the acquisition was to have 2 compelling banners. So this is not an exercise to turn Family Dollar into Dollar Tree, and so we are rooted in the customers we serve and where we serve them. I like to make sure we're very clear. We're going to have a very productive Family Dollar banner with compelling assortments that we think fit the bill for the folks that shop us, and that revolves an awful lot around first-of-month and delivery basics and giving them items that, on a discretionary basis, they need to round out their shopping trip. So starting with that, I would say that's where we're grounded. But part of the synergy effort is having our merchants sit together. And I just got back from our most recent trip in China, where both our Family Dollar and Dollar Tree merchants are able to sit in the same room and take a look at items. And so that's going to be a piece that trip after trip where our merchants can sit in the same room and find the things that fit for Family Dollar that for us means opening price point, great value, items that can be imported that are private brands. All those things are going to take shape as we continue the iterations of our merchants getting together. So there's going to be some items that you might see in both banners, but if you ever go into a Dollar Tree or a Family Dollar and mistake one for the other, we've really missed the mark on that assortment. You're going to see 2 compelling stores and assortments, and quite frankly, even on the real estate side, where they live, which really is a growth curve for both banners as we go forward. So I hope that helps.

And we can take our final question from Matthew Boss with JPMorgan.

So as we think to the spring versus the fall of this year, what categories should we keep an eye on in Family Dollar stores? More on the merchandising and the pricing front. And then anything to watch on the circular and promotional cadence?

Well, of course, we start with delivering the basics. I tell our folks we have 12 holidays a year, and it's called first-of-the-month, so we're spending a lot of energy at Family Dollar making sure that our stores are ready, the investment that we want to make with our customer is really a kickoff around that time of the month, when folks have money in their pocket to spend, and we want to be ready. So all of the things that we've been working on, getting the non-go-forward inventory cleared down to get our on-hands better so that we can have our shelves better stocked, that's the effort we've made up to this point to go into this springtime. Obviously, we've got the Easter holiday ahead of us, going into a season that is obviously spring and summer after that. But I would tell you an awful lot of what we're working on is delivering the basics everyday, which our customer research says they'll give us credit for that if we're able to deliver on that, week in, week out, month in, month out. As far as promotional strategy, you might see we introduced smart ways to save, which really for me is a way of tying together what our customers are going to see. Our ads will reflect our stores. And so when you think about how you ought to save at a Family Dollar, our customers are giving us credit now for our everyday low price. Of course, we've have always had traffic drivers on our sale items. The company even before we bought them, certainly had over 1,000 $1 WOW! items in the store that customers love to shop. We have an extensive private brands program that certainly lends itself to compare and save, and what we're introducing as price drop, which is nothing new compared to other retailers, but for us, it's a way of delivering value to our customers on some of the items they shop most often. And so it's another arrow in our quiver that allows us to deliver value to our customers on a monthly basis, and surely a way of showing from ad to the store to even how we think about our customers' shopping patterns, how they ought to come into a Family Dollar and shop it. So we think it's an exciting kickoff, and really gives our merchants and really with great support from our vendor community, another way to drive more incremental cases at Family Dollar.

Great, and then just a follow-up, with some of that tougher comps behind us, I guess, just any comments on current business? And then within your 2016 guidance, what base case level of debt paydown is implied to get to the $360 million interest expense? Is there any opportunity for additional paydown as the year progresses, and just where do you see the leverage ratio exiting the year?

I'll take the debt piece, Matt. Basically, the $90 million a quarter of interest, $360 million assumes no additional paydown at this point in time. So, obviously, if we make the determination as we work through the year that we're ready to pay down additional debt, it could have a positive effect, but at this point in time, within the guidance, there is no assumption of any additional paydown. So that's kind of where that stands at this point.

As far as current trends, obviously, we've finished one period out of the 3. So it's -- we've still got 2 periods to go in the quarter, but I'm pleased with where we are. There's always -- we usually get a weather report sometime in February when weather was adverse, but we had weather as good as we thought, but overall, we ended up with a good first period and on track for a good quarter. And, frankly, I'm looking forward to a period of time when we don't have those disruptions like we had last year around the port strike. And I think you can see in our inventory, we have the inventory that we should have had last year, we actually have that inventory this year. So my expectation is that we're going to have -- we're on track for a good first quarter. Easter is a little early. The early Easters at Dollar Tree aren't usually good, so we've said that's a $10 million headwind. But at the end of the day, we've given you our first quarter guidance and any color on that is we're on track.

And ladies and gentlemen, this does conclude today's Q&A session. I'd like to return the floor to Randy Guiler for closing comments.

Thank you, Keith, and thank you for joining us for today's call and for your continued interest in Dollar Tree. Our next quarterly earnings call is tentatively scheduled for Thursday, May 26, 2016. Thank you, and have a good day.

And this does conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.