Dollar Tree, Inc. (NASDAQ:DLTR) reported fourth-quarter financial results on Monday. The transcript from the company’s earnings call has been provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

Operator

Greetings. Welcome to the Dollar Tree Q3 2025 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star0 on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to Bob LaFleur, Senior VP of Investor Relations. Thank you. You may begin.

Bob LaFleur (Senior VP of Investor Relations)

Good morning and thank you for joining us to discuss Dollar Tree’s third quarter fiscal 2025 results. With me today are Dollar Tree CEO Mike Creeden and CFO Stuart Glendenning. Before we begin, I would like to remind everyone that some of the remarks that we will make today about the company’s expectations, plans and future prospects are considered forward-looking statements under the Safe harbor provision of the Private Securities Litigation Reform act of 1995. These statements are subject to risks and uncertainties which could cause actual results to differ materially from those contemplated by our forward-looking statements. For information on the risks and uncertainties that could affect our actual results, please see the Risk Factors, Business and Management’s Discussion and Analysis of Financial Condition and Results of Operations sections in our Annual report on Form 10K filed on March 26, 2025, our most recent press release and Form 8K and other filings with the SEC. We caution against any reliance on any forward-looking statements made today and we disclaim any obligation to update any forward-looking statements except as required by law. Also during this call we will discuss certain non-GAAP financial measures, reconciliations of these non-GAAP items are to the most directly comparable GAAP financial measures or are provided in today’s earnings release available on the Investor Relations section of our website. These non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, we will refer to our financial results on a GAAP basis. Additionally, unless otherwise stated, all discussions today refer to our results from continuing operations and all comparisons discussed today for the third quarter of fiscal 2025 or against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the Investor Relations section of our website. Following our prepared remarks, Mike and Stuart will take your questions. Given the number of callers who would like to participate in today’s session, we ask that you limit yourself to one question. I’d now like to turn the call over to Mike.

Mike Creedon (Chief Executive Officer)

Thanks Bob. Good morning everyone and thank you for joining us to discuss our third quarter results. It’s great to be with you again. When we recently gathered in New York for Investor Day. I said this was the start of a new era for Dollar Tree. One company, one brand, one focus. Our energy is now directed towards strengthening and growing the Dollar Tree business. We delivered a high quality quarter accompanied by mid-single-digit comparable sales above outlook earnings and strong end of quarter momentum heading into the holidays. These results speak to our disciplined execution and focused strategy. Let me start by framing the quarter. At a high level and then Stuart will take you through the financial details. First, I’d like to highlight the strength of our discretionary business which showed its first positive year over year mix shift since Q1 of 2022. We believe this strength illustrates how our exceptional value proposition, including our growing multi-price assortment, is resonating with our shoppers by helping them meet their needs and desires in the budget constrained environment that many consumers find themselves today. The three pillars that define Dollar Tree are value, convenience and discovery. Those are not slogans, they’re how we win. They describe a brand that offers customers comparable saleselling values across a variety of price points that help them do more with less in stores that are easy to shop and full of surprises worth discovering. While the consumer landscape remains uneven, the underlying story remains consistent. All consumers are seeking value. Marrying that value seeking behavior with convenience and discovery is the intersection where Dollar Tree thrives and the evidence is clear. Dollar Tree continues to gain share and attract new shoppers while continuing to serve its large and loyal base of core customers. Today we serve an increasingly broad spectrum of shoppers from core value focused households to middle and higher income shoppers who are making deliberate choices about how and where they spend. We had 3 million more households shop with us in Q3 this year comparable salesared to Q3 last year. Approximately 60% of these incremental shoppers came from higher income households, Those earning over $100,000, 30% from middle income households, those earning between 60 to $100,000 with the rest from lower income households, those earning under $60,000. Importantly, Q3 spending growth was broad based across all income sub cohorts including households earning below $20,000. To us, this demonstrates that Dollar Tree isn’t just for tough times or for those with limited resources. Dollar Tree is for smart shoppers across all income brackets where value, convenience and discovery matter. At the same time, higher income households are trading into Dollar Tree, lower income households are depending on us more than ever. For example, the average spend for lower income households grew more than twice as fast in the third quarter as the average spend for higher income households. Well, part of this reflects the fact that higher income households are typically earlier in their multi-priced merchandise and re-stickering largely comparable saleslete, 85% of the items in our store are still priced at $2 or below. Offering a broad range of price points while staying firmly grounded in value preserves the integrity of the Dollar Tree brand. We believe time, convenience, pack size and quality are all part of our customers value calculation and so is an expanded range of products that address a wide range of shopping occasions. When a customer can fill a basket with snacks, cleaning supplies, home decor items. And seasonal products all at a great value. That’s when the Dollar Tree magic is on full display. Q3 results were also powered by strong execution in our stores, supply chain and support functions. At Investor Day, Josie Conrad spoke about our commitment to simplify work, elevate standards and empower our people. In Q3, we saw measurable improvement in these key areas. On store standards. We’ve rolled out new tools and training that simplify store routines and improve accountability. The results are visible with cleaner aisles, stock shelves and faster checkouts. With more to come on associate Engagement Our Race to Gold initiative initiative continues to gain traction as we’ve increased our investment in training and career progression. We’ve seen continued improvement in turnover in supply chain. The network is performing at a very high level. Service levels and in stocks coming out of this year’s peak season are are among the highest we’ve seen and our planned increases in distribution capacity over the next several years should allow us to unlock even greater operating efficiencies and distribution cost savings in technology. We continue to modernize our back office systems and upgrade store infrastructure. These investments are simplifying work and enabling smarter decision making in merchandising and replenishment. All of this comes down to one thing making it easier for our teams to deliver a consistently great experience for our customers. With the family dollar sale behind us, we are already seeing measurable improvements in our culture and performance. We are fully aligned behind one brand, one set of priorities and one mission with leadership and investment focus concentrated on growing Dollar Tree. Every decision across product stores, technology, supply chain and people is aligned to strengthening one business. That alignment brings speed and accountability. Teams test, learn and scale faster and we now measure progress across a single set of metrics directly tied to creating shareholder value. We are moving forward with purpose, clarity and conviction guided by the five strategic priorities we laid out at our Investor Day Surprise and delight our customer with an expanded, more relevant assortment. Manage expenses with agility by controlling the cost of the goods we sell and managing our SGA with discipline to drive operating leverage and profitability. Create a strong connection with our customers who with cost effective quick return data driven marketing. Open more stores and improve the condition of our fleet and finally improve the in store experience for our customers by raising the bar on our store standards. At the foundation of these priorities are a fast, flexible and efficient supply chain and disciplined financial management that focuses on high return investments, smart capital allocation and at the forefront of our success is our people, the more than 150,000 associates who show up every day to serve our customers, support their colleagues and strengthen the communities where we operate. They are the reason we do what we do and the driving force behind every decision we make. As you heard me emphasize at Investor Day, we manage this business with a. Focus on what I call the say. Do ratio, making clear commitments and delivering on those commitments. This mindset builds trust and accountability across the organization and we believe that maintaining alignment between what we say and what we do is how we deliver consistent performance over time. In summary, we are pleased with our Q3 results. We’re building a stronger foundation for the future and we’re confident about the direction we’re heading. With that, I’ll turn it over to Stuart.

Stuart Glendinning (Chief Financial Officer)

Thanks Mike and Good morning everyone. Q3 comparable sales sales increased 4.2% and adjusted earnings per share (EPS) was $1.21. Both our comparable sales performance and our adjusted earnings per share (EPS) were ahead of the expectations we shared in mid October. The 40 basis points of Q3 comparable sales acceleration between the middle and end of October was driven by a late but strong performance in Halloween sales on the back of a deeper multi-price assortment and excellent execution across our stores. Dollar Tree’s seasonal assortment and value resonated strongly with shoppers. Our earnings per share (EPS) improvement versus expectations was largely driven by freight, higher discretionary sales mix and SGA. With that, let’s go over the details of our third quarter results. Q3 net sales increased 9.4% to $4.7 billion. Consistent with our expectations. Q3 comparable sales growth was primarily ticket driven as traffic was slightly negative. Average ticket growth was supported by increased multiprice penetration, particularly across our Halloween assortment and the pricing actions we began rolling out last quarter. Importantly, strong execution around merchandise costs, tariff mitigation efforts, freight and operating expenses helped drive profitability Q3 gross margin expanded 40 basis points to 35.8%. These results reflect the strength of our assortment and the agility of our merchandising, supply chain and store operations teams. The key drivers of this improvement were merchandise margin, successful execution of our five merchant levers, we renegotiation, re engineering, shifting, country of origin discontinuing and targeted price purchase activity through December 2nd. We remain on track to meet our full year CapEx target of 1.2 to $1.3 billion. We understand that at this point many of you are shifting your attention to next year. As is customary, we intend to give a detailed outlook for 2026 on our next earnings call in March. With that said, I will remind you of the directional outlook we provided at our Investor Day where we outlined an algorithm for adjusted earnings per share (EPS) to grow at a 12 to 15% CAGR through 2028, supported by underlying earnings per share (EPS) growth of 8 to 10%, with the balance being driven by the unwind of certain discrete Items mostly affecting 2026 with some residual carryover into 2027. To review the underlying details of the algorithm, I direct you to our Investor Day presentation which is archived on our IR site, and we will give you more specifics and any updates next quarter. To wrap up, we’re executing well against the roadmap we shared with you in mid October. Each day we continue to see tangible proof that the fundamental appeal of this business value, convenience and discovery is resonating with customers and translating into strong financial results. With that, I’ll turn things back over to Mike Mike Thanks Stuart.

Mike Creedon (Chief Executive Officer)

Let me wrap up by putting Q3 in the broader context of where we are and where we’re going. When we shared our roadmap at Investor Day, we said this transformation was about focus, consistency and accountability. We believe Q3 was a strong proof point that our strategy is working. We delivered above market comps, expanded gross margin and continued to make meaningful cultural progress across the organization. Today, Dollar Tree is a pure play value retailer with the scale and focus to compete at the highest level post Family Dollar. We have clarity of purpose and our teams are responding with renewed intensity as. We look to Q4. The setup is solid. Halloween was great and our Thanksgiving and Christmas assortments are resonating with our customers as we remain focused on consistently delivering unbeatable unbeatable WOW value and the thrill-of-the-hunt experience experience. As 2025 winds down, let me wrap up by saying first to our associates, thank you. Your dedication, creativity and pride in the work you do what makes Dollar Tree special to our customers. Thank you for your trust and loyalty for choosing us for the moments big and small that matter the most in your daily lives and to our shareholders. Thank you for your continued confidence and partnership. With that, Stuart and I are happy to take your questions.

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question. One moment please for our first question. Our first question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question. Great.

JP Morgan Analyst

Thanks and congrats on another nice quarter. So maybe maybe two parts. Mike, could you elaborate on drivers of. The same store sales acceleration that you saw in October? Speak to comp trends that you’ve seen in November that support the four to six fourth quarter comp guide. And then Stuart, could you just help break down gross margin expansion opportunities in the fourth quarter and how best to think about gross margin puts and takes maybe at a high level for next year?

Mike Creedon (Chief Executive Officer)

Yes, sure, Matt. As we looked at how the quarter unfolded, the Halloween was just a great finish to the quarter. It did come as we see in times like this, people buying for neat and a little closer to need. So it came a little later, but it came incredibly powerfully and it came with a record number. If you go back Easter performed that way. A great Easter, a great Halloween. And our set-up for Thanksgiving and Christmas is just fantastic. So we really look at what we’ve done with multi-price and how the assortment’s gotten better and our customer across all incomes is really resonating with that and providing just fantastic seasons for us. So we feel really good about our guide on the 4 to 6.

Stuart Glendinning (Chief Financial Officer)

Matt, let me pick up on the gross margin expectations for the fourth quarter and then just talk a little bit about next year. So first of all, as we think about the fourth quarter, the same kind of levers that you saw in the third quarter, we detailed some of that in our supplementary materials as well as in my prepared remarks, are going to be drivers in the fourth quarter. You will see a very powerful fourth quarter on the back of those drivers. If you look at next year and just think about next year, freight costs is a benefit certainly in that fourth quarter. It came through in the third quarter. As you look to next year, both freight costs and markdowns plan are the areas that we’ll be watching. If you think about how we operate our business, we buy to a margin. And so when we set up our goal for next year, we shared with you that we said we would be equivalent to this year’s margin, plus or minus 50 basis points. And that’s the place that we’re targeting. There may be continued benefit in freight costs as we move into next year. There are some, there’s some belief that perhaps on the freight costs side we’ll see a tightening of capacity later in the year. And we are watching the potential shortage of drivers. But understand that the reason I bring up the targeted gross margin expectations is because we use those five merchant levers to achieve that margin. So I think the margin you can take to the bank for next year. The second piece is to refer back to the Investor day materials that we had and in our recent Investor day we shared with you an algorithm that said we would achieve high teens improvement next year. That’s on the basis of that same gross margin expectations achievement and based on some of the discrete items that we’re expecting to see in the coming years. So we’re set up well for next year and I think that probably gives you the main drivers.


Operator

Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.


UBS Analyst

Good morning. Thank you so much for taking my question. It’s on traffic and obviously this was the first decline in traffic that dollar tree has experienced in a while. To what degree is that as a. Result of some of the legacy households pushing back on the price increases that. Have been taken in the last couple of quarters? And if that’s the case, does that give you any pause on your ability to achieve this high teens EPS growth. Next year in light of the prospect. That you might have to make some investments in order to recapture those households that are just dissatisfied with the pricing changes? Thank you so much.


Mike Creedon (Chief Executive Officer)

Yeah, Michael. We really see traffic as a mix between some internal activity, namely the re-stickering and some broader retail trends. We don’t see it as a pushback from our customer. And if you look at our performance in the quarter, we had great growth across all income cohorts and our core customer really had our highest comp. So we look at it and say we saw the traffic decelerate in that August September timeframe. That was the peak of our re-stickering. Those red stickers, that was the peak distraction for us. And then it was good to see traffic strengthening towards the end of the quarter, really on the backs of that Halloween season and that great strength in Halloween season. So we believe there was some, you know, broad based retail traffic decel around back to school, some of the price shock around back to school. But as we got into the real core of what Dollar Tree does and does, we think better than anyone, we saw the strength in our Halloween season and we’re very excited about what Thanksgiving and Christmas and all the seasons can do for us.


Operator

Thank you. Our next question comes from the line of John Heinbuckel with Guggenheim Partners. Please proceed with your question.


Guggenheim Analyst

Hey Mike, two quick ones. When you think about traffic or divergence between traffic and units. So sort of is the idea traffic will be strong units, maybe to a lesser degree because your basically trading people into higher price point items. Talk about that divergence in your mind. And then secondly, if the units are going to grow at a slower pace, how do you think about space allocation and replanogramming the stores over maybe the intermediate to longer term?

Mike Creedon (Chief Executive Officer)

First of all, thanks Rob. We’ll always follow our customer on that. We believe that the customer is resonating incredibly well with multiprice. We’re hearing that in the surveys we’re doing. We’re seeing it in how our customers are performing in the store and that real strength in the comp of that core customer. So yes, when we look at the store, when we take multiprice, we’ll take away sections of $1.25 and so your units will naturally decline there as you take that space and make that space more productive. So we do see, we do see some of that. But we believe the proof point we have from break the dollar was that you took up the price of the whole store. There were elements of the store that just didn’t work. And our merchant team took the next buying cycles to really recover that. What we’ve seen here in this multi price evolution and some of the restickering we did based on the inflationary cost environment is that the units have performed better, the traffic has performed better, and we’re confident that we can continue to drive that value in our product across these price points and continue to give the customer exactly what they need. So we see that coming together very well for us and we’ll respond to the customer and their trends with how. We set up the store.

Guggenheim Analyst

Thank you.

Operator

Our next question comes from the line of Scott Cicciarelli with Truist. Please proceed with your questions.

Truist Securities Analyst

Good morning, guys. Scott Ciccarelli, I think we all understand. That there was some internal disruption as. You restick our product. But with the negative traffic this quarter and the expectation to keep expanding multi-price program, should we just expect 4Q and next year to have a similar mix of traffic and ticket that we saw in 3Q? In other words, it’s all the comparable sales is primarily driven by ticket. Thanks.

Mike Creedon (Chief Executive Officer)

Yeah, Scott, it’s hard to say. We can go back and we know what we saw in break-the-dollar. You saw the multiple quarters and how the traffic performed there. We believe this time around we were much more strategic. Back then the only choice was raising everything to $1.25. And as I’ve mentioned, you had a healthy percentage of the store that just work well at that new level. And the merchant team had to go over several buying cycles and reengineer product and renegotiate and get product. That did work well. And you saw what happened with traffic recovery this time we were much more strategic in how we took that. We really feel that we have found the right value places to take price and our customers responded. If you look at the value we took in Halloween or in Christmas, I mean, our customers responded incredibly well to that move. So I look at it and say I Think we were more strategic this time or we at least had a more strategic opportunity available to us this time and we’ll see how the traffic plays out.

Stuart Glendinning (Chief Financial Officer)

Yeah, maybe one other thing just to supplement. I think if you go back to the investor materials we laid out, that entire strategy is set up to drive higher sales growth in stores via productivity on the shelves via the way we intend to market to customers. And based on the way we intend to run better stores. I think that entire setup really is organized to enhance the traffic and the ticket flow.

Operator

Thank you. Our next question comes from the line of Michael Montani with Evercore. Please proceed with your question. Michael, could you please check if yourself muted?

Evercore Analyst

Yes. Hi, good morning. Thanks for taking the question. I was going to ask if you could share what the average selling price was in 3Q versus this time a year ago and then curious if you think that you’d be able to get that level of price increase again in 2026 to drive comparable sales.

Stuart Glendinning (Chief Financial Officer)

Yeah, our average unit retail (AUR) right now, right about a about $1.50. When you look at that value over time, it’s pretty remarkable considering what this comparable salesany’s done, what other prices have done. So we look at it and say our customer is going to tell us with their comparable saless, with their wallets that we’re hitting the right points in terms of value, convenience and discovery. One of the things that we really turn to is that expanded, more relevant assortment. So yes, it comes at a higher ticket, but it’s still an incredible wow for the customer. It fits their occasion, the purpose for their trip, and whether it’s a great pack size for them that helps them or just an item that helps them celebrate and they love it. So we feel that while the aur moves up, it does so locks squarely in to that value play for the customer.

Keep in mind one other item is that obviously as our multi-price penetration increases, so that will also move AUR that is not price dependent. And I think if you looked at the supplementary materials and you look at how well the multi-price worked in Halloween season this year, it will give you a sense for the kind of benefit we might see going forward as we drive that multi price harder.

Operator

Thank you. Our next question comes from the line of Thihan Ma with Bernstein. Please proceed with your question.

Bernstein Analyst

Great, thank you. Just one quick clarification on corporate expenses. Did it come in a bit better than your prior expectations? If you can provide a bit more color there, that’ll be really helpful. And then a quick one on next year given the trade in you have Seen from middle to higher income consumers. What does the tax refund, the incremental tax refund next year do to middle. To high income consumers? Shopping behaviors in your mind. Thank you.

Stuart Glendinning (Chief Financial Officer)

Yeah, I’ll pick up on the first part Stu here. The selling, general, and administrative (SG&A) did come in better than we expected. As we get ready to set ourselves up for next year and achieve some of the aggressive savings targets we’ve set up. We’ve been squeezing down on SG&A. Some of those savings came in a little bit faster than we had expected.

Operator

Thank you. Our next question comes from the line of Kelly Banya with BMO Capital Markets. Please proceed with your question.

BMO Capital Markets Analyst

Good morning. Thanks for taking our questions. Wanted to ask about the consumables, the market share trends there from a unit perspective they seemed quite strong in the first half but really shifted in the third quarter here I was just curious if you had any explanation of what you think is happening there. Is that attributable to the restickering impact or any other color on the market share trends there?

Mike Creedon (Chief Executive Officer)

Yeah Kelly, the red dots is kind of how I’ll answer that. It really peaked for us in this Q3. It was the mass distraction. I will tell you though as we’ve seen trends from our customer post that we track via customer surveys, via scrapes of website and star ratings and all that the sentiment of our customer that really peaked negative in that August September has improved every week. So the fewer mentions of pricing, more positivity, less negativity. We’ve been watching that and every week that’s got gotten better. So we don’t love that we had to create that environment for our customer. It was a necessary evil to continue to deliver for them and give them product at a value. But it is what it is and it’s behind us now. The red stickering is basically done. You get a little bit as you take some pack away but it’s basically done. The distractions behind behind us and our stores and customers are responding very favorably.

Operator

Thank you. Our next question comes from the line of Joe Feldman with Telsy Advisory Group. Please proceed with your question.

Telsy Advisory Group (Equity Analyst)

Yeah, thanks for taking the question guys. When you talked about the that higher income consumer, you know trying to get them to visit more often with more frequency. I’m just wondering how you guys plan to go about that. Maybe is it more stimulus from a marketing standpoint or I don’t know, other methods that you might be thinking of. But how do you get them to come more frequently? Thanks. Yeah, we love that this customer is finding us. We want to create a very sticky relationship with them and we believe it is the more relevant assortment. So continuing to wow them each season that they come up and for their everyday essentials with items they just can’t believe they found. Remember, you don’t come into Dollar Tree with a list and your head down. And I have to get this, you come in with your head moving around looking at all the things that are wowing you. So that relevant assortment creates a sticky relationship and then there is nothing more important than running better stores. Our store standards are on the move up and we believe that as we continue to improve the in store experience, those customers are going to want to come more and more often.

Operator

Thank you. Our next question comes from the line of Robbie Ohms with Bank of America. Please proceed with your question.

Bank of America (Equity Analyst)

Oh, hey, thanks for taking my question. I wanted to follow up on the last question. Just the. It’s impressive how you guys are gaining, you know, all the new customers and the info you gave us on that. Just help me understand gaining all these new customers at all these income cohorts, you know, versus negative traffic. Like how does that, how does that happen? Is somebody, are there cohorts dropping out or coming a lot less frequently and that’s, you know, offsetting all these new customers that you guys have gotten to come to the stores. Maybe a little more color on like what’s happening there.

Mike Creedon (Chief Executive Officer)

Yeah, Robbie, it’s really a question of frequency. So you’re driving new customers to the store, which is fantastic. I mean, 3 million new households, yes, they’re skewing a bit higher income, but the strength of our business is still in that core customer, their purchase frequency, their comp dollars. We believe that these new customers come in, we can increase their trip frequency too, when they find better run stores and they find an assortment that keeps them coming back. So right now they’re coming in because of a Halloween or they’re coming in for a great season and then what they find in the store when they’re there in health and beauty and in everyday essentials, that’s what keeps them coming back. If you look at Dollar Tree compared to some of the folks we aspire to be, the difference is not in our ticket. The Difference is in trip frequency. We believe we’ve got an opportunity to unlock increased trip frequency with these great newer trade in customers.

Bank of America Analyst

Thank you.

Operator

Our next question comes from the line of Bobby Griffin with Raymond James. Please proceed with your question.

Raymond James (Equity Analyst)

Hey, good morning guys. Thanks for taking the question. Just curious if you can expand a. Little bit more on shrink and where. You are in that journey of bending that line item and then I don’t think it was discussed at the investor day. But what is embedded in the multiyear outlook for inventory shrink? Is that elevated rates versus pre Covid. Or is it a return to 2019 rates?

Mike Creedon (Chief Executive Officer)

Yeah, I’ll start with that. With the focus we have. We learned a lot about inventory shrink from family dollar. Family dollar has a higher inventory shrink threshold, if you will. And we were able to bend the curve over there. And so we’ve really reorganized how we’re addressing inventory shrink at dollar tree. It’s not as simple for us as it is other. We can’t just go rip out a bunch of self checkouts and improve our inventory shrink. We don’t have self checkout in any large capacity. So for us it has to be leveraging training of our people, leveraging technology to address inventory shrink over time and then in terms of how it builds. we have built in some improvement in shrink as we move forward. I mean we’ve made these changes to people and process. We’re investing money in our asset plan protection and we expect that to bend the trend. So that is built into the forward expectations.

Operator

Thank you. Our next question comes from the line of Chuck Grant with Gordon Haskett. Please proceed with your question.

Gordon Haskett Analyst

Hey, thanks a lot. Just a question. On the SGA line in Slide 9, you talk about the unit trend going from 100 to 89. So there’s a clear benefit from running less units through the store on freight and handling expenses. But when we look at the core SGA line, can we unpack the 160 basis point increase in SGA? And then also looking ahead to the. Fourth quarter, how are you thinking about. The complexion of both gross margins and SGA in the last quarter of the year?

Stuart Glendinning (Chief Financial Officer)

Yeah. So Chuck Stuart, when you really look at SGA in total, the big driver for SGA increases is really in store payroll expenses. In that whole space, we do have some increases, as we said before, both in depreciation and amortization (D&A) based on store investments and also in general liability claims. Those are probably the big areas to think about. If I unpack the store payroll expenses for you a little bit earlier in the year, we commented on the fact that first we were Faced with some rate increases, the a number of those were driven by state minimum wage increases. And second, we had decided at the beginning of this year that we would put some more hours back into the stores because we felt that if we invested some hours in stores we could drive a better comparable sales. And certainly we set that on as an aggressive goal for the year, 3 to 5% comparable sales. And we’re obviously at the top end of that. And the last piece, of course, is the tariff related sre-stickering activities, which is a pretty substantial add. So if you think about the increase in payroll, which again, the biggest driver of the SGA was about a third. A third. A third. A third was the rate, a third was the increased investment in hours, and a third was re-stickering. Let me come back now to your unit point because I want to look forward to next year. If you’re thinking about next year, the sre-stickering is sort of largely gone. So that piece is not going to be pushing on a P and L. In fact, that’s a benefit. The rate increases. We believe that rate’s going to start to moderate and that’s going to help us next year. And then the last piece on the hours side, actually on the hours side is exactly the point you just made. The success of multiprice, in fact, allows us to move fewer units through the store and that will give us the flexibility to decide do we take the hours down, do we invest some hours in running stores better. But I think it puts us in a better position overall. Hopefully that gives you a good flavor for your question. Thank you.

Operator

We have reached the end of our question and answer session. I would now like to turn the floor back over to Mike Creedon for any closing comments.

Mike Creedon

Hey, thanks for joining us today and we wish everyone a safe and healthy holiday season. Thanks so much.

Operator

Ladies and gentlemen. Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

This transcript is to be used for informational purposes only. Though Benzinga believes the content to be substantially and directionally correct, Benzinga cannot and does not guarantee 100% accuracy of the content herein. Audio quality, accents and technical issues could impact the exactness and we advise you to refer to source audio files before making any decisions based upon the above.

Image: Shutterstock.com