And it really comes from the fact that from a P&L perspective, you pick up the idea to no longer have to carry the rents, but the stranded cost associated with the ongoing cost of running the dark store, is going to be less than if you were operating the store. And net-net, you would actually pick up just a little bit of cash versus if we were running these stores and operating them under a loss position. Over time that actually gets better as these stores start to run off whatever remaining portion of their lease. So, the cash requirement is reduced pretty substantially over the next three years.
Operator: Thank you. Our next question today is coming from Peter Keith from Piper Sandler. Your line is now live.
Rick Dreiling: Good morning, Peter.
Peter Keith: Hi, good morning, everyone. I want to dig into the SNAP headwind of negative 5% on Family Dollar. Could you quantify how you got to that math? Because if I’m doing the math myself, I look at about a 35% decline in SNAP for the quarter on about 7% to 8% of sales is about 2.5% headwind overall.
Jeff Davis: Yeah. The way we’re looking at this, once again, it depends on the — your assumption on the penetration of our customer. But as we take a look at what that customer means for us and how we’ve been looking at the sort of contribution on a year-over-year basis, that’s how we derive the 5%.
Operator: Thank you. Our next question is coming from Joe Feldman from Telsey Advisory Group. Your line is now live.
Joe Feldman: Great. Good morning, guys. Thanks for taking the question.
Rick Dreiling: Good morning.
Joe Feldman: I wanted to ask what — as you guys are looking at the Family Dollar stores that you’re closing, I was just kind of curious like what part of the transformation strategy work that you guys have done in the past year or so, I guess, do you feel won’t work in those stores. Like, was there something that you just felt like, I guess, it’s a lost cause for lack of a better term? But maybe you could just share some thoughts around that where maybe you could help the other stores that do continue to run and what works there that didn’t work in these stores?
Rick Dreiling: Yeah, another really good question. I would look at you and say the initiatives have worked in every store. The problem is the magnitude of the lift. And I think also as we looked at these stores, it was their location, the competitive environment, the quality of the facility, the proximity to the competition. There was many, many, many factors. And we have had in the past a real estate strategy that wasn’t really focused on maximizing value. And what we’ve done now is pick stores that we don’t think have a long-term future and more importantly hopefully we’ll be able to transfer some sales from this closed store into one of our operating stores. So, I mean it’s a pretty thorough process. Then important question is why didn’t they get the lift from the initiatives of the other stores that we’re keeping obviously, which is the bulk of the portfolio. It has to do merely with a lot of other extraneous factors.
Jeff Davis: And just to add back, I think actually Paul had a portion of his question I didn’t answer that was on this very topic. Many of these stores were operating, unfortunately, at a level. The operating loss of these stores was pretty substantial. And even with the lift of some of the initiatives while we’re starting to mute the level of loss, we were still significantly below what would — we would consider to have a reasonable return, especially when we think about the additional investments that we would want to make in these stores as it relates to store standards, as it relates to just a number of other things that — it just wouldn’t be able to carry a return on the additional investment for these stores. A lot of this is driven by the fact that over time, rents shrink and a number of other exogenous sort of factors has driven the store to a point where, unfortunately, they’re just operating at a very significant loss.
Operator: Thank you. Our next question is coming from Brad Thomas from KeyBanc Capital Markets. Your line is now live.
Rick Dreiling: Good morning, Brad.
Brad Thomas: Hey, good morning, Rick. Hey, Rick, I was hoping you could talk a little bit on the Family Dollar side about the consumables category. And I was hoping you talk a little bit about the competitive landscape, how you’re feeling about pricing and some of the opportunities to drive share going forward? Thanks.
Rick Dreiling: Yeah. Thank you, Brad. On the consumable side in Family Dollar, as we have gotten our mix right inside the store in terms of the SKU count, remember we discontinued 1,000 and added 2,000 for a net of [1,900-and-change] (ph). We’re very pleased with what we’re seeing in terms of movement. We’ve made the consumable mix more relevant, and add to that the emphasis that we have placed on private brands. And now you have a national brand equivalent item that the consumer can purchase. And I think our consumable mix, to be honest, is the best it’s been, in Family Dollar, harkens back to my old days as a grocer. In regards to pricing activity out there, the market continues to be relatively stable. I would even say the promotional activity on the weekly flyers is relatively stable. It’s not like we’re seeing anything that’s really wild. And I think our pricing position for Family Dollar is as good as it’s ever been.
Operator: Thank you. Our next question is coming from Scot Ciccarelli from Truist Securities. Your line is now live.
Rick Dreiling: Good morning, Scot.
Josh Young: Hey, good morning. This is Josh Young on for Scot. Could you guys just clarify what are you going to do with the inventory at the stores slated for closure? So, in other words, are there discounts which may boost sales and hurt margins, or will inventory just be shifted to other stores? And is that all captured in your guidance?
