CHESAPEAKE, Va.--(BUSINESS WIRE)--Dollar Tree, Inc. (NASDAQ: DLTR) today reported financial results for its fourth quarter and fiscal year ended January 30, 2021. Also, on March 2, 2021, Dollar Tree’s Board of Directors increased the Company’s share repurchase authorization by $2.0 billion. Under the authorization, purchases may be made in the open market or through privately negotiated transactions subject to market and other conditions. The authorization has no expiration date.

“I am very pleased with the team’s operating performance for the fourth quarter, highlighted by a solid same-store sales increase, improved gross margin and expense leverage,” stated Michael Witynski, President and Chief Executive Officer. “Furthermore, Dollar Tree has completed the rollout of the expanded Crafter’s Square assortment to all U.S. stores and has begun the expansion of our Dollar Tree Plus! initiative to a total of 500 stores, as announced last quarter. At Family Dollar, we have partnered nationally with Instacart, are continuing to see strong results from our H2 stores, and we are thrilled to introduce a new Combination Store format that performed extremely well in nearly 50 small towns and rural communities during fiscal 2020.”

Fourth Quarter Results

Consolidated net sales increased 7.2% to $6.77 billion from $6.32 billion in the prior year’s fourth quarter. Enterprise same-store sales increased 4.9% on a constant currency basis (or 5.0% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for Family Dollar increased 8.1%. Dollar Tree same-store sales increased 2.4%.

Gross profit increased 9.8% to $2.15 billion in the quarter compared to the prior year’s fourth quarter. Gross margin was 31.8%, compared to 31.0% in the prior year’s quarter. The 80 basis point improvement was driven by sales mix, reduced markdowns, leverage on occupancy costs from strong same-store sales, and shrink results, partially offset by higher freight and distribution costs.

Selling, general and administrative expenses were 21.7% of net sales, compared to 27.1% of net sales in the prior year's fourth quarter. The prior year’s quarter included a $313.0 million non-cash pre-tax and after-tax goodwill impairment charge and an $18.0 million charge to the litigation reserve. Excluding these items from the prior year’s quarter, selling, general and administrative expenses improved 20 basis points from the adjusted 21.9% of net sales. The improvement was driven by expense leverage from stronger same-store sales, partially offset by COVID-19 costs of $17.2 million, or 25 basis points, related to payroll, field management bonuses and store cleaning/PPE supplies.

Operating income for the quarter improved 173% to $681.6 million, compared with $249.4 million in the same period last year and operating income margin was 10.1%, compared to 3.9% in the prior year’s quarter. Excluding the goodwill impairment charge and the charge to the litigation reserve from the prior year’s quarter, operating income margin improved 90 basis points from the adjusted 9.2%. The fourth quarter of 2020 included total incremental operating costs of $24.8 million, or $0.08 per diluted share, for COVID-19-related expenses. These incremental costs by segment were $13.8 million for Dollar Tree, $10.6 million for Family Dollar and $0.4 million for Corporate, Support and Other.

Net income in the fourth quarter was $502.8 million and diluted earnings per share increased 310% to $2.13, compared to $0.52 in the prior year’s quarter. The fourth quarter of fiscal 2019 included several discrete charges outlined in the Reconciliation of Non-GAAP Financial Measures within the tables of this earnings release. Excluding the discrete charges, diluted earnings per share increased 19.0%, compared to the adjusted $1.79.

The Company repurchased 1,828,174 shares during the quarter for $200 million. Following a $2.0 billion increase in its share repurchase authorization, combined with $400 million remaining on its prior authorization, the Company now has a $2.4 billion share repurchase authorization.

During the quarter, the Company opened 124 new stores, expanded or relocated 11 stores, and closed 45 stores. Additionally, the Company completed 106 Family Dollar store renovations. Retail selling square footage at year-end was approximately 125.1 million square feet.

Full Year Fiscal 2020 Results

Consolidated net sales increased 8.0% to $25.51 billion from $23.61 billion in the prior year. Enterprise same-store sales increased 6.1% on a constant currency basis (or 6.0% when adjusted to include the impact of Canadian currency fluctuations), when compared to the prior year. Same-store sales for Family Dollar increased 10.5%. Dollar Tree same-store sales increased 2.2%.

Gross profit increased 10.6% to $7.79 billion. Gross margin improved 70 basis points to 30.5%, compared to 29.8% in the prior year. Fiscal 2020 included $36.3 million, or 15 basis points, related to COVID-19 costs.

Selling, general and administrative expenses were 23.1% of net sales, compared to 24.5% of net sales in 2019. Excluding the $313.0 million goodwill impairment charge and the $18.0 million charge to the litigation reserve from the prior year, selling, general and administrative expenses were unchanged when compared to the adjusted 23.1% of net sales. Fiscal 2020 included $242.8 million, or 1.0% of net sales, in COVID-19-related costs.

Operating income for the year improved 49.6% to $1.89 billion, compared with $1.26 billion in the prior year and operating income margin was 7.4%, compared to 5.3% for fiscal 2019. Excluding the goodwill impairment charge, the charge to the litigation reserve and $6.7 million in accelerated rent from the prior year, operating income margin improved 60 basis points from the adjusted 6.8% of net sales. Fiscal 2020 included total incremental operating costs of $279 million, or $0.90 per diluted share, for COVID-19-related expenses. These incremental costs by segment were $161.1 million for Dollar Tree, $115.5 million for Family Dollar and $2.4 million for Corporate, Support and Other.

Net income for fiscal 2020 was $1.34 billion and diluted earnings per share increased 62.8% to $5.65, compared to $3.47 in the prior year. Fiscal 2019 included a number of discrete charges outlined in the Reconciliation of Non-GAAP Financial Measures within the tables of this earnings release. Excluding the discrete charges, diluted earnings per share increased 18.7%, compared to the adjusted $4.76.

In fiscal 2020, the Company repurchased 3,982,478 shares for $400 million.

New Combination Store Format Introduced for Small Towns

The combination of Dollar Tree and Family Dollar affords the Company a transformational opportunity to serve more customers in all types of markets. Bringing together both the Dollar Tree and Family Dollar brands, the Company has developed a Combination Store to serve small towns across the country. The Company is combining Family Dollar’s great value and assortment with Dollar Tree’s “thrill of the hunt” and fixed price-point – creating a new strategic store format targeted for small towns and rural communities with populations of 3,000 to 4,000. These are markets where the Company would traditionally not open a Dollar Tree store alone.

The Company opened its first Combination Store in late 2019, followed by two additional test stores in early 2020. Closely analyzing the store performance and customer feedback, and utilizing its learnings, the Company refined the concept. Between July 2020 and calendar year-end, the Company opened 32 additional Combination Stores, and is currently operating nearly 50 of these stores.

Compared to other Family Dollar stores located in small markets, these Combination Stores are delivering a same-store sales lift of greater than 20% on average. The Combination Stores are more productive, delivering higher gross margins and are better leveraging store expenses. H2 stores and Combination Stores will both be part of the Family Dollar new store and renovation strategy moving forward.

A three-minute video, along with photos, introducing the new Combination Stores can be viewed at: www.FamilyDollar.com/ComboStores.

“We are extremely pleased with our customers’ response to the new Combination Store concept. As I have said in the past, we will continue to refine our strategic store formats so that we are able to better serve customers, while improving store productivity, margins and returns,” added Witynski. “We want formats that leverage the best of the Dollar Tree and Family Dollar brands to serve customers in all types of geographic markets. We believe we can continue to change, evolve and improve.”

Company Outlook and Liquidity

Due to expectation of continued volatility and uncertainty related to the COVID-19 pandemic and other macroeconomic factors, the Company is not issuing updated sales and earnings guidance at this time.

At the end of fiscal 2020, the Company paid off a $300 million legacy Family Dollar note. Outstanding debt, as of January 30, 2021 was $3.25 billion. The Company ended fiscal 2020 with $1.4 billion in cash and cash equivalents on its balance sheet and expects capital expenditures for fiscal 2021 will total approximately $1.2 billion. A majority of the excess cash flow generated may be dedicated to share repurchases under the Company’s $2.4 billion authorization.

For fiscal 2021, the Company plans to open 600 new stores and to renovate 1,250 Family Dollar stores. The new stores are expected to consist of 400 Dollar Tree stores and 200 Family Dollar stores. The new Family Dollar stores will be comprised of H2 and Combination Store formats, based upon market locations.

“Our teams worked incredibly hard throughout the unique and challenging environment presented to us in fiscal 2020. I could not be more proud of our teams’ commitment, dedication and focus,” Witynski concluded. “As we look ahead, we believe our proven strategic store formats, accelerated store growth plan, 1,250 planned store renovations for the year, several key sales- and traffic-driving initiatives, and a robust balance sheet will enable us to deliver long-term value for each of our stakeholders – customers, associates, suppliers, and shareholders.”

Dollar Tree, a Fortune 200 Company, operated 15,685 stores across 48 states and five Canadian provinces as of January 30, 2021. Stores operate under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada. To learn more about the Company, visit www.DollarTree.com.