Q4 2020 Dollar Tree Inc Earnings Call
Good day and welcome to the dollar tree Incorporated's fourth quarter fourth quarter earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Randy Giler VP of Investor Relations. Please go ahead.
Thank you Jordan.
Welcome to our call to be got dollar tree fourth fiscal quarter at fiscal year 2020 with me on today's call will be our president and CEO, Mike <unk> and our CFO Kevin want.
Before we begin I would like to remind everyone that various remarks that we will make about expectations plans and prospects for the company constitute forward looking statements for the purpose of at the Safe Harbor provision on this.
Private Securities Litigation Reform Act of 1995.
All of May differ materially from those indicated by these forward looking statements as a result of various factors, including at our most recent press release. Most recent 8-K 10-Q and annual report, which are on par with the SEC. We have no obligation to update forward looking statements and you should not expect us to do so.
Following our prepared remarks, we'll open the call for your questions. Please limit your questions for one and one related follow up if necessary on that.
I'll turn the call over to Michael Pizzi dollar tree, President and Chief Executive Officer.
Thank you Randy good morning, everyone. Thank you for joining me today.
What a year I believe that from now for you.
Years from now many of US will reflect upon on 'twenty 'twenty, that's being one of the most of unique unpredictable and challenging business environments of all of her career.
My Sincerest gratitude goes out to on 195000, plus associates working at more than 15600 dollar tree and at family dollar stores.
And at 26 distribution centers and to our field leadership teams as well as our store support team here at Chesapeake Virginia.
Your commitment and dedication to protect and serve our customers is critical to our company's success.
That's an essential retailer in the value segment.
We'll continue to be part of the solution for millions of households across North America.
Additionally, I would like to recognize our business partners, both supply chain and suppliers for their efforts to support our business through all of a year.
In 2020, we exceeded $25 billion in your end of sales for the first time.
And we have a long runway of growth for the half of us.
At our business grows so there's a need on support from each of our business partners we have.
Appreciate your continued support.
The recent trends have been encouraging COVID-19 cases are on the decline in vaccinations are on the rise of.
However, we will continue to be relentless in our efforts to protect each other until this pandemic is behind us.
I am very pleased with the team's operating performance for the fourth quarter.
Highlighted by solid same store sales increased improved gross margin and expense leverage.
The team delivered an EPS increase of 310 per cent compared to the prior year's quarters or 19% when adjusted for discrete charges in the prior year.
Our results included a four 9% enterprise comp increase at 80 basis point improvement in gross profit margin.
And at 90 base increase and operating profit margin when compared to prior year's adjusted numbers.
Yeah.
Our dollar tree segment delivered another quarter of positive same store sales was at two four per cent increase.
January was the strongest month of the quarter, followed by November and for.
That January was our strongest monthly comps since April of 2019.
At December was slightly negative.
Store traffic was impacted by an escalation of Covid cases, resulting in expanded lockdowns and significantly fewer holidays, social gatherings of among families companies churches and schools.
As we have seen at the onset of the pandemic sales were again driven by average ticket, which increased 17, 9% of shoppers continue to consolidate trips comp transaction count declined 13, 1%.
We delivered a $36 one per cent gross margin.
And dollar trees operating margin, which included $13 8 million in Covid related costs came in at 16% operating income.
Categories, performing well included Kras seasonal household products for kitchen, Ware, and beauty and eyewear.
Building on the continued success of class a apartment, we completed the rollout of Crafters square to all U S dollar tree stores in January.
Inspiring the creativity of our customers is at the core dollar tree and we are thrilled to provide an even broader assortment of art and craft supplies at tremendous values.
With all at one dollar of fixed price for it.
More than 7500 U S store locations.
Crafter square per zone customers with an unlimited solutions for current learn from home and work from home environment.
Additionally, terrific opportunities exist for DIY home projects of decor.
<unk> for the entire family seasonal decorations and handmade gifts or.
Our shoppers love of the expanded assortment, which is validated by the excitement crafters square is generating across social media platforms, including Youtube and Instagram.
Regarding our dollar tree plus our shoppers love for values and we exceeded our initial sales plan for the fourth quarter, we had great sell through on our seasonal products on our toys and household consumer.
We're on schedule to kick off the previously announced expansion of dollar tree plus of this month.
We are expanding multi price assortment from the current base of 120 stores to a total of 500 stores and will be completed by August.
Additionally, we are capturing great buying synergies as of the majority of the three and $5 merchandise for the D. T plus will be offered in both banners.
Family dollar sales highlights for the quarter of included at eight 1% comp increase comprised of of 21, 9% expansion at average ticket.
Partially offset by 11, 3% decline in transaction count.
This is similar to the ticket traffic trip consolidation dynamic we have seen since Q1 of 2020.
Regarding the cadence of comps all three months were positive with January being the strongest month.
As a reminder, all family dollar stores were closed on Christmas day in 2020, which was impacted December comp results.
As of approximately 5600 stores were open for business for the previous year.
January was family dollar strongest monthly comps since may of last year.
We saw solid sales across many of the discretionary categories that we've been focused on improving including home decor apparel.
Household cleaning lawn and garden of <unk>.
Marty beauty care and seasonal.
On the consumable side of the business to deliver another positive quarterly comp at six 2% and of discretionary comp was a strong 13, 5% zone.
In Q for discretionary as a percentage of net sales at family dollar increase of 120 basis points to 26, 2% of sales.
Similar to recent quarters based on third party data our market share on discretionary grew two times faster than the remaining market in Q4.
Late in 2020, we launched our initial test for produce and frozen meats and select family dollar stores.
Good end markets, where shoppers of your local grocery options.
We want to provide shoppers with convenient access to basic protos items, as well as beef poultry and pork.
We plan to expand our test in 2021.
We recently announced the expansion of our new partnership with Penske car platform across the U S.
Same day delivery is another example of meeting the evolving needs of family dollar shoppers.
The initial results have exceeded our expectations and we continue to receive very positive feedback from shoppers.
These transactions have materially higher average ticket and we believe that once the cart platform is enabling us to broaden our dollar strength of our family dollar customer base.
Interesting interestingly in the first three weeks of the national rollout more than 80% of family dollar stores had one or more instant card transactions.
As always our most important scorecards come from our shoppers.
We are seeing considerable improvements at our customer satisfaction survey scores for.
For Q4, we saw record numbers of across each of our for key categories store cleanliness product assortment customer service and speed of checkout and.
In fact, each of these categories have shown improvement for three consecutive quarters.
Contributors to these at this success.
It's an enhanced family dollar brand strategy program, but clearly from the predictions expectations and examples to our store teams.
And the change in annual store manager turnover at the best in over a decade.
The improved customer satisfaction results gives us confidence that we will be able to routine shoppers that discovered or we didn't gauged with family dollar during the pandemic.
Regarding dollar tree, Canada, the team delivered another solid quarter exceeding its plan for sales gross margin and operating income.
From a real estate perspective, we completed more than 280 projects, including 124, New stores 11 relocations of 106 family dollar renovations and 45 store closings.
We ended the year with 15685 stores.
We accomplished a great deal in 2020.
Much of this was made possible by our 2019 initiatives.
We set the stage of the gain traction and momentum in 2020 and beyond.
To quickly recap in 2019, we consolidated our dollar tree and family dollar store support centers into one campus greatly improving efficiencies through enhanced communication collaboration and support.
We made tremendous progress on day.
Family dollar store optimization initiatives by re banner at 200 stores closing more than 400 stores and doubling the pace of our renovation program to more than a thousand per year.
We also launched our initial test for dollar tree plus end.
We realigned our leadership team to enhance and align the consistency of communication strategy process and workflows. For example, dollar tree and family dollar merchants went through 2020 and complete unison for buying calendars buying trip meetings planning dates.
And category performance reviews.
This strength in alignment was very evident in the success of our recent virtual buying trip on January which is our biggest buying trip of the year.
These initiatives helped build the foundation for 2020 performance with progress we have made at family dollar in the past despite the pandemic has been remarkable.
We are benefiting from improved store conditions and better execution on initiatives, resulting at market share gains we.
We have also seen improved customer satisfaction scores store turnover and shrink improvements.
I am convinced that family dollar will exit the pandemic as a much stronger organization.
This progress is why on a more enthusiastic about the opportunities in 2021 and beyond.
Moving the expansion of dollar tree, plus and the growth of our new combination stores into small towns across America.
I will go into more detail on our plans for 2021 after Kevin speaks to the Q4 performance and our outlook Kevin.
Thank you, Mike and good morning.
For the fourth quarter consolidated net sales increased seven 2% to $6 77 billion.
Comprised of $3 $71 billion of dollar tree and 3.06 day at family dollar.
Part of same store sales increased four 9% or 5% when adjusted for Canadian currency fluctuations.
Comps for family dollar at eight 1% at dollar tree of segment increased two 4%.
Yeah.
Overall gross profit for the enterprise increased nine 8% to one $5 billion and gross margin improved 80 basis points to 31 eight per cent.
Gross profit margin for the dollar tree segment decreased 10 basis points to 36, 1% when compared to the prior year quarter.
The factors impacting the segment's gross margin performance included.
Distribution costs increased 40 basis points, primarily due to higher payroll costs and depreciation.
This includes the continued ramp up for the two new distribution centers as well as for $4 million for 10 basis points of Covid related expenses, primarily premium pay and bonuses.
The entire DC costs of the precise of net sales of partially offset by a 20 basis point improvement in markdowns at a five basis point improvement in shrink.
Merchandise costs, including freight also improved five basis points.
<unk> and merchandize mix and Mark.
They are mostly offset by increased freight costs.
Gross profit margin for the family dollar segment improved 200 basis points to 26, 6% in the fourth quarter.
The year over year improvement was due to the following.
Mark down expenses improved 100 basis points due to lower promotional activity at.
Improved sell through of seasonal merchandise at apparel.
Occupancy costs decreased approximately 50 basis points from leverage on the eight 1% comp sales increase.
Drink improved 35 basis points on improved inventory results.
Distribution costs improved approximately 15 basis points compared to the prior year quarter.
The current year quarter included approximately $3 $2 million of 10 basis points of Covid related expenses, primarily premium paying bonuses.
Regarding merchandise costs, including freight improvements of merchandize mix of Mark on were essentially offset by increased freight costs during the quarter.
Consolidated selling general and administrative expenses improved 540 basis points to 21 seven per cent of net sales compared to 27, 1% from Q4 a year ago.
Prior year quarter included a $313 million non cash pretax and after tax goodwill impairment charge for an 18 million dollar charge for litigation reserve.
Excluding these items for the prior year's quarter SG&A expenses grew at 20 basis points from an adjusted 21, 9% of debt sales.
For the fourth quarter yesterday at a rate for the dollar tree segment of the percentage of net sales improved slightly to 21% of net sales when compared to the prior year's quarter.
Payroll costs increased approximately 30 basis points from.
Apprised of the following payroll expenses increased approximately $7 2 million of 20 basis points for costs associated with COVID-19 related payroll bonuses.
Additionally, increased incentive compensation was partially offset by lower health insurance benefits.
Other selling general and administrative expenses decreased approximately 20 basis points, primarily from at reduced travel lower legal and professional fees of.
Depreciation costs decreased 10 basis points.
Excluding goodwill impairment of litigation reserve charges from the prior year's quarter. The SG&A rate for the family dollar segment improved approximately 80 basis points to 26% compared to an adjusted 21 for pursuing for the fourth quarter of 2019.
Depreciation improved 30 basis points, primarily from leverage on strong comp sales increase.
All of their selling general and administrative expenses decreased by approximately 30 basis points, primarily due to lower advertising of travel costs as a percentage of net sales.
Payroll related expenses they grew at approximately 15 basis points.
And store facility cost of improved approximately five basis points, primarily from leverage on comp sales on lower electricity cost.
Corporate and support expenses increased 20 basis points, primarily related to higher instead of carbon stock compensation expense compared to the prior year's quarter.
Operating income improved 173% to $681 $6 million compared with $249 4 million at the same period last year and on.
Operating income margin was $10 one per cent for the fourth quarter compared to three 9% of the priority of this quarter.
Two of the 300 of $13 million goodwill impairment and 18 million dollar litigation reserve for the prior year's quarter operating income margin for 90 basis points for me adjusted at nine 2%.
Q4 of 2020 included total incremental operating costs of $24 8 million for COVID-19 related expenses.
These incremental costs by segment were $13 eight low for dollar tree $10 6 million for family dollar end point 4 million for corporate support and other.
Non operating expenses totaled $34 2 million comprised of net interest expense.
Our effective tax rate with plenty of three three per cent compared to 41, 3% of prior year's fourth quarter.
The prior year rate was affected by the non cash goodwill impairment charge that was not tax deductible.
Without the goodwill impairment charge the tax rate for Q4 of 2019 would've been 16, 6%, which included a reduction in tax expense of $24 6 million for reversal of of evaluation allowance related to the company's for net operating loss carryforwards.
Yeah.
Kevin you had at net income of $502 $8 million or $2.13 per diluted share, which included eight cents per diluted share for COVID-19 related expenses.
This compares to a net earnings of 123 million of 52 sales per share in the prior year's quarter I don't know of adjusted earnings per share of $1 79.
Combined cash and cash equivalents at year end totaled one point for 2 billion dollar compared to $539 2 million at the end of fiscal 2019 the.
The company paid off for 300 million dollar of legacy family dollar note during the quarter of.
Standing debt as of January 30 of 2021 of $3 billion to $5 billion.
Okay.
During the quarter, we repurchased approximately 183 million shares for $200 million with the board action announced this morning, we now have $2 $4 billion authorized for share repurchases.
We will continue to invest at our business will provide post quarter updates on share repurchase activity.
Inventory for dollar tree at year end declined five 9% from the same time last year, while selling square footage increased three 7%.
Inventory per selling square foot decreased nine 2%.
Inventory for family dollar at year end increased 5% from the same period last year, while selling square footage increased one eight per cent.
Inventory per selling square foot decreased one three per se.
Gary levels of approved in Q4, we continued to be more productive with lower inventory significantly and prepare inventory turns.
Capital expenditures were $191 $8 million on the fourth quarter versus $252 5 million in Q4 of last year.
For fiscal 2021, we're planning for consolidated capital expenditures of approximately $1 2 billion.
Capital expenditures will be focused on 600, new stores and 1200 50.
They are of a dollar of HD renovations for new stores will be 400 dollar tree stores of 200 family dollar stores, including both age two and combo stores format based on market locations.
The addition of frozen and refrigerated capability to sort of at dollar tree and family dollar stores. It system enhancements from projects development of our Chesapeake campus.
Installation of led lighting, and HVAC and flooring replacements of select stores from the ongoing construction of the second phase of our new distribution center in Ocala, Florida.
Depreciation and amortization totaled $182 9 million for Q4 compared to $179 1 billion of in the fourth quarter of last year.
For the year depreciation expense totaled $686 $6 million.
For fiscal 'twenty.
'twenty 'twenty, one we expect consolidated depreciation and amortization of the range from some of them $20 million to $730 million.
Okay.
Due to a number of variables of uncertainties, we're not providing specific sales and EPS guidance. These variables include unknowns related to the Covid pandemic is impact of customer shopping patterns.
Timing and magnitude of the government stimulus at.
Potential for the planning of changes from favorable federal minimum wage.
I do want to share sort of points to assist your modeling for 2021.
So February stores about smell of freezing temperatures in Texas of much of a central part of the states with all of them more than 5500 lost store days for closures of dollar tree from family dollar stores in the areas most impacted.
So it was a hell of a backbone and operate in the Q1 sales will be impacted from these closures.
We will be cycling of the 2020 on say out of the Covid pandemic in 'twenty and Q1 of.
Business segments were impacted in different ways of years ago at dollar tree of both sales and gross margin were negatively impacted by those of discretionary Easter related seasonal sales.
As a result in Q1 of 2020 of the dollar tree segment at a.
9% cost decrease at a 31, 9% gross margin.
At family dollar for Q1, we'll be cycling at 15, 5% increase from the prior year, which will be our toughest quarterly compare for 2021.
We faced headwinds from minimum wage and freight costs in 2020 for minimum wage has increased in certain states and localities and may increase nationally depending on the outcome of future legislation.
The currently scheduled minimum wage increases are estimated to increase store payroll by $45 million to $50 million from 2021.
We're experiencing some delays in receiving import merchandise at a result of worldwide equipment shortage shortages and issues with port congestion.
As a result of current marketing market conditions, we're seeing significant increases on cost of imported free.
Pressure on domestic free we currently project 80 to 100 million dollar of additional costs in fiscal 2021 of them as a result of these market conditions.
These costs, primarily affect the first three quarters of the year of currently projected.
Yes.
We believe these headwinds will be more than offset by productivity and cost savings initiatives, such as crafter square H two of them combo stores continued focusing on shrink or at least COVID-19 related costs costs.
At current Covid related costs of $279 million in 2020 to support our associates stores end customers.
We will continue to incur costs for COVID-19 activities in 'twenty 'twenty, one, but we believe at a materially reduced level.
We expect tailwind as well Covid relief checks are anticipated to provide at that good look we also expect that of Covid abates customer traffic could recur at more normalized levels.
Net interest expenses expected to be approximately $34 million from Q1 approximately of 135 billion for fiscal 2021.
Our outlook assumes a tax rate of point of three 5% for the first quarter of 23, 2% for fiscal 2021.
Weighted average diluted share counts are assumed to be $234 5 million shares for Q1 at $234 8 million shares for the full year.
Our outlook does not include any share repurchases what is low.
We increased our share repurchase authorization for $2 $4 billion.
Over the past several years of the company has reduced its debt from the acquisition by over $5 billion returning for a solid investment grade rating with our strong flexible balance sheet will be able to increase store growth a return to share repurchases as an important part of capital allocation going forward.
We expect to complete the $3 4 billion of share repurchase authorization over the next two years or so.
I'll turn the call back over to Mike.
Thanks, Kevin again, I'm extremely proud of the team's efforts for fiscal 2020 for.
For the year, our customer satisfaction scores are improving and we're experiencing our lowest store manager turnover rates for many years.
The team delivered an enterprise comp increase of six 1%.
Gross profit increased by more than 740 million of 70 basis point improvement.
We delivered our SG&A costs, which were flat year over year as a percentage of net sales, despite incurring $279 million or 110 basis points and COVID-19 related costs.
Enterprise operating profit margin improved 70 basis points to seven 4%.
The company repurchased $400 million in shares and ended the year with more than $1 4 billion in cash on the balance sheet.
And we delivered annual diluted EPS of $5 65 ex.
This morning, we announced our newest and tested concept theres working remarkably well and rural markets.
What we referred to is our combination or combo store format.
As I have said in the past, we will continue to refine and strategic store formats designed to serve more customers in all types of geographic markets, while improving store productivity margins and returns.
The combination store Leverages, both dollar tree and family dollar brands to serve small towns across the country.
The common at the store combined family dollar great value of an assortment with dollar trees rule of the hunt and one dollar price point cream.
Green of new format targeted for populations ranging from three to 4000 people.
These are markets, where we traditionally do not open for dollar tree store alone.
We opened the first test combination store in late 2019, followed by two additional test stores in early 2020.
Closely analyzing the store performance and customer feedback and utilizing learnings we refine the concept.
Between July 2020, and calendar year end, we open for renovated at 32 additional stores and currently we have nearly 50 of these stores and small towns like Lynden, Alabama.
Total Georgia.
New York and thousands of others.
Compared to other small mark at family dollar stores. These combination stores of delivering same store sales of at a greater than 20% on average.
[noise] combination stores are more productive delivering higher gross margins and our better leveraging of store costs.
Our successful H two stores and combination stores will both be part of our family dollar new store and renovation strategy moving forward.
We are extremely extremely pleased with our customers' response to the new combination store concept.
Our goal is to have formats that leverage the best of dollar tree and family dollar brands to serve customers in all types of geographic markets.
We believe we can continue to change and evolve and improve.
To really share why we are very excited to introduce this new format. We.
We are providing a three minute video along with photos introducing the new combination stores at <unk>.
Family dollar dotcom forward Slash combo stores. Please go check it out.
Our teams worked incredibly hard throughout fiscal 2020.
I could not be more proud of our team's commitment dedication and focus.
We believe our proven strategic store formats and accelerated store growth plan 250, playing on store renovations for the year.
Several key sales and traffic drove at initiatives, along with a robust balance sheet.
It will enable us to deliver long term value for each of our stakeholders, our customers associates suppliers and shareholders.
Operator, we're now ready to take questions.
Thank you absolutely we would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure your mute function at turned off till I you sticking on to reach our equipment. We do ask for all participants limit themselves to one question and if necessary. One follow up question may be allowed again.
At a star one to ask a question I'll pause for a moment for everyone that opportunity. It does look like we have a first question on the line from Kelly Bania from BMO capital. Please go ahead.
Hi, good morning, Thanks for taking our question.
I wanted to ask just first about payroll and the freight costs that you've called out and just if you could help us understand at a greater level of detail.
How you're getting to that $45 million to $50 million of pack from payroll and 8200 on on freight.
And I think the comment was that these pressures are expected to be more than offset by other factors. So just wanted to make sure I'm understanding.
Are you, suggesting that you are expecting EBIT growth in 2021, or maybe you can just elaborate on that.
Sure Kelly on for Kevin Good morning.
Yes, so we wanted to give some color obviously as to what's going on obviously not giving specific guidance given the many variables that are out there right now for 45 at $50 million that we spoke to in regards to payroll is very specific or operations and labor department looks at that.
By State we know approximately 30 states affected this year, we know are.
Our labor pool in those states, we know how many alloy people, we have and on.
We'd go through of calculation.
Now that's no different from any other year. This is just really the first time, we've given you a number as to what it relates to we haven't done.
Faced these same type of increases over the last.
Couple of years of at this time of we're just trying to put some brackets around relative to help people understand the size of that at.
As it relates to the freight costs again, our current projection is roughly $80 million to $100 million.
Really barely comparable across both banners.
It is much more import related than domestic related.
It's been probably.
$75 580, 20 as far as import related at this point in time and that is just based upon the current market conditions on.
That we currently face.
As many of you know.
Go to market with our free contract are important.
Gary contracts in the spring here is of negotiated.
In March and April.
And to go lives at.
Day so.
Really.
A lot of them talked about in the marketplace in general So I don't think there should be at or above a lot of surprise around and again I'm just trying to get the idea of the of the size of that.
And then obviously, if we look at the offsets so on.
Obviously at Covid cost items.
Sales last year as we've talked about with 279.
Dollars.
If we even if we said we spent at the same rate we did in Q4, which was roughly $25 million.
We would spend obviously significantly less going into the new year. So I'll, let you guys do the math on that at the end of the day, but those of the puts and takes and obviously it goes beyond that obviously driving sales.
You know I think we obviously talk this morning about how.
We will continue to drive sales, but also there's other items when we look at shrink as a potential good items. After you go through.
Maybe a second year of ROE after having a upswing a couple of years prior to that so some good progress being made there we're still not where we think we can get to but are really proud of the teams of the operations teams and the asset protection team who've been working hard too.
Mitigate the issue that we faced there.
That's very helpful.
And then just wanted to ask on on the combination stores.
Any color you can give us on the new store economic model of the cost of the stores.
The size at sales per square foot and how the returns may be compare to the H twos.
Yeah. So right now there at the stores are about 10500 square feet, so theyre slightly bigger than what our normal at dollar tree store would be.
And we.
We like the economics of our sales are exceeding.
I share that comp sales are 20% or gray here on average.
And one of our going into a new market.
They are performing.
Then our expectation of when it was just of family dollar as a standalone store.
And you can imagine the the margins of our enhanced because now you've got the mix of dollar tree product in there at the dollar price point and in the cash.
Categories at normally are of higher margins.
And you're leveraging at with <unk>.
One store manager at one store team on delivering two brands to our customer and to a small town and we like the results.
Thank you and again that at Star One asked a question what do you find your question has been answered your neighborhood of just ask from the queue by pressing star two and as a reminder, we all call participants to limit themselves to one question and if necessary one follow up maybe allowed we will take our next question.
From Joe Feldman with Telsey Advisory Group. Please go ahead.
Oh, great guys. Thanks for taking my question on.
I wanted to ask on you know on.
On freight again.
Kevin.
You mentioned you guys do renegotiate afraid every spring and I guess I'm, a little confused why you'd be seeing so much pressure at least.
In the fourth quarter I guess of day allowed to put surcharges on on your negotiated rates or am I.
I understand I guess youre, assuming it will be just higher pressure for this year, but maybe you could share a little more color on that.
Sure Joe as you look at it.
We contract for a certain volume of containers.
It's been a big year of from.
From a important standpoint, obviously and so at some point if you exceed your volume and you do pay more potentially based upon the on the marketplace the spot market.
You guys see all of the same information that we see has been up significantly.
In general.
And again part of the day supply and demand there is a backup in China in Asia.
And you know.
To get goods moving in some instances.
People are paying more on it's not just us you've heard other retailers over the last two weeks to speak to it as well so it's not.
It's not a dollar tree of specific is due at the industry.
Issue and.
Our team at.
Working through that and moving our good we've been able to.
Keep our seasonal goods.
Coming in at.
Good about that but in general at based on one of the marketplaces predicted to be that is our best projection as we sit here today.
Got it thanks, and then a follow up question on.
You know as you think about.
21, and I know, you're not giving too much detail on guidance, but.
I guess you know how should we think about the profitability of the two different brands.
Family dollar has been much better we've seen a lot of improvement there.
Should we expect continued.
<unk>.
Greater improvement within the family dollar profitability versus.
And kind of stable at the dollar tree business.
Well, Joe I think as we think about it I mean, we at its always think Theres opportunity zone.
You know we've.
We've made a big leap this year with the family dollar operating income.
Going into right direction, it's still.
Not where we want it to be ultimately.
We've made big strides.
And we do believe obviously as we began 2020, we spoke a lot of about a discretionary business in building that side of the house and.
As you know being a more important player in building that kind of a muscle and honestly the pandemic help with that but we do believe that.
We've made strides in again I think like in his comments talked about the fact that are just for growing twice the market.
Net and that piece of business. So lots of great opportunity to continue to go at that doesn't mean, we don't think there's other opportunities as well.
You know you look at the as we talk about the combo store, we think that's of great opportunity. We believe there's you know.
At a minimum of 3000 locations out there.
We can play an important role at our customers' lives on a day to day basis.
There is at N b, there place to shop for.
For many many things.
It may not look close to a large metropolitan area and so it's a big opportunity as we think about it so a lot of opportunity there I think on the dollar tree side I think again, we've always believed there's opportunity.
Dollar tree of evolved over the years as you well know in the sense of we always reinvent ourselves. Most recently you've talked about snack zone, we've talked about our crafters square initiative and and again some of these initiatives of traffic driving some of these are are really margin driving at.
And but it's always relevant to the consumer and the one dollar fixed price point does not go out of style people love the value of it provides and how we can add up on that obviously taken of dollar tree plus opportunity expanding at the 500 stores continuing to learn and build upon that and really.
It would be able to take that benefit both banners are taken at three and five dollar product.
Yeah, Joe This is Mike.
I agree with Kevin I am so excited about 2021 and I, absolutely believe there's growth for both banners.
And Kevin hit on them at all so I'll start with family dollar on do you are absolutely going to come out stronger on the back side of the pandemic than on the front side for a lot of reasons.
And I think about where Kevin was speaking to on.
March 4th of last year.
Our comp sales of consumables were strong low single digit quarter after quarter end, where we needed to focus our energy was on or discretionary side.
And it was a year ago on December that Rick Mcneely was assigned that neither of the lead merchant for both banners at really leverage synergies, where possible and bring disciplines and capabilities at our family dollar team.
So during this pandemic, we didn't just survived we've thrived through and changed our disciplines and strategies end and when you looked at you know on in.
Our merchandising we looked at our basic assortment of what we're carrying by sharper price points, we got better of values and we're not going to go back to the old way, we can improve upon that.
And the pandemic really accelerated our inventory from the past and really flush that through last year, and then our new receipts coming in on all of of disciplines that I. Just got done described are really selling at.
At a great mix stronger sell throughs, less markdowns and better returns.
The second thing is as our stores. So you heard us talk about on our customer satisfaction scores across the board for three quarters of our improvement we've invested a lot in getting better initiatives and execution in our stores and our customers are responding well.
We will have that carrying forward compared to going into the pandemic.
But for things as Kevin said is we've got clear direction now on format strategy. We've got H two format that is continuing to produce 10% comps and when we go on and renovate them and we're going to renovate another 250 of them. This year and then this wonderful new store of a combo store in small.
Towns that is produced at a 20% comp and so on.
Another thing that we didn't have prior to the last year going independent downtick.
And then our balance sheet as Kevin spoke about.
We generate a lot of cash flow and we've got of one $4 billion on our balance sheet and that enables us to be very flexible and grow. This company like we haven't grown before because we don't have to pay.
One to $1 2 billion every year.
Pay down of debt, we can use at flexible to grow this company and grow shareholder value at.
On the last thing I would say on family dollar side as well.
We haven't even been in the digital and omni channel business and you heard US just now dipping our toes on Instagram.
And we're getting all of it.
At the cart and you know the instant card is just getting a huge response for our customers and it give us.
Broader are able to serve a broader segment of this customer within CCAR. So there's another upsize of our digital and omni channel.
And then you've heard us about dollar tree, plus we will always grow that business. It will find those categories.
And now we have on.
Crafter square and all of dollar tree can just got done in January going on.
All of this entire year with Crafters square and you've heard US talk about dollar tree plus so we're going to drive that at dollar tree plus.
And then and then dollar tree didn't didn't perform that well because of this COVID-19 related when you look at our fourth quarter. Our November comps at dollar tree were spectacular and our January for the best in two years, what happened was December locked down because of the Covid cases increase.
And spike at highest levels across the country and you also all of that.
In the states because of that increased at of Lockdowns people did not go around.
And what happens is as there wasn't any celebrations at dollar tree feeds of those celebrations.
On the schools in the churches at home at work parties and all of our party categories Flores. During the first 10 days before Christmas and it just didn't happen because of Covid.
Outside of that we had a great quartered at two 4% comp, which was better than the fourth quarter in 2019, and we had of Covid problems. So we deliver of 36 plus margin at 16% op income at family dollar and I believe we can beat that next year.
So yeah to answer your question I believe we can at a successful year at both banners for those reasons.
That's really helpful and I hope it proves true. Thank you so much guidance I appreciate it.
Okay, and we'll take our next question from Paul Trussell with Deutsche Bank. Please go ahead.
Good morning.
Thank you for for all of the color.
I guess I wanted to.
Maybe just follow up of the comments with maybe some bigger picture question staying on.
Looking beyond 2021.
Just curious on obviously 2020 was at pretty unique year to say the least so just curious as you kind of move and turned the corner here.
If you can give some comments on long term margin potential as we think about the dollar tree and family dollar banner, given what's transpiring on the merchandise front end with all of the new formats. You know what would be the timetable do you think to be able to navigate all the headwinds and perhaps.
Return to some of the levels we've seen in prior years.
Yeah. Paul This is Kevin I'll start and I'll, let Mike chime in at.
I guess I think about it in a couple of ways.
One on one of the words.
You guys of all of her needs before and I think it's very true.
Within our company is continuous improvement.
We go into every year are expecting to improve.
In all aspects of our business and weather.
Whether that's driving sales reducing costs.
On a more efficient company at.
So that's just the way our mark.
So that is and so while adult.
No that I have a timetable to give you of a sense of certain milestones as I sit here today and again part of that is obviously uncertainty of.
What's going on out there in the world.
On debit and.
But we would expect continuous improvement and I think Mike is.
<unk> shared a lot of that with with all of you. This morning and the idea so.
We entered the year ex.
Fixation as we're kind of improve our our operating income for both banners when we think about it.
You know whether you can do it with some of the things going on in the world that's yet to be seen.
But there's a great opportunity.
No I think that's the most important thing is the way we of course.
I always want to improve.
Yeah, Paul I agree with Kevin that we will continuously improve and drive.
For our pass on family dollar side as you've heard me, we have not arrived yet and there is upside.
Because we just cycled through our first year and where it can kind of continue to look at our assortment of our applications and improve upon the products that we have in price points.
And I think of at the dollar tree side. When we have things ahead of US just like the tariffs once we got at in front of US we know how to manage around it from.
And I would say the short term you know the free thing once we're aware of it we're going to figure out on mitigate and grow the margin and grow dollar tree dollar.
For tree for 14 years has had a quarter after quarter of kind of positive comp store sales growth, except for first quarter last year and here. We are cycling that right now this year, so yeah I feel free.
Very strong at or we can continue to grow both sides.
<unk>.
Thank you and you know this year you're opening up.
I believe at 600 stores and remodeling.
1250 family dollars or so is that in your mind kind of a good <unk>.
Go forward run rate or do you see a scenario, where you guys may actually want to accelerate in the future given the dip in for months now.
Opportunities that you have and just any updates on long term.
Store count potential.
Yeah.
I'll comment on that and then controlling for Kevin that but from a from my perspective.
Absolutely we're going to continue we have 250 renovations this year.
Next year, we believe theres going to be another 250, but then at the great thing about our balance sheet and our capital structure enables the feed the growth.
And accelerate the growth so as we wind down the renovations. After we'll have about this year and next year, then we can shift to total store growth.
And then we've got leased for them. That's ahead of us, but we feel very confident in growing so yeah I would see the acceleration in new store growth as we went at round wound up or ramp up.
R R.
At 250 renovations for the next two years, then we'll shift to a new store growth.
Yeah, Paul I think to your point the total number of stores.
I think the most recent number was given us at dollar tree of about 10000 stores.
Our family dollar roughly.
At 15000 stores.
And again I think we haven't updated those recently for the street at simple way of looking at I think part of what plays into that and it will be something we can maybe update of the future of the ideas of stores continue to evolve it changes the way, we think about what's what that potential is right. So.
We as we talked today about the new combo store.
We have to really look at the marketplaces and as we've said we think that's at 3000 stores at a minimum at this point in time and so at some point of mutual David I'll take that but yeah, it's a great opportunity for them.
To Mike's point, the balance sheet helps support us and all things of growth.
And we're at a great place.
We're obviously there are some retail space being vacated that.
Second second hand space has always been a big opportunity for us and.
So that's another opportunity that allows us to grow at a at a good clip going forward.
Thank you best of luck.
Okay, and it looks like there.
Time for about one more question it looks like we have a question on the line from John Heimbach of with Guggenheim Securities. Please go ahead.
Hey, Mike one of your starting with.
Sort of a strategic impact of the combo right. So one do you think it allows you get on the margin mix.
Get sharper if you need to on family dollar pricing.
Number one and then secondly.
Can you take learnings from from new combo and put them into non rural stores.
It may not overlap with dollar tree or are you pretty sensitive to that.
Although like I said, we're going to continue to learn and refine on all of our formats.
And do whatever it makes sense to get the most productive and improve our margins and profitability of the banners that we have.
What went on there really excited about is on the on this format is at these are small towns that we would not go into.
Into the town with a dollar tree because of the economic system support that.
And we would go in with of family dollar and what we see.
<unk> said as well lets go in with the great part of dollar tree and bring in the seasonal on the party and stationery and the Crafter square and all of the things at small town America needs to celebrate their lives and then and then on the family dollar side. It helps them live their lives on.
Their family. So this combination store is really.
Hitting on all cylinders from us because of the great mix and the great margin that provides and the overall productivity of the store and to further comment we will continue to look at the categories of do well end and don't remember don't forget that in our H twos, we already have about 20 categories.
Have the dollar items that we brought into those categories from the dollar tree banner that really help bring debt that value program into those stores and are helping drive the H two format as well. So we will continue to look at that John.
And at maybe one follow up for that right because of how you source of that product what's.
What's the thought now right on the supply chain.
And is this just push the idea of hybrid D. CS versus the one you know how does that.
Accelerate that process.
While we will always we are absolutely per.
All of our path to your point, we've got a great DC network end.
And we are evolving that with trying.
Trying to decide which.
What kind of format on our D C.
We have a lot of trucks go on by all of these towns. So we're going to leverage stem miles and leverage our distribution network to make sure. We're driving the most efficiencies as we see at least formats across the country.
But youre right that would lend well to.
Dollar tree and at family dollar product riding on the same trucks to drive those efficiencies.
Thank you.
Okay I will take another question from Matthew Boss with JP Morgan. Please go ahead.
Great. Thanks, Mike at the door.
Dollar tree banner for fourth quarter of low single digit comps overall.
Basically matched the concept of historical run rate. Despite I know there was some volatility in there with December and January. So if you think about the first quarter relative to the two to three comp in the fourth quarter I guess overall at any puts and takes to consider and similarly for the full year is any impediments to driving low single digit comps and your.
View for the year at dollar tree.
Yeah overall, we don't see any structural or in our calendar of impediments.
All of last year with dollar tree Easter as you know it did not happen just because it was at the peak of the beginning of Covid in and it did two things at really impacted our first quarter of sales at dollar tree and our margin at dollar tree, because we didnt sell of the high margin Easter goods and then as you look.
Throughout the year.
I believe at as the country opens up.
And people get back to their routines.
And occasionally start to.
To begin to increase inside the churches and schools and families and wagons and all of those things that are great for family dollar business I I see some upside throughout the year and then as you just heard.
At Christmas.
At the 10 days of two weeks, leading up to Christmas because of Covid completely shut down in traffic. So yeah. I believe there is upside this year for dollar tree.
That's great and then just a follow up on gross margin at the dollar tree banner I guess, when we put together at the anniversary of the first quarter headwind.
If you were down 250 basis points, plus and then we consider the free of headwind that you walk through how should we think about dollar tree banner gross margin for this year versus at 35 to 36 target range.
Yeah, I think a lot of puts and takes as always Matt and I think.
Obviously as we've stated the left.
The last couple of quarters of.
We've been returned to that at 35 to 36 point.
Randy I think.
The one development at probably hinders at a little bit here as we go into 2021 is the change in freight that is really a pretty new items.
To the free for the size of that I guess is what I would speak to it. So again I think overall I think there are.
Things that you know I think our mix continues to be good I think mark on will continue to be good I think obviously at freight will be at the big Bad Guy there I think shrink could be a helpful.
And I think you know after a couple of years of.
Of distribution costs rising I think that maybe that could flatten out at just a little bit. So you know there's many many puts and takes but.
But I don't necessarily see at getting factor that above 35% in 2020 of them right now at the freight headwinds it doesn't mean, we can't get there.
But it's a little bit of at uphill climb.
Yeah, Matt This is Mike for you.
You know what Kevin said is what.
What I'm encouraged about is we just finished our January trip, which is our largest trip and we buy for the back half of the year.
And on our buyers did it.
Totally.
But the value of the product the excitement of the new product coming in for the back half of the year end and the initial markup were seeing on that product is exactly at our expectation and then as Kevin said, there's going to be some headwinds, but we will figure out how to manage of that just like we did the terrorists as long as they are at.
Head of Us and we know what it is we will manage around that end.
And our mix is going to be favorable to at dollar tree.
As you know the Cracker square and as we grow the discretionary side of the business. This year as the country begins to open up that's the size of it will benefit the most from this and that's why I'm really excited about it as the shrink as you know the last three years.
Shrink has been a headwind at the at dollar tree and family dollar and last year, we improved at but we see some continued improvement is at in that area as well to.
To help offset some other pressures.
That's great color.
<unk> is just under 35 per cent for next year, but you had visibility giving of sourcing trend of sourcing trends in the eye on new that you're seeing to be back in at 35 to 36, just given the lead time for them for free at the pace of that is that kind of at the best way to think about it.
I mean, it's a way to think about it that I think we've tried to describe the puts and takes the best we can at this point of time, it's obviously very fluid end of.
Can you update you on.
Trying to be very transparent at this morning on on all of these items affecting us and we'll update you as we go forward.
Perfect at spot.
Okay and it looks like we have time for one more question from Michael Lasser with UBS.
Please go ahead.
Good morning, Thanks, a lot for taking my question.
Can you frame out the math a little bit that you provided at that was very helpful. So 270 $279 million of Covid costs are going to roll off you'll have 100 million on that.
Cannot be ongoing from at $25 million, one way that you provided for the fourth quarter. So net net how do you think.
79 million dollar benefits at the mid point of the increment of pro question of your feeling from wounds.
Free cash.
Well, it's $137 5 million, so all else equal nothing else happens with sales of flat you should have $41 million of additional operating income.
From a mix of those two factors and as part of that can mean.
And then you can even just kind of model out how we think we're gonna be in operating income would grow with sales putting aside what other math.
Well I mean honestly the things.
You can take that you talked to there Michael.
Goes on.
All of the numbers and.
Again those of the big ones of absolutely anything that happened at any given year, we're not giving specific guidance.
I think of.
It helped us multi let Kevin this morning.
At every way possible.
But.
Again, I think you're right the big items I think we think we can offset and then there's <unk>.
Plenty of other puts and takes at the end of the day, but.
We feel relative yeah, we feel good about our business, we feel good about where we're going to day in 2021 and the opportunities ahead of us and I don't know that I can give you a whole lot more guidance beyond that.
Okay, I really we've got several messages.
Okay.
The make of Counterargument to that math, which is.
All of that is true except for family dollar is going to be down.
<unk> in the year ahead.
We will have for laughing at unique benefit.
So can you put it on the frame of reference around how we should think about what would you need for family dollar in 2019 at really just knock on a repeat of late.
At the big point of uncertainty.
Tends to be where the debate lives right now and then I have one last follow up on on dollar tree plus.
Family dollar.
I mean, you've heard US talk this morning about our initiatives.
Just talk about the opportunities we have with the H two and the combo stores.
You've heard us talk about how we how we believe we are truly making a difference in building out our discretionary business.
And that's a big it's not big for sales of its big for margin, it's big for customer satisfaction of return trips and all of the things that go with that.
So I think those are those of the things that we're working on hard day in and day out.
You know I don't think of anybody can can.
Truly project stimulus how.
How fast the economy will bounce back and at all of those things that are going to go into it at at the end of the day so yeah.
We feel good about where we're at that's where we that's where we expand the day yeah. Michael I just at what are we.
The enthusiasm by half for both banners.
And where we're at with our formats.
At the strategy that our merchants are working on with cycling last year's of pandemic.
And again, our capital structure, we are on the best position, we've been at in five years, and we've got a bright future at our merchants are going to continue to do the things. They do every day and get better and we're going to keep growing the company.
Yeah, Hey, Lindsey isn't very clear for them from the messaging of providing for that.
That's helpful. And then my last follow up is on the dollar tree plus.
<unk> stated that it's exceeding your plan.
What's holding you back from rolling this out softer than the 500 locations that you currently I'm of course.
At the point of view and how is the overall financial performance of the dollar.
Look in terms of sales operating income dollars at a margin. Thank you.
Yeah, and again, we're going on that's why we're rolling it out to another 500 is continue this test.
We had 120 stores and we bought seasonal items and items for the back half of the year end and we exceeded the sales that we expected. So our customers are responding favorably.
But what I've shared in the past at as we will continue to look at the overall store sales. The overall margin at the profitability of those stores and those we'd want to see improve in and the tough thing is is what with everything going on last year of everything I. Just described of Covid. It was really hard to lift our head up and say debt.
At the 10% of the store and the D T plus really drive those things that I. Just described so we're going to keep testing of refining and rolling this out but we like the results we're seeing so far.
It's great to hear thank you so much and good luck.
Alright, and that concludes today's question and answer session, Mr. Randy Guy, where I'd like to turn the conference back to you for any additional or closing remark.
Okay. Thank you Jordan and thank you for joining us for today's call and for your continued interest from dollar tree and family dollar. Our next earnings conference call to discuss Q1 results is tentatively scheduled for Thursday May 27, 2021, Thank you and have a good day.
And this does conclude today's call. Thank you for your participation you may now disconnect.
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