Dollar Tree plans to open hundreds of new "combination stores" as part of the retailer's push to continue to be a one-stop shop for consumers looking to buy pandemic essentials.
The new concept, a store with both the Dollar Tree and Family Dollar banners, affords a "transformational opportunity to serve more customers in all types of markets," the company said.
The stores bring together both Dollar Tree and Family Dollar brands and are located mostly in small towns. The stores combine "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," Dollar Tree said.
Dollar Tree Inc. opened its first Combination Store in late 2019, followed by two additional test stores in early 2020. Between July 2020 and calendar year-end, the company opened 32 additional Combination Stores, and is currently operating nearly 50 of these stores.
“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,” Michael Witynski, president and CEO, said. “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.”
The company says the 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.
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.
The store format news came as part of a stellar fourth quarter fiscal report in which the company said net sales rose 7.2% to $6.77 billion. Net income jumped over 300% to $502.8 million, or $2.13 per share, as the company took a $313 million charge last year. And same-store sales increased 4.9% (Family Dollar +8.1%; Dollar Tree +2.4%).
Dollar Tree, which did not provide a forecast for fiscal 2021, also boosted its stock repurchase plan by $2 billion.
“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,” Witynski said. “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.”
At the end of fiscal 2020, the company paid off a $300 million legacy Family Dollar note. Outstanding debt, as of Jan. 30 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.
“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.”
Chesapeake, Virginia-based Dollar Tree operates 15,685 stores across 48 states and five Canadian provinces and is No. 30 on The PG 2020, Progressive Grocer’s 2020 list of the top food and consumables retailers in North America.