What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-12-02 compared with 2021-08-26 · 99 added, 95 removed, 231 unchanged (46% of the section changed)

4 unchanged sentences

The COVID-19 (coronavirus) pandemic has resulted in widespread and continuing impacts on the global economy and continues to affect our business, as well as our customers, suppliers, and other business partners.

In addition, the pandemic has contributed to, and may continue to contribute to, financial results that differ significantly from our historical results and seasonal variations that are significantly different from our historical patterns.

In addition, the pandemic and its impact have contributed, and may continue to contribute, to financial results that differ significantly from our historical results and seasonal variations that are significantly different from our historical patterns.

In early March 2020, we began seeing heightened demand from customers, particularly for consumable products such as paper, food and cleaning products, which continued throughout 2020, although with some variability as to the volume and product mix.

Beginning in April 2020, demand significantly increased for many non-consumable products, including home, seasonal and apparel, resulting in an overall significant mix shift into non-consumable categories, which continued through the first quarter of 2021, although this trend began to reverse in the second quarter of 2021.

Beginning in April 2020, demand also significantly increased for many non-consumable products, including home, seasonal and apparel, resulting in an overall significant mix shift into non-consumable categories, which continued through the first quarter of 2021, although this trend began reversing in the second quarter of 2021 and continued to do so through the third quarter of 2021.

We believe these buying patterns were influenced in part by the economic stimulus payments and enhanced unemployment benefits.

We also have been acquiring new customers since the beginning of the pandemic, and we are pleased with the retention rates.

Throughout 2020, we acquired new customers and are pleased with the retention rates of these customers.

Finally, general trends in customer behavior toward trip consolidation and purchases of larger average basket amounts, which began in 2020 as customers shopped our stores less frequently than in 2019, have continued in 2021.

Heightened customer demand and the shifts in customer behavior significantly benefited our results of operations, and in particular, sales, gross profit, operating income and net income, for fiscal 2020 and the first and second quarters of 2021.

We anticipate a less favorable overall net impact of the pandemic to operating income and net income for fiscal 2021 than fiscal 2020 primarily due to the moderating positive impact to our net sales and the impacts that the phase out of various economic stabilization efforts such as economic stimulus payments and enhanced unemployment benefits may have on our customers.

Heightened customer demand and the shifts in customer behavior significantly benefited our results of operations for fiscal 2020 and each of the first three quarters of 2021.

We anticipate a less favorable overall net impact of the pandemic and its effects to operating income and net income for fiscal 2021 versus fiscal 2020 primarily due to the moderating positive impact to our net sales and the impacts that the phase out of various economic stabilization efforts, such as economic stimulus payments and enhanced unemployment benefits, may have on our customers.

We expect to continue to be affected, although the extent and duration is unknown, by the COVID-19 pandemic and its effects on the economy in a variety of ways, including changing consumer demand (whether higher or lower) in certain product categories;

3 unchanged sentences

and increased costs in an effort to maintain safe work and shopping environments.

Our operating environment during COVID-19 remains very fluid, and developments in this environment, including additional government economic stabilization efforts or actions, or the failure to take such efforts or actions, may materially impact our business, results of operations and financial condition.

Our operating environment during COVID-19 remains very fluid, and developments in this environment, including additional government economic stabilization efforts or actions, the failure to take such efforts or actions, or the federal vaccination and testing mandate, may materially impact our business, results of operations and financial condition.

As a result, the quarterly cadence of our results of operations may continue to vary from historical patterns for an extended period of time.

2 unchanged sentences

the availability, adoption rates and effectiveness of vaccines;

the extent and duration of any government response efforts, programs and benefits;

and impact on employment trends, consumer behavior and the supply chain, there may be consequences that we do not anticipate at this time or that develop in unexpected ways.

the extent and duration of any government response efforts, programs, benefits or mandates;

impact on employment trends, consumer behavior and the supply chain, there may be consequences that we do not anticipate at this time or that develop in unexpected ways.

We will continue to monitor the evolving situation, and we will continue to take actions as necessary to serve our employees, customers, communities and shareholders.

Executive Overview

We are the largest discount retailer in the United States by number of stores, with 17,683 stores located in 46 states as of July 30, 2021, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States.

We are the largest discount retailer in the United States by number of stores, with 17,915 stores located in 46 states as of October 29, 2021, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States.

We offer a broad selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products and pet supplies, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel.

6 unchanged sentences

The primary macroeconomic factors that affect our core customers include the unemployment and underemployment rates, wage growth, changes in U.S.

and global trade policy, and changes to certain government assistance programs, such as the Supplemental Nutrition Assistance Program, unemployment benefits, economic stimulus payments, and the child tax credit.

In 2020 and the first half of 2021, our customers experienced impacts from many of these factors, as detailed above under “Impact of COVID-19”.

We are monitoring the potential impact of changes to SNAP benefits and unemployment benefit programs, as well as the monthly payments of the child tax credit, all of which may impact our customers during the second half of 2021.

and global trade policy, and changes to certain government assistance programs, such as the Supplemental Nutrition Assistance Program (“SNAP”), unemployment benefits, economic stimulus payments, and the child tax credit.

In 2020 and the first three quarters of 2021, our customers experienced impacts from many of these factors, as detailed above under “Impact of COVID-19”.

We are monitoring the potential impact of reductions in SNAP benefits and unemployment benefit programs, as well as changes in the payments of the child tax credit.

We have not seen a material impact from these changes through the third quarter of 2021, but any or all of these changes may impact our customers during the fourth quarter of 2021 and into 2022.

Additionally, our customers are impacted by increases in those expenses that generally comprise a large portion of their household budgets, such as rent, healthcare, and fuel prices;

9 unchanged sentences

Prior to 2020, our sales mix had continued to shift toward consumables, and, within consumables, toward lower margin departments such as perishables.

This trend did not occur in 2020 or the first quarter of 2021 (as discussed above under “Impact of COVID-19”), though we did begin to see some reversion toward the prior mix trends beginning in the second quarter of 2021.

We continue to expect some sales mix challenges to persist, and we expect the mix trend reversion toward consumables will continue.

This trend did not occur in 2020 or the first quarter of 2021 (as discussed above under “Impact of COVID-19”), although we did begin to see some reversion toward the prior mix trends beginning in the second quarter of 2021 and continuing through the third quarter of 2021.

We continue to expect some sales mix challenges to persist and expect the mix trend reversion toward consumables will continue.

Several of our initiatives, including certain of those discussed below, are intended to address these mix challenges;

3 unchanged sentences

This technology includes our Dollar General app, which contains a variety of tools to enhance the in-store shopping experience.

Additionally, DG Pickup, which is a buy online, pickup in-store initiative, is now available in more than 17,000 stores across the chain.

Further, our non-consumables initiative, which offers a new, differentiated and limited assortment that will change throughout the year, is contributing

to improved overall sales and gross margin performance in stores where it has been deployed.

We plan to significantly expand the number of stores with the full or “lite” version of our non-consumables initiative offering in 2021, and to complete our initial rollout of the non-consumables initiative in the vast majority of our Dollar General stores by the end of fiscal 2022.

Additionally, during 2021 we launched a

partnership with a third party delivery service, which is now available in more than 10,000 stores.

We also continue to grow our DG Media Network, which is our platform for connecting brand partners with our customers to drive even greater value for each.

Further, our non-consumables initiative, which offers a new, differentiated and limited assortment that will change throughout the year, is contributing to improved overall sales and gross margin performance in stores where it has been deployed.

We have significantly expanded the number of stores with the full or “lite” version of our non-consumables initiative offering in 2021, and we plan to complete our initial rollout of the non-consumables initiative in the vast majority of our Dollar General stores by the end of fiscal 2022.

Additionally, in the third quarter of 2020, we introduced pOpshelf, a unique retail concept that incorporates certain of the lessons learned from NCI in a differentiated format that is focused on categories such as seasonal and home décor, health and beauty, home cleaning supplies, and party and entertainment goods.

At the end of the second quarter of 2021, we operated 16 standalone pOpshelf locations and two pOpshelf store-within-a-store offerings within existing Dollar General Market stores.

Our goal is to operate up to 50 pOpshelf locations, as well as up to 25 pOpshelf store-within-a-store offerings by the end of fiscal 2021.

At the end of the third quarter of 2021, we operated 30 standalone pOpshelf locations and 14 pOpshelf store-within-a-store concepts within existing Dollar General Market stores.

Our goal is to operate up to 50 pOpshelf locations, as well as up to 25 pOpshelf store-within-a-store concepts by the end of fiscal 2021.

We believe this concept represents a significant growth opportunity, as we anticipate opening approximately 100 additional standalone locations in fiscal year 2022, and are targeting approximately 1,000 stores by the end of fiscal year 2025.

In the second quarter of 2021, we completed our rollout of the “DG Fresh” initiative, a self-distribution model for frozen and refrigerated products that is designed to reduce product costs, enhance item assortment, improve our in-stock position, and enhance sales.

DG Fresh contributed to our strong sales performance in the first half of 2021, driven by higher in-stock levels and the introduction of new products in select stores.

In addition, DG Fresh benefitted gross profit in the first half of 2021 through improved initial markups on inventory purchases, which were partially offset by increased distribution and transportation costs.

DG Fresh now serves essentially all stores across the chain, and we expect the overall net benefit to our financial results to continue throughout 2021.

DG Fresh contributed to our strong sales performance in the first three quarters of 2021, driven by higher in-stock levels and the introduction of new products in select stores.

In addition, DG Fresh benefitted gross profit in the first three quarters of 2021 through improved initial markups on inventory purchases, which were partially offset by increased distribution and transportation costs.

DG Fresh now serves essentially all stores across the chain, whether in whole or in part, and we expect the overall net benefit to our financial results to continue throughout 2021.

Moving forward, we plan to focus on further optimization of the distribution footprint and product assortment within DG Fresh to further drive profitable sales growth.

To support our other operating priorities, we remain focused on capturing growth opportunities.

In the first half of 2021, we opened 530 new stores, remodeled 1,020 stores, and relocated 58 stores.

In the first three quarters of 2021, we opened 798 new stores, remodeled 1,506 stores, and relocated 82 stores.

For 2021, we plan to open approximately 1,050 new stores (including any pOpshelf stores), remodel approximately 1,750 stores, and relocate approximately 100 stores, for a total of 2,900 real estate projects.

In 2022, we plan to open approximately 1,110 new stores (including any pOpshelf and international stores), remodel approximately 1,750 stores, and relocate approximately 120 stores, for a total of 2,980 real estate projects.

In the second half of 2022, we expect to open up to ten stores in Mexico, representing our first store locations outside the United States.

We continue to innovate within our channel and are able to utilize the most productive of our various Dollar General store formats based on the specific market opportunity.

13 unchanged sentences

The first phase of Fast Track involved sorting process optimization within our distribution centers, as well as increased shelf-ready packaging, to allow for greater store-level stocking efficiencies, followed by the second-phase pilot of a self-checkout option in a limited number of stores.

We completed the sorting process optimization at all of our non-refrigerated distribution centers in 2019.

Additionally, we expect to continue to add self-checkout capabilities in additional stores throughout 2021 and beyond.

We previously completed the sorting process optimization at all of our non-refrigerated distribution centers.

Additionally, we expect to continue to add self-checkout capabilities in additional stores.

These and the other strategic initiatives discussed above will require us to incur upfront expenses for which there may not be an immediate return in terms of sales or enhanced profitability.

Certain of our operating expenses, such as wage rates and occupancy costs, have continued to increase in recent years, due primarily to market forces, including labor availability, increases in minimum wage rates and increases in

property rents.

Further federal, state and/or local minimum wage increases could have a material negative impact on our operating expenses, although the magnitude and timing of such impact is uncertain.

We have experienced incremental payroll, distribution and transportation costs related to the COVID-19 pandemic and its associated impacts.

Labor shortages and shipping capacity shortages continue to pressure our business, resulting in significantly higher supply chain costs and shipping delays in some instances.

As we move through 2021, we expect continued inflationary pressures due to higher input costs will continue to affect us as well as our vendors, including higher commodity, transportation and other costs, all of which may result in continued pressure to our operating results.

We continue to experience significantly higher supply chain costs and, in some instances, shipping delays, as a result of shipping capacity shortages, port congestion and labor shortages.

We expect continued inflationary pressures due to higher input costs will continue to affect us as well as our vendors, including higher commodity, transportation and other costs, all of which may result in continued pressure to our operating results, and their duration is unknown.

While we expect these challenges to persist, certain of our initiatives and plans are intended to help offset these challenges;

3 unchanged sentences

Our goal is to create an environment that attracts, develops, and retains talented personnel, particularly at the store manager level, because employees who are promoted from within our company generally have longer tenures and are greater contributors to improvements in our financial performance.

To further enhance shareholder returns, we repurchased shares of our common stock and paid quarterly cash dividends in the first half of 2021.

We expect to continue our share repurchase activity, and to pay quarterly cash dividends, throughout the remainder of 2021, subject to Board discretion and approval.

To further enhance shareholder returns, we repurchased shares of our common stock and paid quarterly cash dividends in the first three quarters of 2021.

We expect to continue our share repurchase activity, and to pay quarterly cash dividends for the foreseeable future, subject to Board discretion and approval.

We utilize key performance indicators (“KPIs”) in the management of our business.

10 unchanged sentences

A continued focus on our four operating priorities as discussed above contributed to our overall operating and financial performance in the 2021 and 2020 periods, which were enhanced by increased consumer demand, as discussed above under “Impact of COVID-19”.

Highlights of our 2021 second quarter results of operations compared to the 2020 second quarter and our financial condition at July 30, 2021 are set forth below.

Highlights of our 2021 third quarter results of operations, compared to the 2020 third quarter, and our financial condition at October 29, 2021 are set forth below.

Basis points amounts referred to below are equal to 0.01% as a percentage of net sales.

● Net sales decreased 0.4% to $8.65 billion.

Sales in same-stores decreased 4.7% primarily reflecting a decrease in customer traffic.

Average sales per square foot for all stores over the 52-week period ended July 30, 2021 was $265.

● Gross profit, as a percentage of net sales, was 31.6% in the 2021 period and 32.5% in the 2020 period, a decrease of 80 basis points, primarily reflecting increased transportation costs and an increased LIFO provision.

● Net sales increased 3.9% to $8.52 billion due to new stores, while sales in same-stores decreased 0.6% primarily reflecting a decrease in customer traffic.

Average sales per square foot for all stores over the 52-week period ended October 29, 2021 was $263.

● Gross profit, as a percentage of net sales, was 30.8% in the 2021 period and 31.3% in the 2020 period, a decrease of 57 basis points, primarily reflecting an increased LIFO provision and increased transportation costs.

● SG&A expense, as a percentage of net sales, was 22.9% in the 2021 period compared to 21.9% in the 2020 period, an increase of 105 basis points, due in part to higher retail labor and store occupancy costs as a percentage of net sales.

● Operating profit decreased 18.5% to $0.85 billion in the 2021 period compared to $1.04 billion in the 2020 period.

● Interest expense increased by $0.1 million in the 2021 period.

● The effective income tax rate for the 2021 period was 21.4% compared to a rate of 21.5% for the 2020 period primarily due to a greater impact of permanent income tax differences in the 2021 period.

● Operating profit decreased 13.9% to $665.6 million in the 2021 period compared to $773.1 million in the 2020 period.

● Interest expense decreased by $1.1 million in the 2021 period.

● The effective income tax rate for the 2021 period was 22.2% compared to a rate of 21.6% for the 2020 period primarily due to a reduced benefit associated with share-based compensation in the 2021 period.

● Net income was $487.0 million, or $2.08 per diluted share, in the 2021 period compared to net income of $574.3 million, or $2.31 per diluted share, in the 2020 period.

3 unchanged sentences

● Inventory turnover was 4.5 times on a rolling four-quarter basis.

On a per store basis, inventories at July 30, 2021 increased by 13.7% compared to the balances at July 31, 2020.

On a per store basis, inventories at October 29, 2021 decreased by 0.1% compared to the balances at October 30, 2020.

The above discussion is a summary only.

Readers should refer to the detailed discussion of our results of operations below in the current year periods as compared with the prior year periods as well as our financial condition at July 30, 2021.

Results of Operations

2 unchanged sentences

The following text contains references to years 2021 and 2020, which represent the 52-week fiscal years ending or ended January 28, 2022 and January 29, 2021, respectively.

References to the second quarter accounting periods for 2021 and 2020 contained herein refer to the 13-week accounting periods ended July 30, 2021 and July 31, 2020, respectively.

References to the third quarter accounting periods for 2021 and 2020 contained herein refer to the 13-week accounting periods ended October 29, 2021 and October 30, 2020, respectively.

The nature of our business is somewhat seasonal.

6 unchanged sentences

resulted in a departure from seasonal norms we have experienced in recent years and may continue to disrupt the historical quarterly cadence of our results of operations for an unknown period of time.

The following table contains results of operations data for the second 13-week periods and the 26-week periods of 2021 and 2020, and the dollar and percentage variances among those periods:

The following table contains results of operations data for the third 13-week periods and the 39-week periods of 2021 and 2020, and the dollar and percentage variances among those periods:

13 Weeks Ended

23 unchanged sentences

Diluted earnings per share

13 WEEKS ENDED JULY 30, 2021 AND JULY 31, 2020

The net sales decrease in the 2021 period was primarily due to a same-store sales decrease of 4.7% compared to the 2020 period.

13 WEEKS ENDED OCTOBER 29, 2021 AND OCTOBER 30, 2020

The net sales increase in the 2021 period was primarily due to sales from new stores, partially offset by a same-store sales decrease of 0.6% compared to the 2020 period as well as the impact of store closures.

We believe the effect of the onset of the COVID-19 pandemic on consumer behavior had a significant positive effect on net sales and same-store sales, particularly in the 2020 period in our non-consumable categories, which affects the comparisons between periods.

1 unchanged sentence

The decrease in same-store sales primarily reflects a decline in customer traffic, partially offset by an increase in average transaction amount which was driven by higher average item retail prices.

Same-store sales declined in all categories with the largest percentage decrease in the apparel category.

Net sales were positively affected by sales from new stores, modestly offset by sales from closed stores.

Same-store sales increased in the consumables and home products categories, and declined in the apparel and seasonal categories, with the largest percentage decrease in the apparel category.

Gross Profit.

For the 2021 period, gross profit decreased by 2.9%, and as a percentage of net sales decreased by 80 basis points to 31.6%, compared to the 2020 period.

Increased transportation costs and an increased LIFO provision contributed to the decrease in the gross profit rate.

For the 2021 period, gross profit increased by 2.0%, and as a percentage of net sales decreased by 57 basis points to 30.8%, compared to the 2020 period.

An increased LIFO provision and increased transportation costs were key factors contributing to the decrease in the gross profit rate.

In recent years a greater percentage of our sales have come from our consumables category, which generally has a lower gross profit rate than our other product categories, creating downward pressure on our overall gross profit rate.

This sales trend began to reverse in the second quarter of 2020 and continued each subsequent quarter through the first quarter of 2021, as non-consumables sales increased at a higher rate than consumables sales.

In relative terms, the mix of sales shifted back to consumables in the current year period, which also contributed to the decrease in the gross profit rate, along with an increase in inventory damages.

This sales trend began to reverse early in 2020 and continued through the first quarter of 2021, as non-consumables sales increased at a higher rate than consumables sales.

In relative terms, the mix of sales shifted back to consumables in the second and third quarters of 2021, which also contributed to the decrease in the gross profit rate in the current period, along with an increase in inventory damages.

These factors were partially offset by higher inventory markups and a reduction in inventory shrink as a percentage of net sales.

Selling, General & Administrative Expenses (“SG&A”).

SG&A was 21.8% as a percentage of net sales in the 2021 period compared to 20.4% in the comparable 2020 period, an increase of 138 basis points, which was primarily impacted by the reduction in net sales in the 2021 period.

The primary expenses that were a greater percentage of net sales in the current year period were retail labor, store occupancy costs, employee benefits, depreciation and amortization, utilities, workers’ compensation and general liability expenses, and taxes and licenses, partially offset by lower incentive compensation expense.

SG&A was 22.9% as a percentage of net sales in the 2021 period compared to 21.9% in the comparable 2020 period, an increase of 105 basis points.

The primary expenses that were a greater percentage of net sales in the current year period were retail labor, store occupancy costs, depreciation and amortization, repairs and maintenance, employee benefits and supplies, partially offset by a reduction in miscellaneous COVID-related expenses.

Interest Expense .

Interest expense increased by $0.1 million to $39.4 million in the 2021 period.

Interest expense decreased by $1.1 million to $39.2 million in the 2021 period.

Income Taxes.

The effective income tax rate for the 2021 period was 21.4% compared to a rate of 21.5% for the 2020 period which represents a net decrease of 0.1 percentage points.

The tax rate for the 2021 period was lower than the comparable 2020 period primarily due to a greater impact of permanent differences resulting from a decrease in pre-tax income for the 2021 period compared to the 2020 period.

26 WEEKS ENDED JULY 30, 2021 AND JULY 31, 2020

The net sales decrease in the 2021 period reflects a same-store sales decrease of 4.7% compared to the 2020 period.

The effective income tax rate for the 2021 period was 22.2% compared to a rate of 21.6% for the 2020 period which represents a net increase of 0.6 percentage points.

The tax rate for the 2021 period was higher than the comparable 2020 period primarily due to a reduced benefit associated with share-based compensation, an increase in uncertain tax positions and changes in the state effective tax rate, partially offset by a greater benefit associated with federal tax credits .

39 WEEKS ENDED OCTOBER 29, 2021 AND OCTOBER 30, 2020

The net sales increase in the 2021 period was primarily due to sales from new stores, partially offset by a same-store sales decrease of 3.3% compared to the 2020 period as well as the impact of store closures.

For the 2021 period, there were 16,711 same-stores which accounted for sales of $24.2 billion.

The decrease in same-store sales reflects a decline in customer traffic partially offset by an increase in average transaction amount which was driven by higher average item retail prices.

Same-store sales decreased in all categories, with the largest percentage decrease in the consumables category.

Net sales were positively affected by sales from new stores, modestly offset by sales from closed stores.

Same-store sales decreased in all categories, with the largest percentage decrease in the apparel category.

Gross Profit.

1 unchanged sentence

Higher inventory markups, a lower inventory shrink rate and a reduction in markdowns as a percentage of net sales each contributed to the increase in the gross profit rate.

In addition, consumables sales decreased while non-consumables sales increased in the current year period, which also contributed to the increase in the gross profit rate.

These factors were partially offset by increased transportation costs, an increased LIFO provision, and increased inventory damages.

In addition, non-consumables sales increased at a greater rate than consumables sales in the current year period, which also contributed to the increase in the gross profit rate.

These factors were partially offset by increased transportation costs, an increased LIFO provision, increased inventory damages and higher distribution costs.

Selling, General & Administrative Expenses.

SG&A was 21.9% as a percentage of net sales in the 2021 period compared to 20.5% in the comparable 2020 period, an increase of 144 basis points, which was primarily impacted by the reduction in net sales.

The primary expenses that were a higher percentage of net sales in the current year period were retail labor, store occupancy costs, depreciation and amortization, utilities, taxes and licenses, workers’ compensation and general liability expenses, employee benefits and administrative compensation (driven by share-based compensation), partially offset by lower incentive compensation expense.

SG&A was 22.2% as a percentage of net sales in the 2021 period compared to 20.9% in the comparable 2020 period, an increase of 133 basis points.

The primary expenses that were a higher percentage of net sales in the current year period were retail labor, store occupancy costs, depreciation and amortization, utilities, workers’ compensation and general liability expenses, employee benefits, and taxes and licenses, partially offset by a reduction in miscellaneous COVID-related expenses and lower incentive compensation expense.

Interest Expense .

1 unchanged sentence

Income Taxes.

The effective income tax rate for the 2021 period was 21.7% compared to a rate of 21.8% for the 2020 period which represents a net decrease of 0.1 percentage points.

The effective income tax rate for the 2021 and 2020 periods was 21.8%.

The tax rate for the 2021 period was equal to the comparable 2020 period primarily due to changes in the state effective tax rate and a reduced benefit associated with share-based compensation, offset by a greater benefit associated with federal tax credits.

Liquidity and Capital Resources

At July 30, 2021, we had a $1.25 billion unsecured revolving credit agreement (the “Revolving Facility”), $4.0 billion aggregate principal amount of senior notes, and a commercial paper program that may provide borrowing availability in the form of commercial paper notes (“CP Notes”) of up to $1.0 billion.

At July 30, 2021, we had total consolidated outstanding long-term obligations of $4.2 billion, most of which was in the form of senior notes.

At October 29, 2021, we had a $1.25 billion unsecured revolving credit agreement (the “Revolving Facility”), $4.0 billion aggregate principal amount of senior notes, and a commercial paper program that may provide borrowing availability in the form of commercial paper notes (“CP Notes”) of up to $1.0 billion.

At October 29, 2021, we had total consolidated outstanding long-term obligations of $4.1 billion, most of which was in the form of senior notes.

All of our material borrowing arrangements are described in greater detail below.

Our borrowing availability under the Revolving Facility may be effectively limited by our CP Notes as further described below.

We believe our cash flow from operations and existing cash balances, combined with availability under the Revolving Facility, the CP Notes and access to the debt markets, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, capital spending, anticipated dividend payments and share

repurchases for a period that includes the next twelve months as well as the next several years.

However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control.

However, our ability to

maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control.

Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations.

3 unchanged sentences

Borrowings under the Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at our option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate).

The applicable interest rate margin for borrowings as of July 30, 2021 was 1.015% for LIBOR borrowings and 0.015% for base-rate borrowings.

The applicable interest rate margin for borrowings as of October 29, 2021 was 1.015% for LIBOR borrowings and 0.015% for base-rate borrowings.

We must also pay a facility fee, payable on any used and unused commitment amounts of the Revolving Facility, and customary fees on letters of credit issued under the Revolving Facility.

As of July 30, 2021, the facility fee rate was 0.11%.

As of October 29, 2021, the facility fee rate was 0.11%.

The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Revolving Facility are subject to adjustment from time to time based on our long-term senior unsecured debt ratings.

5 unchanged sentences

The Revolving Facility also contains financial covenants that require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio.

As of July 30, 2021, we were in compliance with all such covenants.

As of October 29, 2021, we were in compliance with all such covenants.

The Revolving Facility also contains customary events of default.

As of July 30, 2021, under the Revolving Facility, we had no outstanding borrowings, outstanding letters of credit of $2.9 million, and borrowing availability of approximately $1.25 billion that, due to our intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $1.05 billion at July 30, 2021.

In addition, as of July 30, 2021 we had outstanding letters of credit of $53.4 million which were issued pursuant to separate agreements.

As of October 29, 2021, under the Revolving Facility, we had no outstanding borrowings, outstanding letters of credit of $1.9 million, and borrowing availability of approximately $1.25 billion that, due to our intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $1.07 billion at October 29, 2021.

In addition, as of October 29, 2021 we had outstanding letters of credit of $49.8 million which were issued pursuant to separate agreements.

We are currently seeking to amend the Revolving Facility to, among other things, increase the amount that may be borrowed to $2.0 billion and extend the maturity date to December 2026.

There can be no assurance that this amendment will be implemented on the terms currently proposed, or at all.

Commercial Paper

2 unchanged sentences

We intend to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time.

As of July 30, 2021, our condensed consolidated balance sheet reflected outstanding unsecured CP Notes of $18.4 million, which had a weighted average interest rate of 0.15%.

As of October 29, 2021, our condensed consolidated balance sheet reflected no outstanding unsecured CP Notes.

CP Notes totaling $181.0 million were held by a wholly-owned subsidiary and are therefore not reflected on the condensed consolidated balance sheet.

In connection with the proposed amendment to the Revolving Facility described above, we are also currently seeking to amend our commercial paper program to increase the amount of CP Notes that may be issued thereunder to $2.0 billion.

There can be no assurance that this amendment will be implemented on the terms currently proposed, or at all.

In April 2013 we issued $900.0 million aggregate principal amount of 3.25% senior notes due 2023 (the “2023 Senior Notes”) at a discount of $2.4 million, which are scheduled to mature on April 15, 2023.

2 unchanged sentences

In April 2018 we issued $500.0 million aggregate principal amount of 4.125% senior notes due 2028 (the “2028 Senior Notes”) at a discount of $0.5 million, which are scheduled to mature on May 1, 2028.

In April 2020 we issued $1.0 billion aggregate principal amount of 3.5% senior notes due 2030 (the “2030 Senior Notes”) at a discount of $0.7 million, which are scheduled to mature on April 3, 2030, and $500.0 million aggregate principal amount of 4.125% senior notes due 2050 (the “2050 Senior Notes”) at a discount of $5.0 million,

which are scheduled to mature on April 3, 2050.

Collectively, the 2023 Senior Notes, 2025 Senior Notes, 2027 Senior Notes, 2028 Senior Notes, 2030 Senior Notes and 2050 Senior Notes comprise the “Senior Notes”, each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the “Senior Indenture”).

8 unchanged sentences

Current Financial Condition / Recent Developments

Our inventory balance represented approximately 52% of our total assets exclusive of operating lease assets, goodwill and other intangible assets as of July 30, 2021.

Our inventory balance represented approximately 51% of our total assets exclusive of operating lease assets, goodwill and other intangible assets as of October 29, 2021.

Our ability to effectively manage our inventory balances can have a significant impact on our cash flows from operations during a given fiscal year.

8 unchanged sentences

There can be no assurance that we will maintain or improve our current credit ratings.

Unless otherwise noted, all references to the 2021 and 2020 periods in the discussion of cash flows from operating, investing and financing activities below refer to the 26-week periods ended July 30, 2021 and July 31, 2020, respectively.

Unless otherwise noted, all references to the 2021 and 2020 periods in the discussion of cash flows from operating, investing and financing activities below refer to the 39-week periods ended October 29, 2021 and October 30, 2020, respectively.

Cash flows from operating activities.

1 unchanged sentence

Net income decreased $210.5 million in the 2021 period compared to the 2020 period.

Changes in merchandise inventories resulted in a $80.0 million decrease in the 2021 period as compared to an increase of $284.0 million in the 2020 period as further discussed below.

Changes in accounts payable resulted in a $245.4 million decrease in the 2021 period compared to a $560.9 million increase in the 2020 period, due primarily to the timing of receipts and payments.

Changes in accrued expenses and other liabilities resulted in a $25.5 million decrease in the 2021 period compared to an $273.2 million increase in the 2020 period, due in part to the timing of regular and discretionary incentive compensation accruals and payments.

Changes in merchandise inventories resulted in a $160.1 million decrease in the 2021 period as compared to a decrease of $352.3 million in the 2020 period as further discussed below.

Changes in accounts payable resulted in a $61.8 million decrease in the 2021 period compared to a $919.8 million increase in the 2020 period, due primarily to the timing of inventory receipts and payments.

Changes in accrued expenses and other liabilities resulted in a $36.9 million increase in the 2021 period compared to an $357.3 million increase in the 2020 period, due in part to the timing of regular and discretionary incentive compensation accruals and payments.

Changes in income taxes in the 2021 period compared to the 2020 period are primarily due to the timing of payments for income taxes.

On an ongoing basis, we closely monitor and manage our inventory balances, and they may fluctuate from period to period based on new store openings, the timing of purchases, and other factors.

Inventory levels in the 2020

period were lower than we had experienced in prior recent years and is reflective of changes in consumer behavior and, to a lesser extent, supply chain disruption caused by the onset of the COVID-19 pandemic.

In addition, we strategically accelerated certain inventory purchases during the 2021 period, particularly in select non-consumable categories, in anticipation of the supply chain constraints discussed above.

Total merchandise inventories increased by 1% in the 2021 period and decreased by 6% in the 2020 period, with changes in our four inventory categories as follows:

consumables increased by 1% compared to a 1% decrease;

seasonal decreased 1% compared to a 12% decrease;

home products increased by 14% compared to a 13% decrease;

Inventory levels in the 2020 period were lower than we had experienced in prior recent years and is reflective of changes in consumer behavior and, to a lesser extent, supply chain disruption caused by the onset of the COVID-19 pandemic.

We strategically accelerated certain inventory purchases during the 2021 period, particularly in select non-consumable categories, in anticipation of the supply chain constraints discussed above.

Total merchandise inventories increased by 1% in the 2021 period and increased by 7% in the 2020 period, with changes in our four inventory categories as follows:

consumables decreased by 4% compared to an 11% increase;

seasonal increased 9% compared to a 1% increase;

home products increased by 34% compared to an 8% increase;

and apparel decreased by 17% compared to a 6% decrease.

2 unchanged sentences

$384 million for improvements, upgrades, remodels and relocations of existing stores;

$126 million for distribution and transportation-related capital expenditures;

$184 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores;

$178 million for distribution and transportation-related capital expenditures;

and $33 million for information systems upgrades and technology-related projects.

18 unchanged sentences

In the 2020 period, net proceeds from the issuance of the 2030 Senior Notes and 2050 Senior Notes totaled $1.5 billion.

Net commercial paper borrowings increased by $18.4 million in the 2021 period and decreased by $425.2 million in the 2020 period.

Net commercial paper borrowings were unchanged in the 2021 period and decreased by $425.2 million in the 2020 period.

There were no borrowings or repayments under the Revolving Facility during the 2021 period, and such borrowings and repayments in the 2020 period were $300.0 million each.

1 unchanged sentence

Share Repurchase Program

As of July 30, 2021 our common stock repurchase program had a total remaining authorization of approximately $0.98 billion.

As of October 29, 2021 our common stock repurchase program had a total remaining authorization of approximately $0.62 billion.

Effective December 1, 2021, our Board of Directors authorized a $2.0 billion increase to such program which resulted in a total remaining authorization of approximately $2.62 billion under the program at such date.

The authorization allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis